By Steven S. Weil, Esq.
It would be impractical to require that every act and decision for an association be approved by its membership. On the other hand, it would be equally unwise to allow a board of directors to have sole control over the operation of an association. Where should the lines of power be drawn?
The Davis-Stirling Common Interest Development Act (DSA) and the Corporations Code contain many laws that reflect the tension between membership rights and board prerogative. One of the most important are the laws regulating the conduct of board meetings. These are contained in Civil Code section 1363.05. They are so important that this statute is referred to as the "Common Interest Development Open Meeting Act" the only statute within the DSA called an "Act." This article highlights the check on board power contained in the Act as well as rights and powers which are reserved to the board. It's mostly written as a "Q&A" reflecting the kind of questions about board meetings posed to us by our clients and their managers. Also, we've tried to handle these issues on an informal, practical and general basis.
Most associations are non-profit corporations and thus subject to the Corporations Code. It requires the board to keep and permit the inspection of board meeting minutes but otherwise gives members virtually no rights concerning board meetings. Member rights under the DSA were originally minimal but over the years expanded to address posting of notices (and special notices for meetings to consider reserve fund borrowing); access to draft minutes; requiring executive session for certain assessment collection issues; and, most recently by generally limiting board discussions to those contained in a notice (an agenda) published four days prior to the meeting.
Current Law – What You Need to Know about Limits on Director Discretion
Q: The directors want to meet for a "study session" to go over a draft budget; is this a board meeting? What is the definition of a meeting and why is it important?
A: A board meeting "happens" when a majority of the board meets to discuss or vote on association business that is the subject of ongoing board meetings or a planned agenda. An informal work study session attended by a majority is probably a "meeting." The significance of labeling a gathering a meeting is that it requires the posting on common area of a notice and an agenda four days prior and members are entitled to attend. The idea is to compel boards to meet in the open and so publicly defend or speak for their positions and votes.
Q: Do members have the right to attend all board meetings?
A: Yes except for emergency board meetings or those held in executive session. In general, these should be infrequent so the general rule is that members can attend all board meetings and thus "monitor" the doings of their elected representatives.
Q: How do the members know if the board has had an emergency or executive session meeting?
A: Minutes of an emergency meeting must be taken and available to members, just like an "open" meeting of the board. Minutes of executive session, if kept, are not subject to membership examination but the subject matter of an executive session meeting must be included in "open session" minutes.
Q: What subjects are proper for executive session?
A: The Act says that executive session meetings are to consider litigation, contract formation, member discipline, payment plans and foreclosures. Executive session is also proper to consider claims strategies or other confidential issues, especially when legal advice is sought or considered.
Q: How do members know what the board discussed or decided in executive session?
A: This is one area where the law permits the board wide latitude to be "discreet." There is no specific legal requirement for what information a board publishes about its executive session meetings. Here are some examples: "The directors met with an owner to discuss an alleged violation of the CC&Rs" or "The directors met with counsel to consider hiring experts to investigate roof concerns" or "The board met to discuss the contractor's last proposal to make repairs" or "counsel's analysis of the association's risk of getting sued for opposing the construction of a nearby strip mall."
Executive session meetings permit the board to weigh risks, benefits, costs and the consequences of one course of action or another without disclosing its strategies or concerns. This is essential to help the board discharge its "fiduciary duty." However, sooner or later, a smart board will want to "go public" to explain and defend decisions made.
Berding|Weil partner Randy Paul and associate Allison Andersen overcame the complications of litigating construction defects in a resort timeshare and around residents who did not expect their time at the resort to be interrupted by our investigations to secure a $25 million settlement for the client. Special care had to be taken in working with experts to determine a repair that was cost effective while not inconveniencing the timeshare owners in the process. Working with our co-counsel in Los Angeles we succeeded in recovering this substantial settlement to cover repairs and compensation for consequential loss resulting from design and construction deficiencies . In addition to the attorneys, our experienced team of paralegals and support staff worked tirelessly to arrange inspections, review documents and assist in preparing for a multitude of depositions before finally reaching settlement. Congratulations, to Randy, Allison, and the staff!
THE THREE-YEAR TRAP AND OTHER PROBLEMS WITH AN ASSOCIATION'S RECORDS IN LITIGATION
By Elizabeth Bassett
"What are Assessments?"
The owners in a common interest development pay Assessments to provide the funds necessary to operate the association in accordance with its budget. Assessments are normally paid monthly.
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