2023 HOA Case Law Review

By Steven J. Tinnelly, Esq.

The two cases covered here are unique in that they both involve colorful scenarios in which an association’s board of directors sought to perpetuate their own power by failing to hold required elections and circumventing the will of their membership.

LAKE LINDERO HOA V. BARONE

In Lake Lindero Homeowners Association, Inc. v. Barone, (2023) 89 Cal.App.5th 834, ("Lake Lindero"), the association was properly served with a petition signed by more than 5% of its 459 members to conduct a recall election to remove the entire sitting board. After the board refused to act on the petition within the required statutory timeframe, the petitioning members exercised their rights to conduct the meeting themselves. They sent notice of the recall election to the association’s members, retained a third-party inspector of elections, and prepared/distributed the election materials to the association’s membership.

The special meeting was set for December 19, 2019; however, the meeting could not actually be held due to a lack of quorum. A majority of the members present voted to adjourn the meeting to December 23, 2019, at which time only 25% of the votes of the membership would be required to constitute a quorum, pursuant to the association’s bylaws. The necessary quorum of 25% of the membership was achieved at the adjourned meeting. The recall of the entire board passed, and a new board was elected and certified.

The members of the recalled board, as well as Defendant Barone (a former board member who had taken a paid position as ‘CEO’ of the association), refused to recognize the validity of the recall election and sought to hinder the replacement board’s ability to control the business and affairs of the association. This resulted in the plaintiffs filing a complaint in January of 2020 seeking a declaration under Corporations Code § 7616 validating the results of the recall election and the election of the new board. The trial court granted plaintiff’s request for declaratory relief and validated the December 2019 recall.

Defendant Barone appealed the trial court’s ruling. Barone made two principal arguments: (1) that the trial court improperly disregarded a provision of the association’s bylaws requiring a majority vote of the "entire membership" to remove the board; and (2) that Corporations Code § 7616 pertained to validating elections only and did not authorize plaintiff’s action or the trial court to validate a recall election. The Court of Appeal disagreed with both arguments.

First, the Court affirmed the trial court’s proper construction of the Corporations Code sections establishing the approval requirements for recall elections. Under the Corporations Code, approval of the recall election requires only the vote of a majority of a quorum of the members. It also prohibits an association from requiring a greater proportion of votes to approval a recall. The bylaw provision purporting to require a majority vote of the "entire membership" to remove the board was therefore invalid and unenforceable.

Second, the Court found the statutory text of Corporations Code § 7616 to evidence a clear legislative intent providing trial courts with broad authority to determine the validity of board elections. While the Court acknowledged recall elections are not expressly referenced in the code section, the Court looked to subdivision (d) of Section 7616 to support its holding, which authorizes the Court to "…direct any such other relief as may be just and proper."

The Court concluded that Section 7616(d) was broad enough to serve as a "procedural vehicle" to clarify plaintiffs’ recall rights under the association’s bylaws, even though the statute does not expressly mention recall elections. The Court reasoned that it was "just and proper" to enter an order confirming the recall, as it could not determine the validity of the election of the new board without first addressing the recall.

TAKIGUCHI V. VENETIAN CONDOMINIUMS

The holding in Takiguchi v. Venetian Condominiums Maintenance Corporation (2023) 90 Cal.App.5th 880 ("Takiguchi") dealt with a similar situation in which an association’s board of directors deliberately refused to hold an election. Two members of the association’s three-member board of directors, Ali Ghorbanzadeh and his son, Sean Gorban, collectively owned 18 of the development’s 368 condominium units. This father/son duo controlled the board continuously from 2009 through at least 2021.

The association’s bylaws required annual meetings to be held for the purposes of electing directors to the board. However, from 2009 to 2021, the board repeatedly failed to hold these annual elections due to the lack of quorum or for other reasons. Gorbanzadeh and his son also targeted opposition candidates, including Takiguchi, by fining them and trying to exclude their candidate statements from the ballot packets. Takiguchi had to challenge these actions in court, was successful in that regard several times, and was ultimately elected as the third director in 2015.

Gorbanzadeh’s seat was up for election at the 2020 annual meeting. Gorbandazeh ran for re-election and there were two other candidates for the seat. The election was supposed to be conducted in November or December of 2020, but was delayed until it took place virtually on January 20, 2021.

At the January 20, 2021, meeting, the association had received only 166 of the 188 ballots needed to achieve quorum. The meeting was then ostensibly adjourned to January 25, 2021, at which time quorum would be achieved due to the reduced quorum amount provided under the association’s bylaws. The likelihood of having to adjourn the meeting to January 25, 2021, due to quorum issues was also disclosed to the members as part of the ballot package.

On January 22, 2021, the board convened an emergency board meeting where Gorbanzadeh announced that the annual election had "failed." He then, along with his son, voted to cancel the adjourned meeting set to take place just a few days later. Takiguchi voted against the motion.

Because the adjourned meeting was never held, the 166 written ballots were never counted by the association’s inspector of elections. Many members of the association, understandably upset by these events, submitted a signed membership petition calling on the board to conduct a meeting to count the ballots. When the board refused, Takiguchi filed an action against the association under Corporations Code § 7510 seeking a court order for the association to count the ballots and to certify the resulting tabulation as the official 2021 election results.

Takiguchi argued that there was, in fact, a quorum present at the January 20, 2021, virtual meeting – counting both the 166 written ballots that had been received and the 37 additional units represented by members online or by telephone for which no ballot had been submitted. The members representing those 37 units (Gorbandzadeh, his son, and their allies) allegedly did not submit ballots in a deliberate and tactical effort to keep the association from achieving quorum. This tactic backfired, because the court looked to the association’s bylaws and applicable statutes which define quorum to include not only the members represented by written ballot, but those present at the meeting – in this case, those present online or by phone at the virtual meeting. Factoring in these 37 additional non-voting units who were present at the virtual meeting resulted in quorum being achieved, and thus prompted the trial court to order the association to hold a meeting for purposes of counting the 166 ballots that were still in custody of the inspector of elections.

On appeal, the association argued that the trial court had exceeded its authority under Corporations Code § 7510 in issuing that order. If a corporation fails to hold a required annual meeting or "written ballot" within certain timeframes, then a member may petition the court under Section 7510 to order the meeting to be held or the ballot to be conducted. The association asserted that this remedial statute is only "future-looking"; that the court’s authority under Section 7510 to order a "ballot to be conducted" does not give a court the authority to count ballots from a prior meeting.

The Court of Appeal disagreed. It analyzed the statutory language and practical consequences of the opposing viewpoints, and ultimately held that the association’s narrow interpretation of the authority under Section 7510 would produce unreasonable results and be inconsistent with legislative intent. It therefore concluded that the trial court’s statutory authority under Section 7510 includes the authority to order the counting of completed ballots and the tabulation of results.

Steven J. Tinnelly, Esq., is the managing partner of Tinnelly Law Group. He is very active within the community association industry and devotes a substantial amount of time to educating homeowners and industry professionals about the legal issues affecting California community associations.