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Condo Board Imposed Acceptable Safeguards for Validating Votes in Electronic Elections

A condominium scheduled its annual election, allowing unit owners to vote by e-mail.  To safeguard the voting process, unit owners were “required to authenticate the e-mail address they intended to use for voting in the election and to submit their proxy using an electronic form sent directly to” the condominium’s accountants.  A group of 68 unit owners objected to the new voting procedures, and instead collected paper proxies and attempted to submit them via e-mail attachment.  These owners did not authenticate their e-mail addresses or submit their proxies via the specified electronic method.  The condominium refused to count these proxies, and determined that there was no quorum so the existing board members would serve for another year.

The 68 owners brought a court proceeding challenging the election.  They asserted that they had submitted valid proxies under the By-Laws, which provide that a unit owner may designate a proxy in a writing signed, dated, and delivered by the appointed time for the meeting.  The board moved to dismiss the challenge, asserting that its electronic proxy voting procedures were authorized by recent amendments to the New York Not-for-Profit Corporation Law.  (Unlike most condominiums in New York, the condominium involved in this case is incorporated.)  These changes, adopted in response to the COVID pandemic, permit the Board in its discretion 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 68 unit owners replied that in the event of a conflict between the By-Laws and the Not-for-Profit Corporation Law, the By-Laws should prevail.

The court agreed with the board and dismissed the lawsuit, holding that the intent of the legislation was to allow entities to carry on business despite the pandemic conditions.  While the 68 unit owners disputed the reasonableness of the validation measures the board implemented, the board’s decision-making was protected by the Business Judgment Rule, which “prohibits judicial inquiry into the actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purpose.”  The court concluded that “the email verification procedure required owners to fill out a short form in which they were required to list their unit number, unit owner(s), the email address they wanted to have on file, and to sign and date the form.  Such procedure was, in the Court’s view, reasonable as a matter of law and the business judgment rule prevents any further judicial scrutiny….”  The court also noted that the 68 owners had not even attempted to comply with the instructions for submitting proxies.

Significantly, the Legislature has now made the authorization of electronic voting in co-op and condo elections permanent, as previously discussed in this Client Advisory.  This includes a requirement that those conducting the election take reasonable measures to confirm the identity of people casting votes electronically.

The unit owners also sought access to books and records.  The court found that unit owners’ names and addresses had already been provided but that “petitioners have not established their entitlement to disclosure of the telephone numbers and e-mail addresses for the unit owners.”  The court also observed that the Not-for-Profit Corporation Law requires corporations to furnish annual and interim financial statements, but not bank statements or contracts.  Matter of Lifesavers Building Homeowners Group v. Board of Managers of Landmark Condominium, Index No. 67545/2021 (Sup. Ct. Westchester Co. May 23, 2022).