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Do NonProfit Corporation Statutes take precedence over CC&Rs

Started by JoanT1 • 10 replies • 2111 views

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JoanT1 (Arizona)
Posts: 18
Posted:
Have a question regarding Arizona Title 10 Non-Profit Corporation statutes. We have a situation in our Community where the CC&Rs specifically say: "Bylaws: 1 .14 "Bylaws" refer to the Bylaws of the Association, as may be amended from time to time by the Members of the Association." I have protested for years that the Board does not have the authority to amend the Bylaws without success until this year. However, this year the Board "approved" the amendment and is now sending it out to the Members for approval? They've already been approved in an open meeting. Why are they sending them out. The language contained in the Bylaws says: The undersigned President of Civano 1: Neighborhood 1 Association, an Arizona nonprofit corporation does hereby certify that the Board of Directors approved the Third Amended and Restated Bylaws at its meeting on ________________________. In addition, Members casting at least two-thirds (2/3rds) of the votes in an action by written ballot also approved the Third Amended and Restated Bylaws.

Our CC&Rs allows the Association to deny Members who are delinquent in their assessments the right to vote or use the facilities. The Association has never denied those rights. Actually there is an approved election Resolution that states delinquent Members are allowed to vote.

The specific purpose of the Bylaw amendment was to add in a restriction that bars anyone who has an outstanding judgment (which of course has already been paid by the insurance) from running for the Board. There is only one individual in the community that has ever challenged the Association and has an outstanding judgment. The challenge was to have the Board elections held in accordance with ARS 33-1812 instead of the Nonprofit statute 10-3708. The individual lost and the Association is unable to collect.

The CC&Rs are very clear about who can be on the Board: the Board shall consist of, and the voting Members shall elect, seven (7) directors, all of whom must be Members of the Association, or an individual designated by a corporate, partnership or other non-individual Member. this is consistent with the Articles. The Board counsel advised against the restriction because an argument against it could have traction in court.

The CC&Rs state that the Articles and Bylaws cannot be amended to be inconsistent with the CC&Rs.

The Articles do not address who can amend the Bylaws, only the CC&Rs address that issue. Arizona Title 10 (ARS 10-11021 and 10-11003)speak to the process of amending the Bylaws but only refers to the Articles of Incorporation. These statutes state that if Members must approve the Board can only "recommend." But how do I use these if they only speak to the Articles? Thanks for your help! Joan T
LarryB13 (Arizona)
Posts: 4,099
Posted:
Joan,

I am not sure I understand your question but this may help:

There is no common-law right to form and run a corporation. Persons who wish to do so must follow the rules set forth in the statutes. In Arizona, corporations are generally regulated by Title 10. But if your corporation fits the statutory definition of an HOA or condo, you are also regulated by Title 33 (Property). There are some conflicts between the two titles but if you are an HOA or condo then Title 33 controls.

The statutes do not require elaborate articles of incorporation; a one-page statement is valid if it addresses all the statutory requirements. When lawyers get involved, however, they go overboard and you end up with page after page of crap that is not required. The problem with overly elaborate articles is that to amend them the amendment must be published in a "newspaper of general circulation." This means if you want to change the number of directors (which was not required in the first place), you must publish the new version at a cost of several hundred dollars. If you are amending the articles of incorporation, it is best to remove all that is not required to be there so future boards do not have to make an another amendment.

My reading of your statement indicates that only the members may amend the bylaws, per the CC&R's. I see nothing improper about the board proposing an amendment, approving it at a meeting, and then submitting it to the members for approval; my concern would be whether there was sufficient notice of the meeting and whether those who were not present were allowed to vote by absentee ballot, as required by state law. Any member could lawfully submit a proposal to the members and seek their approval either with or without a meeting.

The board should listen to their counsel. If the CC&R's set forth the requirements for serving on the board then the bylaws cannot add additional requirements. Your board is foolish to not only ignore their counsel but also to go through the trouble of trying to amend governing documents to prevent a particular owner from serving on the board. I would take the bastards out and shoot them, but then I have a low tolerance for monkey business. The issue of who may serve is best answered at the ballot box.

TimB4 (Tennessee)
Posts: 21,059
Posted:
The simple answer is:

Statutes take precedence over governing documents unless those statutes defer control to the governing documents. Example: Unless the Bylaws provide . . .

The more complicated answer I don't have time to look into right now.
I'll try to get back to this when I have more time.
JoanT1 (Arizona)
Posts: 18
Posted:
The Arizona Non-profit statutes NEVER refer to the CC&Rs...only to the Articles or Bylaws. The Arizona Planned Community Statutes do not speak to amending the Bylaws.

The Community has been a Planned Community for almost 16 years. The Community was noticed about the Bylaw amendment however the Agenda notice just said "Update" not an "approval". The Board did not approve an amendment. They approved the Amended Bylaws. Also, there will be no absentee ballots. The community votes in accordance with ARS 10-3708 which is Action by Written Ballot without a meeting. And, yes, that is for all voting including elections. That was what the lawsuit was about which went all the way to the Arizona Supreme Court. Planned Communities do not have to adhere to using absentee ballots in accordance with Planned Community statute ARS 33-1812. They can use Action by Written Ballot without a meeting because they are a Non-Profit Corporation. I fought that one all the way up the line and lost.

My question had to do with amending the Bylaws - not the Articles. The CC&Rs state that the members amend the Bylaws. In accordance with the Non-Profit Corporation statutes if there are Members and they can amend the Bylaws the Board can only "recommend"...not approve the amendment. However, the non-profit statutes only refer to the Articles and our articles do not address who can amend the Bylaws. It's only in the CC&Rs. So can we use the process as outlined in the non-profit corporation statutes.

This is what the Non-Profit Corporation Statutes say:

10-11021. Amendment by board of directors or members

If the articles of incorporation or the bylaws require that an amendment to or repeal of the corporation's bylaws be submitted to the members, the procedures set forth in section 10-11003 shall apply.

As I said the Articles don't speak to the Bylaws but the CC&Rs does. Can we use this procedure? Thanks everyone for your help. Greatly appreciated!
LarryB13 (Arizona)
Posts: 4,099
Posted:
Quote:
Posted By JoanT1 on 09/21/2015 4:28 PM
The Community was noticed about the Bylaw amendment however the Agenda notice just said "Update" not an "approval".


This appears to me to be a violation of the open meeting laws due to misrepresenting the purpose of the meeting. This was not a routine meeting of the board, it was an election for the members.

Quote:

Also, there will be no absentee ballots. The community votes in accordance with ARS 10-3708 which is Action by Written Ballot without a meeting. And, yes, that is for all voting including elections.
That was what the lawsuit was about which went all the way to the Arizona Supreme Court. Planned Communities do not have to adhere to using absentee ballots in accordance with Planned Community statute ARS 33-1812. They can use Action by Written Ballot without a meeting because they are a Non-Profit Corporation. I fought that one all the way up the line and lost.


Do you have a case number or the names of the parties? Or even the date when it was decided? I tried to locate this on the AZ Supreme Court website but was unable to find it using just the word "Civano."

NpS (Pennsylvania)
Posts: 4,216
Posted:
Quote:
Posted By JoanT1 on 09/21/2015 4:28 PM
The Arizona Non-profit statutes NEVER refer to the CC&Rs...only to the Articles or Bylaws. The Arizona Planned Community Statutes do not speak to amending the Bylaws.

Hi Joan.

I think the answer to your question can be found in 10-3140.9. "Bylaws" are defined as "the code of rules adopted for the regulation or management of the affairs of the corporation irrespective of the name by which those rules are designated."

What this says is that for purposes of the statute, the word "bylaws" encompasses any code of rules. This would certainly include the CC&Rs. Then it says that it doesn't matter what the code of rules is called.

When looking at a statute, always a good idea to read the definitions first. It's quite possible that the ordinary meaning of the word is not being followed.
Sikubali jukumu. Read all posts at your own risk.
JoanT1 (Arizona)
Posts: 18
Posted:
I agree that it was a misrepresentation and I did let them know. Not that it did any good.

The Supreme Court would not take it even though it was submitted. It did go to the Appeals court and still lost. See

Arizona Supreme Court
No. CV-13-0113-PR

Court of Appeals
v. Division Two
No. 2 CA-CV 12-0129

Pima County
Superior Court
No. C20113384
JoanT1 (Arizona)
Posts: 18
Posted:
I do have this statute but didn't interpret it quite as you are saying but definitely a interesting way to look at it! Thanks!
LarryB13 (Arizona)
Posts: 4,099
Posted:
Quote:
Posted By JoanT1 on 09/21/2015 5:21 PM
I agree that it was a misrepresentation and I did let them know. Not that it did any good.

The Supreme Court would not take it even though it was submitted. It did go to the Appeals court and still lost. See

Arizona Supreme Court
No. CV-13-0113-PR

Court of Appeals
v. Division Two
No. 2 CA-CV 12-0129

Pima County
Superior Court
No. C20113384

I did manage to find buried on the Court of Appeals website. It appears that they issued a memorandum decision instead of an opinion. Opinions are usually well researched and carefully documented. A memorandum decision is essentially what they do when they do not give a damn and they think no one is watching.

The good news is that a memorandum decision is not binding on anyone except the parties and only for the particular set of events complained of. There is nothing stopping you from filing again over another set of circumstances, even if it is still the same defendant.

Have you considered filing a complaint with the Fire Marshall's office? Your case would be heard by someone who knows how to spell HOA and how to read the statutes.
JoanT1 (Arizona)
Posts: 18
Posted:
At the time of the court case the OAH was not active. Since I lost, life became so hostile in my community I actually had to contact the Attorney General. Even though the OAH is only $750, the court case was quite expensive. I'd have to really determine whether it would be worth going through it again.

However, I am considering filing a complaint with the OAH if the Board goes through with including more restrictive qualifications in order for a Member to run for the Board than is allowed in the CC&Rs.
SueW6 (Michigan)
Posts: 814
Posted:
Before our bylaws were voted on by the members, the board looked at them and determined if they were legal, contrary to any other bylaw, and was worded correctly. They then "approved" the proposed bylaw FOR A VOTE BY THE MEMBERS.

Perhaps you are having an issue with the words "approve" apposed to "passed by vote"

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