PMCPOA members—the homeowners of Pine Mountain Club—have a board and management that handle day-to-day decisions. But members have said they want to be consulted before the board takes the debt-free association into major debt (over $1 million) and before making major purchases (over $1 million). Chairman Bill Lewis is now proposing a resolution to remove that right of consultation from the members. The board is scheduled to vote on that change on Saturday, Nov. 16 at their 10 a.m. public meeting. Members will be invited to comment.
UPDATE: Below is a compilation of the full debate so far on this subject. The PMCPOA board is scheduled to vote on it at the November 16 public board meeting at 10 a.m. Scroll down for the full string of six OpEds published so far. The debate is about a resolution to remove the right of the homeowners of Pine Mountain Club POA to vote before the PMCPOA board takes the association into over $1 million in debt, or spends over $1 million in a new purchase contract. Comments from PMC members will be taken before the vote on November 16. Scroll down to read the community discussion.
UPDATE: At the October 19 board meeting. Chair Bill Lewis II said he decided to table his resolution for “one month only.” He agreed to explain the reasoning behind his resolution next week. [His argument is in this string, below.] Please read the full discussion.
By Patric Hedlund, TME [Published October 18, 2019]
This Saturday, Oct. 19 at 10 a.m. Pine Mountain Club homeowners may lose the right to vote on whether their PMCPOA board should be allowed to take them into over $1 million of debt or spend over $1 million for new purchases.
The chairman of the PMCPOA board of directors has placed resolutions on the agenda for the Saturday, Oct. 19 board meeting (10 a.m.) to abolish these protections.
In 2017, PMC homeowners voted to protect their homes by placing a limit on how much the board of directors can spend without seeking consent of the members at the ballot box.
Voters were concerned that assessments could skyrocket and a California law known as “nonjudicial foreclosure” could be used against them.
Nonjudicial foreclosure allows a POA to seize someone’s property without going to court if a homeowner is unable to pay their POA assessments. Assessments must rise to make loan payments.
PMC’s assessments leapt $100 last year, to $1604, despite the fact that the POA already had over $1 million in excess charges from prior years floating in its operating account. Board Chair Lewis later introduced a resolution to put the excess funds into a special fund.
If passed Saturday, the resolution by Bill Lewis II would: (1) eliminate the need to consult with members before spending over $1 million; and (2) allow the board to take out loans—without consulting members first—that could take this debt-free association into over $1 million in debt.
Because this unannounced proposal is coming up so quickly, we’ve asked a former board member, who spent 8 years on the PMC Governing Documents Committee, to explain some of the issues for our readers. —Editor
By Katherine King, PMC
Thank you for inviting me to comment on Resolution 11-10–19-2019 on the upcoming agenda of the PMCPOA board meeting.
I know from my past experience on the board of directors that our PMCPOA association lawyer will attempt to find a legal way for the board of directors—his employer—to do what the board wants to do.
In this case, legal counsel is: (1) interpreting the CC&Rs and civil code in the most narrow way possible and (2) allowing the board of directors (BOD) to take a most extreme action in order to avoid the clear will of the members—the homeowners of PMC.
Please be clear: It is we members who as a group constitute the “Association,” (per CC&R article 1.1), who voted to limit the BOD’s ability to put this Association hugely in debt for projects which a majority of members did not want.
To be precise, the Association (that is, the membership) requires that the BOD put to a vote of the membership projects that cost more than $1,000,000, or cause PMCPOA to take on debt exceeding 25% of the annual assessment. Since the annual assessment is over $4,500,000, that means debt that can exceed a million dollars.
In addition, the Association (that is, the homeowners) voted to require the BOD to reduce assessments once a project loan is paid off.
Bylaws 10.08 and 10.10
The Association (remember, that is the membership) asserted these rights in the form of Bylaws 10.08 and 10.10.
Now the BOD is proposing on Saturday to eliminate the entirety of these two bylaws on the grounds that they conflict with the BOD’s interpretation of CC&Rs 3.2(a), (d), and (q) and Civil Code 4775.
Their argument depends on unnecessarily identifying the word “association” with “board of directors,” and on their effort to conflate “duty” with absolute power, along with a subtle expansion of the duties listed in CC&R 3.2.
Duty–Not Absolute Power
California’s state Civil Code 4775 says that “the association is responsible for repairing, replacing, and maintaining the common area.” The subsections of our PMCPOA CC&R 3.2 (Specific Duties) use similar language to describe the duties of the Association as a corporate entity.
For example, 3.2 (a): “the Association shall maintain, restore, and repair all Association property.”
3.2 (d) “shall purchase all materials…necessary for construction, upkeep, maintenance.”
There is an emphasis in the Civil Code and in the CC&Rs on the duty to maintain property in good condition, which includes bringing it up to code.
But there is no mention of an absolute power to build whatever a current board of directors might dream up.
A Member-Centered Vision
CC&R 3.1 says that “the Association through the Board of Directors shall … provide for the welfare of the residents as required under these CC&Rs and applicable laws.”
The early corporate vision of the development we live in seems to have imagined association members as passive and only the corporate board members as having power.
But over the years a more member-centered vision has emerged in both corporate and in civil law.
The membership that makes up associations has more power now to participate in governing, which results in a more democratic community vision of our POA than when Tenneco Corp. first drafted the CC&Rs.
This community vision is the one I shared and argued from when, as a member of the Governing Documents Committee, I lobbied to renew our revised CC&Rs in 2011. And it is one that I will continue to fight for now.
Limitless Debt Unlawful
One cannot argue that no limitations can be placed on a board’s right to incur debt and thereby increase assessments with no consultation with members. That is simply wrong.
Civil Code 1366 itself decrees such a limitation:
(b) Notwithstanding more restrictive limitations placed on the board by the governing documents, the board of directors may not impose a regular assessment that is more than 20% greater than the regular assessment for the association’s preceding fiscal year, or impose special assessments which in the aggregate exceed 5% of the budgeted gross expenses of the association for that fiscal year without the approval of owners, constituting a quorum, casting a majority of the votes at a meeting or election of the association….
“For the purposes of this section, ‘quorum’ means more than 50% of the owners of an association. This section does not limit assessment increases necessary for emergency situations.”
We Are A Small Town
The duty of the BOD to maintain a beautiful living and recreational space is not in conflict with the right of the membership to refuse to go into debt for expanded amenities that they do not want.
If they want them, they will vote for them. What is the problem with allowing them to vote?
Do we think of ourselves as an old-fashioned corporation or have we progressed with corporate and civil law to view ourselves as a small town that respects majority rule?
Ten years ago, in 2009, over 160 worried Pine Mountain Club homeowners turned out to protest the PMCPOA board’s failure to answer questions on finances and a rumored plan to abolish the PMC Security Patrol. In 2017, voters passed two bylaws: to require a vote of homeowners before spending over $1 million; and to prohibit taking the POA into over $1 million in debt without a vote of the members.
___________________Board Chair Bill Lewis Comment:
Last week we published “PMC board may kick away safety brakes on runaway spending— Is ‘Just trust me’ enough?” about a resolution to remove the bylaws (10.08 and 10.10) that set a $1 million threshold for board spending before they must seek a vote of the members to take the PMCPOA into debt or make a purchase over $1 million. We invited the resolution’s author to present his views. The accuracy of his legal statements made here could not be vetted by press time.
By Bill Lewis II, PMCPOA Board Chair and author of the resolution
I recently submitted a resolution to remove PMCPOA Bylaws 10.08 and 10.10.
I believe there is an obvious conflict between these bylaws and the CC&R’s and Civil Code. I am also aware of the perception that this action is attempting to advocate for unlimited spending that will drive members from their homes and circumvent the will of the voters.
That is not true. I absolutely understand the concerns about overspending and massive debt, but I see no evidence nor have I participated in any discussions that involves either.
What is the conflict?
The Board has been given the authority and directive to manage and maintain the association. That authority was granted without monetary restrictions in doing so per sections 3.2(a), 3.2(d) and 3.2(q) of our CC&Rs and Civil Code 4775.
The members voted for directors to manage our association and make decisions on their behalf and many of them believe that is the proper course of action.
The primary issue is a conflict with our governing documents. I questioned these bylaws after the election when I learned they had both been assessed by legal counsel as conflicting and unenforceable, yet that Board allowed them to remain because nothing was happening monetarily at the time and I believe directors feared repercussions.
In regard to conflicts, the CC&R’s prevail over bylaws (CC&R 7.7 and Civil Code 4205). But previous Boards decided not to take action. They allowed conflicting bylaws to remain on the books. I am of the opinion that allowing a conflict to exist is a violation of our governing documents.
A few members believe that “voter-approved bylaws” are set in stone and cannot be changed. That is simply not true. All bylaws are approved by the members. All bylaws are subject to change. If these two bylaws are removed, members will have a chance to either repeal or retain at the next election [in June, 2020].
I believe this current Board is conscientious about the financial futures of both the association and its members—and we are members also. However, we should follow the rules.
Is there a reasonable alternative? I am open and willing to hear any alternative suggestions that conform to our governing documents and civil code.
This is part of the October 25, 2019 online edition of The Mountain Enterprise.
__________________________OpEd: Girard Mollayan:
By Girard Mollayan, PMC
At the Saturday, Oct. 19 meeting of the Pine Mountain Club Property Owners Association, Board Chair Bill Lewis II tabled until November’s meeting a resolution intended to eliminate two bylaws—10.08 and 10.10— that were initiated and passed by a majority of the members in good standing (the homeowners who own property in PMC).
One of those bylaws requires member approval before the PMCPOA Board can spend over $1 million dollars for projects in any one year. The other requires members’ approval before obtaining a loan over $1 million for improvements.
The truth is, we have a cabal on the board who have an agenda to spend large sums of money and to possibly put what is now a debt-free association into long-term debt without the approval of the members.
Obviously there are maintenance, improvement and ADA issues to address.
That can be done with the excess assessment money collected by past boards under a former general manager who appears to have padded the budgets year after year.
Now the current board is hoarding those “overcharge” funds for their own reasons, such as an oversized swimming pool for a small number of members. How can this be the number one priority?
Excess assessments collected are supposed to be refunded after the fiscal year is ended, or used to reduce the assessments charged to the members in the following year.
Instead, they are keeping this money, which I believe is a violation of civil code and can be taken to a court for judgment.
We are a debt-free association with a healthy cash flow. It was just mismanaged. There have been improvements, but we still have a way to go.
Those improvements in budgeting have been because of a pushback by the membership!
I would like to remind the board that they work for the members and not the other way around.
At that same meeting, we saw what this board intends to do to those who disagree with their plan. The meeting was turned into a public shaming by those board members who voted 8 to 1 against approving Finn Myggen for the Governing Documents Committee. Finn has already served on that committee for four years, as well as having served as chair of the Planning Committee.
When he ran for the board, there were three seats open. Finn won 430 votes from people who respect him. He missed being elected by 25 votes. He came in fourth out of eight candidates.
On October 19, Finn Myggen was falsely accused of being forceful at meetings and a bully. Nothing could be further from the truth. Over the years that I have known and observed him, Finn has always acted in a respectful manner in public.
Others may disagree with his positions, but he is never out of order. This is exactly what we need on our committees. Members should be grateful for a having variety of viewpoints represented.
This is part of the October 25, 2019 online edition of The Mountain Enterprise.
_____________________________OpEd by Bryan Skelly
Pine Mountain Club Property Owners Association Board Chairman Bill Lewis II wrote an OpEd two weeks ago [“The PMCPOA Board, Not Members, Must Decide How to Spend,” October 25, 2019, The Mountain Enterprise].
I see three basic problems with his argument.
•First, by proposing to completely eliminate Bylaws 10.08 and 10.10—speed bump protections against runaway spending—the chairman is signaling that the checkbook is now wide open.
It is like saying this board or future boards have a right to commit to large expenditures or unlimited borrowing with only the approval of their board majority.
Consider that. With nine members, a board majority is just five directors empowered to take an entire association, an entire community, into debt.
In my opinion that is too much power for any board to have.
•Second, while the PMCPOA board does have the responsibility to manage the association, who is it who manages the PMCPOA board? Appropriately, it is the membership.
A little recent history is helpful. In 2017, members were concerned that then-Chairman William Gurtner was eager to make allocations for clubhouse revitalization without adequate financial analysis. That eagerness was combined with an apparent lack of empathy for those not as economically comfortable as he.
To his credit, Chairman Gurtner agreed to put the $7.1 million (or more) “Taj Mahal” clubhouse plan on the ballot.
It failed spectacularly, with 73.92% ‘No’ votes.
On that same ballot, member-initiated Bylaws 10.08 and 10.10 passed. That was a message from the membership to the board that they were eager for greater caution in spending.
•Third, the argument that these bylaws somehow conflict with the governing documents is not valid.
Remember that CC&R 1.1 says the Association is the membership. So, when CC&R 3.2 states that the “Association shall maintain, restore and repair all Association property,” the membership is requiring the right to be consulted before a large amount of borrowing or spending is approved.
That is not a conflict with the CC&Rs because the membership has determined that it is both right and just that their approval be obtained before large dollar borrowing and spending.
Bylaws 10.08 and 10.10 were both reviewed by legal counsel prior to being placed upon the ballot. They were found to be legal.
The authority for associations to borrow money is generally found in their governing documents (the bylaws and CC&Rs). It can also be found in Corporate Code 7140(i), which allows corporations to obtain bank loans, “subject to any limitations found in the governing documents.”
The clear meaning here is that the membership may indeed place limitations on borrowing in their governing documents.
A Reasonable Alternative
Having said this, I do believe that bylaws 10.08 and 10.10 as they are currently written may be too restrictive.
They set a high bar for the number of voters who must approve a spending proposal or loan of over $1 million.
In his OpEd, Chairman Lewis asked for a reasonable alternative.
Adjust, Don’t Eliminate
The goal should be to adjust the speed bump bylaws rather than to eliminate them.
I will therefore bring two resolutions to the November board meeting that balance the need of the board to get things done on the one hand, with the need on the other hand of the membership to know they are safe from having a five-person majority take actions that do not represent the will and the financial means of the majority of their neighbors.
Proposed Adjustments to Bylaws
10.08 Infrastructure Projects:
a) All final plans and budgets for PMCPOA infrastructure projects that exceed one million dollars ($1,000,000) must be approved by a majority of the votes cast, assuming a quorum has been met.
b) The ballot verbiage must contain both the version number and date of the final proposal, along with a “Not to Exceed” (NTE) budget amount limitation.
c) Further, if the project is approved by the membership and if a loan is used to finance the project, which results in an increase of the annual assessments, then once the loan has been paid off the annual assessments for each lot will be decreased by the amount per lot that had been used for annual loan payments.
d) The voting requirements in this bylaw do not apply for infrastructure projects resulting from losses covered by insurance.
e) Notwithstanding any other provisions in these bylaws, this bylaw may only be amended or appealed by the vote or written assent of 2/3 of the votes cast, assuming a quorum has been met.
10.10 Borrowing Limitations:
a) The board may not borrow more than 25% of the Annual Assessments without prior approval of a majority of the votes cast, assuming a quorum has been reached.
b) Notice and ballots must be sent to the membership as provided for in Corporations Code 7511 and Civil Code 5115.
c) Notwithstanding any other provisions in these bylaws, this bylaw may only be amended or appealed by the vote or written assent of 2/3 of the votes cast, assuming a quorum has been met.
Chairman Lewis may fear he won’t even be able to get a majority of the voting members to approve the currently proposed clubhouse revitalization plan.
My response is, if the membership—by majority vote—approves the borrowing and expenditure, then great, let’s proceed.
But if we can’t get a majority approval of the project by membership, then maybe the membership is sending a message to the board that they need to scale back the project, and we need to listen to them.
Bryan Skelly is a current PMCPOA Director, writing his personal opinion.
Voter Requirement Decoder 2.0
Number of PMC Lots: 2,944; Voting Lots: 2,803
Voting lots (minus surrendered lots): appx. 2,743
There are 2,803 voting lots in PMC (2,944 total lots minus 141 non-voting greenbelt lots owned by the association = 2,803).
In addition, as assessments rise, more lots are being abandoned to the POA by members unable to pay. As of November 2019, the POA owns between 58-63 of those, according to General Manager Karin Shulman. They are not voted, she said. [These lots are for sale, so the number fluctuates as lots are sold or more are surrendered.] For this calculation, we’ll round nonvoting, surrendered lots to 60. So those, too, are subtracted (2,803 minus appx. 60 = appx. 2,743 current voting lots).
Majority of Members: 50%+1 vote of 2,743 = 1,372 votes
“The majority of members” actually means the majority of the voting lots plus one. One member may own many lots, and therefore have a vote for each of them.
Quorum: 25% of voting members = appx. 686
PMCPOA governing documents now require 25% of all voting lot owners (“members”) to participate before an election is considered legal. That is called “meeting the quorum.”
As of January 1, 2020, California’s new SB 323 requires that associations provide ballots to all members — even those who are delinquent in paying assessments (who would formerly have been ineligible to vote).
Majority of a Quorum: 50%+1 vote of 686 = 344 votes
Majority of the Board of 9 Directors = 5 votes
—Patric Hedlund, TME Editor
This is part of the November 1, 2019 online edition of The Mountain Enterprise, updated on November 6 to version 2.0
_________________OpEd by R.L. ‘Rick’ Throckmorton
By R. L. ‘Rick’ Throckmorton, PMC
The article by Katherine King [an analysis published with a news report under the title “PMC board may kick away safety brakes to runaway spending,” October 18, 2019, The Mountain Enterprise] is interesting and well informed, but I think it misses several points. She quotes California Civil Codes to support her case, but for every code, there are usually others that countervail the argument.
She said the PMCPOA attorney responded to the original issue of Bylaws 10.8 and 10.10 to “his employer.” PMCPOA engages the services of an outside, independent attorney whose first obligation is to protect his client, give sound legal advice and act in his client’s best interest. But he/she definitely is not an employee. Their first duty is to the law, then to his/her client.
An “in-house” attorney (one who is directly employed by an organization) is distinct from an outside law firm. Our attorney represents us, but does not “work for us.” The board is responsible to decide whether to accept that attorney’s advice, or reject it.
It is certainly debatable whether the PMCPOA received sound advice in allowing the ballot measures to go forward in the first place.
Many of us with experience in this area and also with years on the Governing Documents Committee felt the bylaw ballot measures were in violation of several Davis-Stirling provisions, and should have never been presented to the membership. I thought that legal advice was ill-advised and should have been rejected.
Katherine King does an excellent job explaining her position, that it is entirely legal and appropriate for the membership to be allowed to vote for (i.e. approve) expenditures above $1 million. Bylaw 10.8 specifies such a purchase “must be approved by a majority vote of the PMCOA membership.”
Note that is a majority vote of the membership, not a plurality of the voters, as it is with most other voting issues in the country. That, as we know, is close to an impossibility.
If there are 2,900 voting members, 1,451 “yay” votes would be necessary. Look how long it took to renew our CCRs. They were passed by a slim majority. Getting 1,451 votes is highly improbable.
Bylaw 10.10 is even more problematic. It restricts the board from borrowing “more than 25% of the annual assessments [about $1 million] without prior 2/3 membership approval.”
Again, getting an even higher percentage than 10.8 is likely an impossibility.
The board has a fiduciary duty to maintain the common areas [Civil Code §4775] and collect assessments necessary to meet their obligations (Civ. Code §5600).
Further, much has been made of the fact that we have “excess” reserves in our operating budgets.
All associations, regardless of size, are required to conduct reserve studies (Civ. Code §5550) as part of their indirect fiduciary duties. Again, one can argue all day long as to the amount of funds in individual accounts that must be maintained, but that is a board duty, elected by the membership to make those decisions. That is not something to be voted on at every turn in the course of day-to-day business operations.
Courts have held that a Special Assessment could be raised because an Association failed to fund a reserve account, and then the money was needed (see Foothills Townhomes v. Christenson) after a severe storm damaged association property.
Which brings us to my point of why Bylaw 10.10 needs to be eliminated. We are located at the juncture on the San Andreas and Garlock faults. The Garlock, after 500 years of inactivity, is now active after the recent Ridgecrest earthquakes. Imagine where we would be, assuming the worst happens, if the PMCPOA should suffer major earthquake damage, or even fire damage.
With an inability to borrow money as postulated by Bylaw 10.10, the only other avenue would be a Special Assessment (Civ. Code §5610 and 1366) to fund repairs and or replacement. Could homeowners afford several thousands of dollars per lot/home as might be required? Could the PMCPOA obtain 2/3 majority vote to borrow? Even if so, how long would that take? I think this would be akin to playing a fiddle while Rome burns.
Bylaw 10.8 and 10.10 must be eliminated, not modified, not rewritten, not massaged.
If you don’t agree with the current board of directors, then there is an election every June. This is not a democracy wherein the populace votes on every issue.
The Greeks couldn’t make it work and that is why we have a representative government at every level.
And yes, the PMCPOA Board is our local government. I would not expect Kern County to step in and help, should the need arise for millions in repair funds.
Rick Throckmorton is married to PMCPOA Board Director Phyllis Throckmorton.
This is part of the November 1, 2019 online edition of The Mountain Enterprise.
______________________OpEd Response Katherine King
Mr. Throckmorton introduces interesting new issues—along with one red herring—into the debate about the Pine Mountain Club Property Owners Association Board eliminating two member-initiated bylaws.
No impact on Reserve Funds
First, let’s do away with the red herring: I very much want PMC to be prepared with a fully funded reserve fund. However, the bylaws in question have nothing to do with the reserve fund. Invoking it is misleading and irrelevant to the argument.
Members have the right to limit debt
The civil codes cited do not contradict my argument that the members have the right to limit debt that would raise their PMCPOA assessments.
And Rick Throckmorton’s final arguments evoke, for me, a very different solution than the one the he envisions.
The heart of Throckmorton’s condemnation of the two bylaws seems to be the requirement to achieve a majority (Bylaw 10.08) and super majority (Bylaw 10.10) of the “2,900 or so voting members” of the association. I agree that meeting this requirement could be a near impossibility.
I also believe that there is a remedy superior to eliminating the bylaws that were approved by the PMCPOA membership in the June 2017 election.
The offending requirement was a result of sloppy writing and was not what was intended by the initiator and the bylaws’ supporters.
They intended to require a majority and super majority of members voting in an election, not of the membership as a whole.
Member-initiated bylaws 10.08 and 10.10 would be easy to amend. Experts on the Governing Documents Committee (GDC) could reword them so that the voting would be as originally intended, and they could add to both bylaws a statement similar to what we find in Civil Code 1366/5610, for example: “This bylaw does not limit assessment increases necessary for emergency situations.” Or the GDC could create a new bylaw, one that could use language similar to Civil Code 5610, saying that Bylaws 10.08 and 10.10 do “not limit assessment increases necessary for emergency situations.
For purposes of this [bylaw], an emergency situation is any one of the following:
(a) An extraordinary expense required by an order of a court.
(b) An extraordinary expense necessary to repair or maintain the common interest development or any part of it for which the association is responsible where a threat to personal safety on the property is discovered.
(c) An extraordinary expense necessary to repair or maintain the common interest development or any part of it for which the association is responsible that could not have been reasonably foreseen by the board in preparing and distributing the annual budget report.”[Language in quotation marks is quoted from Civil Code 5610.]Once so amended, all the commentator’s objections to bylaws 10.08 and 10.10 would disappear.
Unfortunately, amendment is a remedy Throckmorton’s OpEd specifically rejects.
What about a catastrophic emergency?
He is right to fear the catastrophic effects of earthquake and fire on our little town.
I, too, want PMCPOA to be prepared. I don’t want PMC to go into huge debt and thus risk being unable to further borrow to repair infrastructure if catastrophe strikes.
Bylaws 10.08 and 10.10 give me and every member a vote in determining which non-emergency conditions might be worth accepting the risk of taking PMCPOA into debt.
This is a principle worth considering, because in the last two years it appears the board has been intent on nullifying the results of the 2017 election. This should stop, now. Members deserve more say and control of their financial futures.
This is part of the November 1, 2019 online edition of The Mountain Enterprise.
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