The Case Of The Board Member Who Didn’t Show Up – Or Did She?

by Allen Matkins

Consider a board with a total of five authorized members but with only three members in office.  The board is facing a various contentious decision on whether to engage in a transaction.  Two of the board members favor approval and one opposes.  All three board members vote on whether to proceed with negotiations.  As expected, the vote is two votes for moving forward and one against.  The board then takes a vote on how to proceed.  Again, the vote is 2 to 1 in favor.  At this point, the board hasn’t taken final action to approve the matter, but it’s clear to all concerned that one board member is going to be voting against it.  When the time comes for a final decision, the board conducts the vote electronically.  This time, the dissenting board member does nothing.  When later asked why, she explains that she did nothing, not because she intended to abstain or to block the transaction, but simply because she did not realize that any further action on her part was required.  Has the board validly approved the transaction?

This was in essence the scenario considered by U.S. District Court Judge James Boasberg in Chamber of Commerce v. NLRB (U.S. Dist. Ct. D.C., May 14, 2012).   He concluded that the NLRB had not validly adopted a rule shortening the time for union elections because no quorum existed when the NLRB voted to approve the final rule.  While there are significant differences between corporate law and the National Labor Relations Act, the issues raised in the case should be of interest to corporate practitioners.

First, the NLRB argued that the board member’s opposition on preliminary matters sufficed to constitute participation in the decision.  The court, however, concluded that participation in preliminary votes did not constitute final agency action.  In the corporate context, it seems obvious that participation in votes authorizing management to negotiate the terms of a transaction or approving  procedural matters does not count as being present at a meeting to approve the transaction. 

Second, the NLRB argued that mere “presence” was sufficient to constitute a quorum.  Because the NLRB didn’t hold a physical meeting, the court had to consider how a quorum is constituted in an online context:

When the very concept of a quorum seems designed for a meeting in which people are physically present in the same place, what does it mean to be present or to participate in a decision that takes place across wires? In other words, how does one draw the line between a present but abstaining voter (who may be counted toward a quorum) and an absent voter (who may not be) when the voting is done electronically?

Judge Boasberg found that while the dissenting member had been sent notice that an electronic vote would be held, he was not present for quorum purposes: “he simply did not show up – in any literal or even metaphorical sense”.  The court did observe that had the board member affirmatively expressed his intent to abstain or even acknowledged receipt of the notification, he “may well have been legally ‘present’ for the vote and counted in the quorum.”

The California General Corporation Law permits, subject to specific conditions, participation in a board meeting either in person or by a variety of electronic methods.  Cal. Corp. Code § 307(a)(6).  Thus, the same question of what constitutes “presence” in an electronic meeting may also arise in the corporate context.

Finally, for administrative law buffs, Judge Boasberg has a footnote discussing whether the court should pay deference to the NLRB’s interpretation of the NLRA under Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984).  He doesn’t mention, however, the U.S. Supreme Court’s recent, earlier decision in United States v. Home Concrete & Supply, LLC, No. 11-139, 2012 BL 101632 (U.S. Apr. 25, 2012) in which the court struggles with the question of Chevron deference.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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