Michigan Court of Appeals rules that the failure to hold annual meetings does not deprive a nonprofit corporation’s board of directors of authority to act on behalf of the corporation
On July 2, 2019, the Michigan Court of Appeals issued an Opinion in Channel View East Condominium Association, Inc v Gregory V Ferguson, unpublished per curiam opinion of the Court of Appeals, issued July 2, 2019 (Docket No. 344149). The issue presented to the Court in Channel View was whether a condominium association’s board of directors had authority to take action on behalf of the corporation when it failed to hold annual membership meetings to elect directors as required under the bylaws.
The condominium association was incorporated in 2001 at which point the incorporator appointed an initial board of directors consisting of 3 members. Although the condominium bylaws required the association to hold annual membership meetings to vote on the election of new directors each year, it was undisputed that the association never held such meetings or voted on the election of new directors.
The association filed a lawsuit against a co-owner in 2016 to collect unpaid fines/assessments relating to a violation of a deed restriction in the condominium bylaws. The defendant co-owner argued that, without an annually elected board of directors, the association could not take valid actions including levying the fines/assessments and filing the lawsuit. The trial court agreed with defendant co-owner and dismissed the lawsuit filed by the association on the basis that the association lacked authority to prosecute the case because it failed to have annual membership meetings.
The Michigan Court of Appeals reversed the trial court and held that the association’s original board of directors that were appointed in 2001 carried over and retained authority to act on behalf of and bind the corporation. Specifically, the Court held as follows: “At issue here is whether the failure to hold the required member meetings, in which plaintiff’s board of directors were to have been elected after the initial election by the incorporator, divests the board of its power or authority to act on behalf of the plaintiff corporation. For reasons more fully described below, we hold that such failure does not divest the board of its power or authority.”
In reaching its conclusion, the Court relied on a provision from the condominium bylaws granting authority to the association’s board of directors to enforce the master deed and prosecute litigation, and a provision from the condominium bylaws stating that actions of the board of directors named in the articles of incorporation are binding on the members of the association as though said actions were taken by directors elected by the members. The Court also pointed out that “nothing in plaintiff’s bylaws requires a vote of its members before plaintiff could initiate a lawsuit; that power is given solely to the board of directors.” Finally, the Court relied on MCL 450.2402 of the Michigan Nonprofit Corporation Act which states in part “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…”
The Channel View Opinion is important to community associations throughout Michigan that struggle to achieve quorum at annual meetings. Even 35% quorum requirements are difficult to meet for many community associations due to apathy of most members. If board members did not holdover and retain authority to act on behalf of corporations, many community associations would be unable to enforce their restrictions, collect assessments, file taxes, enter into contracts with vendors, or even file annual reports with the State of Michigan to retain their corporate existence. The Channel View Court’s holding that “regardless of the appropriateness of plaintiff’s failing to call for and hold any member/co-owner meetings…plaintiff’s directors continued to hold over in the absence of any elections” is critical in reaffirming the principle that nonprofit corporations retain authority to act.
Brandan A. Hallaq is an attorney with Hirzel Law, PLC where he dedicates the majority of his practice to representing condominium associations and homeowners associations. He litigates cases involving construction defects, contract disputes, shareholder/member disputes, quiet title actions to determine interests in property, enforcement of restrictive covenants, real estate foreclosure actions, and bankruptcy matters representing creditors. He also has experience preparing documents for business and real estate transactions including purchase agreements, franchise agreements, loan/financing documents and commercial and residential leases and mortgages. In both 2018 and 2019, he was recognized as a Rising Star by Super Lawyers, a designation that is given to no more than 2.5% of attorneys in the State of Michigan. Mr. Hallaq obtained his Juris Doctor degree, cum laude, from Wayne State University Law School where he served as an editor on the Wayne Law Review. He can be reached at (248) 478-1800 or at email@example.com.