Cantor v. Dutchess County Ass'n of REALTORS®: Court Invalidates REALTOR® Association's Vote

A New York trial court has invalidated a vote conducted by a REALTOR® Association to change its bylaws, ruling that the Association's bylaws required the Association to accept proxy votes.

In 2001, the Dutchess County Association of REALTORS® ("Association") conducted a survey of its membership on whether its membership wanted the Association to create and operate a multiple listing service ("MLS"). The member's response was overwhelmingly favorable, and the Association's Board of Directors created a committee exploring the creation of a MLS. Following the committee's report in favor of creating a MLS, the Board of Directors held a vote authorizing the creation of a MLS. The MLS began operations on November 13, 2001. In order to change the MLS from operating as a committee of the Association into a stand-alone, for-profit corporation, the Association needed to amend its bylaws. The Association's bylaws required that all amendments to the bylaws required a vote by the membership with an appropriate quorum. Therefore, a meeting to consider the proposed bylaw change was set for December 18, 2001.

Following notice to the membership concerning the meeting, a vote was held on December 18th. Pursuant to the bylaws, an appropriate quorum was present at the meeting and so the vote was held. The question before the membership involved a "yes" to adopt a bylaw change authorizing the MLS to be a separately incorporated subsidiary of the Association, and a "no" vote meant that the MLS would be operated and controlled by another REALTOR® Association. Prior to voting on the bylaw change, a vote was held by those members physically present on whether proxy votes would be accepted. The vote was that proxy votes would not be accepted during the vote. The election proceeded, and the bylaw change was approved 80-26. However, if the proxy votes had been allowed, there was evidence that the change would have been rejected, 96-80.

Following the vote, members of the Association who were denied the right to vote their proxy votes filed a lawsuit challenging the vote and also seeking an injunction against the Association's operation of the MLS (collectively, "Challengers"). Most of the people involved in the filing this lawsuit were members of a private multiple listing service already operating in the area. Following the filing of the lawsuit, the court entered an injunction barring the Association from operating the MLS until the court could resolve the election issues.

The Supreme Court of the State of New York, Dutchess County, invalidated the election held by the Association, ruling that Association's bylaws made it clear that the proxy votes should have been accepted by the Association. The court first found that the bylaw language for making amendments to the bylaws was ambiguous as to whether "present" was intended to mean physically present at the vote or if the member could be considered physically present via proxy. In order to resolve this ambiguity, the court looked at the various other provisions in the Association's bylaws regarding votes on various corporate matters in order to resolve the apparent ambiguity in the bylaw amendment section. These provisions revealed that in all cases, the quorum requirements for Association votes did not distinguish between physical presence or presence by proxy. Therefore, the court ruled that "present" in the bylaws was understood to mean present either physically present or via proxy. Thus, the court invalidated the election held on December 18, 2001, determining that the proxy votes should have been accepted by the Association.

Following the invalidation of the election, the court considered the remaining issues before it. First, the court considered whether the questions placed before the members truly constituted a "yes" or "no" vote, as required by New York's Not-For-Profit Corporation Law. The Challengers argued that the "no" choice offered was not a really a true "no," since the MLS would continue operating, albeit by another REALTOR® association. The court found that the choices were acceptable because the "no" choice carried little meaning, since the other REALTOR® association would still need to decide on its own whether it chose to operate the MLS.

Next the court considered whether the MLS could continue operations as a committee of the Association and whether the Board of Directors was required to hold another vote on the proposed bylaw change. The court found that the MLS could continue operating despite the rejection of the bylaw change because it was a business decision of the Board of Directors to continue to operate the MLS. The court also did not require the Board of Directors to hold another vote on the proposed bylaw change, determining that the Association was better left to resolve this question on its own. Thus, the Association's vote on amendments to the bylaws was invalidated but the Association was allowed to continue operating the MLS.

Cantor v. Dutchess County Ass'n of REALTORS®, Index No. 1125/2002 (Hearing Transcript, N.Y. S. Ct. April 4, 2002).