When it comes to recalls, it does not matter what the outdated bylaws say about recall elections. The Corporations Code is used to determine the voting requirements.
petitioners contracted with the League of Women Voters to act as the inspector of elections and drafted and mailed ballots.
The first attempt to reach quorum was unsuccessful, but then at the adjourned meeting quorum was achieved. The votes were tallied, the recall was determined to have been successful, and new directors were elected. The inspector certified the vote and the management company mailed a notice of election results to the members. Eight days later, the new board of directors eliminated Barone’s paid CEO position.
The former directors, who first ignored the recall petition, also chose to ignore the recall election results. The new directors found it necessary to sue the former directors, including Barone, because they refused to “recognize the validity of the recall” and continued to assert that “the prior Board remains in power and that Defendant Barone remains the putative ‘CEO’ of the Association.” The complaint alleged defendants were “engaged in extensive efforts to hinder the new Board of Directors from conducting the affairs of the Association.” The new directors asked for declaratory relief (which basically means that they wanted the judge to tell the former directors that they are no longer directors) and for common law nuisance. The trial court agreed with the new board and found that the recall was valid. Barone appealed (knowing that by the time the appeal would be heard, several subsequent elections would take place).
Barone’s main bone of contention had to do with a provision in the Association’s bylaws requiring a majority vote of the “entire membership” to remove the board or an individual director from office. He also had a problem with the initial meeting being adjourned because the adjourned meeting had a reduced quorum requirement (per the Bylaws). Not surprisingly, Barone contended that because the quorum was not achieved at the initial meeting, the recall should have been deemed a failure.
The problem with Barone’s first argument is that Section
7222 of the Corporations Code expressly governs the recall of directors serving on the board of a nonprofit mutual benefit corporation. The statute provides, in relevant part: “[A]ny or all directors may be removed without cause if: … In a corporation with 50 or more members, the removal is approved by the members (Section 5034).” When it comes to recalls, it does not matter what the outdated bylaws say about recall elections. The Corporations Code is used to determine the voting requirements. In fact, Corporations Code section 7151(e) provides, in pertinent part: “The bylaws may require, for any or all corporate actions . . . the vote of a larger proportion of, or all of, the members or the members
Barone made some other arguments too, but they were based on narrow interpretations of statutes that the trial court and the appellate court felt were not persuasive. Although, the appellate court opinion did include pages of discussion to reach the conclusion, which does beg the question as to why the legislation has not considered a rewrite of the recall provisions of the Corporations Code, which are admittedly confusing and subject to multiple interpretations.
Denise Iger, Esq. is a partner at Iger Wankel & Bonkowski, LLP, and has been providing general counsel services to homeowners associations for 28 years.
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of any class, unit, or grouping of members or the vote of a larger proportion of, or all of, the directors, than is otherwise required by this part.”
Barone’s second argument was that there were insufficient votes cast in the recall election to represent a quorum under the Association’s bylaws. He made this argument despite the fact that the bylaws state:
The presence at any meeting, in person or by proxy, of
members entitled to cast in excess of 50 percent (50%) of the votes of the membership, shall constitute a quorum for any action . . . . If, however, such quorum shall not be present or represented at any meeting, the members present either in person or by proxy, may without notice other than announcement at the meeting, adjourn the meeting to a time not less than forty-eight (48) hours nor more than thirty (30) days from the time the original meeting was called, at which meeting twenty-five percent (25%) of the votes of the membership shall constitute a quorum.
Barone argued the 25 percent reduced quorum provision in the Association’s bylaws “conflict[s]” with Corporations Code sections 7222. Yes, that is right! He first argued Corporations Code section 7222 does not apply. And then he argued that if it does apply, it does not allow for a reduced quorum. The problem with this argument is that section 7222 does not speak to the quorum requirements of non-profit corporations.
Corporations Code section 7512 addresses quorum
requirements and states “[w]here a bylaw authorizes a corporation to conduct a meeting with a quorum of less than one-third of the voting power, then the only matters that may be voted upon . . . by less than one-third of the voting power are matters notice of the general nature of which was given….” The bylaws in this case did authorize a lower voting requirement.
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