Closed Meetings Deny Owners Their Rights

Question: Our board has always held closed board of directors meetings. Then our homeowner association was advised by the attorney general that the Open Meetings Act section of the Davis-Stirling Act requires they open board meetings to homeowners.

The board announced that the meetings were now open to homeowners. But although we were allowed to attend meetings, we were then immediately asked to leave because, the board stated each time, “We are now retiring into executive session to discuss possible litigation due to the attorney general’s letter.”

I have been trying to find out how the board spends our money. I feel the board is shirking its responsibility to the homeowners. This has been going on for more than two years.

How can homeowners get the board to comply with the Open Meeting Act, and is this a proper reason to retire into an executive session?

Answer: Every month, California’s approximately 33,000 common interest developments generate an estimated $1 billion in assessment payments from homeowners, which pass through homeowner association bank accounts. The association boards of directors control that money and have every right, along with each homeowner who is a member of an association, to be concerned about where and how that money is spent.

Ten years after the passage of the Davis-Stirling Act, the legislature enacted Civil Code section 1363.05, the Common Interest Development Open Meetings Act. In defiance of the law, some boards still block homeowner participation.

Section 1363.05(b) says: “Any member of the association may attend meetings of the board of directors of the association, except when the board adjourns to executive session to consider litigation, matters relating to the formation of contracts with third parties, member discipline, or personnel matters. The board of directors of the association shall meet in executive session, if requested by a member who may be subject to a fine, penalty, or other form of discipline, and the member shall be entitled to attend the executive session.”

By law, those are the only reasons for a board to meet in executive session. A discussion of hypothetical litigation is not included and, under a strict interpretation of the law, is inappropriate for executive session.

All actions taken by the board must be included in the minutes of the meeting, whether taken in executive session or not, and the law specifically states that a general note of the discussions in executive session must be included in the minutes.

Homeowners must demand that if the board is intent on applying the law, it apply all the law and report their discussions from executive sessions in the minutes.

This ruse of calling an executive session appears to be a method for boards to deny homeowners access to regular meetings. When used to conduct the regular business of the association, it constitutes a breach of the fiduciary duty the board owes to the homeowners.

Boards that break this law may be exposing themselves and all other homeowners to potential liability while leaving little recourse for homeowners who have been shut out of the process. The opportunity for mismanagement and fraud increases as homeowners are given less access to the same books and records as board members.

Until the law changes to add an immediate penalty for breaking the law, even a new board is no guarantee of a change.

It only takes one lawsuit and one judgment against an association for a board to realize that hiding information from homeowners can be far more damaging than its efforts to remain in control, since every homeowner shares in the liability.

Professionals who advise boards to stretch the meaning of the law to deprive the majority of information also expose the entire community to potential liability. This causes increased frustration among the non-board-member homeowners who cannot find solace with the state’s attorney general because, despite the billions of dollars that pass through association bank accounts every month, the attorney general’s office says there simply is not enough money in the budget for investigation or enforcement.

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Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian, J.D., is a writer and an arbitrator and manages commercial property. Both live in common interest developments and have served on various association boards. Please send questions to Common Interest Living, P.O. Box 451278, Los Angeles, CA 90045 or e-mail CIDCommon Sense@aol.com.