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Decision By Email

Email is a fact of life, but it’s not without its perils as you likely know firsthand.  What you may not know are the special risks that attach to your board’s reliance on this form of communication. Probably you envision them deliberating behind closed doors at their monthly meeting, then voting as conscience (or politics) dictates. But lots of stuff happens in between meetings – the building’s insurance must be renewed, the budget needs approval, applications for sales and subleases have to be passed on. You name it.

The reality is that in most buildings email is not only the non-lethal weapon of choice, among board members, but also the means by which they communicate their decisions. It’s convenient but is it legal?

That depends. The law says it’s OK to take action without a meeting if all board members consent in writing.  The law doesn’t apply to condos, but their bylaws can be amended to provide essentially the same thing. Some states, like Delaware, expressly authorize directors to communicate their votes via email outside of a meeting.

Someone submits an application to refinance their mortgage and insists he needs an answer pronto or he’ll lose the rate of a lifetime, a scenario I’ve encountered many times over in the current economic environment.  Everyone on the board says, “Yes” by email.  It’s a win for all – the owner gets a great rate, the deal closes, and the board’s unanimous decision should be kosher (provided it’s filed with the minutes).

But say there’s a board straggler who’s tuned out, or gone AWOL, or is temporarily incommunicado. (Trust me, this happens more often then you’d imagine.) It’s not that he doesn’t agree.  He just doesn’t answer even though everyone else has emailed their OK days ago. This time all the members who voted, consented in writing to the refinance, but not all the members cast a vote. Do you leave the poor shareholder in rate lock limbo or let him close?

Or maybe there is a real disagreement.  Most board members think the refinance requested is fine, but a few say the amount sought is too high a debt to value ratio.  The email count is five “Yes,” two “No”.  If these same directors were sitting at a board meeting, the majority would prevail and the application would be approved – end of story. But outside the meeting room, a different rule applies and it’s clear that not all members consented in writing because two of them voted “No.”

So what happens if your board makes a decision by email that’s not unanimous?  Odds are nothing because no one will know about it, least of all you or any fellow shareholders. The biggest risk is if the transaction is challenged. Then the fact that it wasn’t properly authorized could come back to haunt the deciders, even potentially undo whatever they decided, which conceivably could affect all of you.

Take the case of the owner whose refinance application was approved even though one director never bothered to cast his email vote. Do you think he’s going to rat out the board for not playing by the rules? Of course not, he got what he wanted.

But the result might be different if some smart ass shareholder finds out that the assessment that’s just been imposed was “approved” by a non-unanimous email board vote. At the very least he could stir up trouble, calling into question the legitimacy of the decision to tax.  Of course, the board could solve the problem by holding a meeting to vote the old-fashioned way. To my knowledge, no court has yet been asked to test a  co-op board’s vote by email, though it’s only a matter of time till they are.

As you’ve probably figured out by now, there’s the Law, and then there’s Real Life, and in most building’s the two don’t always comfortably co-exist. As a lawyer I’d advise client boards of the risks of voting by email, which doesn’t mean that as a director I wouldn’t vote by email. Business at most buildings would come to a dead halt without it.

My guess is that underground email voting will continue unabated until some court rocks the boat — or the law is made more technologically up-to-date in which case email voting will come above ground.

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