So You Want To Become A Board Member: Elections, Board Meetings And Conflict of Interest

Facts

You are interested in running for the board of directors of your association. You wish to find out what the election and voting procedures are. You want to find out what the conflict of interest provisions are.

Legal Analysis

The election and voting procedures are described in Civil Code section 1363.03. This statute states that the association must adopt rules specifying equal access to association media (newsletter, website, etc.) and common area meeting place for all candidates. Further, the association may not edit or redact the content of candidates statements, but may state that the association is not responsible for the content. This places the association in a perilous situation because a candidate for the board may wish to publish defamatory statements in the association’s newsletter. The mere fact that the association states it is not responsible for this statement may not, in fact, make it not responsible in a court of law.

The statute also states that the association must specify the qualifications for candidates to the board and specify procedures for nomination of candidates, as well as voting procedures. In addition, the association must specify a method for selecting one or three (unclear which is required) inspectors of election to oversee the election. The inspector may not be the property manager or anyone else employed by the association. The statute specifies the duties of the inspector of elections. The statute also identifies the procedures for balloting. The statute states that any member or candidate may witness the counting and tabulation of the votes. The results of the election are to be reported promptly to the board and recorded in the minutes and made available to the members.

In connection with the election and voting procedures, the CC&R’s and by-laws of the association must be reviewed carefully to see if there is any conflict between Civil Code section 1363.03 and the governing documents. If there is an apparent conflict, counsel should be consulted for the proper course of action. Even if there is not an apparent conflict, the CC&R’s and the by-laws should be consulted in order to determine the election and voting procedures that are not otherwise specified in Civil Code section 1363.03.

Civil Code section 1363.04 states that association funds may not be used for campaign purposes. It is unclear whether this means that the association cannot sponsor a candidate’s forum in the clubhouse for the candidates to discuss their views if there is any association expense involved.

The conduct of meetings of the board is governed by the open meeting act which is found in Civil Code section 1363.04. This statute states that any member may attend meetings of the board, except for executive session meetings. Executive session meetings are limited to litigation, contracts with third parties, member discipline, personnel and assessment disputes with a member who requests a closed hearing. The topics discussed in executive session must be noted in the minutes of the general membership. The minutes of board meetings, except for executive session meetings, must be made available to the members within 30 days of the meeting. Except for emergency meetings, members must be given notice of board meetings at least 4 days prior to the meeting. The notice must be posted and mailed. E-mailing is probably inadequate to satisfy the statutory requirements. The notice must contain the agenda for the meeting.

As stated, emergency meetings are excepted. Emergency meetings are those that are unforeseen and require immediate action. In order to call an emergency meeting, it must be scheduled by the president or two members of the board.

Any member may speak at a board meeting, except for executive session meetings.

The board may establish reasonable time limits or speakers. This can be particularly challenging when more than 100 speakers wish to speak on the same topic at a board meeting. The board may not take action at regular meetings on an item that is not on the agenda that was posted and mailed to the members. However, the board may respond to comments from speakers or report on activities or request action by staff. The board may take action on unforeseen emergency situations where it was impossible to give notice in advance.

Once again, the CC&R’s and the by-laws should be reviewed in conjunction with Civil Code section 1363.04 in order to determine what the governing documents require for board meetings. To the extent there is any conflict, counsel should be consulted. Even when there is no conflict, the provisions of the governing documents should be followed in addition to the requirements of Civil Code section 1363.04.

If a member believes the board has not followed the proper procedures for elections or meetings, any member may bring an action to enforce these statutes within 1 year. If successful, the court may void the election and the member who prevails is entitled to recover attorney’s fees and costs and may also recover a civil penalty of $500 per violation. In contrast, the prevailing association does not recover attorney’s fees and costs unless the action was frivolous, unreasonable and without foundation. Thus, it is much more difficult for a prevailing association to recover its attorney’s fees than it is for the member to recover the member’s attorney’s fees.

The conflict of interest provisions are governed by Corporations Code section 7233(a). This statute states that a director who has a financial interest in a matter that comes before the board cannot vote on the matter, but the director must disclose the financial interest in advance of the vote. If the disclosure has been made, the board (without the vote of the conflicted board member) may vote to approve the transaction. The transaction is not prohibited just because a board member has a conflict of interest. In Heckmann v. Ahmanson (1985) 168 Cal. App. 3d 119, the court held that if a director financially benefits from a board-approved transaction, the burden shifts to the director to show that the transaction was in good faith and in the best interest of the association.

There is nothing that prevents the board of directors from adopting a stricter conflict of interest code.