Articles Posted in HOA Governance

*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.

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.

*Asked and Answered

Asked – Can the Board reconsider a motion that was previously passed by a majority vote? One of the directors that voted in opposition to the motion would like the Board to reconsider.

Answered – One of the Board’s primary responsibilities is to make decisions on behalf of the association. Because the Board is comprised of volunteers with different backgrounds and varying expectations, it is common for Board members to disagree from time-to-time. The directors on the “losing side” of a motion may have concerns over the decision made, feeling that the decision was rushed and made without proper inquiry or consideration of all relevant facts. Those who are on the “winning side” of a motion may learn additional facts which calls into question the decision made. Either way, the question then becomes whether the Board is “stuck” with the decision made.

Although an association is not required to adopt and employ parliamentary procedures to govern Board meetings (unless otherwise required by the association’s governing documents), the Robert’s Rules of Order provides a procedure the association can adopt and use in addressing situations where a Board member requests reconsideration of a previously decided matter. Because it is considered an “unusual” motion, and to prevent abuse from the “losing side,” the motion should be limited to those directors that voted on the prevailing side. So, in the question posed, the director voting in opposition to the motion is unable to make a motion to reconsider. The director must then convince one or more of the directors on the prevailing side to bring the motion. The motion must be made at the Board meeting following the meeting in which the decision was made.

Once the motion is made by a Board member on the prevailing side (the moving party should be required to indicate that they voted on the prevailing side), it must be seconded. However, the second can be made by any Board member, regardless of how they voted on the matter to be reconsidered. Once a motion is made and seconded, the matter is “up for debate.” In order for the motion to carry, a majority of the Board must vote in favor of the motion to reconsider. Note, this motion does not overturn the previous decision. Rather, it simply allows for the previous decision to be reconsidered by the Board (i.e., a new vote to be made on the previous decision). Thus, if the motion passes, the original motion is placed before the Board as if it never happened.

The following is a sample script on the motion to reconsider:

Prevailing Vote Board Member: I move to reconsider the vote on the motion to grant Owner’s reimbursement request. I voted on the prevailing side.

Board Member: I second that motion.

Board President: It is moved and seconded to reconsider the vote on the motion to grant Owner’s reimbursement request. Is there any discussion on reconsidering the vote?

After discussion has occurred the Board President calls for a vote. If, as noted above, the motion passes, the original motion is placed before the Board for discussion and a vote. If the motion fails, the decision made on the original motion stands.

Parliamentary procedure is complex and often confusing. Such rules seem archaic and draconian. Nevertheless, it is important for the Board to adopt and adhere to such procedures to avoid wasting time discussing matters that have already been decided.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.