Reader Questions - Frozen Out Directors

Kelly,
Our board established an executive committee consisting of three board members, excluding the two remaining board members, under Corporations Code Section 7212. Later, one of the non-executive committee board members sold their condominium and the executive committee appointed a replacement board member. There are four remaining board members; three on the executive committee and one who is not on the executive committee. Since the Corporations Code prohibits the executive committee from “filling of vacancies on the board or in any committee which has the authority of the board” per Section 7212(a)(2), can the action be reversed, changed or modified, or nullified? What is the appropriate venue for resolution, short of filing an action in court?
Best Regards,
R.D., Palm Desert

Dear R.D.,

I am skeptical of so-called “executive committees.” In your situation, it appears the majority is freezing out the other two directors and doing business in secret. If a board majority meets on HOA business, whether calling it an executive committee, “working meeting,” or coffee klatch, Civil Code 4090 says it is a “board meeting” and its activities must be in the open, with advance agenda notice to members. The committee’s decisions made in violation of the Open Meeting Act could be considered illegal and outside the association’s corporate process. Yes, under Corporations Code 7212, the executive committee is exceeding its power. However, and more importantly, the majority approach violates the Open Meeting Act, rendering all of its actions subject to challenge.

Rather than expensive legal action to challenge this exclusive group of directors, perhaps the homeowners would rather elect directors who will properly serve and who are willing to work with the entire board as a team. Boards aren’t required to be unanimous and the majority still rules, but a board can’t freeze out the directors in the minority.Good luck to your community,
Kelly

Dear Mr. Richardson,

I am a board member. During the past year, our HOA has received invoices for [tens of thousands of dollars] from our attorney. The problem is that the invoices are being redacted before submittal to the management company who in turn pays the blacked-out invoice.

At one point the HOA was paying for a legal action of a board member against a homeowner and the reason for the blacked-out bills was it was confidential information. That action ended but the redaction of invoices continues, and the management company continues to pay the invoices. Is this in any way legal?

T.M., Anaheim Hills

Dear T.M.,

Under Corporations Code 8334, directors may view any association record. The board should see the entire bill, except for any director who is the subject of the legal services and who therefore has a conflict of interest. If the board does not see the complete bill, it should not be approving that bill for payment. The attorney works for the corporation, not any particular director, and should be providing sufficient information for the board to know why the association is incurring legal fees. Ask questions – that is your job as a director. It appears someone in association leadership may be controlling access to the information and keeping it from other board colleagues. Without a very good reason, such an information embargo should not be happening.

Thanks for your question,
Kelly

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®.