Boericke v. Stevenson, 43 N.Y.2d 704 (1977)
A corporate bylaw requiring a supermajority vote for amendment is invalid if it conflicts with a state business corporation law stipulating a simple majority, unless such a provision is included in the certificate of incorporation; furthermore, a resolution to change the number of directors is ineffective absent a bylaw authorizing such a change by resolution.
Summary
This case concerns a dispute over the validity of a corporate bylaw requiring a two-thirds majority to amend certain bylaws, and the effectiveness of a simple majority resolution to increase the number of directors. The New York Court of Appeals held that the supermajority bylaw was invalid because it conflicted with the Business Corporation Law, which requires only a simple majority unless the certificate of incorporation states otherwise. The court also found that a simple majority resolution to increase the number of directors was ineffective because it was not authorized by an existing bylaw.
Facts
The shareholders attempted to amend the bylaws to increase the number of directors from four to five by a simple majority vote.
Article VIII of the corporate bylaws required a two-thirds majority vote to amend certain bylaws, including the one setting the number of directors.
There was no bylaw in effect that provided for changing the number of directors through a simple resolution.
Procedural History
The case was submitted to the Appellate Division under CPLR 3222, asking whether a simple majority resolution of the stockholders, increasing the number of directors, was valid and effective.
The Appellate Division ruled in the negative.
The New York Court of Appeals affirmed the Appellate Division’s order.
Issue(s)
1. Whether a corporate bylaw requiring a two-thirds majority shareholder vote to amend certain bylaws is valid when the Business Corporation Law allows for amendment by a simple majority unless the certificate of incorporation provides otherwise.
2. Whether a simple majority resolution of the stockholders, increasing the number of directors, is valid and effective without an existing bylaw authorizing such a change by resolution.
Holding
1. No, because the Business Corporation Law clearly provides that a simple majority vote of the shareholders is sufficient to amend the bylaws, unless the certificate of incorporation provides otherwise.
2. No, because subdivision (b) of section 702 of the Business Corporation Law requires either an amendment to the bylaws or a bylaw in effect that provides for the change by a simple resolution.
Court’s Reasoning
The court reasoned that the supermajority voting requirement in the bylaw was invalid because it directly conflicted with the Business Corporation Law, which mandates a simple majority for bylaw amendments unless the certificate of incorporation specifies otherwise. The court cited Matter of Faehndrich, 2 Y 2d 468, 473, 474, noting that the two-thirds majority vote provision would have been valid had it been placed in the certificate of incorporation.
Regarding the resolution to increase the number of directors, the court pointed to Business Corporation Law § 702(b), which allows shareholders to change the number of directors either through a bylaw amendment or by a simple resolution *if* there is a bylaw in effect allowing for such a change by resolution. Because the shareholders acted by resolution alone, and no such bylaw existed, the resolution was deemed unenforceable. The court emphasized that “even though a simple shareholder vote could have effected a change in the number of directors if such a by-law had been adopted authorizing such a vote, their naked resolution to do so cannot be enforced.” This highlights the importance of following proper corporate governance procedures and adhering to the specific requirements of the Business Corporation Law.