Voting Issues in a Community: When Democracy Gets Messy (Oregon Law)

June 26, 2013 | By: Greg Coxey

INTRODUCTION

According to Community Associations Institute (“CAI”), it is estimated that in 2012, there were 323,600 association-governed communities; this includes homeowners associations, condominiums, and other planned communities comprised of 25.9 million housing units or 63.4 million residents.  This number equates to roughly twenty percent (20%) of the United States’ population.  According to CAI, there is “[a]n estimated two million volunteers who serve on community association boards, with tens of thousands more serving as committee members.” With this many associations, residents, and board members, there are bound to be problems and disagreements from time to time. Since determining who will serve as board members is largely decided by the votes of association members, there are often disagreements on how voting is done and how to resolve any problems that may arise. Therefore, it is vital to have a clear understanding of your community’s governing documents, competent legal counsel, and effective legal preparation in order to avoid the voting pitfalls common in associations. The following are examples from around the United States of when simple voting turned into voting and litigation nightmares.

VOTING NIGHTMARES

State Laws Affect Voting Power

In 2005, the Arizona Legislature changed its laws affecting association voting to prohibit proxy voting, which allows only in person or absentee ballot votes.  States will often follow each other and adopt laws similar to one another.  This means a law similar to this may have been adopted in your area.  As local and state laws trump all association documents, it is important to be up to date on current local legislation to avoid conflicts in your association’s governing documents.

Invalid Bylaws and Their Effect on Voting Rights

Ohio:  Shortly after the creation of a new association, the association started collecting assessments for association costs.   Not all members were quick to pay and “[s]ome [members] paid, while others did not.”  According to the bylaws, not paying for association costs caused a member to not be able to vote on matters affecting the association.

In 2004, a dam the association was responsible for maintaining failed and subsequently damaged property in the development.  While some members’ property was damaged, other members’ property was left alone.  There arose a difference of opinion on how to deal with the disaster as the members’ whose property was not affected did not wish to pay for the repairs.  Tensions were so high that a lawsuit was initiated to recover the repair costs from the members who did not want to pay.  Ultimately, the Ohio trial court found that all residents of the development are association members and were “obligated to participate in [a] homeowners association,” even though they were not directly affected by the damage from the broken dam.

During the course of the case, the trial court found that the original bylaws were not properly adopted, and, since the bylaws were not “validly adopted . . . the trial court concluded that without the bylaws, there was no limitation on members’ rights to vote.  The court noted that if bylaws were validly adopted in the future, all property owners would be subject to requirements for paying dues and assessments that those bylaws might contain.” So, at the time of the dam failure and subsequent damage, all members of the association had the power to vote on repairs and all association decisions, regardless of whether or not they were paying their assessments because of the current invalidly adopted bylaws.  The Ohio Court of Appeals upheld the trial court’s decision and a newly elected board drafted bylaws that were vested with authority.

This case illustrates how important it is to follow proper procedure in regulating and governing community associations. Imagine how much headache would have been avoided if the bylaws were properly adopted in the first place!  The association would have had clear guidelines to follow in regards to the dam failure and there would have been no confusion about each member’s roles and duties to the association.

Proxy Issues

Pennsylvania: A member of a homeowners association, the plaintiff, in this case, called a special meeting to remove the board of directors and elect a new board.  “Prior to the meeting, the board sent out a solicitation for proxies, asking members to sign a letter giving their proxies to” a specified association member.  The member, apart from the board, also sent out a letter requesting proxy votes.  At the meeting, a quorum was present.  “Immediately before the meeting opened, counsel for [the member] objected to the board that proxy votes should not be allowed because there was no provision in the bylaws for proxy voting. The board rejected the argument that proxy votes were not permissible and conducted the vote to remove defendants from the board. With the proxy votes being counted, the motions to remove the [Board] failed.”  Later, the member filed a complaint claiming that the use of proxy votes was prohibited because the bylaws were silent on the issue.  The court ruled that while the bylaws were silent on the issue, proxy votes were in fact not allowed at this meeting.  So, while the board was incorrect in counting the proxies, both the member and the board were wrong to have requested proxies in the first place.  In the end, the court ruled against the member.

An association may feel like it has a clear understanding of the governing documents of the association, and maybe even a clear understanding of laws related to community associations, but the association may not be knowledgeable on how other laws, legal doctrines, and legal interpretations affect laws regulating associations and how they affect an association’s governing documents.

Pennsylvania:  A member was up for election on his community association board.  He and another member of the association prepared and circulated their own proxy forms to the other association members.  The association’s bylaws “require the board of directors to send out all proxy forms,” but the plaintiff’s “proxy forms were neither adopted by the board of directors nor mailed by the board with notice of the annual meeting.”  At the meeting, the member who was up for election tried to use the 117 proxy votes he had collected, but they were ruled unacceptable because they were not created according the bylaws.  In the end, the member lost the election and he initiated a lawsuit against the association. The trial court and court of appeals both agreed that Pennsylvania law is clear in that proxy voting is to be performed pursuant to the bylaws of the nonprofit corporation, or in this case the association, and therefore did not allow the use of the 117 proxy votes was appropriate.

Again, it is imperative that strict adherence to an association’s governing documents and state law occur in every election. Proxy voting rules and laws can be confusing and easily misapplied.

Board Changing Bylaws to Affect Voting

Virginia: A trial court ruled that a newly elected board of directors was elected improperly and that the previous board was now the “holdover board…empowered to act pending election and qualification of a successor board.”  According to the association’s Articles of Incorporation, members have the right to vote, and directors “are to be selected by the vote of the members as provided for in the bylaws.”  At the time the holdover board was in place, the bylaws allowed proxy votes in board elections.  The holdover board decided to change the bylaws to prohibit proxy votes before the next election, where a new board would be elected.  As a result, there were 64 proxy votes at the election that were submitted and not counted.  Should the proxy votes have been counted, the results of the election would have been much different.  There was much argument about whether or not the proxies should have been counted and if the holdover board had the authority to change the bylaws.  Finally, the Supreme Court of Virginia decided that, since the trial court had given power to the holdover board, the board had the power to change the bylaws and the voting procedures for selecting directors.  The exclusion of the proxy votes was valid.

As members better understand the rules and powers of board, members may be less inclined to seek expensive litigation against the board.

Unclear Bylaws Affect Voter Enforcement

California: Another example of how unclear bylaws can create voting issues comes from a May 7, 1996 article in the San Mateo County Times of San Mateo California.  Here, the residents of a homeowners association became divided after the results of an election.  Kerrilyn Cane was up for several seats on the board.  According to tally sheets at the end of the night, she should have won a seat, but the association leaders included the proxy votes, which caused her to lose the election.  After reviewing the governing documents for the association, their lawyer concluded, “there were no strict rules governing the Edgewater Isle’s homeowner’s association election, which is typical among such groups.  So, when a question arises—such as whether votes were properly counted—there is no official recourse for examining and remedying such disputes.”  This is a sad example of what can happen if an association’s governing documents do not spell out the exact processes, procedures, and results of an election and election tampering. Such confusion can lead to inaccurate elections and expensive litigation.

Unequal Voting Rights

California:  In one specific California community association, voting rights were quite complicated.  Instead of each unit having a certain number of votes based on size or location, each unit was arbitrarily (it seemed) assigned an ‘interest’ in the association.  Some units had greater interest and, therefore, greater voting power over other units.  Having more interest and voting power assigned to a unit meant the member was responsible for a larger assessment.  This voting method was challenged and the court found that the association’s assessment method was not unreasonable or “wholly arbitrary” according to California law.  Also, the court found that “a declaration may provide for unequal ownership by condominium owners of common areas as tenants in common.”

Sometimes the governing documents and association rules can be outside what is considered normal. However, this does not mean they are not legal or effective.

Low Voter Turnout and Proper Understanding of State Law

California:  There was confusion amongst the courts about what happened if not enough members attended a meeting to form a quorum of members. Can the vote be taken? If the vote can be taken, is it binding? Can the court allow for a lower number of members to attend to a meeting in order for those votes to be binding? Current California law allows courts to lower the required threshold to amend the CC&Rs if the CC&Rs “require approval by ‘owners having more than 50 percent of the votes in the association…’” Also, “The court may, but need not, grant the petition if it finds all of the following: Notice was properly given; the balloting was properly conducted; reasonable efforts were made to permit eligible members to vote; ‘[o]wners having more than 50 percent of the votes, in a single class voting structure, voted in favor of the amendment;’ and ‘[t]he amendment is reasonable.’”  In one case, the trial court concluded that the current California law allowed the threshold to be fifty percent of those who vote instead of fifty percent of all members.  However, on appeal, the Court of Appeals of California found that “the legislative intent is to require at least a simple majority of all members of an association to amend the CC&R’s.”  So this particular California law is interpreted to mean that there must be a simple majority of ALL the members in order to change the CC&Rs.

Board Member Unhappy About the Election Results

California:  After an election, a board member wanted to inspect voter ballots under a California law that allows board members of nonprofits to inspect all corporate records.  The board member believed that this right to inspect corporate records was an “absolute right.”  However, the association believed that the association members have a right to privacy in their voting; therefore, the association refused to allow the board member to inspect the ballots. In review, the “trial court concluded the ballots were the type of record to which a director had a right of inspection… However, members had a legitimate expectation of privacy in their ballots against which the inspection right must be balanced.”  As a solution to this perceived stalemate, the trial court allowed the board member’s attorney to view the voter ballots with the association’s counsel present.  Counsel could take notes, but could not disclose the names of the voters or how any individual voted.

On appeal, the court rejected the board member’s assertion that the law “gives him an ‘absolute right’ to inspect; that the right need not yield to any other right, not even a constitutional right.”  The appeals court agrees that the compromise reached by the trial judge was a reasonable solution that properly balanced privacy rights with the right of document review.

CONCLUSION

In all the above situations, effective legal counsel may have been able to prevent tragic legal consequences. While not all litigation is avoidable, much of it is with proper presentation and preparation. Having legal counsel, especially attorneys specialized in community association issues, can greatly enhance your association’s processes, legal protection, and peace of mind.  If your homeowners association cannot afford full-time representation, it is still a good idea to have a knowledgeable counsel review the governing documents to be sure they are clear and comply with state laws.  Having counsel review and draft comprehensive governing documents is one of the best ways to avoid future legal expense and confusion, especially on complicated matters such as voting.