By Jeffrey A. Barnett, Esq.
Introduction
One of the most useful procedural tools for homeowners associations in the California Corporations Code is the authorization to use inspectors of election. Yet, experience indicates that inspectors of election are frequently not used in association elections, even those which are contentious and controversial. So it is worthwhile to review the statutory provisions for the appointment of inspectors of election and to consider how inspectors may be effectively used in association elections and ballot votes.
Corporations Code Section 7614
Corporations Code Section 7614 addresses the appointment and use of inspectors of election in non-profit mutual benefit corporations. The statute provides:
(a) In advance of any meeting of members, the board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of members may, and on the request of any member or a members proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more members or proxies, the majority of members represented in person or by proxy shall determine whether one or three inspectors are to be appointed. In the case of any action by written ballot (Section 7513), the board may similarly appoint inspectors of election to act with powers and duties as set forth in this section.
(b) The inspectors of election shall determine the number of memberships outstanding and the voting power of each, the number represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all members.
(c) The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
Appointment Issues
Section 7614(a) empowers the board of directors to appoint the inspectors prior to the meeting. It is in the interest of the board to do so, to control whether one or three inspectors are appointed, and also to select the individual or individuals who will be the inspectors. If the board neglects to appoint the inspectors, the chairman of the meeting, generally the president, determines whether one or three inspectors will be used and who will fill the inspector position(s). The members only have the power to determine whether one or three inspectors will be appointed if no inspectors have been appointed prior to the meeting, and if the members request that inspectors be appointed.
If the board is divided politically, and fails to appoint inspectors for a forthcoming election, the president has a decided advantage in appointing those inspectors of election that he or she believes may make decisions favorable to the view of the president and his or her supporters on the board. Although Section 7614(c) requires the inspectors to perform their duties impartially and in good faith, inspectors are human and subject to political inclinations and personal loyalties.
Good candidates for inspectors include past officers and directors whose experience with the electoral process and service to the association add integrity and confidence to the election procedures. It is inappropriate for a management representative or current officer or director of the association to be appointed as an inspector because of actual or perceived conflicts of interest.
What Do Inspectors Actually Do?
The key responsibilities of the inspectors are set forth in Corporations Code Section 7614(b). These are as follows:
(1) Determine the number of memberships outstanding. This is generally equal to the number of residences in the subdivision;
(2) Determine the voting power of each member. Typically, the CC&Rs and Bylaws provide for one vote per residence, but voting rights can be suspended or revoked, and it is the job of the inspector to determine if this has occurred.
(3) Determine the number of members represented at the meeting. This task includes tallying the number of persons present in person or by proxy.
(4) Determine the existence of a quorum. Ascertaining a quorum requires the inspectors to know the quorum requirement in the governing documents and to evaluate that requirement against the number attending in person or by proxy.
(5) Determine the authenticity, validity and effect of proxies. Proxies can be invalid for many reasons, such as if no choice is marked, or if a later dated proxy supercedes it. Questions may arise whether the signature on a proxy is authentic. The voting intent on a proxy may be ambiguous. As to these issues and all others relating to proxies, the inspectors of election are empowered to determine whether the proxy will be used and how it will be voted.
(6) Receive votes, ballots or consents. The inspectors are to obtain custody of all of the voting materials during the period that they are performing the responsibilities.
(7) The inspectors are to hear and determine all challenges and questions in any way arising in connection with the right to vote, count or tabulate votes and consents. In contested elections for directors, votes for removal of directors, special assessment votes and the like, where the politics in the association are spirited, the election proceedings often come under close scrutiny. For example, the opponents of a special assessment may solicit proxies which the proponents of the measure feel are invalid. At the election itself, the inspectors are required to hear the arguments of each side concerning validity and effect of the proxies submitted by the dissenters. The dissenters may submit to the inspectors a legal opinion from an attorney challenging the validity of the proxies. Legal counsel for the association may be consulted by the inspectors to obtain the association's legal perspective on the issue. It is then the responsibility of the inspectors to determine the outcome of the challenge, and all other questions concerning the election proceedings.
(8) The inspectors must tabulate all votes or consents and determine when polls close.
(9) The inspectors must determine the result of the election.
(10) Lastly, the inspectors are charged with the general responsibility of performing such acts as may be proper to conduct the election or vote with fairness to all members. The scope of this duty is unclear. For example, it may mean that the inspectors can require a meeting to be renoticed if the inspectors feel there was an irregularity in the meeting notice. Perhaps this statute also would authorize the inspectors to require security personnel to be present at the election, at the expense of the association, so that orderly proceedings can be conducted.
Inspectors Standard of Care
The inspectors are obligated to perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. In all unpublished decisions of the California Court of Appeal in 2002, a member of an association filed a lawsuit challenging the outcome of an election for the board of directors claiming that the inspector of the election concealed information regarding the status of the proxies and delayed disseminating that information to keep the member from being elected to the board of directors. The lawsuit generally alleged that the inspector violated the standard of care in Section 7614(c) to act with fairness to all members, impartiality, in good faith and expeditiously. The trial court and court of appeal found that the complaint was defective on its face and accordingly a demurrer was granted without leave to amend. The facts of the case are instructive in that the management agent acted as the inspector of election which involved a runoff, and the agent was ultimately sued as well as the homeowners association. Although the suit was dismissed, the exposure of managers who serve as inspectors is clear.
The Decision of the Inspectors
At the conclusion of the election proceedings, the inspector or inspectors issue their decision. If there are three inspectors, the decision, act or certificate of two of them is considered the decision, act or certificate of all. Corporations Code Section 7614(c). Also, this same Section provides that any report or certificate made by the inspectors of election is prima facia evidence of the facts stated therein.
Accordingly, it is appropriate for the inspectors to complete a report that confirms the findings made at the conclusion of the election.
Conclusion
The board achieves many advantages by appointing inspectors in advance of an election, and to determine the outcome of an action by written ballot without a meeting pursuant to Corporations Code Section 7513. These include:
(1) Adding professionalism to the proceedings;
(2) Defusing emotions during the election process;
(3) Setting an organized and legal process to determine such issues as the validity of a quorum, rights of certain members to vote, the validity and effect of the proxies or written ballots, and ultimately to announce the outcome of the election.
(4) Issuing a report that can be used in court to support the outcome of the election.
Managers should routinely request that boards appoint inspectors in advance of director elections and any controversial vote, and always in conjunction with an action by written ballot under Section 7513.