Occasionally, we work with boards of directors that have not held an election for some time, usually because nobody else has ever expressed an interest in running as a candidate. A recent decision from the Michigan Court of Appeals makes clear that the board’s decisions are not invalidated just because elections have not been held.
In Channel View East Condominium Association v. Ferguson, the Michigan Court of Appeals considered a case where a defendant co-owner claimed the board had no authority to initiate a suit for $137,800 in fines and interest because elections had never been held. The defendant had failed to complete construction of a site condominium within the time frame required by the bylaws.
When the lawsuit was filed, the board was still composed of the original directors as established in the articles of incorporation. While the bylaws provided for annual elections, they never happened, and no co-owner ever demanded one.
The Court of Appeals reversed the trial court’s decision to dismiss the suit, reasoning that (1) “nothing in the condominium documents, including the bylaws, states that the board’s powers would be divested in the event the first [annual] meeting did not occur,” (2) the plaintiff association had been “kept up” by filing annual reports with the state, and “no proceeding had been initiated to question the validity of plaintiff as a corporation,” and (3) the Nonprofit Corporation Act states, “A failure to hold the annual meeting at the designated time, or to elect a sufficient number of directors at the meeting or any adjournment of the meeting, does not affect otherwise valid corporate acts.”
In closing, the court cautioned that “…our ruling should not be read as somehow giving corporations carte blanche to ignore their bylaws. We note that at any time more than 15 months after formation of the corporation, defendant or another co-owner could have initiated a proceeding to require plaintiff to comply with the bylaws, MCL 559.207, or to compel elections, MCL 450.2402, with the association potentially being liable for the initiator’s attorney fees.”