California Condo & HOA Law

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February 11, 2007

Boards Making Decisions By Telephone Poll - Is it Legal?

Making Board decisions (taking action) by telephone poll is not in and of itself a legal way to do business. The telephone may be used in some circumstances as described in more detail below. I can only speak for California law, though, where most HOAs are incorporated. There should be a set of Bylaws that governs the processes and operations of the Board and that provides and explains voting rights, board authority and duties, choosing of officers and their duties, and the things that relate to "running the ranch." The restrictions and rights of owners that relate to the uses of property they own are generally in a separate document called some variation of "Restrictions" and these "Restrictions" should be recorded with the county Recorder's office. I have seen lots of document machinations, but this is pretty much the way it is supposed to work and these are pretty much the most important of the regulatory documents. Why am I telling you this? Because the Bylaws may have something to say about the conduct of business that fits into this discussion.

The Bylaws and the California Corporations Code set up a structure that provides for membership meetings and Board meetings. The members have more participation rights on the membership meetings, and Board meetings are where the Board is expected to conduct the association business. In California as well as some other states there are open meeting laws that require Boards to allow members to attend, listen, and sometimes, offer their own input, and sometimes address the Board on matters of importance to them (as in California). As a cavaet, many states have public open meetings acts and they do not generally relate to private entities such as homeowners associations. Many people get confused about this. In California, for example, some think "The Brown Act" applies to HOA meetings. It does not by its own terms, but I will not say that it "never" applies because then someone will show me a set of documents where the drafter has incorporated that body of law (yes, you might see this even when there is a specific statute in the Davis Stirling Act addressing open meetings that should be treated as the primary authority on this).

In California, Civil Code Section 1363.05 sets forth the requirements for open board meetings.

Okay, so what can happen? Here is an example, from a reader:

"I have been asked by our Board to inquire whether the Board of an HOA can vote on matters before the Board. Specifically, in the event that a quorum of board members is not present at the time of a Board meeting and matters requiring a majority vote are needed, does the Board have the authority to take a poll of members not present following the meeting to ascertain their position and/or authority to approve the actions? In other words, can the President take a vote of those present and then subsequently contact the absent board members and secure their position? Your thoughts please."

A telephone poll could be taken. I mean no board member is restricted from questioning others on what they think about something. No one is going to bug the board members phones to see if they are calling any other board members to talk about board business, and there is no prohibition on discussing business with a "colleague" anyway .... until the conduct rises to the level of decision-making for the association. In California there is also the question of whether a majority of the Board members are in one place at one time (this could be on the telephone) discussing board business and there are only 3 board members total. Then, two board members talking to each other would constitute a meeting subjet to homeowner notice laws. While talking to each other is not a crime, deciding business this way and coming into meetings and discussing everything before the members as if the decisions are a "done deal" is a very different thing in principle.

And it falls far short of legal requirements for HOA Board action. If action is needed on an item and the Board cannot get notice out to owners and a quorum of Directors together in one place at one time - then there are some possible alternatives to do what needs to be done, i.e., get a board decision on an action matter.

One such alternative is: an emergency telephone, web or video conference call meeting. A conference call is different than a telephone polling call - it is a process where all board members are on the call or in the virtual meeting room at the same time, or at least a majority is. An attempt must have been made to contact all board members giving notice of the scheduling of the call. If done right, with proper notice to board members, it could iconstitute a valid meeting (see more below)., even if there is not full attendance but a majority "show up" for the process. This is one way to hold an emergency board meeting,

Member notice requirements may be an issue for this method. Although in California, Boards must give owners at least 4 days notice of open board meetings, there are specific exceptions to this notice requirement for executive sessions (matters that have certaiin protections because of the importance of confidentiality) and emergency meetings. I suggest getting legal advice as to what might truly qualify as an emergency meeting if this method might meet your needs of getting some business done when there was not a quorum of directors present at the board meeting.

Short of handling the emergency matter this way, written unanimous consent is another option that may be available for corporate boards. Check with your local counsel on this. It probably is not consistent with your state's staturory scheme for HOA meetings, if there is such a statute, but on the other hand, it does not necessarily present a direct "conflict" either. And some bylaws provide for written unanimous consent as one way to make board decisions. When I am writing documents, I qualify the right to decide something by written unanimous consent so that it is available only in emergency situations where a board meeting is not feasible (being aware that the open meetings law for California CIDs (common interest development acts) exempts emergency meetings from the usual homeowner notice requirements). But it requires, of course, some communication, whether that be by telephone, email or fax, AND a signed written consent form signed by all board members - hence, the "unanimous" aspect being satisfied.

In the event a meetiing cannot be called where the Board can meet and discuss the business at hand, and debate and hear and speak to one another, then polling might be a fair preamble to a written unanimous consent board decision. If all of the Board members are in favor of some action, and a written unanimous consent form is prepared and signed, an action item could conceivably be decided in this fashion. Generally then, the Board should then announce the action at the next meeting and refer to the form that was signed by all, unless there is an executive privilege component, which is for a separate discussion.

Neither the emergency board meeting nor action by written unanimous consent processes should be flaunted, overused or misused, and again, I feel that use of either should be made only in the most emergent of situations where a conference call or other type of meeting cannot be convened in time to resolve a problem or alleviate a difficult situation. The key to legality of the written unanimous consent method is UNANIMOUS CONSENT, not a majority, and the other important key is to be prepared to answer the challenge as to why this business couldd not be done at a duly called open board meeting. The reason had better be good.

The alternate processes mentioned above are not recommended to be used in place of open Board meetings except in the rarest of circumstances but may be available in your state in the difficult circumstances such as that suggested. Neither is as controversial or suseptible to challenge as simply coming to a final decision by polling board members who were not at the meeting on an item that requires action. If the meeting is held, there are not enough board members present to make a decision on something that requires immediate attention, then .... I would suggest only with your legal counsel's blessing, the polling might be useful tool to get to the right end result. (And you wonder why we - attorneys - never say never!)

The problem that has to be addressed in separately polling board members is that it leaves too much power in the hands of the caller. For example, if each Board member called is told that other Directors voted in favor of against a measure (whether they did or not), that could have undue influence. If a board member raises a possible issue to consider on some item and the concern does not get transmitted to other board members, the vote might be seriousy flawed. A Director's position might be misreported, and any Director could be at a disadvantage for not having been privy to everything that has been said by all other Board members. Commonly, there are the board leaders (shepherds) and then those Directors who always "yes" the President or always vote with their friends and whose opinions are never expressed (the sheep) and the shepherds could accomplish quite a bit addressing the sheep one by one. And sometimes it would not matter anyway because when the shepherds speak, the sheep always follow. Still, there are perceptions and legalities to be concerned with. It is always better to be above board and try to avoid actions that might trigger unwarranted criticism.

And here is another thought: if the Board member(s) who are not at the meeting are available by telephone - why not arrange for them to be present by speaker phone or video conference on a computer in the room. This can be arranged so that everyone can participate as if they were in the same room. Just be cognizant of owner notice and attendance rights. Just make sure proper arrangements are made. Members that are not board members can sit in the meeting room while the business is going on, and as long as all board members can hear and be heard and talk to each other, the meeting should be legal (assuming neither the association governing documents nor specific state laws do not preclude it). I do not believe in California there is any law that precludes a speakerphone or telephone conference call meeting so long as these requirements are met: proper notice and an opportunity to attend was given to board members and to HOA members, and all Board members are on the call or in the virtual room at the same time, can hear each other, be heard, and can communicate their views. The California Corporations Code provides for electronic attendance at board meetings. There is no eq2uivalent entitlement in the Davis Stirling Act related to HOAs, though, and it is always important to consult your own legal counsel on these matters and at anytiime when the Board cannot seem to get a quorum of directors to attend on a regular basis. And for more suggestions, see the concurrent blog for suggestions on dealing with difficulty in achieving quorum.

Posted by Beth Grimm at February 11, 2007 3:11 PM