Due to the pandemic, official board meetings are being conducted remotely via FaceTime, WhatsApp, GoToMeeting, Microsoft Teams, and Zoom. If, however, the requisite formalities are not maintained so that a meeting is in fact a meeting, actions taken by the board can be unraveled.
This precise problem presented itself recently in M4 Holdings, LLC v. Lake Harmony Estates Property Owners’ Association. There, a majority of the board of a homeowners association purported to amend its bylaws in a series of emails exchanged on April 10 and 11, 2013. On May 2, 2013, the board then issued a notice to members that it had “approved” the adoption of a change in its bylaws to restrict the capacity of houses built on lots: new construction homes or new construction residences shall be limited to five bedrooms and three bathroom and a maximum of 2500 sq. ft.
Shortly thereafter, the plaintiff closed on the purchase of two lots on April 23, 2013. On June 18, 2013, the plaintiff sought a building permit to construct a 3715 sq. ft. residence with six bedrooms and five bathrooms. On September 9, 2013, the plaintiff sought a second permit to construct a 4494 sq. ft. residence with seven bedrooms and four bathrooms. The board denied both applications because they failed to conform to the newly-adopted bylaws.
The plaintiff consequently filed suit, challenging the validity of the resolution adopted by the board. In finding for the plaintiff, the trial court held that the 2500 sq. ft. rule had no force or effect because the board did not validly adopt it at a formal meeting. On appeal, the Commonwealth Court affirmed.
To answer the question whether the series of emails constituted a formal meeting of the board, the Court looked to the applicable statute and looked at the association’s bylaws.
Section 5708 of the not-for profit corporate law provided:
[e]xcept as otherwise provided in the bylaws, one or more persons may participate in a meeting of … the board of directors … by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at the meeting. Section 5708 of the NPCL. (emphasis added).
The homeowners association bylaws provided:
One or more directors may participate in a meeting of the Board of Directors via conference telephone or similar on-line communications equipment or other technology that enables all Board members to participate in the meeting. Participation in a meeting pursuant to this section constitutes presence in person for quorum and voting purposes. (emphasis added).
Did the exchange of emails constitute “online communications equipment or other technology” similar to a “conference telephone” and did the email exchange sufficiently qualify as a formal meeting? Unlike a chat, internet text or instant messaging program capable of being read as a single transcript of the exchange, there was no single uniform email thread amongst the members of the board that could be read from start to finish. The emails exchanged between members of the board occurred over two days. They hardly resembled a “meeting” and often were sent hours apart and could not be read from start to finish without trying to piece them together. They compared to ordinary mail or fax correspondence. Simply put, the emails did not reflect the simultaneous or contemporaneous communication which ordinarily occurs between the members of the board at a meeting. As a result, there was no formal meeting, and, thus, the resolution to amend the bylaws was invalid. The Court was also troubled by the board’s failure to adhere to corporate formalities, particularly where the effect of the resolution was to alter real property rights of property owners in the association.
The lesson is this: in any remote meeting, as in any in-person meeting, corporate formalities must be complied with to give effect to the actions taken by the board. That means organizational statutes and bylaws must be followed to ensure that remote meetings do in fact conform.
A New Year’s resolution might be to dust off the company’s corporate kit and take the time to read the bylaws. Are remote meetings being held in the manner required? Do the bylaws fit today’s ever changing fast-paced world? If you have any questions, please contact Mark Himsworth at MHimsworth@hrmml.com. We are happy to help.