Berding | Weil - Attorneys At Law

Virtually Legal Technology and Its Impact on Association Operations

by Steven S. Weil

If you have fallen in love with the ease of e-mail, are drawn to the convenience of chat rooms, have recently constructed a community association web site (or are thinking about it), you have plenty of company. For those who are online, the freedom, the speed, and the efficiency of the Internet is undeniable. It is tempting to incorporate as many of these high-tech luxuries into your association's day-to-day operations as possible. The question is, in an industry where the legislature regulates how business is conducted, just how far can you go to use the Internet for association operations? Has the legislature caught up to technology? This article explores some of the legal and practical issues of using high-tech tools in the community association world.

Web Sites

With some attention to legal details, web sites can be a useful tool to showcase your community; to share information with your members (e.g., a calendar of events, updates on important projects, the governing documents); and to get your members' feedback through informal polls. However, if the association operates the web site, it is ultimately responsible for the information that appears there. Thus, the association must be careful to implement safeguards that: (1) prevent altering the content; (2) restrict who gets at least some of the information; (3) control who can post information and the type of information posted; (4) ensure that the information is up to date and accurate; and (5) protect the association from defamation claims. With these safeguards in mind, here are some practical tips:

Supervise Management Of The Web Site. The board of directors may delegate responsibility for operation of the web site, but bear in mind that the information transmitted on the site will be accessible to at least all of your members, and possibly the whole world (if you don't restrict access). Once the message (whatever it is) is out, it's out, and can be used or manipulated by whoever has access it. A board member should regularly visit the site and make sure that the information communicated is up to date, accurate, and appropriate for a public audience (not privileged, confidential or otherwise sensitive).

Restrict Access. Boards of directors have a fiduciary duty to disclose certain information to members and, in general, should keep members up to date on important association issues. However, boards of directors have no such duty with respect to third parties, namely, prospective purchasers, realtors, lenders, and anyone who visits the association web site who is not an association member. In fact, disclosures to any of these individuals could expose the association to liability, particularly in the context of real estate sales.

To minimize this liability, boards may wish to consider restricting access to the web site, or portions of it, to members only. Service providers have developed different methods of screening users, and verifying identities. Obviously, no system is fail proof. For example, the board has little control over a member who shares his or her personal password to permit an unauthorized person to access restricted areas of the web site. Taking reasonable steps to protect proprietary and sensitive association information will help, but may not eliminate attendant liability. Alternatively, the board should satisfy itself that all of the information on the web site is suitable for public consumption, and consider adding a disclaimer that the information on the web site is intended for members only and should not be relied upon by third parties. In addition, if an outside vendor is serving as your web master, make sure that the board has thoroughly reviewed and is comfortable with its privacy policies which, at a minimum, should explain whether data gathered from users will be shared with third parties.

Attention to Message Boards. Message boards are an area on a web site where users can post their own messages that are viewable to anyone who has access to the web site. Even though the association is not the author of these messages, if the association operates the web site, it is nonetheless responsible for the content of the web site. Hateful, discriminatory, or defamatory comments can come back to bite an association in the form of a lawsuit. At the same time, in some cases, censoring members' speech arguably exposes an association to liability for infringement of the members' constitutional rights to free speech.

To avoid these risks of liability altogether, the safest course is to simply not have a message board. Alternatively, boards of directors may wish to restructure their message boards so that members are only given the opportunity to share positive information; e.g., a message board where members can list the names and phone numbers of contractors whom they would recommend, without room for further comment.

Approve The Content. The board of directors may wish to consider appointing an editor who is responsible for approving all content before it is posted on the web site. Further, all information on the web site should be presented in a ?read-only' format, so that users cannot modify the information presented.

E-Mail

Anyone who uses e-mail is familiar with its convenience. Here are some of its hazards:

Not a Board Meeting. E-mail discussions should not substitute for deliberations at board meeting. Convinced that directors in some associations routinely congregated in secret to discuss association business outside the presence of the members, several years ago the legislature enacted the Open Meeting Act ("Act"). Under the Act, a majority of directors may not meet to discuss scheduled association business without providing members with due notice of the meeting, the opportunity to attend, and speak (subject to time limitations). Like telephone "polls," e-mail "conferences" do not form a proper basis for board action unless the board's decisions are subsequently ratified at a board meeting or by unanimous written consent. Even then, violating the spirit of the Act, by routinely debating and deciding association business over e-mail or in chat rooms, may trigger the suspicion of your members, raise challenges, and under certain circumstances expose the board to liability. This is an area where it is wise to tread cautiously. E-mail is an efficient tool for the rapid exchange of ideas and information, but should not be the board's primary means of communication. Substantive debates and decision-making should be saved for board meetings.

There are times when it is perfectly acceptable for a board to deliberate privately, outside the presence of the members. Under the Act, these executive sessions may be used only to discuss litigation, matters relating to the formation of contracts, member discipline, and personnel matters. Although not specifically listed in the Act, it is also advisable to meet in executive session to discuss any communication to or from the association's attorney, in order to preserve the confidentiality of that communication.

Still, the board should exercise caution when discussing even executive session matters via e-mail. Under Corporations Code 7211, directors may participate in a meeting through conference telephone, electronic video screen communications, "or other communications equipment," so long as each director participating in the meeting can communicate with all other members concurrently, can object, the board has a means of verifying that the participants are directors, and a quorum is present. It may be possible to meet all of these criteria if meeting in a chat room, but e-mail does not afford the opportunity for concurrent communication. Therefore, even when discussing matters appropriate for executive session, the board should save decision-making for an executive session in a setting that satisfies the above criteria. Another reason to be cautious when discussing executive session matters online, is security. Once you click on "send," you lose control over your e-mail. What if the recipient forwards your e-mail to a third party intentionally or inadvertently, or carelessly attaches it to another message sent to an unauthorized third party? What if you inadvertently send the e-mail to the wrong person? What if the recipient manipulates your message or quotes it out of context? Unless the board is using software to encrypt its messages, it is safest to assume that your e-mails might be viewed by just about anyone.

Hard or Soft, It's still Mail. Most associations are corporations, legal entities separate and apart from the individual directors and members. Part of the board of director's responsibilities is to maintain the association's records. That's a common sense concept that most everyone has incorporated into their routines, at least when it comes to hard documents that you can hold in your hands, file in a cabinet, and which will live on in the association's files long after your term expires as a director, or you are no longer the association's manager. However, this process is not always routine when it comes to e-mail. When you exchange important correspondence via e-mail (e.g., a record of reporting and responding to leaks or other maintenance issues; or letters from the association's counsel), you may be saving it on your hard drive, but who is printing it out and adding it to the association's records? Electronic data can be lost through a virus or malfunction. It may not be necessary to print and store every single e-mail sent or received by the board, but the board should exercise its judgment to be sure that e-mails which reflect important activity are printed and filed, and have a system for doing so.

It's Discoverable. Like association minutes and most association documents, e-mails are generally discoverable in a lawsuit, meaning that someone can potentially get a court order to review not only the e-mails that you have in your in-box, but even those that were long ago deleted, but are still accessible on offline storage, such as back-up tapes or archives. Be careful of the casual allure of e-mail, watch out for flippant comments, and think before you click. Innocent comments can be a source of liability when looked at under the litigation microscope.

Membership Meetings

Notices. Corporations Code 7511(b) provides that notice of a members' meeting must be given "personally or by mail or other means of written communication, addressed to a member at the address of the member appearing on the books of the corporation or given by the member to the corporation for the purpose of notice." It is unclear whether the word "address" would encompass e-mail addresses as well, or that "written" would encompass notices typed in an e-mail. However, even under the most liberal reading of this statute, sending a notice of meeting via e-mail would only be okay if the member had requested that notices of meetings be provided to him or her via e-mail, and the practice was not prohibited by the governing documents. Posting a notice of a meeting on a web site is fine, but in and of itself would not constitute a lawful notice; in other words, it must be supplemented by a mailing.

Proxies. Although the law does not specify how proxies are to be distributed to the membership, it is probably not a good idea to distribute them only by e-mail, or only by posting them on the association's web site, since some members may not have access to computers, or may have technical problems opening a file. A more difficult question is whether members may submit their own completed proxies to the board via e-mail.

Under Corporations Code 5069 proxies, by definition, must be signed, by "the placing of the member's name on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the member or such member's attorney in fact." While not yet tested by California courts, it appears that a strong argument can be made that a member could submit a proxy to the board via e-mail, so long as the proxy otherwise satisfied the requirements of the Corporations Code and governing documents.

Membership Meetings Online. The wave of the future will probably be to allow voting online, but it seems that the legislature has not caught up to this concept. The Corporations Code provisions regarding membership meetings, contemplate that the meeting will occur at a physical place [e.g., 7510 provides, "Meetings of members may be held at a place within or without the state that is stated in or fixed in accordance with the bylaws. If no other place is so stated or fixed, meetings of members shall be held at the principal office of the corporation. (emphasis added)"]. Presumably, if virtual meetings online were allowed, the legislature would have so stated, as it did when it amended the Corporations Code to allow directors to participate in board meetings by use of communications equipment (discussed above). Further, under the Open Meeting Act, members must be allowed to "speak" not only at board meetings, but also at membership meetings. Unless every member has a properly functioning computer, with Internet access, during the time scheduled for the meeting, not every member will have the opportunity to speak at the meeting.

The issues presented by technology are new and evolving. I've only touched on a couple of the arguments against membership meetings online, and not the arguments in favor of it. The bottom line, however, is that as of today, no law expressly allows virtual membership meetings. If you are thinking about trying it, I would urge you to consult with the association's legal counsel before proceeding.

Written Ballots. Associations may circulate "written ballots" to members, in lieu of holding a membership meeting (with the exception of election of directors if the governing documents allow cumulative voting), if not prohibited by the governing documents. Written ballots must be distributed by the board to each and every member. Under the Corporations Code, written ballots are to be solicited in the same manner as notices of meeting. Therefore, for the same reasons discussed above, we do not recommend that the board use e-mail or the posting of a written ballot on a web site as the exclusive means of distribution.

Conclusion

The bottom line is that most of us are running with Internet speed, and the legislature is struggling to keep up. E-mail permits the fast exchange of ideas but should be used cautiously, as members have a right to observe board decision-making at board meetings. Finally, until the technological and legal glitches are worked out, and you are assured that all members have Internet access, it's probably best to rely on snail-mail and old-fashioned meetings to reach your members.

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