Reader Questions - Board Donations, Bad BoardsJul 21, 2014
Is it legal for our association board to take money and donate it to the police department because they think they are doing a good job? They also gave money as a gift to the landscape crew. These people are paid to do a job so why are we giving them a gift of money?
Thanks for any information you can give,
Association board expenditures should benefit the association. Under the business judgment rule, the board should be taking action which is in good faith, in the best interests of the association as a whole and upon reasonably diligent inquiry.
There is little guidance in published appellate case law on this question. The 2000 case cited frequently by some attorneys, Finley v. Superior Court, does not address the issue. In Finley, a large senior community HOA in South Orange County donated money to fight the proposed El Toro airport, and a homeowner sued, arguing the donation was “ultra vires” or outside the power of the board. The court ruled against the homeowner, but specifically did not publish the part of its ruling on whether the donation was a proper use of HOA funds. Although many lawyers incorrectly cite it as a precedent to support HOA donations outside the HOA, we still do not have a clear ruling indicating what type of association donation might be acceptable.
The yardstick here in my view is, does the donation directly benefit the association? It might, if it regards a matter directly affecting the HOA and its members. A bonus to HOA employees (not vendors) may be a great incentive and reward for good performance.
Thanks for your question,
Dear Mr. Richardson,
What good are rules or Davis Stirling, if there is no enforcement available to homeowners? I see rules being broken regularly. The attitude is one of “so what;” there is nothing short of recall that can be done. The recall procedures are very difficult and almost impossible to achieve. We are a cumulative voting HOA. Is there no alternative for homeowners when they see Davis Stirling and Civil Code being regularly abused ?
Thanks in advance for your input,
L.N., Lake Elsinore
The long term answer is education. Most boards violating the law simply do not know what the law requires. If a board refuses to comply when it does know the legal requirements, it may well be outside of the business judgment rule and also outside their insurance coverage. More importantly, if they disrespect the law and the neighbors, they are disrespecting the neighbors who trusted them to do a good job as volunteers.
Recalls are ugly business, particularly recalls of individual directors, and cumulative voting makes it very difficult (although cumulative voting does not affect the recall of an entire board). Litigation is rarely a reasonable answer, since bad directors are not made more diligent by a lawsuit, and everybody wastes money.
The best solution is to develop a slate of good people who will do things properly, such as committing to take the time to join and attend seminars from the local Community Associations Institute Chapter, and use the free materials available from its web site, www.caionline.org. I mention CAI because it is the only national (and statewide) organization which educates homeowners.
Written by Kelly G. Richardson
Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.