The Notarized Proxy

May the board of managers of a condominium require that proxies for the annual meeting of unit-owners be notarized? The answer was “no” in Brodsky v. Board of Managers of Dag Hammarskjold Tower Condominium, where the court held that such requirement amounted to an amendment of the condominium bylaws that needed unit-owner approval.

After the annual meeting of unit-owners, Robert Brodsky and Remy Bernardo instituted a proceeding seeking to have them and Denise Grant declared duly elected members of the board of Dag Hammarskjold Tower Condominium, and to compel the board to hold a meeting of the unit-owners to conduct an election to fill the remaining six seats.

The election in question was held on June 24, 2003. For many years previously, an election had not been held at the annual meeting, evidently because the board could not gather a quorum. It appeared that none of the members serving on the board before the June 24 meeting had been elected but had become members by a vote of the other board members, under Section 2.9 of the condo’s bylaws.

The condominium was created as an unincorporated association under Article 9B of the Real Property Law (the Condominium Act), and has roughly 235 units. Individuals own most of the units, but corporations and foreign governments own approximately 51 units.

By notice dated December 20, 2002, the board notified the unit-owners that the cooling tower had to be replaced at a cost of about $600,000, major facade work was required at a cost of between $3 million and $4 million, and that the board had unanimously voted to levy a special assessment of $975,000 to be paid by all unit-owners based on their share of percentage of common interest. The special assessment was due on January 15, 2003.

The unit-owners were further advised that, effective February 1, 2003, all common charges would be increased by 20 percent, and that the board expected an additional special assessment for 2003, which was anticipated to be “somewhat higher” than the assessment due January 15, 2003.

Following receipt of notice of the assessment, a number of unit-owners formed the Concerned Homeowners Group of the Dag Hammarskjold Tower Condominium and retained attorneys, who wrote the condominium’s attorney requesting that an annual meeting be called to conduct an election for all nine members’ seats. The board refused but served notice that a meeting would be held for the election of three members to fill the positions occupied by Phyliss Elstein, the board president, George Avras, the vice president, and Kathleen Garrett, a member, alleging that under the staggered term provisions of the bylaws, those were the three positions scheduled for election in 2003.

The Concerned Homeowners formed a slate of three candidates made up of Brodsky, Bernardo, and Denise Grant and solicited proxies for the “Pro Slate.” Two employees of the condominium’s managing agent and an associate of petitioner’s attorneys were appointed by the board to serve as inspectors of election. The inspectors disallowed a number of Pro Slate proxies, but nevertheless announced that a quorum had been achieved based on the attendance by unit-owners either in person or by proxies that had been validated by the inspectors.

The following morning, the inspectors met to tally the votes and determined that the Pro Slate had been elected. Also voted on at the meeting were proposals to reduce the number of unit-owners required to consent to borrow money and a consent request to borrow up to $1 million for the facade project. The unit-owners did not approve these proposals. Phyliss Elstein and George Avras observed the vote tally and objected to the validation by the inspectors of a number of Pro Slate proxies because a notary, who was also a Pro Slate candidate, had acknowledged the signatures of the unit-owners.

On July 5, 2003, Denise Grant received an e-mail from Janet Roman, the account executive assigned to the condominium by the managing agent, informing her that on June 30, 2003, the board had retained special counsel to review the entire election.

Subsequently, on July 11, 2003, petitioners’ attorneys received a letter from the special counsel retained by the board in which he stated that it appeared that there were an insufficient number of unit-owners present at the meeting either in person or by proxy to have properly conducted the election. This conclusion was based on Pro Slate proxies for 61 units representing approximately 16.37 percent of the common interest being notarized by candidate Bernardo, and suspect notarizations on seven units representing about three percent of the common interest. It was later alleged that the suspect notarizations actually involved at least four proxies wherein the persons whose signatures had been acknowledged did not personally appear before the notary.

The letter from special counsel further indicated that the proxies submitted by the unit-owners of seven additional units contained defects in attorney opinion letters, corporate resolutions, and certifications. In 1997, the board adopted a resolution requiring that signatures on all proxies of individuals be acknowledged, and the proxies of all corporations or other entities must be accompanied by an acknowledgment of the signature of the designor of the proxy; an opinion rendered by a New York attorney that the entity was duly organized and in good standing; the identity of all directors, managers, or officers of the entity, and a certified copy of the resolution of the board of directors or other governing body of the entity authorizing the proxy.

The resolution indicated that proxies had been submitted bearing designors’ signatures which appeared to not be authentic, and it served the interests of the condominium to ensure that all proxies be properly designated by authentic signatures of designors.

The court proceeding was instituted following the refusal to recognize petitioners and Denise Grant as duly elected members of the board. The court determined that a quorum was present at the annual meeting, and that all of the proxies with allegedly faulty acknowledgments were properly counted since acknowledgments were not required.

As a general rule, unless there is some statutory or bylaw provision, the court said that no special form is required for a proxy. The issue confronting the court was whether a board may require that a proxy be acknowledged when such a requirement is not contained in the bylaws.

There was only one prior case touching on that issue. In West v. The Board of Directors of Seward Park Housing Corp., the plaintiff challenged the entire proxy procedure to be used in an upcoming election for three directors. One of the requirements that the board had put into effect was notarization of any proxy that was mailed back to the Honest Ballot Association, which was to supervise the election, prior to the election or submitted by someone other than the signatory shareholder. It was alleged, as it was in the case at bar, that the motivation for requiring notarization was to insure the integrity of the voting process. The court evidently found no impediment to the board requiring notarization of the proxies.

Although respondents strongly relied on the West decision, the court here found it to be noticeably different. In West, the bylaws were completely silent as to voting by proxy. The court said that it had been held that, in the absence of express regulation or bylaw, conduct of meetings or elections is controlled by fundamental usage, common practice, and the general rule that all who are entitled to take part shall be treated with fairness and good faith.

The court noted that, in respondents’ supplemental memorandum of law a claim was made. It was this: that in a subsequent action related to the West case, Justice Shafer reiterated and confirmed the board’s authority to require notarization of proxies. He had stated that a “[h]ousing [c]orporation could require that proxies be notarized.” However, the court said that Justice Shafer merely stated that the “Business Corporation Law does not require notarization of proxies, but Justice Miller ruled that the Housing Corporation could require that the proxies be notarized.”

In this condominium, proxies were specifically covered in the bylaws. Section 4.8 [D] provides in part as follows: “The owner[s] of any Unit may designate any Person to act as a proxy on his or her behalf. The designation of any such proxy shall be made in writing, both signed and dated by the designor, and delivered to the Secretary of the Condominium at or before the appointed time for the meeting[s] during which the same is to be effective.”

This general proxy provision was made specifically applicable to elections of members of the board. Inasmuch as the bylaws specifically covered proxies and, as to form, require only that they be in writing, signed and dated, the court held that a further requirement that they be acknowledged could be accomplished only by an amendment of the bylaws, requiring a vote of the unit-owners representing not less than two-thirds in total and common interest.

The board was therefore without authority to pass the resolution requiring an acknowledgment of all proxies and any alleged defect concerning the acknowledgment would be irrelevant. In so holding, the court did not pass on the intent of the board in adopting the resolution. Inasmuch as all the proxies with alleged improper notarizations were valid, a quorum was present at the meeting.

Even if the board could require that all proxies be acknowledged, the court said that it would still find that there was a quorum present and that petitioners were duly elected as members of the board. It has generally been held that an acknowledgment before a party to the instrument is a nullity. Stated more broadly, the court noted that a notary may not act in a matter where he or she is a party, or is directly and pecuniarily interested in the transaction.

A different rule has been applied to cases governed by the election law. There, certificates of nomination were acknowledged before notaries who were candidates for office. The court sustained the certificates, holding that the candidate did not sign the instrument and was not an interested party or a party to the instrument as in the case of a conveyance of real estate.

Of course, the cases decided under the election law could be distinguished because that law was supposed to be liberally construed. Nevertheless, the reasoning used in such cases should be applied to this case, concluded the court. Petitioner Remy Bernardo, who was the notary taking the acknowledgment of the persons executing the proxies, did not sign the instruments and was not a party to it. Nor could it be said that he was directly and pecuniarily interested in the transaction, stated the court. At most, there would be only a technical defect, which could be ignored.

A case in point was Seward Park Housing Corp. v. Honest Ballot Assoc., where proxies in which the person appointed as agent to vote for the shareholders also acted as the notary cast a number of votes at an election for members of the board of directors. The notary was actually a party to the instrument.

The court refused to set aside the election based on what, at worst, was a technical violation. There was no evidence of actual fraud. The court therefore found that there was no basis for invalidating the proxies acknowledged by Remy Bernardo, and that a quorum was present at the June 24, 2003, meeting.

Seward Park Housing Corp. v. Honest Ballot Assoc. did not require a different result, said the court. That case stated that the notarization of ballots of cooperative shareholders by their proxy-holder, not a candidate himself but an active backer of one of the competing slates, was not a reason, per se, to void the ballots. It was sufficient to note that the case involved notarization of ballots and not of proxies, and invalidation of a ballot may very well be required where the candidate, the person casting the ballot, and the notary are one and the same.

Insofar as the election of the remaining six members of the board was concerned, Section 2.9 of the bylaws provided that a vacancy would be filled by a vote of a majority of the remaining members and each person so elected will be a member of the board for the remainder of the term of the member being replaced, “or until a successor will be elected at the next annual meeting of the unit-owners.” The court said that this could only be construed to mean that any board member who is elected by the board to fill a vacancy for a member whose term has already expired shall serve only until a replacement is elected at the next meeting.

In view of the many years that had elapsed since the last time an election was held for members of the board prior to the June 24, 2003 election, it was evident to the court that none of the six members was serving the remainder of a term to which he or she was elected by the unit-owners, nor was anyone presently serving the remainder of a term of a member whom he or she replaced. Consequently, all six positions would have come up for election at the June 24 meeting.

The court said that respondents’ argument that the application seeking an order directing a meeting to elect six members of the board was without merit. While persons who had been board members for more than four months held the six seats, all the seats should have come up for election at the last meeting, and this proceeding was instituted less than four months after that meeting was held.

It is required by Section 339-v[1][a] of the Real Property Law that the bylaws of a condominium provide that the terms of at least one-third of the members of the board shall expire annually, and such a provision is contained in Section 2.7 of the bylaws.

Since three members were elected for a term of three years, which will expire in 2006, at the June 24 annual meeting, the court said that three of the board members must be elected for a term that will expire at the time of the annual meeting to be held in 2005, and three for a term to expire at the time of the annual meeting to be held in 2004. The three members receiving the highest votes would serve until 2005, and the remaining three members would serve until 2004. At all subsequent annual meetings of unit-owners, beginning with the meeting in 2004, three members would be elected to serve a term of office fixed at three years.

Comment: While notarized proxies may be required in some instances, this is rarely done. This case makes clear that if it is to be done it should be done by amendment of the governing documents – usually the bylaws, which in the case of many co-ops and most condominiums requires a vote of the owners. What is less certain is the court’s decision to require a new election for the six incumbent board of managers. The court did not have to decide this issue, but was obviously troubled by the failure to elect any of these managers at meetings because there was never a quorum of unit-owners present.