Friday, April 27, 2012

by Augustus H. Shaw IV, Esq., CCAL

Probably the most important meeting a homeowners association is required to conduct is the Annual Meeting of the Members. Not only do most Governing Documents require associations to conduct Annual Meetings, Arizona law requires associations to conduct an Annual Meeting at least once per year.

Annual Meetings are meetings of the Members. They are held to conduct the “business” of the Membership and allow the Membership to address their association. In most associations, Annual Meetings are conducted for three main purposes: 1. To Conduct Member “Business”; 2. To Elect Members to the Association’s Board of Directors; and 3. To Allow the Members to Address their Association.

By far the most important purpose of an Annual Meeting is to elect Members to the association’s Board of Directors. Effectuating an election to the Board of Directors takes a great deal of forethought, especially in light of Arizona Law.

It is very important to remember that the Annual Meeting is a meeting of the Members; meaning that the Members should be provided with an opportunity to address their Board of Directors and other Members of the Association. Many associations attempt to limit who may speak at an Annual Meeting. A good policy to have is to let all Members who wish to speak have the opportunity to speak but limit how long they may speak. I usually suggest no more that 5 minutes per person but this timeframe may be less depending on the number of Members who desire to speak. I further suggest that, where a meeting becomes very adversarial, the Association strictly comply with all time limits, even bringing a stop watch or other timer if necessary.

Friday, April 20, 2012

Association Record Keeping in the Digital Age

By Augustus H. Shaw IV, Esq., CCAL

As Arizona community associations become older, an interesting issue arises; what does a community association do with the boxes and boxes of association records it accumulates over the years?

In today’s litigious community association climate, it is difficult to advise that community associations destroy older records. Moreover, the storage of large quantities of community association records could begin to take a financial toll on community associations and the companies that manage them.

Because of the records storage dilemma, many community associations and management companies are moving toward or desire to investigate the implementation of a paperless or electronic record keeping system. This article will discuss what laws apply to paperless or electronic record keeping and issues community associations and management companies should consider when investigating moving toward a paperless or electronic record keeping system.

Paperless or electronic record keeping requires original paper records be “digitized” for electronic storage. Once “digitized,” the records may then be stored on a server, stored on a DVD, stored on thumb drive or stored on a normal computer.
While in today’s digital age it is an easy proposition to store records electronically, the key question is does the law allow community association records to be stored electronically?

For those community associations that are non-profit corporations (the vast majority of community associations are non-profit corporations), the Arizona Non-Profit Corporations Act will shed some light on a community association’s ability to store records electronically. Arizona Revised Statutes (A.R.S.) §10-11601(D), a provision of the Arizona Non Profit Corporations Act states "[A] corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time."

Therefore, pursuant to A.R.S. §10-11601(D), so long as a community association can take records stored electronically and convert them back to paper form “within a reasonable time,” a community association may store records electronically.

Two final important points. First, the requirement of A.R.S. §10-11601(D) to convert electronic records back to paper form “within a reasonable time” may be easily determined. The Planned Communities Act (at A.R.S. §33-1805) and the Condominium Act (at A.R.S. §33-1258) provides community associations with a ten (10) business day timeframe to have records available for an owner’s review. So long as electronic records may be converted back to paper form in time to abide by the above statutes, the Association will meet the provisions of A.R.S. §10-11601(D).

Second, it is extremely important to have a full-proof electronic storage system for the electronic records. It is advisable to have several backups for the medium in which you will be saving the electronic records. Remember, if a community association cannot convert the electronic records back to paper form within a reasonable time due to a file storage error, the Association may be in violation of A.R.S. §10-11601(D) and possibly A.R.S. §33-1805 (Planned Communities) and A.R.S. §33-1258 (Condominiums).

An electronic record keeping system could save a community association and its manager time and money and storage space. So long as the proper precautions are observed and respected, I see electronic record keeping as the wave of the future.

This article was printed in the Winter 2011 edition of Community Resource Magazine. Community Resource Magazine is published by the Central Arizona Chapter of the Community Association Institute.

Thursday, April 19, 2012

I am the Association! How to Handle the Overbearing Board Member

Every Community Association (or almost) has a Overbearing Board Member, a Member who refuses to keep confidential information, interrupts meetings or represents the Association without full Board approval. Overbearing Board Members can cause a host of legal issues for an association, the Board and the Overbearing Member. This document will discuss the legal liability facing community associations regarding Overbearing Board Members and how community associations should address the situation and protect itself.

As a starting point, it is important to understand that not all Overbearing Board Members have a nefarious intent. Most Overbearing Board Members have a sincere desire to better the community association. Sometimes Overbearing Board Members feel that their actions are in response to a perceived lack of action by the full Board of Directors. Most Overbearing Board Members want to make their communities better but are simply not educated regarding the proper way to accomplish their goals.

So, while this document is meant to instruct community associations on how to identify and address an Overbearing Board Member; this document may also serve as a reflection tool to Board Members so that they may ensure that they do not become an Overbearing Board Member.

An Overbearing Board Member is a member of a community association Board of Directors who displays the following types of behavior:

1. Conducts himself or herself uncivilly at meetings of the Board of Directors;
2. Seeks to enforce the restrictive covenants on his or her own;
3. Fails to keep confidential information;
4. Talks badly about other Board Members; and
5. Fails to thoughtfully consider the advice of experts (i.e. the association’s manager, attorney or other professionals);

Overbearing Board Members can cause a number of practical problems for the Board and the community association. Overbearing Board Members can interrupt the flow of Board meetings and make them more difficult to conduct. Additionally, Rouge Board Members can discourage other Members of the Association’s Board from fully participating in Board Meetings.

While there are a number of practical reasons why Overbearing Board Members are not good for community associations, there are more important legal reasons why Overbearing Board Members should be addressed.

Overbearing Board Members may be difficult to deal with, but they also create a wide range of legal issues for a community association. In order to fully discuss the different types of potential liability, it is important to revisit the actual behaviors.

When an Overbearing Board Member conducts himself or herself uncivilly at Board meetings, said behavior could disrupt the Board meeting and may lead to important issues not being fully discussed. In addition, other Board members may feel deeply offended or intimidated by the Overbearing Board Member’s conduct.

The above could lead to legal liability in the form of a harassment lawsuit against the Overbearing Board Members and a lawsuit against the community association for failing to address the Overbearing Board Member’s conduct.

When an Overbearing Board Members seeks to enforce the restrictive covenants on their own, this activity could lead to breach of the community association’s policies on enforcement. When an Overbearing Board Member takes enforcement action outside of the association’s normal enforcement policies and procedures, this could subject the association to legal liability based on unequal enforcement and breach of the association’s own policies and procedures.

Every community association board discusses information that, for a number of reasons, should be kept confidential. It is important for Board members to keep confidential information confidential. Overbearing Board Members fail to keep confidential information confidential which could lead to legal liability based on harassment, liable, slander and misrepresentation. Divulging confidential information could also lead to a breach of the attorney client privilege and negatively affect legal action involving the community association.

Speaking badly about a fellow Board member can lead to ill feelings and resentment that can affect the efficient operation of the Board. Moreover, it could lead to liable and slander liability if the statements made by the Overbearing Board Member are false or misleading.

Under Arizona Law, a Board member will be held to not breach their fiduciary duty if they thoughtfully consider the advice of experts. Overbearing Board Members tend to believe that they are the expert in everything and hiring an expert is not needed. This type of behavior could lead to a host of liabilities depending on the area of expertise not sought.

Addressing the behavior of an Overbearing Board Member is a delicate matter. This is because, as stated above, the Overbearing Board Member may not feel that their actions are harmful to the association. Moreover, the Overbearing Board Member may feel that they have no other choice but to engage in this type of behavior.

Prior to addressing an Overbearing Board Member, it is important that the manager and other Board Members agree that the behavior of the Overbearing Board Member is problematic. Also, the association may want to obtain legal advice regarding whether the activities of the Overbearing Board Member present an imminent danger to the association.

When addressing an Overbearing Board Member, there are two main processes. There is the informal process and the formal process.

The first step of the informal process concerning the addressing of an Overbearing Board would be to, in an executive session meeting of the Board of Directors, present the Overbearing Board Member with a written list of the behaviors the Overbearing Board Member is engaging in. This should be followed up with a discussion on how the behavior could harm the association and ways to positively address the behavior.

If the Overbearing Board Member continues to engage in damaging behavior, the next step would be to discuss the Overbearing Board Member’s actions in an open meeting of the Board of Directors. A document should be drafted detailing the areas of concern and ways the Overbearing Board Member can address the behavior.

If the Overbearing Board Members continues his/her behavior after the informal process, then the next step would be to conduct the Formal Process. The Formal Process begins with an official letter of censure to the Overbearing Board Member. The Censure Letter should list out the areas of concern and should also list the ramifications if the Overbearing Board Member continues their behavior.

If the Overbearing Board Member continues their activities after a formal Censure Letter has been issued, the association has two remaining options, said options being:

a. The calling of a special meeting of the association to discuss the removal of the Overbearing Board Member from the Board of Directors; or

b. Filing a breach of fiduciary duty lawsuit.

Most community association bylaws allow either the President of the association or a majority of the Board of Directors to call a special meeting of the members. This special meeting of the members could be held to discuss the removal of a member from the association’s Board of directors.

Calling a removal meeting should be only done in extreme circumstances. It is always advisable that prior to calling the removal meeting, the association seek the advice of its attorney.

This is absolutely the last option an association may take regarding an Overbearing Board Member and the most drastic. Before considering this option, the association should consult with its attorney to determine whether this option may be effectuated.

Addressing the issue of an Overbearing Board Member is not easy. Community associations, however, must be able to identify the warning signs and address the issue quickly before the issue leads to legal liability.