Epsten, APC

Spotlight on Elections

A Brief Summary of Two Recent California Court of Appeal Decisions

By Mary M. Howell Esq.,CCAL, & Pejman D. Kharrazian, Esq.

Two recent California cases, Takiguchi v. Venetian Condo. Maintenance Corp. and Lake Lindero HOA v. Barone, focus on the ever popular issue of achieving quorum.

Takiguchi v. Venetian Condo. Maintenance Corp.

In Takiguchi v. Venetian Condo. Maintenance Corp. (2023) 90 Cal.App.5th 880, a small group of owners held multiple units and had controlled the board with its nominees for many years.  In January 2021, as the association moved toward its annual meeting to elect directors, there were opposition candidates lined up to change the complexion of the board.  The existing board sent out statutorily-prescribed notices of meeting and ballots, and engaged a professional inspector of elections.

Then the fun began.  The governing documents prescribed a quorum of 51% of the voting power, with a provision for a lower quorum for an adjourned meeting should the association fail to meet quorum at the initial meeting.  The notice of meeting anticipated a failure to achieve quorum, and actually noticed a follow-up meeting to take advantage of the lower quorum requirement for an adjourned meeting. The notice stated that members could participate by mail in ballot, or by attending the meeting virtually, since COVID-19 restrictions were in effect. Ballots were duly mailed to homeowners by the inspector of elections, and the inspector of elections kept a log of which owners had returned their ballots.  Ostensibly, to save money and given a long history of failures to achieve quorum, the inspector did not attend the first meeting.

On the date of the first meeting, there was confusion as to whether quorum had been achieved; in determining that quorum had not been met, management relied strictly on the number of written ballots which had been received by the inspector, and did not include persons who attended online.

The failure to count for purposes of quorum those who had not actually cast a written ballot but who appeared via internet did not sit well with the opposition.  One homeowner took pictures of the participants who were only appearing virtually.  Despite some of those images being identified only by screen names, the opposition was able to persuade the court of the identities of those participating virtually, and counting those as well as the received ballots, it was clear quorum had been achieved at the first meeting.

To compound its problems, the holdover board next voted against holding the (already noticed) subsequent meeting with its lower quorum.

The opposition filed a suit pursuant to Corporations Code Section 7510, which allows a court to order a meeting be held if the corporation’s board had failed or refused to do so.  In granting relief to the owners, the court noted that, despite no minutes having been kept, there was sufficient evidence quorum had been achieved at the first meeting.  The court accepted the identification of owners who had not submitted a written ballot but participated virtually, and counted those participants toward the quorum. In fashioning its remedy, the court ordered that a new meeting be held for the purpose of counting the ballots which had been received at that first meeting.

A dissenting opinion questioned whether the statute actually supported this type of relief, or whether instead the court should have ordered a new meeting to be held.  While the dissent is well reasoned, the remedy prescribed by the court saved the association the not insignificant costs of conducting a second election.

Lake Lindero HOA v. Barone

The second case, Lake Lindero HOA v. Barone (2023) 89 Cal.App.5th 834, concerned a recall vote.  Defendant was a former director of the association, who had resigned his position in order to take a paid position as the chief executive officer of the association.

Homeowners sought to recall the entire board pursuant to a petition by 5% of the members.  Corporations Code Section 7511 requires an association, within 20 days of receipt of such a petition, to notice a member meeting to vote on the issue of recall.  The board failed to do so, so the petitioning members sent out their own notice of meeting, and duly conducted the meeting.  When this meeting failed to achieve quorum, as prescribed by the association’s bylaws, an adjourned meeting was convened by the same homeowners, resulting in a diminished quorum.  The recall was successful, and a new board elected.

Unfortunately, the recalled board refused to leave, contesting the right of the new board to govern, including instructing management to disregard instructions from the new board.  The new board and association then filed this suit, asking the court to declare the validity of the recall, and to validate the new board’s termination of Defendant’s contract.

Held: new board 1, old board 0.  The trial court’s decision was affirmed on appeal.

The old board made the following arguments: (1) the bylaws required a majority of owners to vote for removal, despite a statute that allowed removal by a majority of a quorum,

(2) the statutes do not permit a reduced quorum, even if the bylaws do, and (3) the Corporations Code only allows a court to determine the validity of “elections”, not “recalls.”  The court properly rejected all of these arguments.  First, the statute which discusses the percentage vote required for recall (§ 7222) specifically states that it will override any contrary language in bylaws.  Second, even though the recall statute doesn’t specifically authorize a lower quorum for adjourned meeting, another statute (§ 7512) specifically provides that bylaws may set a lower quorum for meetings.   As to the third point, the court found that Corporations Code Section 7616, which allows a court to validate election results, should be read broadly to permit a court to review recall votes as well.

Takeaways from the two cases:

1. Achieving a quorum at annual meetings is always difficult. Keeping an accurate list of ballots cast is essential, and if a virtual meeting is going to play a part in the proceedings, protocols to establish the identity of participants is essential.
2. Minutes need to be kept. While the focus is often on board meeting minutes, annual meeting minutes are critical in determining quorum issues, notice issues, motions of adjournment, and the like.
3. Any communication between the board, management, and inspectors of election on quorum issues needs to be memorialized in a writing, such as an email.
4. Statutes and bylaws need to be read together. In some cases, statutes override contrary language in the bylaws.  In other cases, statutes provide that bylaws may differ from the code.  A firm knowledge of both the relevant statutes and the association’s specific bylaws (and election rules, though neither case referred to them) is essential in any election, whether the annual election of directors or a recall vote.
5. You can’t stop your analysis with the Davis-Stirling Act. Despite the increasingly complex election protections written into the Act, neither of these cases referenced the Davis-Stirling Act.  Both were decided entirely by reference to the Corporations Code.