Corporate Governance

51 Law Firms Issue Consensus Interpretation of NY Power of Attorney Law

By Harvard Law School Program on Corporate Governance

A group of fifty-one law firms has issued a White Paper, Interpretive Issues Related to Recent Changes to the New York Power of Attorney Law, which examines principles of New York and federal law to reach a finding that, at the least, substantial portions of the recently amended New York General Obligations Law §§ 5-1501 et seq. (the ?Statute?) do not apply to proxies for shares of New York corporations and non-New York corporations, certain powers of attorney executed in connection with the registration of transfer of certificated securities or many powers of attorney granted in connection with the formation and governance of non-New York limited liability companies and non-New York limited partnerships.

On September 1, 2009, several amendments to the Statute, which governs powers of attorney executed by individuals while physically present in New York, took effect. These amendments, enacted as a result of perceived abuses in elder care connected to financial matters, including estate planning, changed the requirements for creating certain types of valid powers of attorney in New York. The amendments have given rise to troublesome concerns for transactional business lawyers, as the Statute appears potentially to have the unintended consequence of invalidating a wide variety of common corporate, commercial and financial documents. The purpose of the White Paper is to provide a blueprint for a consensus among practitioners on the issues it addresses because of the concern that an overly conservative interpretation of the Statute may become the accepted version of the law. The arguments in the White Paper are summarized below.

The broad language of the Statute raises the possibility of its application to proxies related to New York corporations under New York Business Corporation Law § 609 and indorsements executed in New York in connection with the registration of transfer of certificated securities. The principles of statutory construction generally applied in New York provide that a later enacted general statute does not repeal or supersede a previously enacted specific statute on the same subject absent manifest, specific legislative intent directing such an outcome. On the one hand, New York Business Corporation Law § 609 is a specific statute governing the special agency relationship created by a shareholder in a New York corporation who authorizes another person in writing to vote on his or her behalf at a shareholders? meeting. The transfer of certificated securities of New York corporations would generally also be governed by a specific statute, the Uniform Commercial Code as adopted in New York (the ?NY-UCC?), and may be achieved through the transferor delivering the certificate together with an indorsement. On the other hand, the later enacted Statute relates to the broad, general area of written agency relationships. Consistent with the aforementioned principles of statutory interpretation, given the absence of legislative intent directing such an outcome, the Statute should not be read to override the specific legislation described in New York Business Corporation Law § 609 or the NY-UCC.

On the question of whether the Statute applies to proxies for non-New York corporations that are executed by individuals while physically present in New York, indorsements with respect to the certificated securities of a non-New York issuer executed in New York and powers of attorney that relate to the organization and internal affairs of a non-New York limited liability company or a non-New York limited partnership, New York’s own choice of law rules dictate that the Statute does not apply. In the case of proxies for non-New York corporations executed by individuals present in New York, the ?internal affairs doctrine,? which states that issues related to a corporation?s internal affairs are generally decided under the laws of the corporation?s state of incorporation, renders the Statute, as a New York law, inapplicable. In the case of indorsements with respect to certificated securities of a non-New York issuer executed in New York and powers of attorney that relate to the organization and internal affairs of a non-New York limited liability company or non-New York limited partnership, relevant New York choice of law principles (in NY-UCC § 8-110, New York Limited Liability Company Law § 801 and New York Partnership Law § 121-901, respectively) and provide that the local laws of the jurisdiction of the non-New York issuer, non-New York limited liability company or non-New York limited partnership, as the case may be, should govern the respective instruments such that the Statute is inapplicable.

The White Paper concludes by noting that while the principles that it outlines strongly support argument that the Statute does not apply to the instruments discussed in the White Paper, the uncertainty introduced by the Statute will remain until the Statute is amended.

The full text of the paper is available for download here.

List of firms (go back)

Full post as published by The Harvard Law School Corporate Governance Blog on February 02, 2010 (boomark / email).