In Channel View East Condominium Association, Inc. v. Gregory Ferguson, unpublished per curiam opinion of the Court of Appeals, issued July 2, 2019 (No. 344149), the Michigan Court of Appeals held that despite a condominium association’s failure to hold annual meetings to elect its board of directors, it still had the capacity to sue an association member/condominium owner.
On April 9, 2001, pursuant to the Plaintiff’s articles of incorporation, the first board of directors was elected. While the articles of incorporation did not provide for a duration or term for the first board of directors, it did state that after the first board is elected, directors will be elected pursuant to the Corporation’s bylaws. Although the first meeting of members was to take place around mid-July 2003, no such meeting ever took place.
In 2003, construction of a house began on Defendant’s lot. In September 2005, Plaintiff informed Defendant that he was in violation of the bylaws by not completing construction within 12 months. As a result, Plaintiff started imposing monthly fines until the violation was remedied, which had not occurred as of 2016. On October 24, 2016, Plaintiff filed suit, seeking foreclosure and sale of Defendant’s property. On March 5, 2018, Plaintiff moved for summary disposition. In response, Defendant argued that the suit should be dismissed, as the Plaintiff could not take valid actions since there was no annually elected board of directors. The trial court agreed and dismissed Plaintiff’s claims.
The Court of Appeals first noted that nothing in Plaintiff’s bylaws requires a vote of its members before Plaintiff could initiate a lawsuit, leaving the power solely to the board of directors. Because the Plaintiff had the power to sue or be sued, the main question that needed to be answered was whether the Plaintiff had a board of directors at the time it filed suit in 2016.
Looking at the bylaws, nothing in the documents stated that the board’s powers would be divested in the event the first meeting of the members did not occur. Therefore, based on the bylaws, because no member meeting ever took place, the board of directors at issue was the one elected before the first meeting of the members; hence its actions were binding upon the Association as if the board had been elected by its members.
To support their conclusion, the Supreme Court cited other decisions. In Kent Co. Agricultural Society v. Houseman, 81 Mich. 609, 611; 46 N.W. 15 (1890), the Michigan Supreme Court recognized that a corporation’s directors will continue to hold over as long as they continue to conduct the business of the corporation and in the absence of a demand for elections. Likewise, in the instant case, the Plaintiff had been caught up through the filing of the annual reports with the state, and no proceeding had been initiated to question the validity of Plaintiff as a corporation. And in McMaster v. Mich. Nat’l Corp., 459 Mich. 989 (1999), the Michigan Supreme Court held that the board’s failure to hold the annual meeting when it was supposed to have occurred did not divest the board of its powers. Likewise, in the instant case, Plaintiff’s failure to hold annual meetings did not automatically divest its board of directors of power.
The Court of Appeals made one final note cautioning that their ruling should not be read as giving corporations carte blanche to ignore their bylaws. However, in this case, regardless of the appropriateness of Plaintiff’s failure to call for and hold and meetings, Plaintiff’s directors continued to hold over in the absence of any elections. Therefore, the Court reversed and remanded the case for further proceedings.
A link to the opinion can be found at: https://law.justia.com/cases/michigan/court-of-appeals-unpublished/2019/344149.html
This article was written by Emily Honet, Law Clerk
