Board members’ behind-scenes actions raise suspicion

Question: Some of the actions of my association’s board are clandestine. Every month, the board meeting minutes raise suspicion and concern for owners. On advice from our ninth management company that it is legal for directors to act outside the board meetings, they added a section to the minutes called “Summary of Matters Acted on Outside of Board Meetings.” A lawyer told me that these items must first be deliberated during open board meetings. He said that behind-the-scenes board actions are illegal and manifest the board’s intent to circumvent the law.

Our board says that because the management company told them that they could act outside meetings, as long as it is reported, it is not illegal. Is this right?

Answer: Behind-the-scenes board actions used to circumvent laws meant to protect titleholders are illegal, and each board member may be personally liable for any damages that result from those actions.

Section 1363.05 of California’s Davis-Stirling Act, which is also known as Common Interest Development Open Meeting Act, requires that board meetings be conducted in the open, unless the topic is one of the few permitted to be discussed in an “executive session.” It says that there is no basis in law for “matters acted on outside of board meetings” and any such actions are illegal and violate the Open Meeting Act.

There is only one type of association board meeting and it must be properly noticed and held in the open where any titleholder has a right to attend. At a duly convened board meeting, the directors may adjourn to executive session to discuss only those matters permitted under Section 1363.05(b), and when finished, reconvene the board meeting and disclose the general subject matter discussed during that session. Any quorum of board members discussing association matters is a “board meeting” necessitating publication of notice and minutes to every titleholder. Any action by less than a quorum is illegal.

The management company is a vendor selling its services to an association. By definition, it is not entitled to give legal advice of any type and if it does, it may be committing the crime of practicing law without a license. If the board relies on advice received from management, and that advice is wrong, the board members are exposed to personal liability and may not be covered by the association’s insurance policy. It is also very likely your association’s contract with the management company indemnifies it for everything, meaning the association would be unable to recover any damages from the company despite erroneous, negligent or illegal advice. This is not a circumstance in which any reputable association would want to find itself.

When a management company employee is not a licensed member of the California Bar, yet purports to give advice on what is legal or illegal, he or she is partaking in the “unauthorized practice or attempted practice of law.”

Under Business and Professions Code Section 6126, that person “is guilty of a misdemeanor punishable by up to one year in a county jail or by a fine of up to one thousand dollars ($1,000), or by both that fine and imprisonment.”

A wise association board does not rely on such management company advisements or risk liability for actions taken based on that advice.

Behind-the-scenes machinations by directors only serve to breed distrust and make for a membership of suspicion.

Hiding information from titleholders is one of the quickest ways an association can end up in litigation.

Boards acting in this manner usually do so for their own personal benefit, and that in turn subjects each director to allegations of violating his or her fiduciary duty to the association and owners.

All titleholders in the association have the right to challenge board actions and, albeit costly and time consuming, it might be worth the effort if it results in correcting serious improprieties appearing to exist within your association.

Please send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail your queries to noexit@mindspring.com.