Q: My HOA bylaws authorize a board of seven directors, but only three members attended a recent board meeting because there were four vacancies. At one meeting, only two directors attended and approved significant actions. The board contended that since it had only three members, two of three fulfilled its quorum or “majority.” However, Corporations Code Section 307(7) states, “a majority of the authorized number of directors constitutes a quorum…. It appears this requires a minimum of four to establish a quorum at our HOA. Must our board comply with this? — D.C., El Cajon
A: Your board is wrong. Unless the governing documents allow for a quorum of less than a majority (four) of the authorized number of directors (seven), the board cannot act without at least four directors participating.
Corporations Code Section 307 is from the general corporations law statutes, and Corporations Code Sections 7210-8910 also apply to HOAs, which are normally nonprofit mutual benefit corporations. Per Corporations Code Section 7211(a)(7) boards cannot act without quorum, which is a majority of the authorized board seats, regardless of whether they are filled. Without enough filled seats to constitute a quorum, Corporations Code Section 7224(a) allows one action – votes to appoint directors to fill at least enough vacant seats to create a quorum.
So, the directors should act to create a quorum. Once a quorum is in place, they can proceed to make decisions, including the decision to ratify the prior decisions made improperly by the board without quorum.
Q: When on the night of an election, after the vote but before the election results are announced, the outgoing board meets and votes on business such as raising next year’s assessments. We have a new board elected later that evening – when does the new board take over? Can they stop the assessment raise? — D.M., Chowchilla.
A: Corporations Code 7220(b) says that directors normally hold office until their term expires and a successor has been elected. So, once an election is held and the results are announced, a new board is seated and the old directors, unless they were re-elected, are no longer directors. If the outgoing board made decisions just before being replaced, normally the new board could rescind them if the new board felt that was in the best interests of the HOA.
Q: I understand volunteer directors now do not have 100 percent immunity, but I am trying to find your column or statute. Any help? — J.H., Placentia.
A.: Volunteer directors normally have at two types of immunity. First, if the HOA has the minimum correct amount of directors and officers liability insurance ($500,000 if 100 or fewer homes and $1,000,000 if over 100), Civil Code 5800 gives directors personal immunity if their actions were within their board duties, in good faith, and not willful, wanton, or grossly negligence. Second, Corporations Code 7231 recites California’s version of the “Business Judgment Rule,” providing for immunity subject to the same limitations.
Boards too often step outside their protections by acting not as directors (making decisions) but by executing those decisions instead of allowing management, staff, or other vendors to carry them out.
Kelly G. Richardson CCAL is a Fellow of the College of Community Association Lawyers and Partner of Richardson Ober LLP, a California law firm known for community association advice. Send column questions to Kelly@roattorneys.com.
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