ANNUAL MEETINGS, CUMULATIVE VOTING

AND QUORUM REQUIREMENTS

By Adrian J. Adams, Esq.Adams & Kessler LLP

The new election requirements are creating a lot of disagreement in the legal community about what they mean and how to implement them. Emergency legislation (SB 1560) has been introduced by Senator Jim Battin which, in my opinion, makes matters worse. Although Senator Battin is using county election procedures as a model, he is forcing cumulative voting, quorum requirements, late nominations, and annual meetings back into the mix. Right now, this topic is a moving target.

Are Annual Meetings Necessary? Corporations Code §7513 provides that any action which may be taken at any regular (i.e., annual) meeting may be taken without a meeting if the association distributes written ballots to its members. This means that the election of directors can be conducted entirely through the mail, which dovetails nicely with the new double-envelope, secret ballot system required by Civ. Code §1363.03.

Unfortunately, Senator Battin's emergency legislation requires that "Except for the election or removal of directors, a membership meeting shall not be required . . ." In other words, membership meetings will be required for the election of directors. This unnecessarily complicates elections and creates significant problems, especially when coupled with Senator Battin's insistence on maintaining cumulative voting and quorum requirements.

Quorum Problems. Since all bylaws require a quorum to conduct annual meetings and since annual meetings will be required for the election of directors, achieving a quorum under Senator Battin's legislation is now a significant problem. Once associations implement the mail-in ballot system, two problems will immediately surface: (i) ballots do not count toward a quorum, only persons and proxies count, and (ii) once owners mail in their ballots they will be less inclined to attend the annual meeting. This makes achieving a quorum almost impossible. Without a quorum, ballots cannot be counted.

Proxies. To avoid delays in counting the ballots and costly rescheduled meetings, associations will need to include proxies with their ballots. Proxies cannot be combined with ballots on a single form and Senator Battin's bill prohibits proxies from being interpreted as ballots. Therefore, the proxy must be different and separate from the ballot. One way to resolve that problem is to turn the second envelope in the two-envelope system into a envelope/proxy*. This makes it much more likely you will achieve the quorum needed to elect directors.

Cumulative Voting. Senator Battin's legislation also makes the mistake of preserving cumulative voting. There are two ways associations can address this problem. The best solution is to adopt a conventional voting system, i.e., casting no more than one vote for each candidate--the same election process used by city, state and national elections. This forces candidates to seek a broader base of support thereby increasing the likelihood that more moderate, business-like candidates, rather than disruptive, fringe candidates, will be elected. The way to implement conventional voting is to amend the governing documents to delete cumulative voting.

The other, less preferred, way to eliminate cumulative voting is to pass election rules that provide for conducting the election entirely through the mail with conventional voting and with balloting cut-off occurring prior to the annual meeting. By closing the ballot box prior to the meeting, cumulative voting cannot be "declared" "at the [annual] meeting" as required by Corp. §7615.

Nominations From the Floor? Some bylaws establish nominations from the floor during the annual meeting. If the election rules allow balloting to continue into the annual meeting, nominations can be made from the floor and anyone in attendance who has not yet voted can vote for the late nominated candidates. If the balloting is cut off prior to the annual meeting, nominations from the floor are meaningless since the election is already over. Over the years, many associations have already amended their bylaws to do away with nominations from the floor. The elimination of floor nominations tends to stabilize elections.

RECOMMENDATION. Associations should make a conscious decision to move toward standard election procedures employed by county, city, state and federal election commissions. None of them require quorums for the election of their representatives, none allow cumulative voting, and none allow for nominations on the day of the election.

*Many thanks to attorney Rich Neuland of Neuland, Nordberg, Andrews & Whitney in Orange County for a sample of the envelope proxy.

Adrian J. Adams, Esq., is a Managing Partner of the law firm of Adams & Kessler LLP