The Arizona Court of Appeals just made a big change when it comes to the Board excluding other Board Members from executive sessions, even when that board member is rogue!
On October 13, 2016, the Court held that the Board could not exclude a duly-elected Board Member from all executive sessions, even when that Director goes rogue by sharing attorney-client privileged letters and other confidential information with other members. According to the Court, that Association’s bylaws required that all Directors participate in the management of the Association. By voting to exclude the Director from all executive meetings, the Board prevented her from performing her duties and responsibilities.
The Court recognized a board’s legitimate concerns in dealing with rogue directors and mentioned ways to handle them, such as
(1) requesting a Director voluntarily recuse herself from executive sessions
(2) getting restraining orders against the rogue director
(3) obtaining court orders prohibiting the Director from disclosing confidential information
(4) filing a judicial removal action (which requires that the Director engaged in fraudulent conduct or intentional criminal conduct).
Based on the Court’s conclusions, we think Associations have an easier fifth option – amending the Articles or Bylaws to allow the Board to pass a motion to exclude Board Members who engage in misconduct or disclose confidential information. There is also nothing in the court’s decision that would suggest that a Board can’t have a Code of Conduct that holds board members accountable, and if violated, they are disqualified as Directors.
McNally v. Sun Lakes Homeowners Ass’n. #1, Inc., No. 1 CA-CV 15-0744 (Ariz. App. October 13, 2016)
This case changes everything, but with some slight changes you can ensure your board is protected from rogue directors. For a limited time, we will offer the following services at cost. Contact us for more details.
1-Standard Board Code of Conduct $99
2-Standard Bylaw Amendment with Notice and Ballots $150
3-Standard Article Amendment with Notice and Ballots $150
4-Restraining Orders Hourly (will quote)
Related: 2017 Arizona Legislative Update