By: Donie Vanitzian JD
Question: Our homeowner association manager inserts herself into board meetings, then controls what goes on. Three majority board directors are responsible for hiring her; together they dominate operations and association finances for over 650 units. With her help these directors get kickbacks and keep their positions by rigging votes. During regular meetings she texts the three majority directors telling them what to say. She tells them what motions to make and how to vote. Because these statements are in private texts, officially they don’t exist in meeting minutes.
After years of relentless complaints regarding management, owners finally removed one of those majority directors, breaking their stronghold. An emergency meeting agenda was circulated stating “possible termination of management company” and the manager was ordered not to attend. One board director claimed to be out of town and attended by conference call. After that meeting the supposedly out-of-town director bragged that he was really at home in his unit on a speaker-phone conference call with the manager sitting next to him. The manager used his phone to text their cohort director, who was in attendance, what to say during the meeting. He said if not for the manager’s involvement, they would not have been able to stave off having her fired. What laws have been violated?
Answer: This manager is a liability to the association. Vote rigging and kickbacks, especially to control association finances and operations, are serious actionable offenses. Under Corporations Code section 8215, any directors, employees or agents of a corporation who make false or deceptive entries in corporate records are liable for all damages that result — this includes board directors who aid and abet. There exists a basic fiduciary duty to act in good faith and in the best interests of the association and its titleholders. If the majority board directors are corrupt or complicit with management, they risk prosecution.
Corporate powers, activities and affairs shall be conducted and exercised by or under the ultimate direction of the board, and the board has a duty to protect records, documents, financial records and voting materials including ballots, according to Corporations Code 7210 (CA). Although the board is empowered to delegate certain management activities to individuals, management companies and committees, some duties are non-delegable to anyone — even a manager.
Accurate and comprehensive meeting minutes comprise an ongoing knowledge base for the association. Texting does not comport with an open meeting discourse. Omitting discussions occurring during any meeting could prejudice a board should members need to defend their actions.
There is a strict prohibition on board directors attending meetings or voting by proxy, under Corporations Code section 7211(c). Although these directors have not formally designated the manager as their proxy, they are giving her the powers they have been entrusted with by the titleholders when they say what she tells them to say or do what she tells them to do. This behavior needs to be exposed, with titleholders informed that the individuals they voted for are not acting in their best interests. In fact they are not acting at all, but instead are serving as mouthpieces for management.
As a third-party vendor, managers are hired to assist the association. Allowing any third-party vendor to dictate the speech and voting of directors is an astounding conflict of interest. The board’s duty to eliminate such conflicts is unsurpassed. These directors’ failure to timely discipline the manager and her aider and abettor directors places the association and every titleholder’s assets at significant risk. If this puppetry of the board continues, the vote of every titleholder cast for a director that is controlled by management was of no consequence, resulting in a monumental waste of association resources.
Before filing a lawsuit against the manager and the culpable directors, consult with a lawyer to determine whether the statute of limitations has expired as to each potential cause of action.
Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or firstname.lastname@example.org.