Officers and Directors

Source: Adrian J. Adams Esq.

QUESTION: Our bylaws require that directors be members of the association. They also state that officers “shall be a President and a Vice President, both of whom shall at all times be Directors, a Secretary, a Treasurer and such other officers as the Board may from time to time by resolution create.” This has been interpreted to allow renters to serve on the board as long as they are not president or vice president. This seems to be an incorrect interpretation of our bylaws.

ANSWER: You’re right, it’s incorrect. People often get tangled up over the distinction between directors and officers. Homeowners elect directors, and directors elect officers. The qualifications for one can be entirely different from the other. Moreover, directors can vote, while officers cannot. When the president votes, he is not voting as president, he is voting as a director.

CC&R Interpretation. In your case, renters can serve as secretary and treasurer. As such, nonmember officers can attend meetings to fulfill their duties (taking minutes and giving financial reports) but cannot sit on the board because they do not meet director qualifications. Accordingly, seven people attend meetings: five directors (two of whom are officers) and two renters (both of whom are officers) but only the five directors make motions, deliberate and vote. For more information see: Director-Officer Differences.

Cumulative Voting

Source: Adrian J. Adams Esq.

QUESTION: Thanks to cumulative voting, an attorney whose home was heading into foreclosure got herself elected to the board. She then sued the board for failure to enforce the CC&Rs. She then demanded the association’s insurance represent her as she was doing this “for the good of the community.” Our insurance company declined with the explanation that “We don’t pay for people to sue us.” It makes one wish there was some kind of entrance exam before becoming an HOA owner.

ANSWER: As someone once noted, “Common sense is like deodorant–the people who need it most never use it.” The scenario you describe is exactly why associations should amend their bylaws to eliminate cumulative voting. It helps to keep some of the more ethically challenged owners off the board. Or, if they happen to get elected, they can more easily be removed by the membership.

New Roof For Daughter

Source: Adrian J. Adams Esq.

QUESTION: My daughter recently purchased the condominium next door to me. The issue of a new roof for that unit in on the agenda for our next meeting. I have no financial interest in my daughter’s unit. Do I need to recuse myself from voting on the roof for her unit? I am president of the board.

ANSWER: Even though you may be fulfilling your duties to the association by approving needed roof repairs, you do not want to give the appearance of impropriety. If you don’t recuse yourself from the vote, people will assume you are inappropriately using association monies to benefit your daughter. Whenever faced with an apparent conflict of interest, the safest course of action is to step out of the meeting and let the remaining directors vote on the issue. It insulates you from accusations from those who like to stir the pot.

Fair Housing Act Vs Architectural Standards

Source: Adrian J. Adams Esq.

In a recent fair housing case, a federal court found that an association’s enforcement of its architectural standards involving handicapped children was reasonable.

The Hollises have five children, two of whom are disabled. They submitted a request to their association’s Architectural Control Committee (ARC) to add a nonconforming sunroom to their house. The metal frame design they submitted did not meet architectural standards and was rejected by the ARC. 

The Hollises responded that the sunroom was for their disabled children and asked for reasonable accommodation under the Federal Fair Housing Act. Even though the ARC compromised some of their standards, the Hollises were not satisfied and sued the association for discrimination. 

The court ruled that the ARC’s actions were not discriminatory as the record was replete with evidence demonstrating the ARC’s sole focus was on the aesthetic design of the addition, the materials to be used, and the design’s potential impact on the value and architectural standards of neighboring homes. 

COMMENTS: The ruling shows that being disabled does not give a member a blank check to do whatever they want. (See Hollis v. Chestnut Bend HOA.) Discrimination claims can be defeated when an association carefully documents the non-discriminatory process they followed to reach a reasonable decision. Whenever a request for reasonable accommodation is made, boards should work closely with legal counsel to address the request.

Director's Failure to Investigate

Source: Adrian J. Adams Esq. 

The business judgment rule protects directors from personal liability provided they conduct a reasonable investigation (due diligence) before making a decision. 

In a recently published case, the Court of Appeal found that board president Edna Parth was subject to personal liability for failing to investigate matters before taking action. The court was disturbed that, among other things, she:

1. Hired a roofing company without soliciting bids, checking references or licensing, without verifying insurance, or consulting management or legal counsel. The company proceeded to perform defective work that required additional repairs. 

2. Signed promissory notes for $900,000, $325,000 and $550,000, secured by the association’s assets, receivables and property. Parth later testified that she had not reviewed the CC&Rs or bylaws and did not know whether she had authority to sign the notes and was not aware they needed membership approval.

3. Signed a five-year contract with a landscape company and later admitted she did not know if she had authority to sign it. She testified that her understanding of her authority under the bylaws was “none.” 

The court noted that the failure of a director to conduct due diligence is a breach of their fiduciary duty. In addition, conduct contrary to the governing documents may fall outside the business judgment rule. The court commented that directors cannot close their eyes to matters as basic as the provisions of the CC&Rs and bylaws and at the same time claim they exercised business judgment.

RECOMMENDATION: Board members should make sure their minutes reflect that they investigated and deliberated on issues before making a decision. In addition, they should consult legal counsel, management, and consultants as may be appropriate. Finally, they should have a working knowledge of their governing documents (and then follow them). To read the case, see Palm Springs Villas II HOA v. Parth

Cameras and Binoculars

Source: Adrian J. Adams Esq. 

QUESTION: Our home sits in the sight line of the president of our HOA. As a result, 
we are getting letters to correct the smallest violations on a monthly basis. Our surveillance cameras caught him with binoculars peering at our property. Can I sue for harassment?

ANSWER: That’s awkward–his binoculars and your cameras peering at each other. If the president is truly harassing you, yes you can sue.

In an unpublished case decided in July of this year, an association president harassed a resident by publicly disparaging the resident, improperly towing his guest’s car, sitting outside his house with a video camera, refusing to allow needed repairs, and a number of other improper actions.

The resident sued the association and its president for intentional infliction of emotional stress citing 19 separate incidents. The trial court dismissed the action but the court of appeal reversed. The appellate justices made it clear that directors can be sued for their bad behavior. (See Boswell v. The Retreat Community Assn.)

RECOMMENDATION: Hire a lawyer and start with a letter to the board. If it causes the president to back off, you can avoid costly and uncertain litigation. Litigation is uncertain because a court could easily find that you had numerous rules violations and the president was properly giving notice of those violations.

30 Years of Records

Source: Adrian J. Adams Esq. 

QUESTION: Our manager/board president died. Meeting agendas, financial documents, etc. were never published in 30 years. The records are in her home. Her husband still lives there and seems cooperative. How and who should be asking for the records? Can any homeowner ask for them or should we obtain a lawyer?

ANSWER: I’m sorry for your loss. Serving on a board will shorten a person’s life. So will managing an association. Your president did both.

Lawyers. There is no need to hire a lawyer. The nicest person on your board should make a friendly request to the husband. Offer to help find the records and move them. He may be happy to get rid of them.

Records Policy. Not all the records need to be kept. Your board should adopt a Records Retention Policy. Once that is in place, you can sort through and dispose of most records. For example, you want to keep all minutes from the beginning of time. Financial records, expired contracts, etc. older than seven years can be shredded.

RECOMMENDATION. To avoid any premature deaths to your members, you should hire a management company. Most are good at handling stress. They can also assist with recordkeeping. Whenever possible, you should scan and save your records electronically. It saves trees, eliminates storage, and makes it easy to find documents.