Boards of Directors

(Another) Important Update! Court lifts Injunction; CTA Reporting Deadline now March 21, 2025

Published on: February 19, 2025 | by Dyanne Peters, Esq.

In the ever-continuing saga known as the Corporate Transparency Act (CTA), the District Court for the Eastern District of Texas recently lifted an injunction staying the enforcement of the CTA. (Smith, et al. v. U.S. Department of the Treasury, et al., (E.D. Tex., Feb. 17, 2025) 6:24-cv-00336.) This reversal follows the Supreme Court’s order in McHenry v. Texas Top Cop Shop, Inc., which overturned the decision of the 5th Circuit, affirming the District Court’s nationwide injunction blocking the enforcement of the CTA and its reporting requirements. ((2025) 604 U.S. ____, 2025 WL 272062 at 1; see also Texas Top Cop Shop, Inc. v. Garland (E.D. Tex., Dec. 5, 2024) 4:24-cv-00478-ALM.) This means that the reporting requirements for reporting companies, including most HOAs, are back in effect…for now.

In response, FinCEN issued a notice extending the reporting deadline. “[B]ecause the Department of the Treasury…recognizes that reporting companies may need additional time to comply with their BOI reporting obligations, FinCEN is generally extending the deadline 30 calendar days from February 19, 2025, for most companies.” (U.S. Department of Treasury, FinCEN Notice, FIN-2025-CTA1 (Feb. 18, 2025).) Accordingly, HOAs are required to complete and file its first beneficial ownership information report with FinCEN by no later than March 21, 2025.

HOAs should continue to monitor developments as even FinCEN contemplates the potential for “further modification” of the March 21st “deadline.” Legal counsel can be a resource in this regard and should be consulted concerning CTA compliance and reporting obligations.

5th Circuit Grants Stay, Corporate Transparency Act Deadline Remains January 1st

Published on: December 23, 2024 | by Matthew Plaxton, Esq. and Steven Tinnelly, Esq.

Update: Compliance is not currently required and the next hearing is scheduled for March 25, 2025.

In a dramatic turn of events, the United States Court of Appeals for the 5th Circuit has granted the government’s motion for a temporary stay of the District Court’s order enjoining enforcement of the Corporate Transparency Act (CTA). As a result, all applicable common interest developments in the state must file their beneficial ownership information reports with FinCEN by January 1st. The recent federal spending bill notably did not include the anticipated one-year extension to the filing deadline. Compliance is now urgent, as the CTA’s requirements remain fully enforceable under the revised timeline.

HOAs should monitor developments in this case and consult with their HOA legal counsel to stay informed of their CTA compliance and reporting obligations.

BREAKING NEWS! Federal Court Issues Nationwide Halt on the Corporate Transparency Act

Published on: December 4, 2024 | by Matthew Plaxton, Esq. and Steven Tinnelly, Esq.

The Corporate Transparency Act (“CTA”), enacted in December 2020, aims to increase corporate ownership transparency to combat money laundering, terrorism financing, and other illegal activities. The CTA requires many small businesses, classified as “reporting companies,” to submit beneficial ownership information (“BOI”) reports to the Financial Crimes Enforcement Network (“FinCEN”). This requirement extends to certain homeowners associations (“HOAs”) and involves disclosing personal details—such as names, addresses, and copies of driver’s licenses or passports—about individuals with “significant control” over the HOA (i.e., members of the HOA’s Board of Directors).

Not surprisingly, many reporting companies objected to the reporting requirements, citing government overreach and privacy concerns as the primary reasons for opposing the reporting requirements. These objections led the U.S. District Court for the Northern District of Alabama to grant the National Small Business Association’s request for a preliminary injunction, temporarily blocking enforcement of the Act. However, the court’s order was limited to the plaintiffs in that case and did not extend its protections to HOAs.

Encouraged by the District Court’s decision, the Community Associations Institute (“CAI”) filed a lawsuit in the U.S. District Court for the Eastern District of Virginia seeking a similar result for its member-HOAs. Such result would not be forthcoming, however, as the Judge in that case denied CAI’s motion for preliminary injunction. CAI has appealed that decision to the United States Court of Appeals for the Fourth Circuit.

Thinking all hope was lost, many HOAs started the process of filing BOI reports with FinCEN. But, in the eleventh hour, the United States District Court for the Eastern District of Texas issued a nationwide injunction blocking the enforcement of the CTA and its reporting requirements. (Texas Top Cop Shop, Inc. v. Garland (4:24-cv-00478-ALM).) This ruling applies to all entities previously required to submit BOI reports, including HOAs within the State of California.

Since this injunction was just issued on December 3, 2024, it is unclear whether the Government will appeal the Court’s decision. More information on this is to come…

HOAs should monitor developments in this case and consult with their HOA legal counsel to stay informed of their CTA compliance and reporting obligations.

AB 648 Signed! Virtual HOA Meetings

Published on: October 5, 2023 | by Steven J. Tinnelly, Esq.

*New Legislation

On September 22, 2023, Governor Newsom signed AB 648 into law to finally permit homeowners associations (“HOAs”) throughout California to conduct board meetings entirely be teleconference (aka “virtual meetings“). While existing law permits an HOA to conduct teleconference meetings, HOAs are still required to specify a “physical location” for the meeting at which members or directors may physically attend the meeting if they desired to do so. The only exceptions to this physical location requirement are if the meeting is held in solely in executive session, or if the meeting is held during a government declared state of emergency under Civil Code section 5450.

Effective January 1, 2024, AB 648 will add another exception to the physical location requirement by adding new Civil Code section 4926 to the Davis-Stirling Act. AB 648’s enactment is based upon the Legislature’s findings that:

“Virtual homeowner association meetings improve and enhance homeowner members’ ability to participate and comment on business-related matters of the association and their community” and “enable greater access for all members of the association.”

Under Section 4926, an HOA will be permitted to conduct its open board meetings entirely by teleconference (without a physical location), provided that all the following requirements are satisfied:

Notice Requirements – The notice for each meeting conducted under Section 4926 must include, in addition to other required content for meeting notices, all the following:

1. 1. Clear technical instructions on how to participate by teleconference;
  2. The telephone number and e-mail address of a person who can provide technical assistance with the teleconference process, both before and during the meeting; and
  3. A reminder that a member may request individual delivery of meeting notices, with instructions how to do so.

Equal Participation Requirement – Every director and member must have the same ability to participate in the meeting that would exist if the meeting were held in person.

Roll Call Vote Requirement –Any vote of the directors at a Section 4926 meeting must be conducted by a roll call vote.

Option to Participate by Telephone Requirement – Any vote of the directors at a Section 4926 meeting must be conducted by a roll call vote.

It is important to note that AB 648 did not have any impact on existing law governing HOA meetings at which ballots are counted and tabulated pursuant to Civil Code section 5120. If an HOA wants to conduct a ballot counting meeting via teleconference, it must still specify a physical location as discussed above.

AB 648’s passage is welcome news to HOA board members and industry professionals that appreciate the convenience and efficiencies of conducting board meetings entirely by teleconference, utilizing popular tools such as Zoom and Go2Meeting.

Email Discussions Between HOA Board Members are not “Meetings”

Published on: September 18, 2023 | by Steven J. Tinnelly, Esq. and Ellie Ghahari

*New Case Law

The Open Meeting Act (“OMA”) contains various provisions regulating how the board of directors of a homeowners association (“HOA”) may meet and conduct business. One of the most common questions we receive pertains to whether email exchanges between board members on items of HOA business constitute a “board meeting” under the OMA, even if those emails are merely for discussion purposes without any vote (or “action”) being taken on the item.

Fortunately, we finally have an answer to this question from the California Court of Appeals via its ruling in LSNU #1, LLC v. Alta Del Mar Coastal Collection Community Association (“Alta Del Mar”) that will have a significant, immediate and beneficial impact on HOA governance throughout California. That answer is no. Email exchanges/communications between HOA board members that merely discuss items of HOA business are not within the statutory definition of a “board meeting” under the OMA and are therefore lawful.

In Alta Del Mar, the HOA board was discussing, over email, two items of business that are relatively routine for HOAs: whether to approve a homeowner’s landscaping plans and whether to fine another homeowner. The plaintiff homeowner in Alta Del Mar claimed that this email discussion was considered a board meeting and thus violated the OMA by not affording the homeowner notice and an opportunity to be heard.

The Court rejected this argument with reference to two central provisions of the OMA upon which the homeowner relied in making their argument: Civil Code section 4090 (defining what constitutes a “board meeting”) and Civil Code section 4910 (prohibiting a board from “acting” on items of business outside of a board meeting). The Court’s interpretation of these provisions is summarized below:

Email exchanges between board members are not a “gathering” of the board, and therefore do not constitute a “board meeting”.

“By sending e-mails to one another through cyberspace, often hours or days apart and from different homes and offices, the Association’s directors did not simultaneously gather in one location to transact board business, and therefore they did not conduct a “board meeting” within the meaning of [the OMA].”

The OMA prohibits the board from “acting on” items of business outside of a board meeting, not from “discussing” those items via email outside of a meeting.

“By discussing items of Association business in e-mails… the directors did nothing contrary to the purpose of the OMA, because they took no action on those items in the e-mails. Although the OMA prohibits the board from acting on items of Association business outside a board meeting…it does not prohibit the board from discussing the items outside a meeting.”

Many HOA boards find it difficult to reserve all discussion on items of HOA business solely for the board’s regularly scheduled meetings. This is due to a variety of common factors, such as the large amount of business that must be discussed/acted upon at any given meeting, the intervals at which regularly scheduled Board meetings typically take place (monthly), and the need to share information regarding unforeseen or exigent issues that may arise between Board meetings. The Court’s holding in Alta Del Mar now confirms the ability of an HOA’s board members to freely email with one another to discuss items of business facing their community. This will allow for HOA boards to be in a better position to take appropriate and timely action on those items during their actual meetings.

Court Steps in to Force Recalled HOA Board to Step Down

Published on: July 27, 2023 | by Steven J. Tinnelly, Esq. and Amanda Beall, Esq.

*New Case Law

The Court of Appeals recently ruled in Lake Lindero Homeowners Association, Inc. v. Barone that Corporations Code section 7616 may be used to validate a recall election removing the former board of a homeowners association (“HOA”), in addition to validating the election of a new HOA board.

In this case, the board was properly served with a recall petition for the entire sitting board. The HOA held an election meeting on December 19, 2019; however, quorum was not present. In compliance with the HOA’s bylaws, a majority of the members at the December 19, 2019 election meeting voted to adjourn the meeting to December 23, 2019, wherein only 25% of the votes of the membership would be required to constitute a quorum, as opposed to the usual 50%.

Thereafter, at the election meeting on December 23, 2019, the necessary quorum of 25% of the membership was present. The recall of the entire board passed, and a new board was elected and certified.

In January of 2020, Plaintiffs filed a complaint seeking a declaration under Corporations Code section 7616 validating the December 2019 recall election and the election of the new board. Plaintiff’s action was necessitated by Defendant Barone, and other prior board members, refusal to recognize the validity of the December 2019 recall. The trial court granted Plaintiff’s request for declaratory relief and validated the December 2019 recall. Defendant Barone appealed.

Defendant argued on appeal that Corporations Code section 7616 pertained to validating elections only and did not authorize Plaintiff’s action or the trial court to validate a recall election. The Court of Appeals disagreed with Defendant Barone’s narrow reading of the statute.

First, the Court found the statutory text of Corporations Code section 7616 to evidence a clear legislative intent providing trial courts with broad authority to determine the validity of board elections. While the Court acknowledged recall elections are not expressly referenced in the code section, the Court looked to subdivision (d) of Corporations Code section 7616 to support its holding, which authorizes the Court to “…direct any such other relief as may be just and proper.”

The Court concluded Corporations Code section 7616(d) was broad enough to serve as a “procedural vehicle” to clarify Plaintiffs recall rights under the HOA’s bylaws, even though the statute does not expressly mention recall elections. The Court reasoned that it was “just and proper” to enter an order confirming the recall, as it could not determine the validity of the election of the new board without first addressing the recall. The Court further concluded that having validly confirmed the recall and subsequent election of the HOA’s new board, the same code section authorized the trial court to enter an order confirming Defendant Barone had no authority to act on the HOA’s behalf.

This case is an unfortunate example of an HOA board of directors refusing to recognize the will of its membership in exercising their rights to control the leadership of their community. HOA boards which are unclear about the procedural aspects of their board elections should consult with a qualified HOA lawyer for guidance.

New ‘Community Association Update Newsletter’ – Issue 57

Published on: March 3, 2023 | by Steven J. Tinnelly, Esq.

Newsletter-Issue-57-300x167 In case you missed it, Issue # 57 of our ‘Community Association Update’ newsletter is available now!

Topics covered in this issue include:

AB 1410 – Speech on Social Media; Room Rentals; Enforcement During Emergencies
AB 1738 – EV Charging Stations in Existing Multi-Family Developments
SB 897 – Accessory Dwelling Units
Artus v. Gramercy Towers
Fowler v. Golden Pacific Bancorp, Inc.

A link to the newsletter is here.

Need to be added to our mailing list? Click here to sign up. Links to previous editions of our newsletter can be found here.

The Benefits of Board Education

Published on: December 28, 2022 | by Carrie Heieck, Esq.

bigstock-Businesswoman-Raising-Hand-Up-230281444-scaled-1-e1668125240647 In the State of California, most HOA’s are non-profit corporations managed by a board of directors composed of volunteer homeowners elected by the membership. Boards derive their authority from the governing documents including the Articles of Incorporation, Bylaws, and Covenants, Conditions, and Restrictions (CC&Rs) that impose rules and restrictions on the use of property within the development. The board of directors, acting on behalf of the HOA, is responsible for the maintenance of the common areas of the property, enforcing the governing documents, and collecting assessments. While most boards delegate duties to management companies and rely on experts such as attorneys and CPA’s to aid in decision-making, the board is ultimately responsible for decisions and actions taken by the HOA.

HOA board members are not compensated for their services and are typically not experts or even very familiar with the strict requirements for HOA management. While new directors typically run with an altruistic motive to help their communities and “get things done,” it is important that they understand the structure of a community association, the association’s authority over the development and its owners, and the unique way an association is governed. Board education is a great way to familiarize new members with an overview of their duties and responsibilities and to provide a refresher for existing Board members so that the HOA runs smoothly, efficiently, and with minimal exposure to liability. Board education can also help protect directors for incurring personal liability for decisions made in the scope of their duties.

Board education is offered by management companies, law firms, CAI chapters, and others with expertise and knowledge in HOA governance. There is no one-size-fits-all educational program as the issues faced by HOA’s are often unique to each association. Some general topics for Board education include but are not limited to:

General Duties and Responsibilities of Directors
Laws Applicable to Common Interest Developments
Types and Hierarchy of Governing Documents
Business Judgment Rule
Conducting Meetings
Enforcement and Disciplinary Matters
Financial Responsibilities
Maintenance Responsibilities
Assessments & Collection
Director Conduct
Contracts

An educated board oftentimes results in a better-functioning HOA with less legal fees, less special assessments, less contentiousness, and higher property values. Board members who are willing to put personal differences and agendas aside, are open to considering expert advice and differing viewpoints, and who work collaboratively with other directors and in the best interests of the Association as a whole, are the directors who best serve their communities. While directors will always be subject to criticism since it is impossible to please everyone, with proper education, those directors’ actions will better withstand such scrutiny.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.

Combatting Unlawful Harassment with Restraining Orders

Published on: June 1, 2022 | by Steven J. Tinnelly, Esq.

Man-yelling-at-women-300x200-1 Board Members are tasked with the difficult job of enforcing the Association’s rules and regulations against non-compliant Members. Unfortunately, this often creates tension between Board Members and Members. In some circumstances, this tension turns into unlawful harassment. When this occurs, Board Members should consider the available legal remedies provided under both California law and their homeowners association’s governing documents in order to protect themselves and abate the harassing conduct.

Generally speaking, a restraining order will provide Board Members with the most immediate relief and protection. This is because the California Code of Civil Procedure requires judges to review and rule on requests for Temporary Restraining Orders within the next business day of filing for the same. (Cal. Code Civ. Proc., § 527.6(e).) (Although, Temporary Restraining Orders only remain in effect for a period not to exceed twenty-one [21] days. Before issuing Permanent Restraining Orders, courts must first allow the parties to present their sides of the story at hearings.)

There are two types of restraining orders that Board Members may consider depending on the nature of the alleged harassing conduct. The most common type of restraining order is a Civil Harassment Restraining Order. To prevail and receive a Civil Harassment Restraining Order, the Board Member must prove that the alleged harasser engaged in one of the following forms of unlawful harassment:

unlawful violence (i.e., assault, battery or stalking as defined by the California Penal Code);
a credible threat of violence (i.e., a statement or course of conduct that places a reasonable person in fear for their safety or the safety of their immediate family, and that serves no legitimate purpose); or
a course of conduct directed at the Board Member that seriously alarms, annoys, or harasses the Board Member and causes the Board Member to suffer from substantial emotional distress (and would also cause a reasonable person to suffer substantial emotional distress), and that serves no legitimate purpose.

On the other hand, homeowners associations (as corporations) may consider filing Workplace Violence Restraining Orders against the alleged harasser on behalf of its Board Members. According to the California Code of Civil Procedure, Board Members are considered “employees” of homeowners associations for the limited purpose of Workplace Violence Restraining Orders. (Cal. Code Civ. Proc., §527.8(b)(3).) To prevail and receive a Workplace Violence Restraining Order, the homeowners association must prove that the Board Members (or any other employee as defined by the Code of Civil Procedure) suffered:

unlawful violence (i.e., assault, battery or stalking as defined by the California Penal Code); or
a credible threat of violence (i.e., a statement or course of conduct that places a reasonable person in fear for their safety or the safety of their immediate family), that can reasonably be construed to be carried out or to have been carried out at the workplace, and that serves no legitimate purpose.

If after a hearing on the merits, the Court finds that unlawful harassment has taken place, then the judge may issue a Permanent Civil Harassment Restraining Order for up to five (5) years or a Workplace Violence Restraining Order for up to three (3) years. However, the Code of Civil Procedure only permits Courts to award the prevailing party its attorneys’ fees and costs in lawsuits for Civil Harassment Restraining Orders, not Workplace Violence Restraining Orders.

Finally, in some circumstances, a Member’s harassing conduct toward the Board may constitute a nuisance, as defined by the homeowners association’s CC&Rs. In those situations, the homeowners association may consider bringing an unlimited civil action lawsuit against the offending Member to enforce the homeowners association’s governing documents. Board Members should keep in mind that this type of civil litigation is often more costly and the potential relief is not usually as immediate. Furthermore, the alleged harassment must satisfy the definition of a “nuisance,” as set forth in the governing documents.

If Board Members believe that they are being harassed as a result of their service on the Board of Directors, they should consult with the Association’s general counsel to determine the most effective way to address the problem. Each situation must be evaluated on a case-by-case basis to determine whether the facts meet the legal definition of “unlawful harassment” or a “nuisance.” Of course, Board Members should immediately contact their local law enforcement agencies if they believe that their safety and wellbeing is at risk.

-Blog post authored by TLG Attorney, Sarah A. Kyriakedes, Esq.

How to Handle Potential Conflicts of Interest

Published on: March 9, 2022 | by Vivian Tran, Esq.

download Conflicts of interest present possible liabilities that homeowners associations (“HOAs”) should do their utmost to avoid. There are issues that need to be deliberated and decided upon by the Board of Directors; however, in some situations, not all Directors should take part in the decision-making. A common scenario includes a situation where the Director might have a material financial interest in the outcome; or, the Director is violating the governing documents and should not decide on their own disciplinary consequences. Therefore, to keep all lines of communication and responsibilities clear, the Board should watch out for potential conflicts of interest and take the necessary steps to insulate the HOA and the Director from actual conflicts of interest. Some further examples of both potential and actual conflicts of interest could include:

Property damage to common areas abutting a Director’s property.
HOA litigation matters that could directly implicate a Director.
Capital improvements to common areas that would be advantageous to Directors.
The HOA contracting with vendors who have prior relationships with Directors without properly being vetted by neutral parties and/or management.
Using HOA funds to involve legal counsel to aid in a personal vendetta between a Director and HOA member.

What Should the Board Do If There Is A Potential Or Actual Conflict Of Interest?

Pursuant to Corporations Code section 7212, the Board may, by resolution adopted by a majority of the number of Directors then in office, provided that a quorum is present, create an executive committee consisting of two or more Directors, to serve at the pleasure of the Board. The Board has complete control over all committees. This means that the Board will decide who may serve in the committees and what authority they will have, subject only to the restrictions in the governing documents.

Accordingly, if there were any potential or actual conflicts as mentioned above, legal counsel for the association should broach the idea of the Board creating an executive committee around the conflicted Director. While Directors are well-meaning, if their financial interests, property, or personal self are implicated in any way, it would be difficult for the respective Directors to act as a Director (i.e., in good faith and in the best interest of the HOA) and not as a homeowner. This could be quite detrimental for the HOA and possibly even for the Director themselves because if there is an actual conflict of interest, that Director would be exposing themselves to personal liability; and the HOA’s Directors and Officers insurance might not be applicable if the Director acted outside the scope of their duties and decided on matters in such a way that would not benefit the HOA.

Therefore, it would be prudent to resolve any potential conflicts of interest by removing the Director from any decision they might be personally involved in and forming an executive committee around that respective Director. Should the Board have difficulty with this task, it might be best to enlist legal counsel’s help in explaining liabilities and conflicts of interest to all parties involved.

Note that if an executive committee is comprised of enough Directors so as to establish a quorum of the Board, any meeting of that committee could constitute a Board meeting that is subject to the Open Meeting Act’s requirements. Additionally, executive committees must maintain minutes pursuant to Civil Code section 5210 and make them available for inspection by the members within fifteen (15) days following approval.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.