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March 16, 2007


THE NEW ELECTIONS LAW -
CAN THE PRINCIPLE OF "KISS" (KEEP IT SIMPLE STUPID) BE APPLIED?

By now, you have (hopefully) heard about the new Elections Reform law for HOAs and Condominium Associations. It's time to get busy.

How do you apply the "KISS" principle? kiss

  • Get some good Election Rules written for your association.
  • Get your voting package together today, in preparation for the first election.
  • Get the Procedures and Guidelines for Conducting the Elections.
  • Get together Instructions for Inspectors of Election and a workable agreement.
  • Talk through a practice run with your fellow board members or fellow managers and try to identify pitfalls.

And last but not least ... ask questions, read articles and then settle in with a knowledgeable practitioner of your choosing for advice. Why? Because you will find a widely diverse variety of suggestions and interpretations of the new laws and what to do to cope, and it will likely confuse you no end. And if you decide to ignore the new law, you can look forward to the possibility of having elections of the various natures unravel before your eyes. If it's a board election, what may come unglued are all the actions taken by the supposed "duly elected" board for the period of time it takes someone to challenge the election (and owners have up to 1 year/9 months (SB61/SB1560) to challenge). If it's an election for a special assessment and the loan is already signed, sealed and delivered based on approval, a pretty big project might begin to unravel before your eyes.

You probably have heard by now more questions than answers regarding the new "elections reform law" that took effect July 1, 2006. Wouldn't it be nice if you had answers? Well, here goes.....

Question: What's the big deal?

Answer: The "big deal" is that unless your association has been conducting elections by a double envelope secret mail balloting system similar to the absentee balloting system for public elections, things are going to change for almost every election that takes place after July 1, 2006.

Question: How are they going to change?

Answer: HOAs are required to adopt rules called the election rules that contain certain requirements and HOAs are required to conduct elections using the double envelope secret mail balloting system similar to the absentee balloting system for public elections for most, if not all, elections.

Question: Do the rules have to be approved by the members?

Answer: No, they do not, unless your governing documents require it then, check with your attorney. After July 1, 2006, they need to be circulated if they deviate from the law and governing documents (contain discretionary provisions). That is because after July 1 they became subject to California law relating to adoption of rules and that requires providing the draft (before board approval) to members at least 30 days before the open board meeting at which they will be considered for approval, if they have discretionary provisions added.

Question: What must appear in the rules?

    Answer: The rules
  • Must ensure that any candidate or member of the association advocating a point of view has equal access with other candidates or members to association resources including " media, newsletters, or Internet web sites" during a campaign. The association may not edit or redact (blacken out or remove) any content from communications but may include a statement of non-responsibility for the content.
  • Must ensure access to the common area meeting space, if any, during a campaign, at no cost, to all candidates, including those who are not incumbents and to members advocating a point of view including those not endorsed by the Board, for purposes reasonably related to the election.
  • Must specify the qualifications for candidates for the Board and procedures for nomination of candidates, and allow for any member to nominate themselves.
  • Must specify voting rights, proxy use, etc.
  • Must specify the method of selecting one or three independent parties to act as inspector or inspectors of election.
Question: Is that enough?

Answer: Some practitioners and some associations think so. Others do not. Some believe that more should be included, such as nomination procedures, timelines, special provisions or oddities found in the governing documents, guidance for inspectors, check in processes, etc. There is a wide range of "product" and the question is: how much guidance does the association need? Will a set of rules that reiterates the statute help in conforming to it?

Question: Does the requirement of ensuring access require the Board to offer "unfettered" access meaning the members of the association can have as much "space" or "time" as they want to advocate their views?

Answer: Not exactly. I read this statute as somewhere between zero and unfettered use. My feeling is that reasonable limits do need to be set for all candidates and association members. For example, candidate statements in the newsletter might be limited to 25 or 50 words or less. Opposing views might have similar limitations. Use of the clubhouse might be limited to a candidates' night and if any candidate or member who wishes to speak cannot be present on that night, perhaps one alternative date. Setting reasonable limits does not mean the board can limit the candidate or any other member from advocating their point of view at an association-arranged meeting or on their own, by using the clubhouse on the same terms as other members, by seeking a mailing to the members via access to the membership lists, etc. Other attorneys most likely have varying opinions on this so it is good to work with an attorney you trust to set the parameters. Neither brother Bob nor your last divorce attorney is equipped unless they have specific training in common interest development law and have followed and studied the issues with his new elections reform law.

Question: If a member can nominate themselves or nominate another member, and there is no restriction on being qualified to be nominated, what do we do about candidates that would not qualify to serve?

Answer: I believe that the association has an obligation to the best of its ability to enforce its governing documents with regard to qualifications for board members. For example, your bylaws might require that board members are in good standing, meaning current with regard to their assessments and not in violation of any of the governing documents, or limit service on the Board to only one owner in the household. If your bylaws require these things, then I feel the board must determine at some point that the person who has submitted a name for nomination would not be entitled to be elected. The decision not to allow them to serve has to be exercised at some point. Some believe it can be made at the time the person submits their name as a nominee. It might be made at the time the ballots are in. Maybe a board would wait until the person is elected and right away schedule a hearing to disqualify the owner from service. In any event, I believe it is critically important for the board (through management or the inspector of election or other resource) to let any owner who has submitted their name or someone else's name, in writing, that if they or the person they nominate are not qualified to serve, then something (depending on the circumstances such as whether the problem can be cured) needs to be done about it. This is a good area to rely on the practitioner of your choice. No one can say for sure what will happen if a person is disqualified from receiving votes, especially if they can make a good case that they were attempting to cure any defects that existed.

Question: Can we use members as inspectors of election?

Answer: An HOA can use members, the association manager, the association CPA, a poll worker, or pretty much any other person that has no familial relationship or financial relationship with any of the board members or any of the candidates. The big word in the statute is "independent" third-party. If the HOA wants to use their manager or any other vendor used by the association, the election rules need to state that the Board may appoint the association manager or other vendor as an inspector of election. In my opinion, election rules may give the Board various options with regard to the appointment and I believe it helps the Board to be able to have choices depending on the type of election that is coming up. If the manager is a controversial figure with the members, it does not seem a wise idea to use him or her to count votes. If a very controversial election is coming up, it seems wise to bring in an experienced inspector who will make decisions and stick to them, maybe even a retired judge. And, many times, members will do just fine, and the association can forego the expense of an outside vendor. I do not believe that electing the inspectors is a good option - even though the law allows it. It just complicates elections in my estimation. And there is no easy solution for very small associations. They may have to go outside the membership to find inspectors, if there are barely enough members to fill the Board positions.

Question: What kind of elections are we talking about?

Answer: at the time this is written, elections that are covered by this new law are elections related to election of directors (including recall elections), any elections that would be required with regard to assessments, elections relating to transfer of common area for exclusive use, and elections relating to amendment of any of the governing documents. The reach of this law may be expanded to more elections. The California Law Revision Commission is considering recommending this in its work on simplifying the Davis Stirling Act. For certain, the big four listed first in this answer are included.

Question: So what is this double envelope secret ballot process?

Answer: The association will have to distribute to each and every owner, whether by mail, personal delivery, or otherwise (and I strongly recommend verifying the association records with the method used) a package containing a ballot with measures upon it, but no signature blanks or identifying information, a smaller unmarked envelope into which the ballot is to be placed after the choices are marked, with a larger envelope that has a return address to the inspector of election. The owners will have to have instructions provided so they know what to do. The envelope that is addressed to the inspector requires, in the upper left-hand corner, the member's identifying lot or unit number if they know it (this would be the description of property that entitles them to vote) and so it makes sense to add blanks for this and one which lets the owner know they also have to sign their name. If the association does not give owners explicit instructions, and possibly even if it does, in it is fair to assume that not everyone will follow them. The more of an effort the board makes to make it simple for the owners, the "better" the return will be.

Question: Can the envelope be addressed to the manager?

Answer: if the mailing address is going to be the management office, the envelopes should still be addressed to the inspector of election, in care of the management office. If great care is not taken to assure that the return is intended for the inspector of election, and possibly the envelope looks different than a normal everyday envelope, people's votes are likely to get mixed up with other mail and be opened accidentally. Inspectors of election are not supposed to open ballots prematurely. Neither are managers, board members, or members of any committee. Nothing is supposed to be opened until it is time to count the ballots, and the envelopes have been checked in, and, depending on where the attorney for the association stands on this, whether a quorum is established or not. Again, attorneys have varying opinions on how to carry out this process and when, now, and if, a quorum does need to be established.

Question: Can we place other measures on a ballot with "the big four" which are not covered by the new law?

Answer It is my belief that you can.

Question: What about quorum? Is a quorum required for all elections?

Answer: Ugh! This has been one of the areas of greatest controversy and confusion over this law. A quorum is still required for a valid election, but the law says that the ballots returned will count toward the quorum. Even if the governing documents do not have quorum requirement for the annual meeting, corporate law does for those incorporated associations where the governing documents are silent on the subject. So as far as I am concerned, a quorum is required for all of the subject elections. It would be found in the governing documents, and if not there, in the law (for incorporated associations). The real questions are: what does the board do if it cannot reach quorum? There are different schools of thought on this, but the truth is that many boards do end up appointing successors for lack of the ability to achieve quorum.

Question: What about proxies? Can they still be used?

Answer: Ugh! And double Ugh! This probably is the second greatest area of controversy and confusion over the new law. It simply is not clear on how an association might integrate proxy use with this double envelope secret mail ballot system. The elections law provides that associations do not have to distribute proxies, but it also tells boards to define proxy use in the election rules. So, owners may ask about proxies or give one to a neighbor, expecting that person will be able to vote in their stead. If boards and inspectors are not equipped to deal with this scenario properly, it could mean big problems. I believe that disenfranchising a member who has a right to appoint a proxy to vote on his or her behalf could actually result in invalidation of an election.

Here is a suggestion to deal with this in the event the voting "polls" stay open into a meeting (which I believe is advised if the governing documents state that the election takes place at a meeting): the Board could even have extra voting packets at the meeting and if someone brings in a valid proxy in another form, give them a voting packet and have them turn the proxy in with it, to be kept stapled to or taped to the outer envelope as if it were attached/on the back of it, or to be inserted on the inside of the envelope with an indication identifying the property as designated on the outer envelope, but where the owner would normally sign, the word "PROXY" is written or stamped. Check in procedures should incorporate a list from the Inspectors to make sure no one is given a packet if an owner has already mailed one in. However, even if it happens an extra ballot packet is turned in, this will be discovered when the ballot package is checked in by the inspectors and the owners "irrevocable" ballot will be counted. The later given proxy will not "trump" the mailed ballot.

This process will encourage doing away with naming "The Board" or having "The Board" as the default on the proxy. That has caused confusion in many elections because the governing document seldom explain how the Board is to vote proxies that are unmarked.

And furthermore, this way, the ultimate result is that every ballot received by the Inspectors will be of the same form, i.e., inside the smaller blank envelope which is inside the envelope addressed to the Inspectors. After all "packages" are checked in, the Inspector and counters can separate the outer envelopes into one pile, the inner envelopes into an other, and the ballots into a third, leading to secrecy in counting the ballots. There will be no confusion with some ballot packets and some ballots handed out at the meeting without being in the "package" form. All can be preserved in case check in needs to be verified at a later date or there is a recount.

Question: What may the inspector or inspectors do if they do not know what to do with regard to any question that might arise during the process?

Answer: It is best to try and head off problems that one can anticipate. For example, my plan is to have the association provide instructions for the inspectors ahead of time to the instructors, allow them to read the instructions, and respond as to whether they feel they can or cannot fulfill the duties of the inspector. The inspectors are invited to ask questions ahead of time. The board and its attorney based on past experiences will have some ammunition available to anticipate problems. By way of example, the inspectors could have instructions provided to them ahead of time as to what to do if they receive two ballot packages from one household. They could have instructions as to what to do if the owner signed in the wrong place on the ballot package or does not sign at all. They could have instructions as to what to do if the owner places the ballot in the outer envelope and throws away the inner envelope. The inspectors could be given the right to consult with the association's counsel if they have question during the process. This probably would give them some comfort level.

Basically, however, the inspectors do have the right to hear and determine all challenges and questions that arise out of or in connection with the right to vote. Therefore, they can make some decisions on their own if they are willing or want to take a position. Any position taken by the inspectors is subject to challenge after the election results are announced, the same as would be any position taken by the association's attorney, the manager, the board, or anyone who has any decision-making authority in the process or the election itself. However, the intent of the law is that the inspector's decisions will be presumed valid. Thus, one would not want to choose for an inspector of election anyone who is unpredictable, irresponsible, uninformed or uneducated on the processes, or controversial, independent or not.

Question: Do we still need to have a meeting if we use this new voting procedure?

Answer: For this, I have to give a "depends" answer. After the elections cleanup legislation was approved, language was introduced that basically says it depends on what your governing documents say. For example, some documents say that directors shall be elected at the annual meeting. In that case, I think you need to combine the mail balloting system with the meeting, and if the documents say to allow nominations from the floor, then I think you have to allow for that. I think a board should be advised of the possible ramifications of doing away with the annual meeting. One of my biggest concerns is apathy. A lot of people think it might be easier to forego the meeting but will it? The thing about a public election (after which this Elections reform was patterned) is it never really matters how few vote, the ballots are still counted. And there is never a problem finding candidates for some strange reason lots of people want to be President. But that is not true in associations and many look to their meetings to drum up potential candidates. So the good news is . meetings may not be required in the future for board elections or otherwise. The bad news is . If there are no meetings, there might be less (if that is possible) interest in doing service or returning a vote.

Question: What is the worst that can happen?

Answer: Any individual member might be able to upset the entire election by taking a challenge to Small Claims Court in getting a judge or hearing officer to agree that a single technicality calls for an entire "re-do". This is especially frustrating in a large association that had to go to considerable expense, and thought it did everything right the first time. But, of course, there are worse possibilities. An owner can seek a fine of up to $500 for each violation of the new law and if a Board of Directors, the association's attorney, and/or inspectors of election really screw up, and are short on "good faith" defenses, the fines could add up. An association could be taken to "Big Court" (the Superior one), and end up in the battle of lifetime, lose, and end up with a big attorneys' fees award to have to pay. In other words, the association may end up paying not only its own attorney, but the attorney hired by an owner or owners who challenge the election. The odds are against an Association recovering its attorney fees even if it wins, because it has to prove the action was frivolous. One technicality issue, and even if the election is not ordered redone, could defeat the quest to prove a challenge is frivolous.

And worse yet - a major project could be unraveled by a challenge to a board put in place in a questionable election.

These answers and the processes I have developed to deal with this new legislation are the conglomeration of talking to many, many board members, practitioners and managers, and the legislative aide working on this bill. I have culled all of this information into what I believe is a workable process that should pass muster in any court, if practiced in good faith.

The vocal advocates for simplicity in this law (including me) did not win. The truth is the law is still pretty complicated, when you consider that you have to take into account integrating the Association governing documents, the elections law, and parts (not clearly defined) of existing corporate law. However, the concept of conforming your elections cannot be ignored.

You have to have rules. You have to have inspectors of election. You have to have a process. You have to act in good faith. You may have to demonstrate to someone ranging from the "lowest common denominator of a Small Claims Court referee to the smartest retired High Court judge that you acted in good faith and did everything you can to satisfy the mandates a Civil Code sections 1363.03, 1363.04, and 1363.09. I believe it virtually impossible to anticipate or avoid every trip hazard and be guaranteed that you can avoid a challenge under this new law. Why? Because it does not mesh with existing laws in a logical way; it does not mesh with governing documents in a logical way. And there is no roadmap for resolving conflicts at this point in time.

Still, there are success stories and some boards and managers have commented to me that they like the new law, that it is easier in the end. And after each association stumbles through their first election using the new law, the board will know some of the pitfalls to avoid the next time around.

If you want to look up the code sections themselves (SB 61 and SB 1560), you may link to: http://www.leginfo.ca.gov/calaw.html .... (type in the code you want and plug in the first of the series number of the statute)

If you want to follow my dialogue on the new bill, visit http://www.californiacondoguru and click on the front page, the box that says "Beth's Blog". I am doing my best to keep a consistent running commentary about what is happening with the elections reform law.

Being prepared with the tools in place necessary for your first election under this new law is the only way to reach bliss ..... through K I S S.

Beth A. Grimm is frequent contributor to CAI and ECHO publications. She is a Bay Area attorney that authors books, writes articles and newsletters, is active in industry groups that serve the public who live in HOAs via educational materials and otherwise, and who stays active in current legislation.

By Beth A. Grimm, Attorney. A "service oriented" attorney and member of ECHO and CAI and various other industry organizations in California and nationally, host of the website www.californiacondoguru.com; two Blogs: California Condominium & HOA Law Blog, and Condolawguru.com Blog, and author of many helpful community association publications which can be found in the webstore on her site.

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