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REMOVING DIRECTORS

Who May Be Recalled? The membership's ability to remove people from positions of authority is limited.

  • DirectorsWith or without cause, the membership may recall the entire board or individual directors, subject to cumulative voting limitations. (Corp. Code § 7222(a).) This applies to both membership-elected and board-appointed directors.
     
  • Designated Directors. Designated directors cannot be recalled from the board without the approval of the designator. (Corp. Code § 7222(f).) A designated director is not one appointed by the board to fill an empty seat. A "designated director" is one designated in the articles or bylaws. (Corp. Code § 5220(d).) Such directors serve until their term expires as provided for in the articles or bylaws or they resign, die, or become incompetent.
     
  • Court Appointed Directors. Court-appointed directors (Corp. Code § 5220(e)) cannot be removed without court approval.
     
  • OfficersThe membership cannot recall officers, such as the president, secretary, or treasurer, since officers are elected by the board, not the membership. Officers serve at the pleasure of the board and may be removed at will by the board.
     
  • Managers. The membership cannot remove or "fire" a manager; only the board can. Nor can they file a petition with the board to remove a manager.

1.  REMOVAL BY A COURT. A legal proceeding to remove a director from the board may be brought by the board as a whole or by any director, provided the association is named as a party. (Corp. Code § 7223(a).) An action to remove a director from the board may be brought (i) if the director has committed fraudulent or dishonest acts or engaged in gross abuse of authority (Corp. Code § 7223) or (ii) the director has become unsound of mind or has been convicted of a felony. (Corp. Code § 7221(a).)

2.  REMOVAL BY FELLOW DIRECTORS. Only under limited circumstances can directors, whether appointed or elected, be removed by fellow directors. A director’s seat can be declared vacant under the following circumstances.

  • Unqualified Director. The board, by a majority vote of the directors, may declare vacant the office of any director who ceases to meet qualifications that were in effect at the beginning of that director's term of office. (Corp. Code § 7221(b).)
    1.  A Non-Member. A director who is discovered to not be a member, who has ceased to be a member, or who is not or no longer lawfully appointed to represent a legal entity owning a separate interest must be removed as unqualified to serve. (Civ. Code § 5105(b).)
    2.  Delinquent Director. A director's seat can be declared vacant if the director becomes delinquent in the payment of regular and special assessments and does not enter into a payment plan to bring assessments current. (Civ. Code § 5105(c)(1).)
    3.  Co-Owner. A director can be removed if, after elected, the director becomes co-owner of property in the development with another person on the board. (Civ. Code § 5105(c)(2).) The two directors can decide between themselves which one will remain on the board. If they cannot decide, the board can select one.
    4.  Owner Less Than 1 Year. A director who has been a member of the association for less than one year may be disqualified and removed. (Civ. Code § 5105(c)(3).)
    5.  Criminal Conviction. A criminal conviction that would prevent the association from purchasing or would terminate the association’s fidelity bond coverage. (Civ. Code § 5105(c)(4).)
       
  • Missed Meetings. The Corporations Code allows for the removal of a director for missing meetings if provided for in the bylaws. (Corp. Code § 7221(a).) A common bylaw provision is to allow the board to remove a director who misses three consecutive regular meetings or a total of four regular meetings in a 12-month period.
     
  • Unsound Mind. The board does not have the authority to decide for itself who is mentally competent to serve as a director. As a result, boards cannot refuse to allow someone to run for the board due to perceived mental incompetence. The board may declare vacant the seat of a director who has been declared of unsound mind by a final order of a court. (Corp. Code § 7221(a).) 

Due Process. The vote to vacate a seat is not a disciplinary action--the board is not fining a director for violating a rule. Rather, it is declaring the seat vacant because the person is no longer qualified to be a director. Even so, the board should give notice to the director and hold a hearing in executive session to give the director an opportunity to cure the disqualification. If the director cannot or refuses to cure the disqualifying issue, the board can vote to vacate the seat.

Removing An Appointed Director. Except for the circumstances described above, a board cannot remove a director it appointed to a vacant seat. An appointed director has the same powers and duties as other directors. An appointed director occupies a seat on the board the same as if he/she had been elected to the board. Accordingly, the removal of an appointed director follows the same process as used for removing an elected director

Replacement Directors. Once a seat has been vacated, the board can appoint a replacement to fill the seat unless the bylaws state otherwise. If the removal was by the membership, election of a new director is by the membership, not the board.

3. REMOVAL BY THE MEMBERSHIP

    A.  No Cumulative Voting. If an association has fewer than 50 members, removal is approved by the affirmative vote of a majority of all members entitled to vote. (Corp. Code § 7222(a).) If the association has 50 or more members, removal is approved by the affirmative vote of a majority of the votes represented and voting at a duly held meeting at which a quorum is present, with the affirmative votes also constituting a majority of the required quorum. (Corp. Code § 7222(a).) The Inspector of Elections tallies the votes and announces the results.

1. No Super Majority Requirements. Associations with 50 or more members cannot amend their governing documents to increase the recall vote to more than a majority of the votes represented and voting at a duly held meeting at which a quorum is present. (Lake Lindero HOA v. Barone.)

2. Reduced Quorums. Some associations have reduced quorum provisions in their bylaws, i.e., meetings for the election of directors that have 50% requirement but is reduced to a lower percentage (such as 25%) when adjourned for lack of quorum. The reduced quorum applies to the approval requirement for the removal of directors for associations with 50 or more members. (Lake Lindero HOA v. Barone.) For example, in an association of 100 members and a quorum requirement of 50%, 50 members must be present in person or by ballot or proxy. Of those 50, 26 must approve the removal of directors. If a quorum is not met, and the meeting is adjourned to a later date, and the quorum requirement drops to 25%, then at least 25 members must be present in person or by ballot or proxy. A majority of that number then determines the removal of directors. (If an association has fewer than 50 members, the removal remains the same, i.e., it must be approved by the affirmative vote of a majority of all members entitled to vote despite any reduction in quorum.)

    B.  Cumulative Voting. If an association's governing documents allow for cumulative voting, the Davis-Stirling Act makes it mandatory when electing directors. (Civ. Code § 5115(e).) Cumulative voting makes it easier for a minority of owners to elect a director. It also complicates the removal of a director.

1. Removing the Entire Board. Cumulative voting is not used when voting to remove the entire board. The number needed for removal is described above in "No Cumulative Voting."

2. Removing Less than the Entire Board. Removing less than the entire board is more complicated because a minority of voters can block the recall of a director even if a majority of voters approve the removal. The Corporations Code provides that no director may be removed when the votes cast against removal would be sufficient to elect the director if voted cumulatively at an election where all memberships entitled to vote were voted. (Corp. Code § 7222(b).) This provision is confusing, and authorities disagree on how it works. It calls for a calculation that involves cumulative voting but using it results in a supermajority to block recall rather than a minority.

The problem arises because non-cumulative voting is used when approving the recall (a simple "Yes" or "No" vote to approve the removal of a director), but cumulative voting is referred to in the statute for blocking the recall. The two don't mix. 

EXAMPLE #1. In an association with a 5-member board and 100 members where every member casts a ballot, 51 "Yes" votes are sufficient to remove a director. Per the Corporations Code, since a minority of members can use cumulative votes to elect a director, a minority of "No" votes is sufficient to block the removal of a director. However, if the cumulative voting formula is used for electing directors, it produces a supermajority needed to block a recall as follows.

V =   M x D   + 1


(Truncate if the result is fractional, i.e., do not
round up or down--simply eliminate the fraction.)

  V = VOTES (number of votes needed to block removal)
D = DIRECTORS (total number of directors authorized in the bylaws)
M = MEMBERS (total number of members entitled to vote)
D + 1
Votes =  100 x 5  + 1 = 84.3 When truncated, the number of votes needed to block removal is 84.
5 + 1

Clearly, this is not the result intended by the Corporations Code since the number needed to block removal can never be achieved. If 51 members vote to remove a director, only 49 votes remain, which can never reach the 84 calculated by the formula. The statute is poorly drafted and fails to clearly spell out how to achieve its goal of preserving minority representation. A possible reconciliation is to weight the recall Yes/No votes by multiplying them by five so that cumulative voting is on both sides of the equation. That way, they cancel each other out, and we can simplify the formula as demonstrated in Example #2.

EXAMPLE #2. If cumulative voting is used in both steps of the recall, they cancel each other out, and the following formula produces the correct result:

Votes =   100   + 1 = 17.7 truncated = 17 (This equals the number of votes needed to elect a director, which is also the number needed to block the removal of a director.)
5 + 1


Staggered Terms. Staggered terms have no effect on the formula. The number of votes needed to block the recall of a director who was elected when there were two open seats is the same as when 5 directors are elected:

(2 open seats when elected) Votes =   100   + 1 = 17.7 truncated = 17 (The number needed to block removal.)
5 + 1

Those Not Voting. Some argue that members who do not vote count as "no" votes. With this interpretation, recalling an individual director is virtually impossible due to voter apathy in most associations. The argument for counting non-votes as no votes relies on their interpretation of language in the Corporations Code that "no director may be removed...when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively..." (Corp. Code § 7222(b).) We disagree with this interpretation. There are two arguments against the practice.

1. Written Consent. First, there are two methods for approval. One method is voting by ballot; the other is approval by written consent. In "written consent," one or more documents are circulated to the membership, which allows members to sign consenting to the removal of a director or not to sign if they oppose removal. If a sufficient number of members do not consent to removal (i.e., oppose removal), the removal fails. Approval by written consent of the membership was eliminated when California changed voting procedures for homeowners associations to secret ballots for the removal of directors.

2. Ballots Only. Since written consent no longer applies to the removal of HOA directors, only actual ballots against removal may be counted: "no director may be removed...when the votes cast against removal...would be sufficient to elect the director if voted cumulatively..." (Corp. Code § 7222(b).)

No Super-Majority. The voting requirement for removing directors is set by law and cannot be raised to a super majority by an association's governing documents. The Corporations Code specifically overrides any conflicting bylaw provisions. As provided for in Corporations Code § 7222(d), "Except as provided for in this section . . . a director may not be removed prior to the expiration of the director's term of office." If you follow the links in Sections 5033 and 5034, they state that the approval requirements for removing a director cannot be increased. Section 5034 defines "approved by the members" as the affirmative vote of a majority of the votes represented and voting at a duly held meeting at which a quorum is present. This same section allows bylaws to set a higher voting threshold EXCEPT for the removal of directors (see Corp. Code § 7151(e)). This is reinforced by Corp. Code § 7151(c)(2) which states that an association's bylaws may not contain any provision that conflicts with the law. The legislative notes regarding the removal of directors state that "This subdivision specifies the exclusive procedure for removal of directors without cause" . . . because governing documents that require a "super-majority" improperly limit the rights of shareholders to change the composition of the board between annual meetings.

No Reduced Quorum. The Davis-Stirling Act provides for a reduced quorum for the election of directors but not for recall elections. (Civ. Code § 5115(d)(2).)

No Permanent Removal. The Corporations Code does not provide for the permanent removal of directors. So long as the person meets the qualifications of a director and there are no term limits, he/she can be elected to the board even if recalled by the membership. If an association has cumulative voting, almost anyone can be elected, no matter how dysfunctional they might be. To avoid this problem, associations should amend their bylaws to eliminate cumulative voting.

Replacing Recalled Directors. In general, directors hold office “until the expiration of the term for which elected and until a successor has been elected and qualified.”  (Corp. Code § 7220(b).) There is an exception, however, for when a director is removed from office (either by a vote of the members or by action of the board to declare the director’s seat vacant). This exception was added to Corporations Code § 7220(b) in 2010, by the addition of the phrase “unless the director has been removed from office” to the end of that section. In that situation, the director ceases to hold office immediately upon the removal.

It is unclear whether this is true even when the entire board is recalled at the same time. The Corporations Code does not differentiate between the recall of a single director and the recall of the entire board, so a strict reading of the statute would say that when the entire board is recalled, all recalled directors cease to hold office immediately upon their removal. In practice, that will be very problematic, because there will be no directors to run the association, and no directors to organize an election to fill the vacancies. To avoid this problem, the board must include on the ballot the election of candidates to fill all vacancies in the event the recall of the entire board is successful. This is true even if the members’ recall petition failed to include a request for such an election. 

Campaigning is allowed by both sides. Owners may campaign to remove directors from office, and directors may campaign against the recall. However, neither side is allowed to use association funding for their campaigns. (Civ. Code § 5135.) Any access to association media must be granted equally.

Recalled Directors Can Run for the Board. As long as they meet the qualifications of a director, persons recalled from the board may nominate themselves in advance of the recall and run for open seats in the event the recall is successful. Associations can amend their bylaws to require recalled directors to remain off the board for a specified period of time. Such a restriction, however, could have unintended consequences:

1. Apathy. Sometimes apathy and misinformation can result in good directors being recalled by a small number of owners with personal agendas. Once the recall occurs, the membership may discover that the new directors are worse than the recalled directors. If bylaws imposed restrictions on recalled directors, it would prevent the membership from putting the good directors back on the board.

2. Cumulative Voting. Another problem with the prohibition is that HOAs with cumulative voting sometimes need to recall an entire board to remove one bad director. Restricting recalled directors would make good directors ineligible along with the actual target of the recall.

New Directors Term of Office. If the recall is successful and new directors are elected, the term in office for new directors will be the same as the directors they replace. (Corp. Code § 7220(b).) If a board has staggered terms and is recalled, the election of replacement directors requires a determination of which directors get the longest terms. That is determined by the vote count. Those directors receiving the highest number of votes are elected to the open seats with the longest terms.

EXAMPLE: Assuming a five-member board with staggered terms is successfully recalled where three directors had one-year remaining terms and two had one-month remaining terms, the three candidates receiving the highest number of votes fill the seats with one-year terms. The next two elected candidates fill the one-month terms. That means the two newly elected directors with one-month terms must stand for reelection in thirty days.

Membership Meeting. See "Special Membership Meeting."

Legal Counsel. Board members are volunteers and rarely know how to properly handle a recall petition/election. As a result, it is common for them to call legal counsel to find out what to do. Following is a sampling of questions boards often must address:

  • If a husband and wife both sign the petition does it count as one signature or two?
  • Can/should the board verify the signatures? If so, how?
  • Is the petition confidential or should it be published?
  • How much time do we have to call a recall meeting?
  • How are nominations handled?
  • Do recalled directors have the right to run for the board?
  • etc.

Recommendation: Associations should seek legal counsel when faced with a petition to recall one or more directors. Associations should amend their governing documents to (i) eliminate cumulative voting, (ii) limit abusive recall petitions, (iii) eliminate proxies, and (iv) drop quorum requirements for the election of directors.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC