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There was some concerns over our recent shareholder's meeting where two candidates who were on the ballot for election were disqualified because their financial status was not in good standing (i.e. there were more than two months in arreas in maintenance fees). In addition, any voting shares from shareholders who were not in good standing were not considered. There's no mention of disqualification referenced in the by-laws or proprietary lease. Is the board's action legal to disqualify their voting rights/shares?
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A bit of Googling turned up a recent ruling on this issue: Summer v. Ruckus 85 Corp (July 13, 2012). As expected, a co-op cannot deprive a shareholder of voting rights for being in arrears, even if it says so in the by-laws. Here's a quote from the decision, which references a ruling from 1979 (Yu v. Linton):
"In a similar case where the corporation disqualified a shareholder from voting at the annual meeting for failure to pay maintenance expense, the First Department held that '[T]he bylaws are ineffective to deprive the record shareholders of the right to vote provided by Business Corporation Law, s 612(a).'"
Interestingly, Sec. 612(a) allows one exception: "... unless otherwise provided in the certificate of incorporation." But it's profoundly unlikely that your coop's certificate of incorporation provides for any monkeying with standard voting procedures, and might run afoul of other sections of the BCL even if it did.
In short, even an amendment to the by-laws can't prevent a shareholder in arrears from voting. Here's a link to the full decision:
http://statecasefiles.justia.com/documents/new-york/other-courts/2012-ny-slip-op-31889-u.pdf?ts=1343056947
What if a shareholder is in Foreclosure and also not paying maintenance?
I'm not an attorney, but I believe as long as a shareholder is technically the owner of the unit and has not been foreclosed on, he/she is eligible to vote in an election. However, you should consult an experienced attorney for definitive guidance.
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You should get a lawyer's opinion if you plan to contest the election, especially since you're asking two separate questions.
(1) Can people be prohibited from running for the board if they are in arrears? The answer is Yes, but this must be stated in the by-laws. In fact, we have a clause precisely along those lines in our own by-laws: "No one shall be a candidate for the Board if he or she is more than one month in arrears in paying maintenance or assessments." Since you say there's no such clause in your by-laws, then it probably wasn't legitimate to exclude such people as candidates. But there's probably not much point in contesting this issue: before the next election, the board will just vote to amend the by-laws, which typically does not require a shareholder vote.
(2) Can shareholders who are in arrears be barred from voting their shares? I'm almost certain the answer is No. This would appear to be a direct violation of NY Business Corporation Law (BCL) Sec. 501(c), which requires that "each share shall be equal to every other share of the same class." As long as the shareholder is still the owner of the shares, the coop cannot legally prevent the shares from being voted. It doesn't matter what the by-laws say; a coop's governing documents can't override state law.
I'm not a lawyer, and you should certainly contact one if you want to move forward on this.
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