Board Member Conflict of Interest

Well first off this is NOT your PM's decision. It is the board's decision. The PM just writes the checks. So your counter bid for your person would have gone to the board anyways for a vote. Suing your HOA is like suing yourself and your neighbors. Your board is protected by insurance for decisions you make as a board.

It was a given you were not going to accept this president's bid. So your really kind of biased. Would your opinion had changed if your vendor got the contract? It should not have. That is the problem here. There were competing bids presented. Your bid just did not win.

You might look at your CC&R. Ours required that there be at least three bids. Depending upon the cost, the CC&R also may direct how the bids are dealt with. Some CC&R require that the lowest bid be taken.

Also check out Corp Code 310. The contract may be voidable because the material facts of the transaction were not made known to the membership and the interested director did not abstain from the vote. The interested director must abstain from the vote.

We have 400 plus single family homes in our HOA. The president has done several other deals similar to this in past years. Once I got on the Board and exposed some of these things and he did not have the majority power on the Board he resigned. He was off the Board for nearly 1 1/2 years but has come back and not has two other followers that think he is a good guy. They are all golfing buddies.

I will look up that other Corp code right away.

Whew, Mark, this is tough because the work already has begun.

As others have pointed out the pres. should have recused himself. You could have moved that he recuse himself, but would have lost as it seems there would have been a tie.

Conflicts of interest can be OK for a couple of reason, including " . . .the board . . . approves . . . the contract . . . by a vote sufficient without counting the vote of the interested director . . ." But your director who is "interested" DID vote and you all agreed to count it.

(Read more: Corporations Code http://www.davis-stirling.com/MainMenu/Statutes/CorporationsCode7233/tabid/1152/Default.aspx#ixzz2UQfWmS2C
from Davis-Stirling.com by Adams Kessler.)

According to 7233, while his vote makes the contract voidable, who's going to stop the work? If like our HOA no director can order the PM to, for example, stop the work, only the Board can order that. You cannot on your own. If your bylaws permit it and I think CA Corps Code does, you and another director could call, say, an emergency meeting of the board to vote to halt the work. But without a stern letter from your HOA attorney or some other attorney showing way the work should be halted, you'll end up with another tie vote or even lack of a quorum--the Prez's buddies may not attend.

Our PM normally collects bids, doesn't yours? Our contract with the MC states for jobs over $1,500 there must be at least three bids. Does yours or your governing documents--perhaps your bylaws?

I would not accept your PM's version of what your (HOA?) attorney said--ask for the attorney's opinion in writing, which will cost the HOA money unless you want to hire for and pay your own attorney for a written opinion. I agree that sometimes PM's do want to avoid conflict (having worked with 3 in the past 6-1/2 years).
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Another concern, Mark, is that the prez contacted all directors except you urging they vote for his company. In CA, per the Open Meeting Act, he may not contact a quorum of the board about agenda items prior to the relevant meeting.

By the way, was the meeting an executive session or just a special meetings of the board?

I'm a little lost, Mark, per this quote: "What I am trying to do now is get another opinion from legal and have requested a conference call with the owner of the PM and the Prince-able attorney to see if I can get him to take back her opinion. I think that this may be a long shot because he will have to say she made a mistake and that could be trouble for his firm."

I've lost track of who's who. Is "legal" an HOA attorney, or an (female?) attorney who works for the Mgmt. Co. (MC). The owner of your MC is a male, right? Still, it's good that you may participate in this conference call.

Also take another good look at your mgmt. contract to see if there must be three bids. Also look to see whether the MC must abide by CA statutes and/or your governing docs even if the board directs them otherwise.

Anyhoo, I still think you want a legal written opinion. What I don't know since I'm not at all involved in the law, is whether the president voting on his self interest is illegal.

To answer your question in your orig. post, our board has voted for something that our HOA attorney advised against. Two of us seven voted against and I believe we two are protected if a homeowner ever takes us to court on the issue. At your regular meeting on the 23rd, did your board vote on this issue again? Who takes minutes at your meetings--your PM? Or the Board sec'y? When you approve them, make sure you're on record by name for having voted NO.

You might be able to educate the two directors who're going to go along with the prez on issues that are at best ethical problems. They could possibly be setting themselves up for lawsuits.

Do see Davis-stirling.com on the topic of conflicts of interest and the negative outcomes at the end of the discussion that might occur even if the "interested" director behaves ethically. There are many other topics on that website that might interest you too.

But your main problem seems to be that you don't have enough support on the board or perhaps even in your HOA to keep the president in check.

Mark,

You never answered Jill about the other proposal. Was the cost higher, lower or about the same as the awarded contract?

Aside from any conflict of interest, this kind of work may require an electrician's license or similar license. Is he a licensed contractor and does he carry his own liability insurance? I doubt that your association's insurance policy would cover damages caused by an unlicensed board member performing construction work for pay. If any new wiring is required your association may need a building permit. Has he covered that? Does he carry workman's compensation insurance to protect the association from liability if he should be injured on the job?

I do not know anything about contractor licenses in California but I would not hesitate to make an inquiry as to whether a license is required and whether he has one.

Honestly, this is not an overly complicated project. Don't know why now it's now become needing a license to pull cable or other type work. I could do this project and I have a 2 year electrical degree.

What your HOA may find is this system may never do what it's intended to do. No matter what contractor you have. There are inherent issues with cameras and card access. It doesn't exactly prevent crime. It just records it for evidence and a chance to catch a crook. The access may be helpful in limiting access to those who are behind in dues from using the facilities. It is not exactly fool proof.

So yes you and your fellow members are going to have enough to gripe about no matter who installs the system. It may be the intent what you all think this project is going accomplish. Did anyone consider this besides being blinded by the source?

Tim's most recent post is practical. And if you can supervise the project, Mark, good. Does your PM typically oversee projects like this? BTW, we're very happy with our fob access system and camera monitoring capabilities.

I am still surprised that your MC contract doesn't require 3 bids for projects exceeding $xxx. Or is the MC not at all involved with them?

Again, like you, my concern if I were on your board is that your Board is at best skirting the law. Have you considered an ethics policy that you'd each sign? Has no teeth, of course, but might help a bit?

It almost sounds as if your board might want to look for a new HOA attorney. $350 an hour, though not unreasonable, seems a little high especially for "vague" opinions. I'm looking at 4 bids right now for a new HOA attorney for us. The least experienced & smallest firm, which we've already eliminated, charges $350 an hour; the others $250; $295 & $325. All hourly quotes are for senior partners.

Our current attorney, in our board's opinion, is too cautious and his last written opinion was three sentences long without supporting case law, or civil code citations.

The annual retainers in our bids , which include unlimited phone calls, range from $500-600, which variously includes 1-2 board meetings, board orientation, annual meetings, etc.

Got to Davis-Stirling Act, under conflicts of interests it states these contracts are voidable. The director should not have been in the room or allowed to vote where he or she would stand to profit.

JM

Refreshing to see you adding something to the subject without ragging on/complaining about your personal issues with your BOD(s).

Keep it up.

Say, Mark, I may have misunderstood you, but I think you're saying that your HOA attorney is linked somehow to your Mgmt. Co. In my opinion, based on not much I must admit, I think that your HOA would be better served with an attorney that has no ties to your Mgmt. Co.

I think it is better to focus on the legal aspects of this case. He was previously on the board. He should understand how a board works. He should have recused himself. If there was a deadlock, he basically should not have voted and thus lost the contract.

If his company does not have the necessary license, then he should not have even been considered. If he is doing something for which he doesn't have a license, then it is likely that his company liability insurance does not cover it and neither will the HOA insurance.