total recall! - Berding|Weil

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C O M M U N I T Y A S S O C I AT I O N
A L E RT
T O TA L R E C A L L !
Berding & Weil’s Guide To
Homeowner Association Director Recall Challenges
when no one was sure
whether it would be
"President Bush" or
"President Gore," we
put out our special "Ballot Wars"
Community Association Alert dealing with
homeowner association ballot, proxy and
election issues and procedures (Winter
2000). It was among the most popular
editions of our ALERT ever published:
association leaders recognized the need to
learn more about how to properly manage
an election to avoid the type of divisions
and disputes that followed the Florida
debacle.
THREE YEARS
AGO
The convulsions Californians are now
experiencing with the threatened recall of
the Governor, the swipes candidates take at
each other, statewide uncertainty over
recall rules, challenges to the fairness of
ballots, and the questioned use of campaign
funds are as familiar to those of us who
serve community associations as were the
ballot attacks surrounding our national
election. Berding & Weil regularly helps
associations navigate recall challenges; now
is an excellent moment to address the key
issues and provide some sound strategies
for dealing with recalls in ways that are not
only lawful but fair to the members,
directors and those seeking to effect change
in their communities.
SPECIAL EDITION
OCTOBER 2003
ADDRESSING THE CHANGES
AND CHALLENGES OF THE
COMMUNITY ASSOCIATION
ENVIRONMENT
In This issue
Cover Story:
Total Recall
The Politics of Recall
By Steven S. Weil, Esq.
2
Responding To The
Recall Petition
By Stephanie J. Hayes, Esq.
4
Tallying Votes
and Why we care about
“Cumulative Voting”
By Steven S. Weil, Esq.
6
The Manager’s Etiquette Guide
The Politics of Recall
By Steven S. Weil, Esq.
BY STEVEN S. WEIL, ESQ.
7
WHY DO OWNERS
TRY TO RECALL
a director,
or an entire
b o a r d ?
What galvanizes them to action? Why are
they willing to spend the time, energy and
money "stirring up" their neighbors who
may otherwise not pay much attention to
association politics?
Recall demands often follow a real or
threatened large special assessment,
acquisition of a loan or the commencement
of defect litigation. Experienced managers
recognize that the genesis of recalls often
lies in a board's failure to promptly,
accurately, and honestly keep members
informed of the challenges and choices
facing the community as its needs evolve
and its members change. Sometimes, "recall
seekers" have legitimate concerns; other
times, they confuse a board's attempt to
solve a problem with its creation. Recalls
often involve blaming the messenger;
especially where the recall trigger is a large
special assessment to address repair needs
which were deferred or ignored for many
years.
Whether or not warranted, recalls are a
fact of life for community association
members, leaders and managers. Our
state's current political experience is only
Campaigning
Rights and Rules
By James O. Devereaux, Esq.
8
The Recall Meeting
By Sandra M. Bonato, Esq.
C O M M U N I T Y A S S O C I AT I O N A L E R T
likely to increase the number of community association
recall demands. This special edition of our Alert focuses on
the practical and "political" aspects of processing a recall
petition, determining who can vote, how meetings are run
and the dos and don'ts of campaigning for or fighting
against director removal. Partners Jim Devereaux,
Stephanie Hayes, Steve Weil and Sandra Bonato all
contributed to this edition. Any of us can help you untangle
the recall process should your association ever face one. We
welcome your comments and feedback.
Responding To The Recall Petition
BY STEPHANIE J. HAYES, ESQ.
THE ASSOCIATION RECEIVES A PETITION demanding a
membership meeting to recall the board. Can it be ignored?
What must the board do in response? We've listed the
"what next, what now" steps below.
STEP 1: REVIEW THE PETITION
Special membership meetings "for any lawful purpose"
must be called at the request of five percent (5% or, for a
stock corporation, 10%) or more of the members. The
request must be in writing and must be presented to the
board (as a whole), or to the president, vice-president, or
secretary of the association. See Corporations Code section
7510(e); and 600(e).
Was it Signed by 5% of the Members?
Do the math. Has the petition been signed by 5% [10%
for a stock corporation] or more of the Members? Check it
against your membership list. Tenant signatures don't
count; be sure the signatures are on or attached to the
petition documents.
Does it State a Lawful Purpose for the Meeting?
Not all petitions are for lawful purposes. Consider what
the members are really asking for. Here are typical
examples:
Š Removal of one director or the entire Board is a lawful
purpose of a membership meeting.
If the petition is not signed by the required percentage of
the members or does not identify a lawful purpose for the
special meeting, the board is not required to hold a special
meeting. If the board concludes (with the advice of counsel)
a meeting is not required, it is wise to acknowledge receipt
of the request and notify the petitioning members in
writing that a meeting will not be held and the reason(s)
why (e.g., insufficient number of signatures, no lawful
purpose stated).
STEP 2: IF REQUIRED, SCHEDULE THE SPECIAL MEETING
AND GIVE NOTICE
Timing requirements for the scheduling of the meeting
are quirky. The two key principles are: first, those
requesting the meeting do not get to dictate the date, time,
place or agenda and second, rules for noticing and holding
the special meeting, recall or otherwise, are mandated by
law.
When Must Notice Be Given?
The association is required by Corporations Code section
7511 to send a notice to the members within 20 days of
receipt of the petition. The meeting itself must be held NOT
LESS than 35 days nor more than 90 after receiving the
petition-even if the Association's bylaws or CC&Rs require
less notice. Under Corporations Code Section 601, a stock
corporation must conduct the meeting between 35 and 60
days from receipt of the petition.
Š Removal of an officer, such as the president, is not,
because officers are elected by and serve at the pleasure
of the Board - not the membership.
Who Decides the Date, Time
Š Removal of the manager is not a lawful purpose - contract
matters are within the Board's purview. That's for the
Board.
If the board distributes the notice within 20 days of
receipt of the petition, the board, not the requesting
members, determines the date, time and place of the
and Place of the Meeting?
2 / October 2003
BERDING & WEIL LLP
special meeting. If this key deadline is not met, the
petitioning members arguably have the right to set the
meeting or notice issues can be ordered by the local
Superior Court. In any event, the board still runs the
meeting, since it is, unless and until recalled, the body that
acts for the corporation.
Contents of Notice
What should the notice of a recall meeting say? Like any
notice of an association meeting, it must identify the date,
time and location and the lawful purpose that was stated in
the petition. At a special membership meeting (for a recall,
re-election or otherwise), the only business that can be
transacted is what was stated in the notice of meeting. But
the board is not limited to just what is in the petition. The
board can add to the notice other items such as the election
of new directors if the recall is successful, the vote on a
special assessment, etc.
What’s On The Agenda?
Even if the petition only seeks a recall,
the board can and should "add" to the
agenda by scheduling an election of a new
board immediately following the recall, if
it is successful. In fact, if a new election
is not scheduled in advance, then
arguably it cannot be conducted even if
the recall is successful! Avoid the
question: include in the notice reference
to an election if directors are recalled.
Should Proxies Be Mailed With The Notice?
Few bylaws require the board to send out proxies and it
may or may not want to do so. The board may sense the
recall lacks member support and omitting distribution of
proxies increases the possibility that no quorum will be
achieved, thus thwarting the recall attempt. This approach
can be politically risky, since those seeking recall may have
their own homegrown proxies which must be counted if
otherwise valid under law.
In deciding whether to distribute proxies, some boards
carefully consider the effect of the quorum requirements.
Since (for larger associations) the approval of a majority of a
quorum of members is needed to remove the board, the use
of proxies can increase the number of people voting and
thus the possibility the recall will be successful. This is
particularly true where the bylaws permit a meeting to be
adjourned with a “reduced” quorum requirement (making it
easier to recall the entire board in associations of 50 or more
members).
What Other Documents Should Be Distributed?
The law does not prohibit the board from distributing
other information along with the Notice and Proxy. Some
bylaws also require the distribution of the agenda. Also, the
board may wish to respond to the complaints about its
performance that triggered the recall. This could be in the
form of a "Q&A" regarding, for example, the need for the
proposed special assessment that got members mad enough
to seek the recall, comments on the rationale or motives of
those seeking the recall, a summary of board achievements
or other documentation regarding the recall.
Ms. Hayes is a Berding & Weil partner whose practice focuses on
legal issues affecting senior communities and the day to day
operations of housing cooperatives, condominiums and planned
developments.
3 / October 2003
C O M M U N I T Y A S S O C I AT I O N A L E R T
Tallying Votes And Why We Care About Cumulative Voting
How Many Votes Does It Take To Remove The Board?
BY STEVEN S. WEIL, ESQ.
HOW MANY VOTES DOES IT TAKE to remove an entire
incumbent board? It depends on the size of the association
and the number of directors "targeted" in the petition for
removal. It does not depend on whether there is "good
cause" for removal; what counts is the math!
REMOVAL OF THE ENTIRE BOARD
For associations of 49 lots or units or less, removal
requires at least 25 votes. In larger associations, removal
requires the approval of a majority of a quorum of
members. Corporations Code Section 7222. Does this
sound simple? It isn't!
What trumps:
The Corporations Code or the Bylaws?
No Quorum?
As with any membership meeting, if a quorum of
members fails to participate, the meeting must be
concluded or, on majority vote, adjourned to another time
as set forth in the bylaws. If the meeting is not reconvened,
the recall effort fails.
Do The Bylaws Allow A "Reduced Quorum"?
For those (but only those) associations whose bylaws
permit, a meeting can be reconvened with a "reduced
quorum" of, usually, 1/3 or 25% of the membership. So, in
the Quicksand Hills hypothetical above, if there is no
“original” majority quorum and the bylaws allow a
reconvened meeting with a 25% quorum, the presence in
person or by proxy of at least 38 members would be
adequate to conduct official business.
Do Removal Requirements Change
If There Is A Reduced Quorum?
When it comes to rules regarding recall
elections (like notice requirements or the
number of votes needed to effect director
removal) the Corporations Code usually
supercedes the bylaws of a non profit
mutual benefit corporation or a stock
cooperative.
Yes! In the Quicksand Hills example, at the "reduced
quorum" meeting attended (again, in person or by proxy)
by 38 members, it only takes 20 votes in favor of removal
to recall the entire board! The higher the quorum or the
greater the number of owners voting, the more votes are
needed to recall the board; put another way, an owner who
does not vote in effect votes against the recall.
REMOVAL OF ONE OR MORE
BUT LESS THAN THE ENTIRE BOARD
Calculating "A Majority" Of A Quorum
A valid recall meeting requires attendance in person or by
proxy (unless prohibited in the bylaws) by a quorum of
members. So, in a 150 lot community called "Quicksand
Hills", at least 76 must participate and at least 39 would
have to vote in favor of removal for it to succeed. If, on the
other hand, 100 members voted, removal would require at
least 51 approvals. As you can see, it is not possible to know
in advance of the meeting, the actual number of votes
needed for recall, only what the minimum would be.
Recall counting rules differ depending on whether the
entire board is subject to recall or if, instead, one or more
but less than all directors are "targeted". The rules for
limited recalls depend on whether the association's bylaws
permit members to elect (yes, elect, not remove) directors
by "cumulative voting".
4 / October 2003
BERDING & WEIL LLP
Removal Where Bylaws Do Not
Applying The Reverse Cumulative Voting Formula
Specifically Permit Cumulative Voting
As with removal of the entire board, removal of directors
comprising less than the entire board requires a majority of
all members (for communities with up to 49 members) or a
majority of a quorum (for those with 50 or more members).
The Removal Rule Where
Election By Cumulative Voting Is Permitted
If bylaws permit directors to be elected by cumulative
voting, the law requires applying cumulative voting rules in
reverse to calculate what it takes to remove a director(s)
targeted for removal! Corporations Code Sections 7222 and
303, among the most confusing provisions of the Code, say
no director may be removed when the votes cast against
removal, or not consenting in writing to the removal, would
be sufficient to elect the director if voted cumulatively at an
election at which the same total number of votes were cast
(or, if the action is taken by written ballot, all memberships
entitled to vote were voted) and the entire number of
directors authorized at the time of the director's most
recent election were then being elected.
"Why Do "CV" Rules Apply To Recalls?
Cumulative voting is intended to permit
a minority of members to cleverly "bunch
up" their votes and elect to the board at
least one candidate who represents their
views even though that candidate might
be opposed by the majority of voters. If
that director could thereafter be removed
by majority vote, cumulative voting rights
would be worthless. For that reason, the
Corporation Code applies a "reverse
cumulative formula" to be applied when
a director is targeted for removal by
mandating that the number of votes cast
in favor of removal be enough to have
prevented the director from being elected
"cumulatively".
The only way to figure out how many votes it takes to
"retain" a director who has been targeted for removal is to
apply a special algebraic formula:
A director cannot be removed if the number
of votes cast against removal is greater than X
divided by (Y+1). "X" is the total number of
votes cast if the vote is at a meeting or the
total memberships entitled to vote if the vote
is by written ballot without a meeting. "Y" is
the total number of directors authorized by
the governing documents.
The following three examples illustrate how removal
votes would be calculated at a removal meeting at our 150
lot, 5 member board at Quicksand Hills.
Example A: (Vote At Meeting): If 59 members attend the
recall meeting, the meeting fails for lack of a quorum; if the
meeting is properly continued and assuming the Quicksand
Hills' bylaws provide for a reduced 25% quorum, the
meeting can be reconvened so long as at least 38 owners
participate.
Example B: (Vote At Meeting): If 100 members attend the
meeting, a regular quorum is achieved. Then, we divide
100 (the total number of votes cast) by 6 (5 directors plus 1)
to get 17. So, if 83 votes support recall and there are 17
votes against, the targeted director survives (by 1 vote) the
removal challenge.
Example C: (Vote By Written Mail Ballot): Take 150 (total
number of memberships entitled to vote) and divide by 6
(again, 5 directors plus 1) to get 25 - the number of votes
which, if cast against removal, preserves the director's seat
on the board.
Wrinkles In The Rules
As you can see by comparing Examples B and C, the
number of votes needed to remove a director will vary
depending on whether the recall is conducted at a meeting
or by written ballot. The Corporations Code does not give
members the right to demand a recall by written ballot. So,
if the petition only requests the recall, the board can decide
whether it will be conducted at a meeting or by mailed
ballot.
5 / October 2003
C O M M U N I T Y A S S O C I AT I O N A L E R T
Another interesting twist is that the cumulative voting
formula focuses on the number of directors which are
"authorized" in the governing documents and not how
many directors actually hold office during the recall process
(to prevent "unfair" manipulation of the outcome).
Inspectors Get The Tough Job
The law does not require the appointment of independent
inspectors to determine the success or failure of the recall.
However, doing so helps assure members that the recall
and, if held, the subsequent election are conducted fairly
and honestly. If one or three inspectors are appointed
(Corporations Code Sections 7614 or 707) they have the
difficult job (especially when cumulative voting rules apply)
of calculating the numbers; this can be as difficult as
explaining the voting rules to those (often angry or
frustrated) members who attended the meeting and await
the announcement of whether their campaign to remove or
to remain on the board was successful. It is often wise to
enlist the aid of counsel experienced in recalls to help
explain the procedures to the members in pre-voting
materials and at the meeting itself! For this reason, as
discussed in more detail in Sandra Bonato's article The
Recall Meeting, it may be wise to have counsel attend and
assist the inspectors on the procedures and
communications made and to be followed at the meeting.
In any event, the counting of the votes is among the most
obvious and important opportunities the board has to
demonstrate its commitment to the conduct of a fair
meeting and a respect for the political will of the members,
whatever that will might be.
The Manager’s Etiquette Guide
BY STEVEN S. WEIL, ESQ.
FREQUENTLY, the Association's manager is accused of
causing those problems that culminate in a demand to
recall the board. Indeed, sometimes the challengers' entire
platform is to secure what they think will be better service
by installing a new board that will hire a new manager at
less cost. The manager can be blamed for deferring
maintenance, assessments which are too high, or too low,
or inadequately patrolled common areas, faulty towing and
a host of other misdeeds. Yet, it is the manager who is often
called upon to provide the board with leadership and
guidance in responding to recall petitions and the many
demands (for budget data, salary information, construction
and vendor contracts, loan agreements, etc.) that often
follow on the heels of a recall petition. Here are some tips:
Š Have the meeting's register desk(s) adequately staffed;
avoid long lines
Š Treat the challengers as if they will soon be directors
Š Do not lead the meeting but help the President or others
conduct it fairly
Š Look to the board to authorize the release of documents
per statutes and the bylaws
Š Promptly respond to all inquiries; if responses require
board approval, so indicate
Š Imagine what tools or equipment might be needed at the
meeting; bring them
Š Be the first person to arrive at the meeting
Š Arrange the room chairs and tables; verify lighting and
sound systems
Š Bring extra pencils and ballots (and colored ballots) to the
meeting
Š Help, if asked, to promptly verify attendance by record
owners
Š Be familiar with recall and election rules contained in the
governing documents
Š Bring an extra set of the governing documents to the
meeting
Š Have handy a set of the last distributed budget, financial
statement and reserve study
Š "Volunteer" information only rarely, when essential and
with the President's permission
Š Do not show favoritism; Do not interrupt, speak over or
interrupt anyone
Š Do not bring alcohol
Š Do bring refreshments
6 / October 2003
BERDING & WEIL LLP
Any membership presents for managers the opportunity
to shine or to fall flat. Managers can come under particular
scrutiny in the atmosphere of mistrust that often
characterizes recall meetings. Handling the meeting as
we've suggested can help your client (the association) to
fairly conduct the recall and can also serve to enhance your
own reputation and that of your company.
Steve Weil is one of the firm's founding partners. He assists boards
of directors, managers and members to meet the challenges of
operating and guiding homeowner associations on matters ranging
from corporate authority to CC&R enforcement and compliance
with state and local laws.
Campaigning
Rights And Rules
BY JAMES O. DEVEREAUX, ESQ.
MUST THE BOARD REMAIN NEUTRAL?
The Prudent Judgment Rule Applies To
Election Challenges!
IS IT FOUL PLAY WHEN THE BOARD MEMBERS FIGHT TO
KEEP THEIR SEATS AND USE CAMPAIGN ASSOCIATION MONEY?
TRUE OR FALSE?
Directors must remain neutral in all Association elections
and, especially, in hotly contested director elections and
recall votes.
ANSWER: FALSE.
It is a common misconception that the board of directors
of a community association must remain neutral in
association elections and is prohibited from campaigning
for and supporting particular candidates. A board must
assure that nomination and election procedures are fair and
reasonable, but nothing prevents directors from fighting to
keep their positions on the board or from taking stands on
controversial matters submitted to the membership for
vote. Indeed, the board's job is to provide leadership to the
community based on what the directors believe is in the
best interests of the association and its members as
required by the prudent business judgment rule.
Respecting the prudent judgment rule does not prohibit,
and arguably might in some cases require, directors to
communicate their own views to the members as to the
wisdom and validity of a recall challenge. This could
include criticizing the motives and qualifications of their
election opponents and canvassing the development for
support.
Corporations Code Sections 309, 7231 and
7232 require incumbent directors to act in
good faith and to make decisions that they
believe serve in best interests of the
association; directors must act as an ordinarily
prudent person would in implementing fair
nomination and election procedures in
Association elections and recalls.
A SHORT GUIDE TO RECALL
AND ELECTION POLITICAL QUESTIONS
Q:
Can a board expend association funds to oppose
recall of one or more directors or to support particular
candidates for election to the board?
A:
Yes. Corporations C ode § 7526 permits the board
to use funds for this kind of campaigning so long as the
number of candidates does not exceed the number of seats
"up" for election, and where doing so is consistent with the
board's duty to act in ways directors believe serve the
interests of the association.
Q:
If the board uses association publication
"stationery" (for example, a newsletter controlled by the
association letterhead, etc.) to solicit votes for its preferred
7 / October 2003
C O M M U N I T Y A S S O C I AT I O N A L E R T
candidate[s], must or should it also, in that same
publication permit the solicitation of votes for opposing
candidates?
A:
Generally, yes. While not absolutely required, it
may be difficult for a board to justify denying opponents
the same opportunity to communicate with members than
was used by the board. Doing so deprives the opposing
candidates their chance to speak and, equally important
deprives the "electorate" of its ability to hear all view
points.
Where a corporation with 500 or members permits all
candidates equal and equally prominent space in the same
issue of the publication provided members, this procedure
meets the prudent business judgment and fairness
requirements. See Corporations Code § 7523. This rule
does not specifically apply to smaller associations but
certainly provides guidance to judges determining whether
a board which refuses to publish opposing "reasonable"
election materials has met the prudent judgment standard
of director behavior.
Q:
If a candidate for election to the Board requests
that the Association mail materials furnished by the
candidate to Association members, must or should the
Association do so?
A:
Generally, yes but subject to conditions. Again,
while it is not absolutely required, it is recommended upon
proper request. Corporations Code § 7524 provides that a
corporation having 500 or more members may provide
that, upon written request by a nominee and payment of
the costs of mailing, including postage, the corporation will
within 10 business days of such a request mail to the
members materials furnished by the nominee which are
reasonably related to the election. Alternatively, the
corporation may provide the requesting nominee with a
copy of the membership list for "direct mailing" by the
candidate.
Q:
Can the Association, board or manager be held
liable for "defamation" if it publishes candidates'
statements that are libelous?
A:
No. The association and its officers, directors,
employees or other agents may not generally be held liable
either criminally or otherwise on account of any materials
provided by a candidate and either published or mailed by
the association at the candidate's request. (Corporations
Code § 7525)
Partner James O. Devereaux provides non profit corporations
(including condominium and stock corporations) with advice on
corporate, transactional and real property matters. Mr. Devereaux
has extensive experience handling appeals before appeals courts in
California and the federal courts, including the United States
Supreme Court.
The Recall Meeting
BY STEVEN S. WEIL, ESQ. AND SANDRA M. BONATO, ESQ.
IF THE PETITION TO RECALL THE BOARD at a special
meeting is proper, planning for that meeting should begin
right away. A recall election presents difficult challenges
and has special rules, often played out against a backdrop
of animosity and suspicion that underlies the recall
demand. The issues are confusing and complex and
particularly difficult when the attacks on the board or its
manager are mean and personal.
Still, it is essential that recall procedures are and appear
to be fair and reasonable to all. It is wise to confer with
experienced counsel and management to assure proper and
timely communications and the use of documents and
meeting procedures that promote stability, trust and an
orderly membership vote on the recall and, if needed, the
election of replacement directors.
Who Does The Association’s
Lawyer Represent?
Counsel represents the association - not the board
or its directors, a particular faction of members, or
the manager. Association counsel is required to be
strictly impartial. His or her role is to help ensure
a fair and reasonable process, with results that
have legal and political integrity. Counsel's
expertise, experience, ability to communicate,
fairness and objectivity - in providing advice,
drafting documents, and responding to questions
arising at the recall meeting - can help foster
respect for the board and the political process.
8 / October 2003
BERDING & WEIL LLP
Decide What Actions Will Be Taken at the Meeting
Proxies
If the petition properly seeks both a recall and an
immediate election of new directors if the recall succeeds,
the incumbent board must schedule both these actions. If
the petition only seeks a recall, however, the board can but
is not required to also schedule an election to occur if the
recall passes. In most cases, members elect replacement
directors; in others, the board may be permitted to do so.
Recalls usually occur at meetings and thus involve the use
of proxies. All proxies meeting the legal requirements are
valid, whether distributed by the board, the challengers or
anyone else. Those seeking the recall often create and
distribute their own proxies to prevent what they believe
might be proxy manipulation by the incumbent directors or
management.
Whether an immediate election should or must be
scheduled requires an analysis of the governing documents
and an evaluation of pending issues facing the association
and other considerations, including whether all or only
some of the directors are the subject of the recall vote.
Determining what issues should be on the agenda of the
special meeting requires careful advance planning and
consideration.
What Terms Are Served By
Replacement Directors ?
This interesting question is rarely addressed.
Do the new directors serve out the remaining
terms of those who have been recalled? If all
directors are removed but were elected in
different years (under bylaws providing for
"staggered terms"), which new directors serve the
shorter or longer remaining terms? We generally
recommend that replacement directors receiving
the highest number of votes serve the longest of
the remaining terms. If this formula is used, it
should be spelled out in the notice, proxy and
ballot so that all members know before balloting
the consequence of casting their votes for one
candidate or another.
Setting The Date And Time
It may sometimes be tempting to schedule the meeting at
an inconvenient place or time (for example, on the Friday
evening of a "get away" weekend) to try to defeat the recall.
This is unwise, undermines the credibility of the board, and
can backfire. The better practice is to schedule the meeting
for a date, time and location reasonably convenient to all
members, including directors who are the recall targets.
Are Recall Petitioners Entitled To
The Membership List?
Yes. The demand for a copy of the membership
list before or during a recall is a matter
reasonably related to a member's interest in the
association and its governance. Thus, a board
must provide the list within 10 days of the
request unless it agrees to distribute the
requesting owners' campaign material (at their
expense) or otherwise provides a reasonable
communication alternative.
Proxies distributed by boards of larger corporations must
generally identify the names of all known candidates at the
time the proxies are issued. This raises many timing and
procedural difficulties, not to mention political ones.
Nominations in the context of recalls are rarely described
in the bylaws, recall proponents and incumbent board
members often wish to be named, or not, depending on
their strategies, and the board needs to find an appropriate
legal and political balance in preparing the proxy form.
Preparing proxies for recall battles is one of the most
difficult exercises a board may face. The association's
attorney can help manage the proxy process in a manner
that inspires confidence in the recall and re-election
process.
Proxy Battles
Campaigning for proxies by pro- and anti-recall
candidates can often create hostility that infects the recall
process. Asking members to mail their proxies to the board
or management company (where they will be opened and
9 / October 2003
C O M M U N I T Y A S S O C I AT I O N A L E R T
scrutinized) may cause further problems. Recall proponents
may refuse to deliver their paperwork to the association
until the very last minute to prevent perceived wrongdoing
or board politicking. Last-minute delivery of proxies can
make for procedural nightmares the day or evening of the
meeting.
The appointment of inspectors of election who are
perceived to be fair is a good way to address these
problems. The board should evaluate how much time the
inspectors will likely need to process proxies, and then
establish a reasonable cut-off time for accepting proxies
prior to the meeting (but check the bylaws; some provisions
may require the board to accept them up to the opening of
voting). In our experience, qualifying proxies can take up
to an hour for each 10 to 15 proxies received. Delays can
contribute to the degeneration of a meeting and the
perception that the board or management is incompetent,
so developing techniques and relying on fair individuals to
expedite the process is important.
To encourage trust, the board might also decide that
members should turn in proxies to someone other than the
board or manager. Some associations use a CPA as the
custodian of proxies until the day of the meeting.
Board As Proxy Holder
The board (or its secretary) is often designated as a proxy
holder, even where the whole purpose of the recall is to
remove the board. The board as proxy holder can cast
ballots in favor of itself - that is, against the recall and in
support of retaining the incumbent directors - for any
discretionary proxy assigned it.
While the board can cast these votes secretly (like the
votes of any other proxy holder), the decision on how the
board will allocate proxies among themselves should be
made at an open, noticed meeting. Nothing in the Common
Interest Development Open Meeting Act permits a board to
decide in executive session how to allocate proxies.
Does A Recalled Board Control Proxies
For The Election Of Replacements?
Yes. Directors have the power to cast votes as
proxy holders in the election following their
recall, because they continue to act as the board
until their successors are elected or appointed.
Owners who don't like this rule can assign their
proxies to persons other than board members, or
they can attend the meeting and cast their votes
personally.
More On The Use Of Inspectors of Election
The use of inspectors is discussed in Steve Weil's "Tallying
the Votes" article.
Preparing for the recall meeting includes naming
inspectors of election. In the more casual and less
politicized forum of an annual meeting, inspectors of
election might not be named until the agenda reaches the
election of directors. In the context of a heated recall
campaign, however, the inspectors should be selected in
advance at an open, noticed board meeting.
The inspectors of election should meet before the meeting
begins (the number of known proxies will help determine
how many hours earlier) to organize and qualify proxies,
identify proxy holders, and to prepare for sign-in. Counsel
will also be there to help with any legal questions.
Inspectors should be asked to respect the confidentiality of
the information they handle.
Conducting The Recall Meeting
Petitioners do not get to run the recall meeting, even
though they requested it. A recall meeting is a meeting of
the association's members and, as such, it is run by the
board, the body in which the Corporations Code vests the
power to conduct meetings. The board remains in charge
of all aspects of the meeting, and the president of the board
presides over it.
10 / October 2003
BERDING & WEIL LLP
Counsel can help recommend ways to move this portion of
the meeting along, if appropriate.
Managing Emotions
Recall meetings can bring out high emotions, anger and
frustration. A board should take prior steps to ensure that
the meeting is conducted with decorum and in an orderly
fashion. This can include hiring a parliamentarian and/or
a security guard, appointing a respected community
member as sergeant-at-arms, reminding members at the
outset of the meeting of the need for courtesy, confirming
that all viewpoints may be expressed but decorum is
required, and attending to other potential problems before
they occur.
Checking In And Ballot Distribution Procedures
The board should create a prompt, efficient, and visibly
fair "check in" process by which members are registered
and recall ballots distributed. Some boards will distribute
the recall ballots during the check-in stage, especially if it's
likely that a quorum will be achieved. Others will wait to
confirm a quorum and not distribute ballots until the recall
is actually voted upon, though this can be procedurally (and
physically) difficult and significantly delay the meeting.
As for re-election ballots, sometimes it makes sense to
distribute them at check-in. In other cases, it may be
preferable to wait until the outcome of the recall itself has
been determined. In giving balloting instructions to the
audience, it helps to use different colored ballots to prevent
voting confusion (e.g. purple for the recall, yellow for the
election).
The Meeting Itself
The first portion of the meeting will be the recall. If it
succeeds, the second portion of the meeting (if scheduled)
will address the election of new directors. Balloting on
these two issues should be conducted separately.
When it is time for the meeting to begin, the president
calls the meeting to order. A quorum is established, and the
reason for the meeting is stated. The recall proponents (or
opponents, as the case may be) are invited to state their
case. If many members wish to speak (indicated, for
example, by a show of hands), the president will need to
manage the time and still give everyone an opportunity to
speak. Having 3x5 inch cards available for members to sign
up is handy, after which names are called one at a time.
After the members have spoken, the directors who are
subject to recall should be given a chance to rebut the
members' comments. In determining appropriate amounts
of time, the basic rule is that reasonable members must
believe both proponents and incumbents had a fair and
equal chance to address the issues.
At the end of comments, the president will call the
question (i.e., read the recall resolution on the ballot) and
the vote will take place. Ballots are gathered and the
inspectors of election recess to count them. The counting
process can often take a half hour or more, especially when
cumulative voting rules apply. During this period, it can
sometimes be difficult to keep order and "recessing" the
meeting until the counting concludes is prudent. When the
inspectors report to the president that the counting is
completed and "certified" (i.e., the inspectors agree on the
results), the meeting is reconvened, and the results are
announced.
If the recall fails, the meeting is adjourned. No other
action can take place at the meeting.
Successful Recall
If the recall is successful and assuming the meeting has
been set up for an immediate election to follow, the
president continues to preside over the meeting (even if he
or she was a recall target, the directors are not officially off
the board until their successors are elected and seated).
Nominations are solicited as for any election, candidates
give their statements, nominations are closed, ballots are
cast (including ballots held by the recalled board as proxy
holder) and counted, and the results announced. New
directors should be seated immediately.
If a new board majority is elected, the first order of
business will be to set a date and time for an open, noticed
organizational meeting, selection of officers, and proper
transfer of financial responsibility. If notice of such a
meeting was included in the prior materials distributed to
the members, the organizational meeting can occur
immediately upon the seating of the new board.
Attorney Sandra M. Bonato’s practice includes helping boards with
complex real estate and corporate issues.
11 / October 2003
PRESORTED
FIRST CLASS
U. S. P O S TAG E PA I D
S A N FA N C I S C O, C A
P E R M I T N O. 7
3 2 4 0 S t o n e Va l l e y R o a d W e s t
Alamo, California 94507-1558
BERDING & WEIL LLP
Takes Pleasure In Announcing Our Newest Partner,
Stephanie J. Hayes
Stephanie will continue to represent business and real estate owners in a variety of business
transactions. Stephanie joined Berding & Weil LLP and its transactional department in 1995,
bringing with her fourteen years of experience representing for-profit and non-profit
corporations in the types of transactions and issues that real estate owners and managers often
confront. The majority of Ms. Hayes practice involves advising boards of directors and
managers of senior housing communities on the varied and unique issues affecting their
developments. She can be reached at 925.838.2090 or by e-mail at [email protected]
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