POA Governance and Board Member Liability Flashcards Preview

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Flashcards in POA Governance and Board Member Liability Deck (130):
1

What is the quorum requirement for a Board meeting per TPC 82.109?

50% unless the bylaws provide otherwise.

2

What is the quorum requirement for a meeting of the members of a condominium associatin?

20% in person or by proxy, unless the bylaws provide othewise.

The Bylaws may provide for a higher or lower percentage, but may not allow for less than 10%.

3

May a TUCA board act without a board meeting by unanimous written consent?

Yes. The action must be filed with the board meeting minutes.

4

What are the requirements of a proper proxy?

Signed and dated by the owner.

5

Per TUCA- Is a proxy void if it is revocable without notice?

Yes. A proxy may only be revoked by giving actual notice of the revocation of the person presiding over a meeting.

6

Is a proxy void if it is not signed or dated?

Yes. It must be signed and dated.

7

Are all condominiums required to keep proxies for inspection? Pre- and Post- TUCA?

Yes. They must be kept and be available for inspection.

8

What is the quorum requirement for a Residential Subdivision meeting of the Board?

Established by the governing documents of the Association and Texas NonProfit Corporation Law.

The lesser of:
1) Majority of the Board; or
2) Number specified in governing documents for quorum, so long as it is not less than 3.

9

May a director of a nonprofit corporation be considered present by proxy for purposes of establishing quorum?

No. It is not allowed per the Texas Nonprofit Corporation Act.

10

May a director be counted towards quorum if they are present by electronic means (telephone/skype?

Yes.

11

May the board and members act by majority agreement at a meeting?

Yes. Unless the dedicatory instruments require a greater percentage.

12

May a director vote by proxy at a board meeting?

Only if authorized by the dedicatory instruments of the association.

13

What are the requirements of a Board member proxy?

In writing and signed and dated by the director.

14

Does a director proxy expire?

Yes. It expires 3 months after it is executed.

15

Is a director proxy revocable?

Yes, unless otherwise provided by the proxy.

16

Is a member proxy revocable?

Yes, unless otherwise provided by the proxy.

17

Does a member proxy expire?

Yes. It expires 11 months after the date of its execution.

18

May a member proxy be irrevocable?

Yes. however, it may not be irrevocable for longer than 11 months.

19

May a member vote by proxy?

Yes, unless otherwise provided by the certificate of formation or bylaws.

Also note that TUCA condominiums are explicitly allowed to vote by proxy.

20

When does a TUCA proxy expire?

When do proxies for residential subdivision and Pre-TUCA condos expire?

TUCA- Oner year after it date unless is specifies a shorter or longer time.

Proxies for Pre-TUCA and residential subdivisions expire 11 months after the date of their execution.

21

What methods must a residential subdivision allow members to vote?

At minimum, member must be allowed to vote by:
1) absentee ballot; or
2) proxy

22

If a member of a residential subdivision votes by absentee ballot, does that go towards establishing quorum for the meeting?

Yes, but only on those items appearing on the ballot.

The absentee ballot does not go towards establishing quorum for items not appearing on the ballot.

23

What is a majority voting system?

The director with the majority of the votes wins. If there are more than two candidates and not every director receives a majority of the votes, there must be a runoff.

24

What is a plurality voting system?

The director with the most votes wins, even if not a majority. This is typically used where there are multiple positions and multiple candidates.

25

What is cumulative voting?

Each owner is allowed to cast as many votes as there are positions to be filled.

26

May owners in a TUCA association vote via cumulative voting?

No. They are expressly prohibited from doing so in TUCA

27

May a member of a Pre-TUCA Associaton or Residential Subdivision vote by cumulative voting?

Only if authorized by the Certificate of Formation. If they intend to vote in such a manner, they must give at least 24 hours notice to the secretary of the Association.

28

How many votes does a member have to cast for an open board seat?

As many seats there are to fill.

29

When does the declarant control period begin to transfer to owners and terminate in a TUCA Condominium?

1) Not later than the 120 day after conveyance of 50% of the units that may be created, at least 1/3 of board members must be unit owners.

2) Declarant control terminates 120 days after the declarant transfers 75% of the units to a 3rd party.

Within 30 days of termination, the board must elect officers.

30

When does the declarant control period begin to transfer to owners in a Pre-TUCA condominum?

Look to the dedicatory instruments.

There is no provision for declarant termination of control in a Pre-TUCA condo.

31

When does the declarant control period begin to transfer in a residential subdivision with a POA?

1) Not later than the 120th day after 75% of the total lots have been transferred to 3rd parties at least 1/3 of the board members must be elected by lot owners other than declarant.

2) If a declarantion does not specify the number of lots that may be created, at least 1/3 of the board members must be elected by lot owners other than the declarant no later than than 10 years after the declaration was recorded.

32

What are the requirements for a ballot in a chapter 209 POA?

1) Must be written and signed.

Exception-
If the race is uncontested, the ballot does not have to be in writing or signed.

33

Must a POA ballot be secret?

Yes.

34

Do electronic ballots constute written and signed ballots?

Yes

35

May a 209 association adopt rules to allow voting by secret ballots?

Yes, so long as they can ensure:

1) a member can only vote once; and

2) the association counts every vote.

36

May each candidate in a 209 association name someone to observe the vote counting?

Yes, provided that the observer:

1) Cannot see the name of the person casting the ballot; and

2) Any disruptive observer may be removed.

37

May every member in a 209 association vote?

Yes. A provision in a dedicatory instrument that would disqualify an owner from voting is void.

38

Who may tabulate ballots in a 209 association?

Anyone other than:

1) A candidate or anyone subject to the vote; or

2) Anyone related to that person within 3 degrees of consanguinity.

39

May a person who tabulates votes or who performs a recount disclose how anyone voted?

No.

40

Who has access to the ballots?

Only the person who tabulates votes or performs a recount.

41

When must an owner in a 209 association submit a recount request?

Not later than 15 days after the later of:

1) Date of meeting election was held; or
2) Announcement of election results.

42

How must an owner submit a recount request?

In writing, in one of two ways:

a. Verified mail;
b. USPS w. signature confirmation; or
c. In person to the Association Manager.

43

What are the vote recount procedures under Section 209?

1. Estimate Cost & Send Invoice- Association must estimate cost of recount by person qualified to tabulate votes and send invoice for estimated costs to requesting owner no later than 20th day after the date of the request.

2. Payment by Requesting Owner- Owner must pay in full within 30 days of the day the invoice was sent;

3. Non-Payment of Invoice- If owner does not pay invoice, then owner’s demand for recount is considered withdrawn and recount not required.

44

After a recount, how does the Association handle the final invoice and costs?

What if the recount changes the results of the election?

a. If Underestimate Costs- If estimated costs are lesser than actual costs after final recount, Association must send invoice by 30th business day after date the results of the recount are provided. If not paid by owner within 30 days the final invoice is sent, then amounts may be added to owner’s account as an assessment.

b. If Overestimate Costs- Must refund excess to owner within 30th business day after results of recount are provided.

5. If Recount Changes Results- Must reimburse owner for cost of recount w/in 30 days of providing results of recount.

45

Who may the association hire to perform the recount?

a. Current or former-
i. County judge;
ii. County elections administrator;
iii. Justice of the peace;
iv. County vote registrar; or

b. Personal agreed upon by Association and person requesting recount.

46

Who may not perform the recount?

a. Member of board

b. Related to anyone on board w/in 3 degrees of consanguinity.

47

What is the timeline to complete the recount?

To whom must you provide the results?

Recount must be completed within 30 days of the receipt of the payment for the recount and must provide results to each owner to who requested a recount.

48

What happens if the board takes an action between the time of the election and the election recount results?

any action taken by the board in the period between the initial election and the completion of the recount is not affected by any recount.

49

Are nonprofit associations required to keep meeting minutes?

Yes, per Section 82 and the Texas Nonprofit Corporation Act.

50

What are minutes?

A record of the proceedings of the board or annual meeting.

They should primarily contain a record of what was done and not what was said.

51

Who generally takes the minutes?

Secretary of the association.

52

Are there strict rules about what minutes must contain?

No.

53

What are would be a good idea to have in the minutes?

1) Name of Association;
2) Board meeting or Annual meeting, Adjourned meeting, etc.
3) Date, time, and location of meeting
4) Who is present at the meeting;
5) If Quorum was met;
6) Minutes of previous meeting were read and approved.
7) Motions:
a. What is the motion
b. Who made the motion
c. The vote on the motion
d. Whether the motion passed.

8) Results of any board member election at an annual meeting

9) Time meeting adjourns

54

If there is a vacancy on the board of directors in a condominium association, how may the position be filled?

Unless otherwise provided by the Articles or Bylaws, then by majority vote of the remaining directors.

55

If there is a vacancy on the board because of the increase in the number of directors, how must the position be filled?

By a vote of the members of the Association.

56

Under common law, are directors of nonprofit corporations fiduciaries?

Yes.

However, statutory law does not establish directors as fiduciaries unless they are subject to TUCA (82.103)

57

How must directors discharge their duties the Texas Nonprofit Corporation Act?

1) In good faith;
2) With ordinary Care; and
3) In a manner they reasonably believe to be in the best interest of the assocaition

58

May a director rely, in good faith, on reports of others?

Yes.

In discharging their duty a director may, in good faith and ordinary care, rely on information and reports presented by:
1) Employees/officers of the association;
2) Legal counsel;
3) CPAs
4) Any other person that the director reasonably belives possess profesional expertise in a matter.

++++Exception+++
Director may not in good faith rely upon the report if they have information with makes reliance on the report unwarranted.

59

How may an officer be removed?

Look to the dedicatory instruments.

If dedicatory instruments are silent, then by majority vote of the board.

60

Is a director or officer liability to an association for their actions or omissions?

Per the Nonprofit Corporation Act-

No, so long as the action was exercised in:

1) In good faith;
2) With ordinary Care; and
3) In a manner they reasonably believe to be in the best interest of the association.

A person seeking to establish liability of a director has the burden of proof that they did not meet the above standards.

61

Is a director a trustee?

No. They are not deemed to have the duties of a trustee.

62

What is the standard of care for a director?

1) In good faith;

2) With ordinary care (the care an ordinarily prudent person in a like position would exercise under similar circumstances)

3) Act in a manner they reasonably believe to be in the best interest of the association.

63

What does a court look to in order to determine whether a director acted in "good faith"

They will look to the directors state of mind to see if they evidenced honesty and faithfulness to the directors duties and obligations or whether there was an intent to take advantage of the corporation.

64

Are directors required to become familiar with the issues before them?

Yes. they must spend enough time on the affairs of the association to be reasonably acquainted with the matters demanding their attention.

65

Where is the Charitable Immunity and Liability Act located?

Chapter 84 of the Civil Practice and Remedies Code.

66

Who has the burden of proof in an action against a director?

Against an officer who is not a director?

1) Director- Burden of proof is on the person asserting the action.

Must prove that they did not act in accordance with their standard of care.

2) Officer who is not a director (they may exist)- Burden of proof is on the officer to establish that they acted in accordance with their standard of care.

67

What is sufficient evidence in D&O litigation?

Mere conclusory statements are not enough.

You have to show evidence to prove the underlying facts.

68

Is a TUCA director a fiduciary?

Yes.

Per 82.103, directors are liable as fiduciaries of the unit owners.

69

What is a fiduciary?

Establishes a trustee, beneficiary relationship.

It involves a heightened standard of care.

70

Does the Texas Charitable Immunity Act apply to POAs?

Yes.

It specifically includes POAs.

71

Is a Pre-TUCA or Residential Subdivision director liable as a fiduciary?

No.

72

To who does the Charitable Immunity Act provide protection?

Volunteers only.

73

What protections do Chapter 84 of the CPRC (Charitable Immunities Act) provide?

A volunteer in an association is immune from civil liability for an act or omission resulting in death, damage, or injury if:

1) They were acting in the course and scope of their duties.

74

Does Chapter 84 limit employee liability?

Yes, but only if the association maintains certain levels of liability coverage. The insurance coverage they must maintain must be, at minimum, the maximum money damages below.

The liability of the employee is limited to money damages
in a maximum amount of:

1) $500,000 for each person and

2) $1,000,000 for
each single occurrence of bodily injury or death and

3) $100,000 for each single occurrence for injury to or destruction of property.

The caps do not increase if the association has more than this coverage.

75

What exceptions are there to the Texas Charitable Immunities Act?

Charitable immunity does not apply if the act or omission was:

1) Intentional;

2) Wilfully negligent; or

3) Done with conscious indifference or reckless disregard for the safety of others.

76

Does Chapter 84 of the CPRC protect contractors of the association?

No.

77

If a volunteer is driving a vehicle in their capacity as a board member and gets in a car accident, are they liable?

If death, damage, or injury is caused by a person operating a motor vehicle, the volunteer is liable to the extent of their applicable insurance coverage.

78

Does chapter 84 apply if the association was formed merely for the purposes of the limitation of liability?

No.

79

Does chapter 84 limit or modify a board members or officers duties in any way?

No.

.

80

Does Chapter 84 preclude a member of the association from filing suit against a board member?

No.

While a board member may be immune from suit filed by an outsider, they may still be held liable by a member of the association.

81

What protects does a board member or volunteer have against suit filed by a member of the association?

Chapter 7 of the Texas Business Organizations Code provides that:

In its Articles, a nonprofit corporation may exempt a director from liability or limit their liability to the association or to the members for monetary damages for an act or omission committed in their capacity as director.

82

What are the exceptions to Chapter 7 liability of a director against its members under the Texas Business Organizations Code?

Limitation of liability is not authorized if:

1) Director breaches duty of loyalty;

2) Director does not act in good faith; or

3) Director engages in intentional misconduct.

4) Knowingly violates the law;

5) Receives an improper benefit; or

6) If their liability is expressly provided in by statute.

83

What protections do directors have under federal law?

They are protected from immunity from suit from outsiders under the Volunteer Protection Act.

84

What does the Federal Volunteer Protection Act protect directors from?

Volunteers are not liable for harm caused by an act or omission of a volunteer on behalf of the association if:

1) They were acting in the course and scope of their duties at the time of the error or omission;

2) Harm was not caused by:
a) willful or criminal conduct;
b) Gross negligence;
c) Reckless misconduct;
d) Conscious flagrant indifference to the rights or safety of person harmed;

3) Harm was not caused by volunteer was operating a motor vehicle, vessel, or aircraft which requires license and insurance to operate.

85

Does the Federal Volunteer Protection act protect volunteers against suits brought by member or by associations?

No.

86

Does the Federal Volunteer Protection Act protect against suits against the association itself and not volunteers?

No.

It only protects volunteers.

87

Does the Federal Volunteer Protection Act protect against punitive damages against volunteers?

Yes.

So long as the volunteer was acting in the course and scope of their responsibilities.

88

What what one show in order to obtain punitive damages against a volunteer under the Federal Volunteer Protection Act?

By Clear & Convincing evidence that volunteers conduct:

1) constituted willful or criminal misconduct; or

2) was a conscious, flagrant indifference to the rights or safety of the individual harmed.

89

Does one have protection under the Federal Volunteer Protection Act if they were under the influence of alcohol or drugs?

No.

90

Is a Property owners association a separate legal entity from its members?

Yes.

Just like a corporation is a separate legal entity from its shareholders.

91

What standards are typically applied by courts when judging conduct of associations?

1) Business judgment rule; and

2) Reasonableness standard.

92

What is the business judgment rule?

When may it be invoked?

It is a protection that may be invoked by director.

It may be invoked so long as a director is reasonably informed of all material information reasonably available to them before making a decision.

93

How does the Business Judgment Rule protect directors?

So long a directors are reasonably informed of all material information reasonably available to them, then they are not subject to liability for their actions.

94

May a director be held liable for an honest mistake of judgment?

Not so long as they acted with due care, in good faith, and in furtherance of a rational business purpose.

95

What does the Business Judgment Rule not protect?

1) Ultra vires;
2) Fraudulent;
3) Injurious practice;
4) Abuse of practice;
5) Abuse of Power;
6) Oppression on the part of the association clearly subversive to the rights of the minority

96

What provides a director a greater level of deference, the business judgment rule or the reasonableness standard?

The business judgment rule provides a greater level of deference.

The reasonableness standards provides for an evaluation of the director conduct. The Business Judgment rule does not.

97

Are actions of directors presumed reasonable?

Yes, per TPC 202.004, an action of discretionary authority of a director concerning a restrictive covenant is presumed reasonable so unless the court determines by a preponderance of the evidence that the exercise of discretionary authority was arbitrary, capricious, or discriminatory.

98

Are there cases incorporating the Business Judgment Rule for nonprofit corporations?

No. However, incorporating the Business Judgment Rule into the governing documents of that association it very well may persuade the court to use it.

99

Do courts apply the "reasonableness" standard when evaluating the choices of a director of a condominium?

Yes. They often do so.

100

What is the difference between statutory immunity and contractual indemnity?

Statutory immunity is found in the statutory law and exempts directors and officers from liability.

Contractual indemnity is often found in the dedicatory instruments and obligates the association to protect or insure the director against loss they may suffer.

101

What contractual indemnity is often offered in the dedicatory instruments.

1) Pay for costs of defense (including attorney's fees); and

2) Pay liability incurred by director

102

What are common exceptions to the indemnity offered to directors in dedicatory instruments?

1) Bad Faith; and

2) Fraud

103

Are directors afforded statutory indemnity as well?

Yes. Under Section 8.051 of the Texas Business Organizations Code.

104

What mandatory statutory indemnity is afforded to directors?

Section 8.051 of the Texas Business Oganizations Code

"An enterprise shall indemnify a governing person, former governing person, or delegate against reasonable expenses actually incurred by the person in connection with a proceeding in which the person is a respondent because the person is or was a governing person or delegate if the person is wholly successful, on the merits or otherwise, in the defense of the proceeding."

1) Governing Person- Group of persons entitled to manage the affairs (includes directors)


105

May a court require statutory indemnification under Section 8.051?

Yes.

A court may require indemnification and award expenses incurred in securing the indemnification.

106

Under Section 8.051, is statutory indemnity required during the course and scope of the litigation? When is it invoked?

It is only invoked after the litigation.

8.051 requires indemnification in the event that the Governing Person is wholly successful on the merits.

It may not be invoked on the merits until such time as the litigation has been complete and the governing person is wholly successful.

107

What permissive statutory indemnity is afforded to directors under Texas Law?

Section 8.101 of the Texas Business Organizations Code.

"An enterprise may indemnify a governing person, former governing person, or delegate who was, is, or is threatened to be made a respondent in a proceeding, if:

1) They acted in good faith;
2) Director acted in their official capacity;
3) Reasonably believed their actions were in the association's best interest;
4) Their conduct was not opposed to the association's best interest;

5) The amount of the defense expense must be reasonable (not including judgment).

This is permissive indemnity. It is not required. It must be approved by the association.



108

If criminal conduct is alleged, may an association statutorily indemnify a director?

Yes, but only if they do not have reasonable cause to believe the persons conduct was unlawful.

109

What is the scope of the permissive indemnity afforded to a governing person under the Texas Business Organizations Code?

They may indemnify against:

1) a Judgment; and
2) Reasonable expenses incurred in connection with a proceeding.

110

How must permissive indemnity be approved by an association? (5)

May only permissively indemnify a director under this statute.

One of five methods for approval of permissive indemnity-

1) Majority vote of disinterested and independent directors;

2) Majority vote of committee of disinterested and independent directors;

3) Special legal counsel choosen by one of the above (committee or directors)

4) Majority vote of homeowners. Interested parties may not vote.

5) Unanimous vote of homeowners.

111

If there is a provision in a dedicatory instrument or board resolution that requires indemnity, must the association indemnify the person?

Yes, so long at the person being indemnifed meets the "good faith" and "reasonable belief" standards.

The board may not decline to indemnify if required by governing documents or resolution.

112

Who determines whether a director who needs to be indemnified meets the "good faith" and "reasonable belief standard"?

One of the five methods under the permissive indemnity statute:


1) Majority vote of disinterested and independent directors;

2) Majority vote of committee of disinterested and independent directors;

3) Special legal counsel choosen by one of the above (committee or directors)

4) Majority vote of homeowners. Interested parties may not vote.

5) Unanimous vote of homeowners.

113

What if permissive indemnity is invoked under 82.102 and the director is found to have been liable or to have received an improper benefit?

Indemnity is limited to Reasonable expenses actually incurred by the person in connection with the defense.

Association may not indenify if person is liable for:
1) Wilful or intentional misconduct;
2) Breach of duty of loyalty; or
3) Act not in good faith that is a breach of their duty.

114

When a director is found liable, when is that liability final?

Only when all appeals are exhausted.

115

Under what circumstances may an association make advance payment of indemnification expenses to a director?

1) Director is currently or was threatened to be a made a respondent in a proceeding;

2) Director makes a written affirmation that in their good faith belief they have met the standards of conduct for permissive indemnification under the Texas Business Organizations Code.

3) Director states, in writing, that they will repay the amount paid (unsecured promissory note) if the final determination is that the person has not met the standard for permissive indemnification or if indemnification is prohibited by the Texas Business Organizations Code.

116

If an association advances payment of indemnification expenses to a director, how must they report the payment to the homeowners?

Its must be reported in conjunction with or prior to the notice of the next member meeting.

It must be reported at least within one year.

117

May the association advance payment of indemnificaiton expenses under permissivie idemnification statute regardless of the directors ability to pay?

Yes.

118

Under what circumstances may an association permissively indemnify someone other than a director?

1) Under the dedicatory instruments;

2) Board resolution;

3) Owner vote;

4) Contractual agreement; or

5) Common law.

119

May an association provide advance indemnification expenses to someone other than a director?

Yes. They may do so by simple majority vote of the board of directors.

The association board may require them to make promises to repay or a written affirmation of their good conduct, but are not required to do so.

They could also do so in the same way as they would advance payment to a director:

1) Person is currently or was threatened to be a made a respondent in a proceeding;

2) Person makes a written affirmation that in their good faith belief they have met the standards of conduct for permissive indemnification under the Texas Business Organizations Code.

3) Person states, in writing, that they will repay the amount paid (unsecured promissory note) if the final determination is that the person has not met the standard for permissive indemnification or if indemnification is prohibited by the Texas Business Organizations Code.

120

May a director petition a court to require the association indemnify them?

Yes. Under 8.052 of the Texas Business Organizations Code.

Only a director, former director, or delegate may be use court order indemnification.


121

What is the process by which a director may petition a court to require an association to indemnify them?

The person has to make application to the court for indemnity and notice must be provided to the association of the request .

122

What is the extent of the indemnity that a court may require an association provide a director?

The court may require indemnification to the extent the court determines that they are fairly and reasonably entitled to indemnification by the association in view of all relevant circumstance.

123

May a court require indemnification even if a director fails to satisfy the requirements for Permissive Indemnification?

Yes

124

May a court require indemnification even if the person has been found liable to the HOA or received a personal benefit?

Yes.

125

What is the limitations of court ordered indemnification? What may it have to go towards payment of?

What will it not pay?

It will pay only reasonable expenses incurred.

It will not pay any judgment, fine, or charges against the director.

126

Where must board meetings be located?

First look to governing documents.

1) 209 Associations- Must be held in county in which subdivision is located or adjacent county.

2) Condominiums- No statutory limitation on where board meeting must be held.

127

How must board members be noticed of board meetings?

Texas Nonprofit Corporation Act requires:

1) Date & Time of meeting;
2) Location of meeting

128

Is advanced notice required for board meetings?

No unless required in the governing documents.

129

Must business to be conducted be specified in the meeting notice?

Not unless required in the governing documents.

130

Must condominium owners be provided advance notice of board meetings?

Look to the governing documents.

There is no statutory requirement to provide notice, unless the association is meeting to adopt or amend its dedicatory instruments.

If they are meeting to adopt or amend dedicatory instruments they must give 10-20 days notice. The notice must have the proposed amendment included.