Sterling Laurel Realty, LLC v. Laurel Gardens Co-Op, Inc., 444 N.J. Super. 470 (App. Div. 2016). A majority of the board of the defendant residential co-op development became frustrated that it was repeatedly unable to conduct shareholder meetings due to lack of a quorum. One reason for that was the coop’s sponsor, who still owned units and therefore was a significant shareholder, with two seats on the board, declined to attend meetings that were called to take an action of which the sponsor disapproved.
The co-op’s bylaws provided that a quorum consisted of a majority of all shareholders. The board changed the bylaws so that 20% of shareholders would constitute a quorum. The sponsor objected to that and, together with one of its board members, filed suit in the Chancery Division on that and other issues. On cross-motions for summary judgment, the Chancery Division ruled against the sponsor. Plaintiffs appealed and, today, the Appellate Division reversed in an opinion by Judge Hoffman.
In this summary judgment context, the panel employed “the same standard [of review] that governs the trial court.” Judge Hoffman found that the legal issue involving changing the bylaws in order to alter the quorum requirement was governed by a statute that was clear and unambiguous. “N.J.S.A. 14A:5-9 states, in pertinent part: ‘Unless otherwise provided in the certificate of incorporation or this act, the holders of shares entitled to cast a majority of the votes at a meeting shall constitute a quorum at such meeting.’ We interpret this plain language to mean that, in order to hold a vote amongst the Co-op’s shareholders, a majority of all shares in the Co-op must be represented at the meeting. We further conclude, based on the plain language of the statute, that a valid modification of the Act’s majority quorum requirement in this case could occur only by amending the Co-op’s certificate of incorporation.”
Defendants relied on the board’s “general ability to amend the bylaws,” but Judge Hoffman found that to lack relevance in light of the clear command of N.J.S.A. 14A:5-9. Defendants also claimed that they had no choice but to do what they did, since the sponsor’s boycott of meetings “prevent[ed] the shareholders from from conducting any meaningful business.” The panel disagreed. “N.J.S.A. 14A:5-2 permits shareholders to initiate General Equity litigation to obtain a court-ordered shareholders meeting,” and at such a meeting the majority quorum requirement “would have been waived by operation of law.” Alternatively, defendants could simply have convinced a majority of shareholders to attend meetings.
Plaintiffs had raised other claims. Judge Hoffman found them all either moot or without merit. But because the change in the quorum requirement “through a bylaw amendment … effectively reduce[d] the rights of shareholders without their consent or participation,” the decision below was reversed to that extent. The panel remanded the case for entry of an order invalidating the bylaw amendment.