Electronic Proxy Voting

Electronic Proxy Voting

by David William Tyler, Esq.

On May 24, 2022, the Honorable Barry E. Warhit (NYS Sup. Ct., Westchester County) issued what may be the first Supreme Court decision concerning the validity of condominium board electronic voting requirements under June 17, 2020 amendments to the Not-For-Profit Corporation Law (NPCL). In granting respondents’ motion to dismiss a petition challenging such voting requirements, the Court ruled that a condominium 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.”

In The Lifesavers Building Homeowners Group, et al. v. Board of Managers of the Landmark Condominium et al. (Index No. 67545/2021), a group of unit owners in the 190 residential unit Landmark Condominium located in Port Chester (the “Condominium”), challenged the purported re-election of certain respondents to the Condominium’s Board of Directors (the “Board”). As explained by the Court, petitioners challenged the validity of a November 3, 2021 election, alleging that, “by e-mails disseminated October 20, 2021, the respondents improperly imposed new electronic proxy voting procedures with an email verification requirement”, according to which unit owners had to (i) authenticate e-mail addresses to be used for voting in the election and (ii) submit proxies using an electronic form sent directly to the accountant responsible for tabulating the results-of the election. Rather than comply, petitioners collected paper proxies and attempted to submit them as attachments to unauthenticated email addresses, which they argue complies with the Condominium’s By-Laws. Those proxies were not counted during the November 3, 2021 election. Respondents determined that a there was no quorum at that meeting and that the members of the Board would therefore
continue to serve for another year.

The Board moved to dismiss, arguing that the proxies were defective and that the new electronic proxy voting procedures were authorized by amendments to NPCL §603, enacted in response to the COVID pandemic, and permitting the Board in its sole discretion to conduct electronic meetings and to implement “reasonable measures” verify that each person participating electronically ls a member or a proxy of a (former NPCL §603(a)).

In deciding the motion to dismiss, the Court agreed with the respondent’s argument that the NPCL 603(a) amendment authorized the Board to requite shareholders to use a pre- designated e-mail address for proxy voting, to authentic such e-mail address prior to the meeting, and that the requirement was reasonable as a matter of law. As amended and quoted by the Court, NPCL §603(a) provides as follows:

Meetings of members may be held at such place, within or without this state, as may be fixed by or under the by-laws, or, if not so fixed, as determined by the board of directors. For the duration of the state disaster emergency declared by executive order two hundred two that began on March Seventh, two thousand twenty, the board of directors may, in its sole discretion, determine that meetings of members be held partially or solely by means of electronic communication, the electronic service and/or platform by which the meeting is held shall be the place of the meeting for purposes of this article if a meeting is held solely by means of electronic communication. Meetings conducted partially or solely by means of electronic communications in reliance upon this paragraph, and any member’s electronic participation in such meetings shall be subject to those guidelines and procedures as the board adopts, provided the board shall implement reasonable measures to: (1) verify that each person participating electronically is a member or a proxy of a member; (2) provide each member participating electronically with a reasonable opportunity to participate in the meeting, including an opportunity to propose, object to, and vote upon a specific action to be taken by the members, and to see, read or hear the proceedings of the meeting substantially concurrently with those proceedings; and (3) record and maintain a record of any votes or other actions taken by electronic communication at the meeting.

(see NPCL 603(a)). To the extent the “reasonableness” of the measures implemented by the board was challenged, it was protected by the business judgment rule, which prevented further Judicial scrutiny of the Board’s electronic voting procedures. In granting respondents’ motion to dismiss, the Court took particular note of the fact that petitioners did not even attempt to utilize the e-mail verification procedure. COVID-related electronic communications provisions appear increasingly accepted as the new normal in a broadening range of different circumstances. To the extent that trend continues, it becomes increasingly important to adapt to such changes. Here, the Court’s decision may further signal that growing trend.

* David is Senior Counsel at Starr Associates LLP and a member of the firm’s litigation department. He can be reached at dtyler@starr-lawfirm.com or (212) 620-2694.



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