Voting Rights -- It Ain't Over Till It's Over

Just when it looked like voting rights was in cruise control mode, we learn that it is still an uphill battle (see previous post).  With the inclusion of some new information and recent events, I have collated all of the details in an effort to walk you through the debate, from the core issue, to the potential legal conflicts.  If you have a good understanding of the issue, you can skip to the "Part 2".  The first part of this article is mostly a clarification and summary of the issue, which a few owners have asked me to write.

Part 1

The Core Issue

The LLC pays 7% of all dues, yet has 83% of the total voting power

The LLC pays about 7% of the total annual dues collected by the CA, but it claims
to have 83% of the voting power.  It draws this conclusion and has successfully convinced the community of this inevitability because our voting
powers are based on "acreage owned"--of course, the LLC owns a mountain and golf course which in themselves overshadow the total acreage owned by all community property owners.  The core issue, then, is that the LLCs voting power (83%) is nowhere close to being proportional to the dues it pays (7%).

The Potential Consequences

17% of voting power is the same as no power at all

The entire community's collective voting power is only 17%, and there's not a single authority granted in the bylaws or covenants that can be exercised with 17% of voting power.  So even consensus among all property owners can not accomplish any of the following without LLC approval:

1. Make any changes to our bylaws or covenants (requires 75% of the voting power).  
2. Achieve quorum in order to approve any community initiative (requires 51%)
3. Approve any motion of any kind (requires 51%)
4. Call a special meeting to discuss matters for community approval (requires only 25%).  On this action, the Board can call a special meeting with majority vote, but a large group of property owners can not)
5. Request a CA-sponsored audit of the CA's books (requires 25%)

Unfortunately, the LLC can make quorum and approve anything, even if no other property owners show up to vote.  I'm not saying they would, because they haven't, but they can, and we can't, even when every single property owner agrees.

The community will be voting on a few issues in the May annual meeting that the LLC may not approve.  At present, the only vote that counts is the LLCs--the rest of us serve only as input to their decision.  This is not an exaggeration, it is a fact.

How can this disproportional voting power affect you?  I don't have a crystal ball, but I'm concerned about how the LLC might pay for the provision of infrastructure services for existing and future lots, and whether or not the CA will absorb costs that it shouldn't (as I've written earlier, there were some questionable transactions in the past).  If they tear up the road to add water, electric, phone, or septic, will they repair the road at their cost?  Will they absorb the cost of septic field additions, or choose to engage in disputes over the difference between "expansion" and "improvements" in order to challenge who pays what?  There's a behavioral and transactional history (CA and LLC) that should concern us (see previous articles on this blog).

Achieving a Fair Distribution of Voting Power
Though the LLC defends it's voting power based on the first sentence of the Voting Power definition in our covenants, it ignores the last sentence which reads:

"Acreage and voting power shall be determined by the Board."

I have received a legal opinion that agrees with a literal interpretation of this sentence--it grants the CA Board authority to assign an acreage value to the 10 CA dues paid by the LLC.  The governing documents do not  provide guidelines for determining this value, or the origin and determination of "10 lots."

Assigning the average KG lot size to LLCs lots makes their voting power the same as their dues contribution

It seems logical to assign each of the LLCs "10 lots"  an acreage value equal to the average KG lot size. The average lot size is approximately two-tenths of an acre, thereby giving the LLC two-acres of voting power.  Interestingly but not surprisingly, this works out to approximately 7% of the total voting power--the same percentage as the LLCs dues contribution.  Isn't that about as clean and logical as it gets?

The Board can adjust the LLCs voting power without a community vote.  What it can't do is change the basis for voting power from acreage to dues paid, even though the latter is more logical.

Part 2

Where We Are

We can't amend the covenants until we normalize voting powers

I was delighted when the Board moved to amend the covenants, and to change the voting power basis to one vote per association dues paid.  This was an unambiguous action that clearly communicates the Board's belief that voting powers need to be corrected.

However, the Board hasn't yet exercised its authority to limit the LLC's voting power via acreage determination.  If unchanged, this means that the LLC still has veto power, and will use this power when we vote on the Board's proposed amendment in the annual meeting.

My previous post crushes any illusion that the LLC will approve this amendment.  The LLC clearly has concerns that are greater than the community's wishes and its own sense of right and wrong--namely, it's potential obligations to its debt holder (Glen).  What this means is that the LLC won't voluntarily agree to a reduction in rights or powers, because this could become a legal liability for them in the future.

Voting power and the LLCs financial stability are unrelated

After asking the LLC directly, it's clear that there's no evidence to suggest that a reduction of voting powers will negatively impact the financial stability of the LLC.  i.e. if the LLC doesn't survive, a reduction of voting powers will not be the reason.

The Next Step
Since it's clear that the Board's amendment proposal will not garner 75% of the voting power in May, and will therefore fail, we as a community must decide (a) to acquiesce and accept unreasonable distribution of voting powers, or (b) to support the Board in exercising its authority and to determine the LLCs acreage.  Option "b"  is the only path granted to the Board that can correct the LLC's disproportional voting powers.

If you agree with the CA Board that voting powers need to be "normalized," then please show your support for the Board and put your name on the list of supporters. 

Reacting to the Reaction

A Brief Background
Recent communications from both the LLC and the CA Board have referenced legal opinions.  It's very important to understand that these are "opinions", not "determinations" of law.  Because different attorney's can see different approaches to applying law based on their clients needs, it's possible, and likely to have different opinions on the same matter.  Judges normally rule after weighing opposing opinions--the lawyer who "sells" their opinion best usually wins.

What a legal opinion tells you is that there is a legal basis for a stated position.  But the chances of that opinion prevailing in court are often a shade of gray, not black or white, win or lose.

Potential Consequences
It's possible that the LLC has an opinion that would encourage it to file suit against the CA if the Board exercises its right to determine voting powers.  It's also possible that the CA Board has an opposing opinion that reinforces its authority to adjust voting powers, such that the LLCs voting power is proportional to the dues it pays.  It's also possible that either party has a card to play that none of us can predict, but this is unlikely.

The CA Board must consider the possibility of a legal conflict as part of its fiduciary duty to the community.  Therefore, I can not emphasize enough that the Board needs your direct support to demonstrate solid,  community backing for normalizing voting powers.


For What it's Worth
A small group of owners (me among them) have sought legal representation to better understand the issues at KG; to receive advice on specific issues; and to communicate our concerns to the Board and LLC.  Our attorney believes that the disproportional power held by the LLC is "egregious," and corrections by the Board, based on the existing authority granted to it within the covenants, are very likely to be upheld by any judge.

Unfortunately, our attorney does not have the benefit of the legal opinions being shared between the LLC and the CA Board, and that information may or may not alter our attorney's opinion.  He is consistent in his opinion that voting rights are out of line with HOA statutes, and that our disproportionate voting powers, combined with our sole sourced services model with the LLC create a scenario that borders on taxation without representation.