First published: Sep 2022
I Am Who I Say I Am
This is one of the first cases, if not the first, interpreting the language now codified in the recently enacted NPCL and BCL amendments allowing for board elections to have electronic voting, including voting by email and other electronic means. If this case is any indication of future decisions (and it is my bet that it is), courts will uphold board discretion as to the implementation of safeguards in electronic voting. Boards will likely have broad discretion in enacting safeguards in electronic voting. While boards should enact safeguards, they should be mindful of ensuring that the burdens do not prohibit voting by certain segments of shareholders.
Lifesavers Bldg. Homeowners Group v. Bd. of Mgrs. of the Landmark Condo
Backstory The 199-unit Landmark Condominium, located in Port Chester, hadn’t had a quorum at an annual meeting since 2018. In May 2021, a group of unit owners (the Lifesavers Group), concerned over what they saw as “declining building maintenance and services,” assessments, and common charge increases, began sending requests to the board demanding that an annual meeting and election be held. The Lifesavers also wanted to inspect the corporate records, including financial records, management contracts, and contracts for maintenance and cleaning services. In October it was announced that the annual meeting would be held on Nov. 3, 2021, via Zoom, the voting procedure would be via email only, and email verification would be required for both direct and proxy voting.
A Few Days After Voting New York permanently amended provisions of the NPCL and BCL, which had been subject to Executive Orders during the pandemic, to allow companies (including cooperatives and condominiums) to use electronic means to document action by written consent by boards and to hold virtual shareholder meetings. The laws permit the board to conduct electronic meetings and to implement “reasonable measures” to “verify that each person participating electronically is a member or a proxy of a member.”
The Lifesavers Petition The Lifesavers Group challenged the validity of the November board election and commenced a CPLR Article 78 summary proceeding. The issue centered on the board’s ability to create new electronic procedures for voting, specifically related to verification of votes by email.
The Court Found in favor of the board. It said the board was permitted to “require shareholders to use a pre-designated email address for proxy voting, to authenticate such email address prior to the meeting, and that such requirement was reasonable as a matter of law.” To the extent the “reasonableness” of the measures implemented by the board was questioned, it was protected by the business judgment rule. The court also dealt with the demand for books and records, and stated that the Lifesavers did not establish an entitlement to review them.
For The Lifesavers Building Homeowners Group / Jennifer Stewart, SMITH BUSS & JACOBS // For Landmark Condominium / Evan Richman FLEISCHNER POTASH
