Smoking Weed

QUESTION: Our association prohibits smoking in the common areas. Does the legalization of marijuana mean that our rules no longer apply?

ANSWER: With the passage of Proposition 64, everyone is giddy about lighting up a Doobie. They need to read the fine print before doing so.

Limitations. Proposition 64 does not invalidate existing laws, ordinances or restrictions against smoking. Pot smokers cannot light up in restaurants, theaters, schools, daycare centers, airplanes, or public places. If your association restricts smoking in the common areas, it applies to all smoking, including recreational and medicinal use of marijuana.

Medicinal Users. I don’t think there will be a problem with recreational smokers. It’s been my experience that medicinal users can be challenging because they feel entitled. They believe a doctor’s note gives them the right to smoke anywhere, anytime. They are mistaken. Pot smokers do not have a right to negatively impact those around them. If a user is in the common areas and wants their medicine–they can eat a brownie. If they feel the need to smoke–they can find a place without restrictions.

RECOMMENDATION: If someone lights up in the common areas, don’t snatch the joint from their fingers. That will lead to an altercation. Send a letter politely advising them of the smoking restriction. If they refuse to comply, fines and suspension of privileges can be imposed (following a duly noticed hearing). If that doesn’t work, have your association’s lawyer send a letter. If all else fails, file a lawsuit. Sad to say, some people need to be hit with a baseball bat before they get it.

CAMERAS AND
BINOCULARS


QUESTION
: Our home sits in the sight line of the president of our HOA. As a result, we are getting letters to correct the smallest violations on a monthly basis. Our surveillance cameras caught him with binoculars peering at our property. Can I sue for harassment?

ANSWER: That’s awkward–his binoculars and your cameras peering at each other. If the president is truly harassing you, yes you can sue.

In an unpublished case decided in July of this year, an association president harassed a resident by publicly disparaging the resident, improperly towing his guest’s car, sitting outside his house with a video camera, refusing to allow needed repairs, and a number of other improper actions.

The resident sued the association and its president for intentional infliction of emotional stress citing 19 separate incidents. The trial court dismissed the action but the court of appeal reversed. The appellate justices made it clear that directors can be sued for their bad behavior. (See Boswell v. The Retreat Community Assn.)

RECOMMENDATION: Hire a lawyer and start with a letter to the board. If it causes the president to back off, you can avoid costly and uncertain litigation. Litigation is uncertain because a court could easily find that you had numerous rules violations and the president was properly giving notice of those violations.

CONDO BOARD PRESIDENT
MAKES HISTORY


Here is an interesting bit of trivia. We can credit (or blame) a condo board president for making Donald Trump President of the United States.

Kellyanne Conway is a campaign manager, strategist, and pollster. Trump met Conway when she served on the condominium board at the Trump World Tower in Manhattan.

According to a Washington Post interview, Trump would show up at board meetings to hear residents’ concerns. He liked how Conway handled board meetings and followed her career managing political campaigns.

When the time was right, Trump convinced Ms. Conway to run his campaign. Thanks to her steady hand, Mr. Trump is now choosing his cabinet and meeting world leaders.

NOTE: I’ve known for years that if you can successfully run a condo board, you can do anything.

4th ANNUAL
ABC’s of HOAs


HOA Organizers is hosting an event for board members to learn, interact, and meet with industry professionals.

I will cover new laws impacting associations. Demetrios Xanthos will review insurance issues. Neda Nehouray will address board management responsibilities and procedures. Robert Nordlund will provide tips for avoiding special assessments related to reserves and large repairs. There will be Q&A following each session.

This is a free event with a catered lunch and raffle prizes. The program will be held Saturday December 10, 2016 from 11:00 a.m. to 3:30 p.m. at the beautiful Olympic Collection, 11301 Olympic Blvd #204, Los Angeles 90064.
Please RSVP Christina Peterson by email or (818) 778-3331.

In addition, this year’s event will be streamed live on Facebook. If you are unable to attend, you can log onto the HOA Organizers Facebook page around 12 noon to watch the event.

FEEDBACK


I want to thank everyone for their positive feedback on our new website. Below are is a sampling:

Website #1. I checked out your new website and found it to be as gorgeous as promised in your newsletter. Really excellent. Congratulations on a job well done. I’ve always loved your website and considered it an excellent resource both for the public and for attorneys like me who don’t specialize in HOA law. Now it’s a pleasure to look at, too. -Susan K.

Website #2. I love your new website and all the wonderful information you provide–even here in Boynton Beach, Florida. -Gail S.

RESPONSE: It may be time for me to open an office in Florida.

*****

Failure to Investigate. In Palm Springs Villas v. Parth, the president was completely unqualified to be president. She should have familiarized herself with the CC&Rs, bylaws, and other documents prior to her first board meeting. Ditto the financial statements. I don’t know who the lender was but the people making the loan should have done their own due diligence. Moreover, what were the rest of the board doing while this was going on? -John A.

RESPONSE: I agree. Fellow directors should have removed her as president long before. They could have avoided costly litigation.

Adrian J. Adams, Esq.


Adrian J. Adams, Esq.
ADAMS | STIRLING PLC

We are friendly lawyers. For quality legal service, Boards should call (800) 464-2817 or email.

Clubhouse Music Fees

QUESTION: We play music in our clubhouse and have a movie night each week. One of our members said we have to pay a license fee because everything is copyrighted. Is that true?

ANSWER: It depends. Congress allowed for limited exemptions to the licensing rule that clubhouse music could fall into (such as playing a radio or television in a public place if the association does not charge a fee to watch or listen to the performance). Following are some of the guidelines for deciding whether you qualify.

Intellectual Property. Music and movies are the intellectual property of those who create and copyright them. If you authorize the “performance” of their work, you are required to pay a fee. This applies to radio and TV stations, restaurants, department stores, etc. It also applies to community associations that put on “public” (17 U.S.C., §101(1)) performances of music and movies in their clubhouses.

Clubhouse Considered Public. A clubhouse is considered a public forum within the development. (Fermata Int’l Melodies, Inc. v. Champions Golf Club, Inc., 712 F.Supp. 1257 (S.D. Tex.1989); Damon v. Ocean Hills.) One condominium association was found in violation when it played copyrighted songs for a dance held in its clubhouse where it did not charge a fee to attend but asked for a donation, which the court deemed an admission fee. (Hinton v. Mainlands of Tamarac, 611 F.Supp. 494 (S.D. Fla. 1985).)

Clubhouse Movie Night. Unless license fees are paid, clubhouse movie nights for members violate copyright laws. The Motion Picture Licensing Corporation posted the following on its website:

  • Motion pictures and other audiovisual works that are available for rental or purchase are intended for personal, private, home use only. If you wish to show the work in any other place, you must have a separate license that specifically authorizes the public performance of that work. These rules are detailed in the federal Copyright Act, as amended, Title 17 of the United States Code.
  • According to The Copyright Act, only the copyright owner holds the exclusive right, among others, “to perform the copyrighted work publicly.” (Section 106)
  • The rental or purchase of a motion picture or other audiovisual work does not include the right to perform the copyrighted work publicly. (Section 202)
  • Films may be shown without a separate license in the home to “a normal circle of family and its social acquaintances” (Section 101) because such showings are not considered public.
  • Films may be shown without a license to non-profit educational institutions for face-to-face teaching activities because the law provides a limited exception for such showings. (Section 110(1))
  • All other public performances of motion pictures and other audiovisual works are illegal unless they have been authorized by license. Even performances in semi-public places such as clubs, lodges, factories, summer camps and schools are public performances subject to copyright control. (Senate Report No. 94-473, page 60; House Report No. 94-1476, page 64)
  • Both for-profit organizations and non-profit institutions must secure a license to show films, regardless of whether an admission fee is charged. (Senate Report No. 94-473, page 59; House Report No.94-1476, page 62)

Licensing. Associations can purchase annual licenses for music from ASCAP (American Society of Composers, Authors and Publishers), BMI (Broadcast Music Inc.), UMG (Universal Music Group), RIAA (Recording Industry Association of America), and SESAC (Society of European Stage Authors and Composers). A license from any of the above organizations only applies to copyrighted material in that organization’s collection. Accordingly, it may be necessary for an HOA to obtain licenses from more than one organization. For movies, the licensing organizations are MPLC (Motion Picture Licensing Corporation) and Criterion Pictures.

Penalties. Inadvertent violation of copyright laws can result in statutory damages ranging from $750 to $30,000 per violation plus attorneys’ fees and costs. Intentional violations can result in damages up to $150,000 per violation plus attorneys’ fees and costs.

RECOMMENDATION: The laws are wide-ranging and the exceptions can be confusing. Boards should consult legal counsel to see if they qualify for an exception.

DIRECTOR’S FAILURE
TO INVESTIGATE


The business judgment rule protects directors from personal liability provided they conduct a reasonable investigation (due diligence) before making a decision.

In a recently published case, the Court of Appeal found that board president Edna Parth was subject to personal liability for failing to investigate matters before taking action. The court was disturbed that, among other things, she:

1. Hired a roofing company without soliciting bids, checking references or licensing, without verifying insurance, or consulting management or legal counsel. The company proceeded to perform defective work that required additional repairs.

2. Signed promissory notes for $900,000, $325,000 and $550,000, secured by the association’s assets, receivables and property. Parth later testified that she had not reviewed the CC&Rs or bylaws and did not know whether she had authority to sign the notes and was not aware they needed membership approval.

3. Signed a five-year contract with a landscape company and later admitted she did not know if she had authority to sign it. She testified that her understanding of her authority under the bylaws was “none.”

The court noted that the failure of a director to conduct due diligence is a breach of their fiduciary duty. In addition, conduct contrary to the governing documents may fall outside the business judgment rule. The court commented that directors cannot close their eyes to matters as basic as the provisions of the CC&Rs and bylaws and at the same time claim they exercised business judgment.

RECOMMENDATION: Board members should make sure their minutes reflect that they investigated and deliberated on issues before making a decision. In addition, they should consult legal counsel, management, and consultants as may be appropriate. Finally, they should have a working knowledge of their governing documents (and then follow them). To read the case, see Palm Springs Villas II HOA v. Parth

NEW
ADAMS STIRLING
WEBSITE


I am pleased to announce a complete redesign of our firm’s website. It is very classy and provides everyone with an easy way to get to know us.

All of my attorneys are top-notch and they’re friendly. We provide a wide range of legal services which are described on the site.

We also provide significant online resources to the public at no cost.

Check out our new website. I think you will like it.


Board Meeting Agendas #1. I LOVE this newsletter. As a former board member of an HOA, I wish I had had this when I served. -Suzanne K.

Adopt a Highway #1. Have there been any issues regarding limiting this program or halting it altogether due to lawsuits? We live in a community that has become unsightly due to the litter lining the major highway which runs through town. I have heard rumors the program can’t do clean ups anymore because of lawsuits. If this is not true, I will contact our city council and find out why it is not being implemented. Are negotiations possible between Cal Trans and local communities to prioritize litter clean-up efforts? -Allan S.

RESPONSE: I’m not aware of the rumor and there is no mention of it on the State’s website. By all accounts, the program is thriving. You should contact program representatives for more information.

Adopt a Highway #2. Congratulations to Senator Stirling! I remember the days when highways were littered. It was so bad you could not see the forest for the trash. Nice to know there is one lawmaker who actually did some good. -Finn M.

Adopt a Highway #3. Congratulations, Larry. That was just one of your great pieces legislation. -Don B.

Adopt a Highway #4
. Thank you Adrian for your adopt-a-highway recognition. Credit for the success of the legislation also goes to Peter Morin, founder of the Adopt-A-Highway Corporation headquartered in Orange County. -Larry Stirling
Adrian J. Adams, Esq.

 

 


Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We are friendly lawyers. For quality legal service, boards should call (800) 464-2817 or email us.

Board Meeting Agendas

QUESTION: Section 4930 of the Civil Code provides for an agenda to be included with notices but it does not provide a definition of agenda or what the bare bones requirements for one are. I hope your firm will be able to expound an answer.

ANSWER: There are two statutes that refer to agendas:

Notice of a board meeting shall contain the agenda for the meeting. (Civ. Code §4920(d).)

[T]he board may not discuss or take action on any item at a nonemergency meeting unless the item was placed on the agenda included in the notice that was distributed…” (Civ. Code §4930(a).)

Legislators often leave a lot unsaid when they enact laws. They either assume we know what they are talking about or they misjudged things. If nobody can agree on what a statute means, the courts sometimes weigh in. In this case, I don’t think we need a judge to tell us what an agenda means.

Definition. Black’s Law Dictionary defines “agenda” as “items of business or discussion to be brought up at a meeting.” I checked Robert’s Rules of Order but didn’t find anything useful. I then checked the Complete Idiot’s Guide to Parliamentary Procedure and found the following:

If you really want to manage your meeting, you need an agenda. With an agenda, the specific items that are expected to come up at a meeting are placed into the order of business.

How detailed should an open meeting agenda be? It needs to contain enough information so members can easily understand what will be discussed at the board meeting.

Maintenance Issues. For example, if the board intends to discuss installation of a new landscape sprinkler system, reroofing a building, and repainting the clubhouse, a generic agenda item called “Maintenance” is not enough. No one reading the posted agenda will have any idea what that means. The agenda should list each item of business. That way, members can decide if they want to attend and give their opinions during open forum. See sample agenda for open meetings.

Executive Session. Notice of executive session meetings must also contain an agenda. (Civ. Code §4920(d).) Because executive sessions are confidential and topics are generally noted in open meeting minutes (Civ. Code §4935(e)), agenda descriptions are more circumspect. See sample agenda for executive sessions.

RECOMMENDATION. To learn more about parliamentary procedure, I don’t recommend buying the unabridged Robert’s Rules of Order. All you need is a simplified version that covers the basics. Amazon.com has a variety of materials you can purchase.

RENTAL
AGREEMENTS


QUESTION
: Our CC&Rs require that any owner who rents their unit have a signed rental agreement; that the renters provide contact information; that the lease be no less than 12 months; that the renters sign and acknowledge the rules, etc. Our property manager did not request a lease agreement from new renters because they were family members of the owner. If they admit to paying rent to their parents, are they not renters?

ANSWER: If they pay rent, they’re renters. And yes, they need to comply with your rental policies. BTW, it sounds like you have a good set of policies.

SEN. LARRY STIRLING
HONORED


Most people know that Senator Stirling authored the Davis-Stirling Act. Few know that he is also the father of the highly successful Adopt-A-Highway program.

Twenty-five years ago, Senator Stirling authored and then championed a bill to address the problem of highway litter. His concept was simple–authorize a public/private partnership to allow individuals, organizations, and businesses to help maintain sections of California’s highways.

To date, more than 120,000 Californians have cleaned and enhanced over 15,000 miles of roadside by removing litter, planting trees and wildflowers, removing graffiti, and controlling vegetation.

In a 25th Anniversary Celebration of the Adopt-A-Highway program, Senator Stirling was honored for his work and presented with a framed copy of the original bill he authored.

We should all thank Senator Stirling for fathering a concept that has enhanced our highways at no cost to taxpayers. His legislation is so effective, it has been adopted by 21 other states across the nation. Congratulations Senator Stirling!

HIRING FOR OUR
NORTHERN CALIFORNIA OFFICE
 

We are looking for an attorney for our Northern California office to service clients in San Francisco and the surrounding region.

We seek an attorney with at least 5 years experience advising HOA boards.

Please contact Adrian Adams at 800-464-2817 or by email.

Adrian J. Adams, Esq.
Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We are friendly lawyers. Boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Adverse Possession of Common Areas

An interesting case was decided last week. Without approval, a homeowner built a retaining wall on 6,000 square feet of common area. Because of the rural nature of the development, the trespass went undiscovered for several years.

When it was discovered and demands went unheeded, the association sued. The homeowner argued he had acquired ownership of the common area through adverse position.

Under California law (Code Civ. Proc. §§318, 325, 328), a person can acquire legal ownership of another’s land without paying for it if he can prove the following:

1. Possession of the land was under claim of right or color of title;

2. Possession was actual, open, and notorious;

3. Possession was adverse and hostile to the true owner;

4. Possession was continuous for at least five years; and

5. The person paid all taxes assessed against the property during the five-year period.

Payment of Taxes. In a common interest development, payment of all taxes on disputed common area is impossible for a claimant to establish.

Although common areas have value, they are not separately assessed for taxes. Their taxable value is reflected in the increased market value of members’ properties created by common area pools, clubhouses, riding trails, parks, etc. Property taxes on common areas are, therefore, billed to and paid by all homeowners individually, not by the association. (Lake Forest CA v. County of Orange.)

For example, if there are 100 lots, a member claiming adverse possession of common area pays his 1/100 share of the taxes through the increased value of his property. The remaining 99/100 share of the tax, however, is paid by the other 99 homeowners through their own property taxes. As a result, the fifth element of adverse possession cannot be met by a claimant. Such was the ruling in Nellie Gail Ranch OA v. McMullin.

Congratulations to Fred Whitney and his team at Neuland, Whitney & Michael for winning this case for Nellie Gail Ranch.

STOCK CO-OP LEASE
VERSUS CONDO CC&RS


QUESTION
: On your website, you provide a list of governing documents for each type of common interest development. Why do stock co-ops not have CC&Rs? Does a proprietary lease substitute for CC&Rs since they both describe the rights and obligations of the membership?

ANSWER: My website chart does not include CC&Rs for stock cooperatives because they don’t exist. The functional equivalent is the proprietary lease or occupancy agreement.

Different Approaches
. A co-op lease and condo CC&Rs both accomplish the same task but in entirely different ways. It’s like an automobile and a horse. They both carry people from one place to another but they burn different fuels, emit different exhaust, and move at different speeds.

Condominiums. In a 100-unit condominium development, members own their units. In addition, each owns a piece of the common areas. CC&Rs (equitable servitudes) are recorded against each of the 100 condominiums and binds their owners.

Stock Co-op. In a 100-unit stock cooperative, there is only one owner–the corporation. The corporation owns the entire development including the units (called apartments). Members cannot buy an apartment. Instead, they buy stock in the corporation. A proprietary lease or occupancy agreement creates a landlord-tenant relationship between the corporation and the shareholder that gives the person the right to occupy an apartment.

Enforcement Mechanism. If a shareholder breaches the occupancy agreement, he can be evicted from the property. Condo associations often wish they had that kind of authority but they don’t. They cannot evict a member because the association does not own the units. At best, an association can fine, suspend privileges, and seek judicial enforcement of its restrictions.

Conversions. Stock cooperatives are primarily an East Coast phenomenon. Very few were built in California because condominiums are a superior form of ownership when it comes to loans and refinancing. As a result, condominiums have higher market values. That is why so many co-ops have converted to condos over the years. To see the different documents for each form of ownership, see governing document chart.

FEEDBACK

30 Years of Records. Regarding the president who died, I wholeheartedly agree, serving on an HOA board can be detrimental to a director’s health. If the stress doesn’t kill you, a homeowner might. Fortunately, I saw the light and after 8 years I am no longer on my HOA board. There is a burn-out factor. It’s taken me about a year before I could attend a board meeting. -Alice O.

Is it Legal? I believe there was a typo in the Davis-Stirling.com Newsletter last week. You mentioned the “buck-a-coor” program but we were hoping that you meant the “buck-a-Coors” program. This sounds like a very worthwhile and valuable program, especially since we are currently paying $2.49 for a 24 ounce can of Coors. Please provide more information on the exciting “buck-a-Coors” program. -Richard W.

RESPONSE: My nimble fingers must have felt the same way. They immediately went for the buck-a-Coors program instead of CAI’s buck-a-door for their legislative advocate. One could only hope.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Is It Legal?

QUESTION: Can HOAs legally contribute to CAI’s buck-a-door program??

ANSWER: Yes they can. The program is not a political action committee and does not contribute to any political campaigns. Instead, it pays for a consumer advocate hired by the Community Associations Institute’s California Legislative Action Committee (CAI-CLAC).

Annual Onslaught. Each year, 2,000 to 3,000 bills are introduced into the legislature and CLAC tracks those bills affecting associations. The committee is composed of homeowners, managers, and attorneys from around the state dedicated to protecting and improving California’s associations.

Advocacy. I’m familiar with how CLAC works because I am a member. I attend regular meetings where we discuss legislation and decide which bills to support, modify or oppose. We then work to educate key legislators on the impact of a particular piece of legislation. When we need to, we alert our network of readers and ask for letters of support or opposition.

Successes. This year, CLAC successfully opposed a number of bills. Our biggest success was the defeat of AB 1720 (the Hindenburg). The ill-conceived bill would have driven up HOA legal fees throughout California and put volunteers at risk by allowing adverse legal counsel to attend meetings.

Buck-A-Door. Through the buck-a-door program, associations contribute one dollar per residence per year to support CLAC’s valuable work. The money pays for our consumer advocate, printing, postage, and other incidentals needed for CLAC’s operations.

RECOMMENDATION: Associations should build into their their budgets an annual donation to CLAC. To make a donation, see Support CAI-CLAC or CLAC’s Pledge Form. I encourage everyone to sign-up.

30 YEARS OF
RECORDS


QUESTION
: Our manager/board president died. Meeting agendas, financial documents, etc. were never published in 30 years. The records are in her home. Her husband still lives there and seems cooperative. How and who should be asking for the records? Can any homeowner ask for them or should we obtain a lawyer?

ANSWER: I’m sorry for your loss. Serving on a board will shorten a person’s life. So will managing an association. Your president did both.

Lawyers. There is no need to hire a lawyer. The nicest person on your board should make a friendly request to the husband. Offer to help find the records and move them. He may be happy to get rid of them.

Records Policy. Not all the records need to be kept. Your board should adopt a Records Retention Policy. Once that is in place, you can sort through and dispose of most records. For example, you want to keep all minutes from the beginning of time. Financial records, expired contracts, etc. older than seven years can be shredded.

RECOMMENDATION. To avoid any premature deaths to your members, you should hire a management company. Most are good at handling stress. They can also assist with recordkeeping. Whenever possible, you should scan and save your records electronically. It saves trees, eliminates storage, and makes it easy to find documents.

MISSING BOARD
RESOLUTION


QUESTION
: We have a board resolution dated April 17, 2013, signed by the secretary. But there is no mention of this resolution either in the agenda or the approved minutes for this date. I am curious if the resolution is in force nonetheless.

ANSWER: Yes, the resolution is likely in force. The fact that it was signed by the secretary and is part of your corporate records indicates it was authorized by the board. Another indicator of authenticity is if the resolution has been enforced by prior boards.

If you wish, you can reaffirm the resolution at your next board meeting and include it in the minutes. If you do, you should add background information about it being passed in 2013 and the board is simply correcting the record. If, on the other hand the current board is unhappy with the resolution, it can vote to rescind it.

 

FEEDBACK


Humor #1
. While I have to admit I got a good laugh, that was a pretty cold shot about San Francisco being a foreign government. I excused your comment as being some form of latent jealousy because we have the Giants, 49ers, and Warriors. But I still read your blog and enjoy it. -Anonymous

Humor #2. Each week, I think to myself that your commentary can’t get any more humorous, but this week topped them all! Thanks for taking very serious subjects and adding a bit of levity to the mix! -Maryann M.

Humor #3. That was hilarious. Made me laugh. -Laura W.

*****

This concerns enforcement of Burbank’s smoking ordinance.

Smoking. Your article may lead members to believe they can sue one another for violating local ordinances, but that would not be possible unless a private right of action clearly exists under the local ordinance, which would be very unusual. However, an HOA member victimized by second-hand smoke can still bring a cause of action against the perpetrator for public or private nuisance, intentional infliction of emotional distress, personal injury, or other tort, supported by facts that include a defendant’s violation of local smoking ordinances–particularly if the defendant has been cited for the violation. Thanks again for the valuable service you provide. –Dana Rosenberg, Attorney at Law

*****

This concerns a board’s ability to continue a meeting once it loses quorum.

Meeting Quorum. The information you shared in the newsletter is correct. As with many things, there is more than one correct answers. Parliamentary Procedure, and usually Roberts Rules of Order Newly Revised (RONR), are the meeting procedures that deliberative assemblies should apply. RONR does not permit business to continue once the chair is aware that a quorum no longer exists. (RONR §40 Quorum; page 348; line 14-23.) -Victoria C.

RESPONSE: Not to get presidential but statutes trump parliamentary procedures. The Corporations Code does not make an exception for Robert’s Rules when it states a board can continue meeting once quorum is present notwithstanding a subsequent loss of quorum. (Corp. Code §7211(a)(8).) Moreover, the Davis-Stirling Act does not require the adoption of parliamentary procedures for board meetings, only membership meetings. (Civ. Code §5000(a).) As a result, Robert’s Rules never enters the picture. Having said that, boards should end their meetings when they lose quorum, unless there is an urgent matter that needs attending.

Adrian J. Adams, Esq.
Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Meeting Without A Quorum

QUESTION: Two out of five board members attended an open meeting. To establish quorum, the president called one of the absent members on his cellphone and called the meeting to order. The director on the phone then hung up. With just two of five directors the meeting began. Is that legal?

ANSWER: It’s legal but if the board does not have good reason for its action, it abuses the statutory provision. By statute, a board can continue meeting once quorum is present notwithstanding the subsequent loss of quorum provided any action is approved by at least a majority of the required quorum for the meeting. (Corp. Code §7211(a)(8).)

In other words, a board of five directors needs three to establish quorum. It then needs two of the three to approve any motion. If one of the three leaves the meeting, business can continue as long as the remaining two directors vote in unison.

Duty to Attend. Directors are required by statute to perform their duties as directors (Corp. Code §7231(a).) Attending meetings to conduct the business of the association is the primary duty of a director. Failure to attend meetings without good reason is a breach of that duty.

Attendance by Phone. By law, directors can attend meetings by telephone provided all directors can hear and participate in discussions. (Corp. Code §7211(a)(6); Civ. Code §4090(b).) There is no reason for directors to miss meetings since conference phones are inexpensive–including conference speakers for cell phones. I’ve attended meetings where directors were on vacation and called in for meetings. One dedicated director called from France. It’s not that hard to do.

RECOMMENDATION: Unless there was critical business that needed to be done and the other three directors truly could not attend in person or by phone, it may be time for them to resign and be replaced with three members who can attend meetings.

NO SMOKING
ON BALCONIES


QUESTION
: Burbank has a second-hand smoking ordinance that prohibits smoking of any kind in the common areas. The police will ticket but only if they see the person smoking. What are my enforcement options when residents ignore the ordinance and smoke on their balconies? Can I force the board to take corrective action?

ANSWER: If the CC&Rs require owners to follow the law, then yes, an anti-smoking statute is enforceable via the CC&Rs. Your board can hold hearings and levy fines against the smoker. In addition, smoking can be restricted as a violation of the nuisance provision of the CC&Rs.

Individual Action. If your association refuses to take action, it could face potential liability. Not only can you take action against your association, you can enforce the CC&Rs against your neighbor, unless they provide otherwise. (Civ. Code §5975.) That means you can sue your neighbor for breach of your CC&Rs. For good measure, you can include causes of action for violation of your city’s anti-smoking statute, anti-nuisance statute, and negligence statute. To enforce a statute you must be a party the statute intended to protect, which is the case with the anti-smoking statute.

TIGHT BUDGETS AND
TOUGH CHOICES


Robert Nordlund (Association Reserves, Inc.) and I will speak to managers and board members at a luncheon sponsored by the Los Angeles Chapter of CAI.

We will discuss ways to properly fund reserves when an association faces difficult funding decisions. We will address the duties and potential liability of managers and directors alike when it comes to reserves.

The educational luncheon will be held this Wednesday, September 21 from 11:30 to 1:30 at the City Club in downtown Los Angeles. For more information and to register, CLICK HERE.

FEEDBACK


Banning Criminals #1
. While an association can vet owners who want to become officers or directors, I don’t know if there is any practicable or legal way for an association to vet prospective buyers or tenants of owners or even force an ex-con owner to move out. Any thoughts? -Stephany Y.

RESPONSE: Once we learned of Robert Durst, the association passed an amendment and made a demand. When the demand was not met, they suspended all of Durst’s privileges (including parking, cable TV, and internet). This was followed by court hearings, at which point Durst agreed to move. Rather than vetting all prospective buyers or tenants, HOAs can bring the restriction into play when they learn of a person’s disqualifying criminal conviction.

Banning Criminals #2. San Francisco recently passed a law limiting our ability to check the background of job applicants before offering them the position. This has already caused problems with a new hire for one of our HOA clients. Can associations pass restrictions in their CC&Rs covering employees and vendors similar to those you outlined covering residents? -Ed D.

RESPONSE: Ah, yes. San Francisco. You should talk to your association’s legal counsel. I don’t have any expertise with foreign governments.

Banning Criminals #3. We may have two drug dealers who reside with an owner. They do not own or even rent. I believe they are squatters with permission. Do you have any advice on how to go about finding out their criminal history? -Devorah A.

RESPONSE: If you can get their names, a private investigator can quickly track down their criminal histories. If you have evidence they are actively dealing, you can get the police to take action. If they are living in the unit peacefully and following the rules, there really isn’t much you can do. Smart criminals fly under the radar.

*****

This feedback addresses the unauthorized practice of law by managers and members.

Practicing Law #1. The unauthorized practice of law is a good topic. Many “legal” concerns by board members have answers that are routine, administrative, and common knowledge in the industry, which managers can answer. Our standard response for complicated issues is “Here is our current understanding of that issue (the code, regulations, case law, commentary, etc.). If you want to pursue it, we will work with counsel to develop a cost effective response.” -Donald W. Haney, CPA, MBA, MS(Tax)

Practicing Law #2. One of our residents graduated from law school. However he either did not take or did not pass any bar exams in any state and has never been licensed to practice law. Yet he constantly offers “legal” advice to our board, often disagreeing with their well-qualified HOA attorney. Unfortunately, many residents and board members take this guy’s advice seriously no matter how flawed it is. Can you suggest a way to remedy this situation? -Anonymous

RESPONSE: The Chicago way comes to mind but that presents all sorts of legal problems. Self-important homeowners are annoying and exasperating. They have an exaggerated view of their own intellect and love to show everyone how smart they think they are.

Fiduciary Duty. Boards owe fiduciary duties to the membership and one of them is due diligence. That means properly investigating a matter and relying on the advice of qualified individuals. Accordingly, your board should follow the advice of your HOA attorney regardless of any advice to the contrary by your lawyer-wanna-be. Following a pretend lawyer can put your board at odds with the Business Judgment Rule and expose them to personal liability.

*****


Old Folks. There are way too many stereotypes about “old people,” and their lack of computer skills is one of them. I’ve been using the internet since Al Gore invented it! -Wayne W.

*****


Next Door #1
. I guess all Next Door groups are different. I belong to one where I have yet to hear one member complain about condo management issues. Maybe we’re just lucky. As far as I know whoever manages the Next Door group can issue warnings and delete the membership of anyone who abuses it. Obviously, Next Door was never intended for discussions about condo management. I can see where that would ruin a good community service. -Lulu L.

RESPONSE: Next Door can be quite useful if the administrator is willing to set guidelines and block anyone who abuses their privileges. If it becomes a platform for complaints, Next Door deteriorates into a harmful echo chamber.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Banning Criminals

QUESTION: We are concerned about criminals living in our association and serving on our board. Is there anything we can do about it?

ANSWER: You raise a good topic. Several years ago, I drafted language for an association in Beverly Hills to ban felons from residing in their community. The membership passed it with lightning speed because convicted felon and accused murder Robert Durst had moved into their development.

Last year, HBO aired a documentary about him called “The Jinx, the Life and Deaths of Robert Durst.” During the filming, Durst took a break to use the bathroom where he muttered to himself (unaware his lapel mic was still live), “What the hell did I do? Killed them all, of course.”

Durst is believed to have murdered his wife Kathie, his neighbor Morris Black, and his friend Susan Berman. He is currently in jail in New Orleans on a weapons charge awaiting extradition to California for the murder of Susan Berman.

Robert Durst’s existing felony conviction is for evidence tampering, i.e., dismembering the body of Morris Black and throwing the parts into Galveston Bay. When limbs and torso washed ashore, the trail of blood led to Durst. At his trial, Durst described how he used a paring knife, two saws, and an axe to dismember his neighbor.

The Beverly Hills HOA was understandably alarmed and wanted Durst out of their association. In addition to being terrified, would they have to disclose to potential buyers that he lived in the development? If so, property values and sales could plummet.

I used the newly adopted CC&R amendment to force Robert Durst out of the community, so your question about prohibiting criminals is relevant.

Board of Directors. Barring felons from serving on boards is not uncommon (see Felons on Boards). However, a ban on “criminals” living in an association is a different matter. I will start with arrest records and move up from there.

Arrest History. Amending your CC&Rs to ban residents on the basis of their arrest history is too broad. Getting arrested does not make one a criminal. I have no doubt a court would strike down such a restriction as overbroad and unreasonable.

Criminal History. Also too broad is a prohibition of residents with a criminal conviction. It’s a bit unsettling but nearly one-third of the population in the United States has a criminal record of one kind or another. Most of them are misdemeanors. Someone who smoked pot or shoplifted 30 years ago as a teenager should not be barred from buying into an association–he/she does not represent a danger to their neighbors. HUD guidelines specifically address this issue.

HUD Guidelines. In April 2016, the U.S. Department of Housing and Urban Development (HUD) issued a guide on how to apply Fair Housing Act standards to the use of criminal histories by housing providers. (HUD – Criminal History.) Although an association is not a housing provider, it is often viewed as such by HUD and the courts. HUD deems denial of housing based on a generic criminal history as a violation of the Fair Housing Act. According to HUD’s Office of General Counsel:

[a] housing provider that imposes a blanket prohibition on any person with any conviction record–no matter when the conviction occurred, what the underlying conduct entailed, or what the convicted person has done since then–will be unable to meet this burden [that the restriction is legitimate and nondiscriminatory].

Felony Conviction. However, a restriction on felons is enforceable if done properly. HUD guidelines provide that:

A housing provider with a more tailored policy or practice that excludes individuals with only certain types of convictions must still prove that its policy is necessary to serve a “substantial, legitimate, nondiscriminatory interest.” To do this, a housing provider must show that its policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property and criminal conduct that does not.

That means white collar felons and perjurers present a low risk to resident safety whereas a recently released violent criminal, arsonist, registered sex offender, or drug dealer could be deemed a threat.

Drug Dealers. Section 807(b)(4) of the Fair Housing Act specifically allows for denial of housing to someone convicted of the illegal manufacture or distribution of a controlled substance. The exception requires a conviction, not merely an arrest, and does not apply to other drug-related convictions, such as possession.

RECOMMENDATION. Associations can amend their governing documents to restrict certain types of criminals. If an association wants to amend their documents, boards should work with legal counsel to draft a provision that is narrowly tailored to prohibit those who represent a risk to the safety of residents or the safety of the association’s property.

Thank you to attorney Wayne Louvier in our Orange County office for researching this topic.

ANNUAL EDUCATION
CONFERENCE & MINI-EXPO


I will be a speaker at the Bay Area’s Annual Educational Conference and Mini-Expo put on by the Community Associations Institute. The conference is for board members, managers and homeowners alike.

Speakers. We have a great line-up of speakers, including attorneys Amy Tinetti, Alex Noland, Emily Clark, Andrea O’Toole, Edith Murphy; insurance specialists Don Davis and Terri Guest; management leaders Adrianne Breta, Leanne Anderson-DeMattei and Tom Murphy; reserve specialist Robert Browning; industry leader Robert Riddick; and others. (See Conference Schedule.)

Keynote Speaker. The keynote speaker will be the humorous Beth Ziesenis, a technology expert who speaks around the country about the best free and bargain apps and online resources to release your inner Nerd to become more organized, efficient and awesome at work and home. The conference always has a large turn-out so reserve your spot now. Click Here to Register!

WHEN 
Friday, September 16,2016
WHERE
  San Ramon Marriott
2600 Bishop Drive
San Ramon, CA 94583
FOOD
  Breakfast and lunch are provided!
FEEDBACK


FHA Loans
. Lend is the verb, loan is the noun. -Judge Stirling

RESPONSE: There are two theories to arguing with a judge. I’ve learned that neither works. I had to reread last week’s article to find the error, “banks refuse to loan to…” That must be why banks are called lenders instead of loaners.

*****

Nextdoor #1. Adrian, I am glad you mentioned Nextdoor.com in your newsletter. Some of our members use this site to rant endlessly about the board, the manager, and everything else in our association. They have bullied other members and polarized our community. The site has turned into a toxic dump. -Anonymous

RESPONSE: Last month National Public Radio disabled the “comment” portion of their website. They discovered that “public” input turned out to be only .06% of their listeners. They also discovered that the majority of that tiny fraction consisted mostly of disaffected ranters who were abusive and posted endlessly. In other words, the crazies took over. Whoever runs your Nextdoor site should block the nut jobs that seek to tear apart your community.

Nextdoor #2. In your comments about disciplinary actions in executive session, does that member not have the right to have it held in open session? -Stanley F.

RESPONSE: No, he doesn’t. Members subject to a disciplinary hearing have the right to request executive session, not open. (Civ. Code §5855(b).) Disciplinary hearings in open session are a bad idea.

Nextdoor #3. I read with a grimace your suggestion to amend the bylaws/CC&Rs. You know what a painful, time-consuming and costly process that can be. In the particular case of the disciplinary hearing, I suspect that the alleged violation had to do with the rules & regulations, which are rather easy to amend since the board can do that with proper notice to members. I find that members, not familiar with the governing document hierarchy, usually group them all in one and call them “the CC&Rs,” but would suggest that you, as a professional insider, clearly separate them so as to not confuse the already confused! -Ed V.

RESPONSE: I agree it is difficult to restate documents. Despite its difficulty, most associations are successful. We restate 40 to 50 sets a year. Of those 10 to 12 require judicial approval because the membership cannot reach a supermajority approval requirement. As you mentioned, the restriction discussed last week may have been a rule. Even so, many of those are based on CC&R restrictions. Eliminating a rule is easy but it doesn’t do any good if it reflects a CC&R restriction. If so, the CC&Rs must be amended.

*****

Going Green #1. Your nifty incentive of having members serve on the board if they don’t comply with electronic delivery of documents shows how undesirable serving on a board is…hell’s fire! -Priscilla K.

Going Green #2. As you know, I always enjoy your newsletter. One thing you didn’t mention is the propensity of some managers to practice law without a license. You could also have pointed out that the manager had no business issuing legal opinions about anything and should stick to the business of managing lest he/she be sanctioned for practicing law without a license. Just sayin’. -Susan K.

RESPONSE: I covered this issue a couple of years ago and one reader almost had a stroke when I pointed out that managers are not licensed to practice law and should not be offering legal opinions. The offended manager thought it was self-serving for me to say that only lawyers could practice law. Here is a link to Managers Practicing Law.

Going Green #3. You often raise issues and ideas that make my service to associations much less traumatic. I appreciated the idea of the $10 credit for members to enroll in electronic delivery of documents. This idea of a credit for behavior benefiting the association might help with elections, too. How about enacting a small credit for members who vote? Three cheers. -Henry C.

RESPONSE: Yes, it can be done. See Incentives to Vote.

Going Green #4. Regarding the response about sending required documents electronically, does this mean an HOA is not required to send required documents via regular mail (budget, reserves report, etc.)? Are there any limitations on what cannot be sent electronically? -Wendy C.

RESPONSE: If owners don’t authorize electronic delivery, associations are required to deliver reports and disclosures by cutting down trees. That is precisely the problem boards are trying to avoid. Also, there is no limitation on what can be sent electronically once authorized by an owner.

Going Green #5. Switching to electronic delivery is really not for everyone because there are still people who do not own a computer. You will probably find this mostly with the class of people whom have matured in age. There are still some out there and I can only speak from my experience of having parents whom do not own a computer. The term “old school” might be a better term. -Sharon G.

RESPONSE: Don’t sell old folks short (old folks are anyone older than me). You would be surprised at how many use computers and smart phones. According to a 2015 survey by the Pew Research Centers, 84% of American adults use the internet. Although older adults lag behind, 58% now use the internet. Following is a chart showing that old folks are closing the gap:

To see the full report, go to Americans’ Internet Access: 2000-2015.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Executive Session Without the Manager

QUESTION: Can our board meet independently, without the manager present, and without advertising the meetings to discuss, interview, and hire a new management company?

ANSWER: It’s the board’s meeting not the manager’s. So, yes, directors can meet without the manager. However, the board still needs to give notice of the meeting. It may be a little awkward since the manager may suspect or know the purpose of the meeting. Even so, the Davis-Stirling Act does not provide an exemption for awkwardness–only for emergencies.

Interviews. In most instances, the board can simply tell the management company they are unhappy with their performance and plan to interview other companies. If the board is paranoid their manager will sabotage things, it can appoint less than a quorum of directors to interview other companies. The committee can then meet without notice and make a recommendation to the full board for action once it finds the right company.

RECOMMENDATION: Before interviewing other companies, the board should first have legal counsel review the management contract and advise on how best to proceed. Otherwise, the association may find itself in breach of contract and liable for damages.

EMAIL
NOTICE REQUEST


QUESTION: If an owner requests notice of board meetings by email, is the association obligated to provide it?

ANSWER: Per statute, members can request individual delivery of notice of meetings and the association must provide it. However, the Davis-Stirling Act allows the association to choose the method of delivery. Delivery can include first-class mail, registered or certified mail, express mail, or overnight delivery by an express service carrier, and email, facsimile, or other electronic means (if the recipient has consented in writing to that method of delivery). (Civ. Code §4040(a).)

SEATING
ARRANGEMENT


QUESTION
: Is there a seating protocol for board members on the dais? Is it appropriate for the manager and attorney to be seated on the dais? What is common practice?

ANSWER: There is no seating protocol that I’m aware of. I checked Robert’s Rules of Order and found nothing on the subject.

Seating Arrangements. I’ve been in meetings where the board, manager and attorney were (i) on an elevated dais with everyone facing the audience, (ii) seated at tables in a “u” shape (common with larger boards), (iii) seated at a round table with the backs of some directors to the audience, (iv)  seated randomly in comfy chairs in someone’s living room, and (v) seated in folding chairs on one side of a pool and the audience on the other side (a quasi separation of church and state–if you could walk on water, you could join the board). My favorite is where the board met in the alley next to a dumpster and everyone stood (it made for very short meetings).

On A Dais. When the board meets on a dais facing the audience, the most common position for the manager and attorney is at the end of the table. The second most common is for the attorney to be seated next to the president so he/she can consult with the attorney as-needed during the course of the meeting.

RECOMMENDATION: Generally, the larger the association, the more formal the seating arrangements. Boards should pick one that is comfortable for them.

FEEDBACK

Unsigned Bylaws #1. Regarding signing bylaws because lending institutions demand it, would writing “without prejudice” above board signatures preserve the board’s rights? It might make them less reluctant to sign. -LL

RESPONSE: Adding that language may make the board happy and the lenders unhappy. Bureaucrats are a sensitive lot and easily miffed. They may take their loan and go home. A simple affirmation of the bylaws makes them happy and does not put the board at risk. I recommend signing a certification prepared by the association’s attorney.

Unsigned Bylaws #2. I just love your comment on the bylaws and nearsighted clerks in cubicles. Finally somebody says what he really thinks. The funny thing is, most people don’t really know the difference between CC&Rs and bylaws. The CC&Rs should be the important documents to be signed. Why would voting, membership and directors’ responsibilities matter to mortgage lenders? Thank you for making me chuckle. -Marlis V.

RESPONSE: You’re right, CC&Rs have a higher ranking in the food chain than bylaws. (Civ. Code §4205) They are recorded while bylaws are not. When I take on representation of an association, I require a recorded copy of the CC&Rs. If they don’t have a set, I run title and get one. Why do lenders want bylaws to be signed? Because someone in Washington DC told them so. As I noted last week, they never read them–they really don’t care what’s in them. They just want someone to affirm they are legit so they can check off a box on their list.

Contravention & Subjugation. Can an association enact and enforce rules that contravene state, county or city laws? Does the fact that our HOA is built entirely on private property (not public land) give the association the right to subjugate public law? -Bill H.

RESPONSE: In my experience, the law rarely agrees to subjugation. I’ve dealt with public entities and they can get heavy-handed when persons or entities cross them. Also, an illegal act is still illegal whether on private land or public land. If you are concerned, you should have your rules reviewed by legal counsel.

*****


Troublesome Owner.
Thank you for your newsletter, it provides great content and good humor. In last week’s feedback you stated that, “Insurance carriers can drop risky associations at a moment’s notice…” In California, insurers are required to provide a 60-day notice if they will be non-renewing a policyholder’s coverage or will be substantially modifying the terms and conditions of the policy (premium increase over 25%, changes to the deductible structure, etc.). Also, any carrier will open a claim on the association’s policies if an owner calls in but the HOA does have the right to withdraw first party property claims. -Brian Kalmenson, Michael Abdou Insurance Agency

Executive Session. Our members’ listserv provides informal discussion such as “Does anyone have a bike I can borrow?,” announcements, and a place to complain about the board, manager, and vendors. The landscaper is one of the listserv’s favorite subjects. Our board will be evaluating their performance at an upcoming meeting. I wonder about comments made during our meetings’ open forum and on the listserv. Should I worry they could lead to litigation by the vendor? -Patty M.

RESPONSE: If individual owners saying something defamatory, they could be at risk of being sued. As a board, it’s the association’s deep pockets you should worry about. That’s why you want to hold your discussion in executive session. As for the listserv, board members should not participate in any discussions related to the association. If they want to borrow a bicycle or list their car for sale, that’s fine. It’s all the other stuff that can get them in trouble.

*****

Life of Crime #1. “Playing pool, however, could lead to a life of crime.” Very good! Adrian, you’re just about the only attorney I think I like. -Lee M.

Life of Crime #2. Thank you Adrian for your closing statement re pool & crime–point well taken and a Sunday morning out-loud laugh! -Kathryn C.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Unsigned Bylaws

QUESTION: The Veteran’s Administration, HUD, Fannie Mae, and Freddie Mac are now requiring that boards sign their bylaws or sign a certificate stating that the bylaws are the operable bylaws. Some boards are refusing to sign them. They say they have always used the bylaws, therefore they are legal. What does the law say regarding this?

ANSWER: The boards are correct. Unsigned bylaws are legal and associations function perfectly fine with them.

Lenders. Unfortunately, some nearsighted clerk in a little cubicle in Washington DC thinks lending institutions will suffer if an association’s bylaws aren’t signed. Hence the requirement. Even though lenders never read the bylaws, they are now demanding evidence that they are “official.” If boards don’t cooperate, lenders will withdraw loan commitments and escrows will fall through. This creates significant potential liability for boards of directors.

Certification. Boards are reluctant to sign their bylaws because they feel like they are doing something improper by putting their names on a document they didn’t create. They should not be concerned. There is nothing wrong with signing a one-paragraph certification affirming that the bylaws used by the association are the bylaws used by the association.

RECOMMENDATION: Boards should look at the last page of their bylaws and see if they are signed. If not, call your legal counsel and ask him/her to prepare a certification. Then, adopt a resolution authorizing the president and secretary to sign the certification. Staple that certification to your bylaws. You don’t need to record your bylaws nor do you need to redistribute them to everyone in the association. The newly certified set is what gets submitted to all future escrows. Doing so makes you heroes–you just saved the nation’s banking system from collapse.

EXECUTIVE SESSION
RE VENDOR PERFORMANCE


QUESTION
: When discussing performance issues involving a vendor, should this be done in an open board meeting or in executive session?

ANSWER: It should be done in executive session. If done in open session, negative comments about the vendor could spread through the association and get back to the person. Even worse, it could travel outside the community to others. What follows next is a threat of litigation by the vendor alleging trade libel/slander.

RECOMMENDATION: When dealing with legal issues involving a vendor’s performance and contractual obligations, executive session meetings allow free and open discussion without fear of triggering a lawsuit.

WE ARE HIRING FOR
OUR LOS ANGELES OFFICE


Our firm continues to grow and we are looking for a full-time attorney to join our litigation team in our West Los Angeles office.

We seek an attorney with 5-10 years litigation experience with strong writing, negotiation, and trial preparation skills.

Community association experience is a plus but not required. Please send an email to Managing Partner Adrian Adams.

FEEDBACK


There is continuing feedback about the troublesome owner who created problems with his association’s D&O insurance.

Troublesome Owner #1. How about designating the troublesome owner a vexatious litigant? -J.S.

RESPONSE: If the homeowner meets any of the elements found in section 391(b) of the Code of Civil Procedure, he can be designated a vexatious litigant and barred from filing any more lawsuits without first obtaining court permission. A person can be declared a vexatious litigant if:

  • In the immediately preceding seven-year period has commenced, prosecuted, or maintained in propria persona at least five litigations other than in a small claims court that have been (i) finally determined adversely to the person or (ii) unjustifiably permitted to remain pending at least two years without having been brought to trial or hearing.
  • After a litigation has been finally determined against the person, repeatedly relitigates or attempts to relitigate, in propria persona, either (i) the validity of the determination against the same defendant or defendants as to whom the litigation was finally determined or (ii) the cause of action, claim, controversy, or any of the issues of fact or law, determined or concluded by the final determination against the same defendant or defendants as to whom the litigation was finally determined.
  • In any litigation while acting in propria persona, repeatedly files unmeritorious motions, pleadings, or other papers, conducts unnecessary discovery, or engages in other tactics that are frivolous or solely intended to cause unnecessary delay.
  • Has previously been declared to be a vexatious litigant by any state or federal court of record in any action or proceeding based upon the same or substantially similar facts, transaction, or occurrence.

Troublesome Owner #2. Regarding the troublesome owner, what provision of the insurance contract allows them to subsequently pick and choose which risks they will shed? -L.S.

RESPONSE: Insurance carriers can drop risky associations at a moment’s notice or renew with higher premiums and extra restrictions. What the reader described about an owner harassing the association’s insurance carrier and constantly suing or threatening to sue the board, I’ve seen with other associations. Boards have trouble getting and keeping insurance because of it. The only insurance they could get precluded any actions filed by the problem owner. 

Troublesome Owner #3. Can the board not advise their insurance carrier that all member inquires regarding the association’s policies must first be routed through the board for initial review? -Frank D.

RESPONSE: They could, but it won’t do any good. It has been my experience that no matter what you tell the carrier, they will take the call and open a claim. Also, if boards get in the middle and stop a claim from being filed, they may find themselves on the receiving end of a lawsuit. It’s an impossible situation. Everyone complains about bad boards but one bad homeowner can create more grief than a dozen bad boards. Members can remove bad boards but they can’t remove a bad owner. Everyone suffers until the person either moves or dies.

Troublesome Owner #4. We have our own troublesome owner. Some of the male members of our board play pool on Wednesday nights in the clubhouse and the women members play cards in the recreation room. Even though they never discuss board business, one homeowner insists that three or more board members gathered in the common areas, even around our outdoor pool, is considered a board meeting. Is that true? -A.O.

RESPONSE: No, it’s not true. The common areas have nothing to do with it. The law is quite clear that a board meeting occurs when a majority of directors “hear, discuss, or deliberate upon any item of business that is within the authority of the board.” (Civ. Code §4090.) There is nothing wrong with a majority of directors getting together to swim, eat pizza, or attend a birthday party. Playing pool, however, could lead to a life of crime.

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.

Illegal & Unethical

QUESTION: Our association recently recovered funds from a lawsuit which the homeowners were charged a special assessment. The board opted to place the funds in the reserve account rather than reimburse the homeowners for their payments. Is this ethical or legal?

ANSWER: Unless the board promised to reimburse owners or somehow made it a condition of the special assessment, it is neither illegal nor unethical to put the money in the reserve account.

Reserve Funding. In fact, not doing so may be imprudent if your reserves are badly underfunded. Failing to fund the reserve account now could result in special assessments later when large repairs are needed and reserves are insufficient. Then everyone would rail against the board for not funding the reserves.

Who Gets the Money? Also, for those units sold after the special assessment but before the recovery, who gets the money? Does it go to the ones who paid it but no longer have a legal interest in the association or the ones who bought units and lay claim to the reimbursement? That could get messy.

RECOMMENDATION: Prudent fiscal management is one of the duties of the board. If you disagree with how they are handling the association’s money, you should consider running for the board.

NO
OFFICERS


QUESTION
: Is there any circumstance where an HOA could not have officers? We manage an 8-unit association where owners are unable to agree on officers (or anything else).

ANSWER: If the association is incorporated, the Corporations Code requires a President, Secretary and Treasurer. (Corp. Code §7213(a).) If it is unincorporated, the governing documents undoubtedly require the same officers.

RECOMMENDATION: If the HOA is dysfunctional, you should put them on notice that you are withdrawing from management until such time as they appoint officers. The small management fee you receive is not worth the aggravation and potential liability.

FEEDBACK


Two Signatures #1
. I’ve long been concerned that our association does not have a written agreement with our bookkeeping firm. Is the association protected from possible loss or other concerns by our standard D&O policy? -Bond S.

RESPONSE: It is not illegal to have a business relationship with a vendor under an oral contract. However, the better business practice is to have written agreements with all vendors. When agreements are in writing, homeowners and board members alike can know the vendor’s duties, the cost of those services, indemnity understandings, and termination provisions. In addition to a contract, your association should have a fidelity bond (crime insurance) in the event funds are embezzled, together with a D&O policy.

Two Signatures #2. Two-signature requirements protect both directors and members. When members vote to carry over surplus operating funds forward into the new year, do directors have authority to transfer the surplus fund to reserves and commingle the operating funds with the reserves? Does this violate their fiduciary duties? -Neil A.

RESPONSE: Boards have authority to transfer excess funds into reserves. This does not constitute a commingling of funds. Monies from operations become reserve funds as soon as they are deposited into the reserve account. Thereafter, any monies withdrawn to pay for operations are deemed borrowings and must be repaid to reserves.

*****


Election Apathy #1. More condos are being built but fewer people are willing or knowledgeable enough to serve on boards. Homeowners are apathetic, there is a lack of qualified management companies, too many laws and judges protect the individual homeowners at the expense of the rest of the homeowners, and some of the mandates in the Davis-Stirling Act lack clarity. Aren’t we heading in the direction of disaster? -Paul C.

RESPONSE: I don’t share your cheery outlook on things. Although apathy is the norm, it often occurs because owners believe the association is moving in the right direction. When the association goes off the rails,   apathy evaporates and members jump in to put things back on track.

Education. Most directors and owners are not as knowledgeable as they should be. Fortunately, CAI, CACM, ECHO and various law firms, including ours and the Epsten Grinnell firm, put on numerous educational seminars each year to help correct that problem.

Legislation. I agree that associations are over-regulated and the legislature seems to delight in increasing the burden each year. Thankfully, CAI’s California Legislative Action Committee (CLAC) monitors the annual flow of bills and works to defeat bad bills and promote good ones. It would be wise for associations to adopt a resolution supporting CLAC in their annual budgets.

Disaster. I don’t foresee an industry-wide disaster. Individual associations may collapse while others run smoothly. It’s the bell curve in action. If I ever see approaching doom and gloom for everyone, I will sound alarm bells and then head for the hills. -Adrian

Election Apathy #2. Our association had the same problem of meeting a quorum for membership meetings. We fixed that problem by creating a list each year of who voted. We then go to all members who have not submitted ballots. We take extra ballots and envelopes. As a result, we get 75% participation. With our small association of 53, this works well. -Raymond M.

RESPONSE: Your solution makes sense. What you propose helps achieve quorum does without violating election privacy.

*****

D&O Insurance #1. We have a small community of 16, do we need to carry D&O insurance? -Beverly P.

RESPONSE: There is no exception for small associations. Going without insurance means you’re swimming in that Disney World pond. Everything looks calm and peaceful until an alligator appears out of nowhere and has you in its jaws. One lawsuit while you are uninsured will cause havoc. The large special assessments needed to defend yourselves could be debilitating. That means every member of the association is at risk, not just board members. If you wait until you are sued to buy insurance, it’s too late. Carriers preclude threatened and existing litigation.

D&O Insurance #2. One of our members has so harassed our insurance carrier and threatened lawsuits against the association that our premiums doubled and the carrier excluded any actions by that member. At the present time we are uninsured regarding this individual. Now he is suing us. We have been required to hire separate counsel since the association’s attorney is one of defendants in the suit. What can we do? -Ted L.

RESPONSE: I went back to insurance specialist Tim Cline for a response:

Troublesome Owner. That’s a tough one. It’s virtually impossible for the board to be a “gate keeper” and insulate the D&O and General Liability insurance carriers. There are many ways an owner can be so annoying as to nearly destroy an association–this troublesome owner chooses to litigate.

Access to Carrier. Owners can easily obtain the association’s insurance information, either through the annual disclosure statement or simply reviewing the certificate of insurance prepared for the owner’s lender. Once they have the carrier’s name and policy number (and obtained the mailing address using a simple Google search) the owner can barrage the insurance carrier with all kinds of goof-ball accusations and complaints.

Possible Solution. The only resolution of a situation like this is for the association to offer (through mediation) to buy the troublesome owner’s unit (or home). To motivate the owner you probably have to make an offer above market price. If you’re successful, he becomes someone else’s problem. –Tim Cline, CIRMS, President & CEO of the Timothy Cline Insurance Agency, Inc..

Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
ADAMS | STIRLING
A Professional Law Corporation

We’re friendly lawyers–boards and managers can reach us at (800) 464-2817 or info@AdamsStirling.com.