The U.S. Supreme Court recently decided an interesting case which had nothing to do with community associations but which has some interesting implications on how an association’s board of directors may operate. The decision in New Process Steel v. N.L.R.B., 560 U.S. ____ (June 17, 2010), invalidated hundreds of decisions made by the National Labor Relations Board (“NLRB“) because those decisions were made by a Board which had fewer than the required number of members. Governing law provided that the NLRB was to be composed of 5 members, but any powers of the Board could be delegated to a group of 3 or more members. The quorum for the Board – the number of members necessary for the Board to take valid action – was 3 members; however, if powers were delegated to a smaller group, 2 members would constitute a quorum. Due to vacancies on the NLRB, the Board consisted of only 2 members for over two years, during which hundreds of decisions were made by the two-member Board. This issue came before the U.S. Supreme Court when some of the NLRB’s decisions made during this time were challenged as being invalid due to the make-up of the Board.
The NLRB argued, in part, that during a time when there were four NLRB members, all of the Board’s powers were delegated to a smaller group of 3 members. Following such delegation of power, the argument continued, any two members of the group to which power was delegated “constitute a quorum that may continue to exercise the delegated powers, regardless whether the third group member… continues to sit on the Board and regardless of whether a quorum remains in the full Board.” Id. at 9 (internal quotations omitted). A majority of the Supreme Court found this line of argument unconvincing, and the majority opinion provides “the fact that there are sufficient members participating to constitute a quorum does not necessarily establish that the larger body is properly constituted or can validly exercise authority.” Id. As the Court’s majority put this into other words: the provision of law governing the make-up and quorum of the NLRB “does not authorize the Board to create a tail that would not only wag the dog, but would continue to wag after the dog died.” Id. at 14.
Although the Supreme Court’s decision in New Process Steel has nothing to do with community associations, some of the NLRB’s governing provisions contemplated in the opinion have similar counterparts in most community association’s governing documents. For example, if the Bylaws for your community say that the “Board of Directors shall be comprised of no fewer than five (5) members” then it is a possibility that a disgruntled owner (and what community doesn’t have one of those) could successfully challenge any action taken by a Board having fewer than the requisite number of members. The word “shall” is a mandatory word, as opposed to “may” which is discretionary; and a vacancy on the Board may raise a question as to whether the Board “is properly constituted or can validly exercise authority.”
Further, your community’s Bylaws may also state that “a majority of the directors shall constitute a quorum for the transaction of business at all meetings of the Board of Directors, and the votes of a majority of the directors present at a meeting at which a quorum is present shall constitute the decision of the Board of Directors.” Based on this language, for a 5-person Board, three directors would constitute a quorum; and where 3 directors convene a valid Board meeting, the votes of two directors constitute a decision of the Board.
As in the New Process Steel case, although the decision of only 2 directors may direct the actions of the Board at the end of the day, that decision cannot be made outside of the context of a validly held Board meeting at which a quorum is present. If these procedural requirements are not followed, your community’s “disgruntled owner” could again successfully challenge an action taken by a Board taking action without a quorum being present.
Service on a community association’s Board of Directors is voluntary, and volunteers are not always readily available. Once a full Board is assembled, it is not always easy to organize meetings at times when every member can be present. Members of a community association’s Board of Directors, however, should be aware of quorum and other procedural requirements that govern the Board’s actions and the potential consequences of failing to follow these. In addition, members of a Board of Directors should be aware of the various means that may be available to them to fill vacancies, participate in meetings by telephone and fulfill other procedural requirements. If a question arises, the Board may want to consult their association’s attorney to assist in assessing the Board’s options.