United States: Court Rules Telephonic Annual Meeting Appropriate During COVID-19 Pandemic Under New York Not-for-Profit Corporation Law

The New York Supreme Court recently ruled that under the COVID-19 emergency amendments to the New York Not-for-Profit Corporation Law (N-PCL), a homeowners' association board of directors' decision to not hold an in-person annual meeting, but instead use measures including a telephonic meeting, mail-in voting for the election of new directors and pre-meeting submission of proposed business, complied with HOA bylaws and the N-PCL. (Note: Duane Morris LLP represented the defendants in this trial.)

In Bachman et al. v. Kim et al., Index No. 127700-2020, in New York Supreme Court, Commercial Division, Ontario County, certain residents of Bristol Harbour Village, a residential lakeshore community, and members of the Bristol Harbour Village Association (BHVA), filed suit against BHVA's board of directors, challenging, among other things, the procedures the board implemented in connection with BHVA's upcoming annual meeting and board election. Plaintiffs alleged, among other things, that the procedures violated the association's governing documents and the N-PCL. They sought a temporary restraining order and preliminary injunction prohibiting the board from moving forward with the annual meeting as planned.

In a decision and order on September 14, 2020, the court ruled in favor of defendants, granting their motion to dismiss the complaint and denying plaintiffs' motion for a preliminary injunction. It held that in light of the COVID-19 pandemic, the procedures the board implemented complied with BHVA by-laws and the N-PCL. It noted that because of COVID-19, N-PCL § 603, which normally requires in-person meetings, was amended to provide that “[f]or the duration of the state disaster emergency… [a] board of directors may, in its sole discretion, determine that meetings of members be held partially or solely by means of electronic communication” as long as the board implements reasonable measures to, among other things, confirm the identities of those participating, provide members with the ability to participate, and record and maintain a record of votes or other actions taken. The court concluded that the BHVA board complied with these requirements and that, with regard to the plans and measures that the BHVA board had implemented, “Defendants' exercise of their business judgment in these respects will not be second-guessed.” 

This case supports the use of remote annual meetings with, in certain respects, asynchronous member participation in response to COVID-19 for organizations subject to the N-PCL. Nonprofit organizations seeking to modify their meetings in response to COVID-19 concerns may make arrangement for remote meetings, such as by telephone or other electronic means, as long as appropriate measures are taken pursuant to the amended N-PCL § 603.

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