By Deborah Goonan, Independent American Communities
Whenever I read talking points from an industry trade group, Community Associations Institute (CAI), claiming that Association Governed Communities are “democratic” self- governance, I cringe.
Nothing could be further from the truth. Perhaps in a perfect world. But most associations are far from perfection when it comes to conducting clean annual elections.
As HOA, condo, and co-op election season swings into full gear in many associations, there will once again be heated disputes over quorum, proxy votes, absentee ballots, voting certificates, annual meeting announcements, and scores of other details that can and will go wrong in many, many associations.
I am always amazed at how Association managers, attorneys, and board members can complain about owner apathy on one hand, and yet fight tooth and nail to keep the current board in place when challengers step up to the plate to serve their community. In fact, one Florida condo association has been embroiled in legal disputes over its 2015 and 2016 annual elections.
The group of concerned owners, long-time members of Palm-Aire Country Club Condominium Association No. 2 (PACC2), a 691-unit condo association in Pompano Beach, Florida, have been attempting to oust the majority of their board of directors for three years.
Concerned owners maintain a document library at http://pacc2documentlibrary.com managed by several unit owners.
One of those owners is Joyce Arnoff, elected to the PACC2 board in 2016. Joyce inherited her condo unit from her mother more than a decade ago. Since then, she and her husband, Norman B. Arnoff, have been enjoying time in the Florida condo. Norman is a licensed attorney in both New York and Florida, with more than 40 years litigation experience, specializing in SEC, Commodities, Banking litigation, arbitration and regulatory matters, as well lawyers and accountants malpractice and insurance coverage matters.
According to the Arnoffs, in 2014, Joyce began receiving late payment notices on her condo assessment account with PACC2. When they looked into it, both discovered that Joyce’s checks were not being posted in a timely manner. That resulted in late fees and substantial attorney fees being tacked onto regular assessment invoices.
Unable to resolve the financial dispute with the condo association, Joyce Arnoff filed a complaint with Florida’s Department of Business and Professional Regulation (DBPR). Following an investigation, as of July 2015, a DBPR investigator issued a written ruling that vindicated Arnoff, and served as a written warning to PACC2 to comply with Florida Statutory requirements for timely posting of payments and more detailed record keeping. No sanctions or charges were files against PACC2, its board, or its agents.
Conflict among PACC2 owners can be traced back to Hurricane Wilma in 2005.
Unit owner and current board Treasurer Jan Stanley explains, “Following the storm, extensive damage led to a determination by insurance companies in 2006-2008 that PACC2 was entitled to $18,000,000 in insurance funds for repairs and rebuilding. The seated board at the time, as well as Association attorneys assigned to the matter, failed to file appropriate follow up paperwork. This resulted in the Association’s receiving only $2,800,000 of the $18,000,000, necessitating multiple special assessments to pay for repairs that should have been recovered under the Association’s insurance policy.”
Since most of the owners are retired and living on fixed incomes, some could not pay the special assessments all at once, opting for a payment plan. However, some owners either fell behind or missed payment notices when PACC2 changed management companies.
They, too, began to receive late notices with inflated collection costs and attorney fees added to their assessment balance due.
All of these issues led to discord, and a group of dissatisfied owners that wanted to elect a new board and implement a new management style.
For the 2015 election, in addition to minority board members Peter Kretz and Joseph O’Neill, several other candidates challenged incumbent board members for vacant seats, among them Rose Cilone, Thomas Anthony, and Harland “Charlie” Kemplin.
Although Cilone and Anthony had more than enough ballots to win the election, on the day of the 2015 election, the election monitor appointed by the majority seated board members was dismissed, and Tamar Shendell of Shendell & Associates, retained by the incumbent board as legal counsel, removed candidates Cilone and Anthony from ballots, claiming these members were not in good standing on their assessments. Owners who voted for these candidates had those votes removed from the counting.
Given the recent history of disputes over billing and collections procedures at PACC2, these concerned owners alleged that their accounts were paid in full (or according to payment plans), but that the management company failed to accept payments from certain individuals in order to prevent their candidacy.
Furthermore, because Shendell waited until the day of election to declare that four candidates on the ballot were not current on their financial obligations to PACC2, those candidates were not given the opportunity to refute those claims prior to the second advance notice for the election.
Nevertheless, due to those disputed ballot disqualifications, Cilone and Anthony were not elected to the board, because their votes were not counted. As a result, the incumbents they had tried to replace retained majority control of the 9-member condo board for PACC2.
Shortly after the 2015 election, Kretz and O’Neill joined forces with other concerned owners to attempt the recall of 6 board members, but that failed when the incumbent board members challenged its validity by suing Kretz and O’Neill for breach of fiduciary duty for participating in the recall.
Here’s a screen shot of a portion of the recall ballot, dated March 25,2015.
Within the 60-day period following the 2015 election (as allowed by Florida statutes), minority board member Peter Kretz retained an attorney, Gerard Collins, of KBR (Kaye Bender Renbaum) and challenged the 2015 board election through the Florida Department of Business and Professional Regulations (DBPR). The DBPR found that the dismissal of ballot candidates on the day of the 2015 election was illegal and directed PACC2 to conduct a new election within 60 days.
Rather than following the DBPR’s directive, the incumbent board, using its general counsel Shendell & Associates, filed a lawsuit against Director Peter Kretz, alleging that Kretz did not have standing to challenge the 2015 election.
According to Jan Stanley, unit owner and current Treasurer of PACC2, “The incumbent board, together with it general counsel, Shendell & Associates, failed to notify PACC2’s Directors and Officers insurance carrier of the lawsuit against fellow board member Peter Kretz. The insurance company requires notification of any legal action, and it also has the right to appoint an attorney of its choosing to conduct the case. This failure to notify had two direct results: (1) coverage for Peter Kretz was placed in jeopardy; and (2) Shendell & Associates continued to bill the Association for legal fees that should have been absorbed by PACC2’s insurance carrier. Both results are costing the Association thousands of dollars in legal fees. The case involving the 2015 election was inexplicably dismissed by Judge Thomas Lynch for ‘lack of standing.’ In October, 2016, Shendell & Associates collected $105,934 in court and attorney fees from Director Kretz.”
The concerned owners group continued to work with Collins of KBR, with an eye toward the 2016 election. The group created their own website and communicated their stance on important issues facing PACC2. The strategy worked, because the group of nine owners gained considerable support. The election was set for March 2, 2016, and the Florida Ombudsman was going to send an election monitor to the annual meeting.
Two days prior to the election, 5 members of the 9-member incumbent board met, and voted to postpone the annual meeting, notifying the election monitor.
However, as was later confirmed by an Appellate Judge, Florida law requires that condo associations follow their By-Laws with regard to scheduling annual election meetings. The annual election date is set in the Bylaws for PACC2, and cannot be changed without a vote of the membership. The board alone cannot make the decision to amend the Bylaws or change the date of the annual meeting.
On advice from their attorney, the Concerned Owners Group held the March 2, 2016, meeting as scheduled and conducted an election. The new slate of board members won by a substantial margin of votes. M&M Property Management LLC certified the results and began working with the new board.
During its first 5 weeks in control of PACC2, the newly elected board, with assistance from the management company, changed the locks throughout the PACC2 grounds and took control of association bank accounts. The new board then formally agreed to pay off legal bills accumulated by the owners group – including minority board member Peter Kretz – over the past two years, in an attempt to challenge and replace the majority of the incumbent board.
However, the outgoing 2015 incumbent board refused to give up control. They have repeatedly mischaracterized the 2016 board as an “imposter board.” In addition, the 2015 board of PACC2 engaged their attorney, Tamar Shendell of Shendell & Associates, to sue M&M management for breach of contract. A lower court judge, William W. Haury, ordered the management company to honor their contract with the 2015 board, pending the outcome of a dispute over the validity of the 2016 election. That effectively voided the results of the 2016 election, and handed control back to the 2015 condo board.
M&M Property Management appealed. Finally, in December, 2016, a District Court Judge reversed the lower court ruling, confirming that the 2015 board of directors acted outside its authority when it voted to postpone the 2016 annual election.
December 2016 Order reversing Injunction against M&M Property Management, and ruling that 2015 board had no legal right to postpone the March 2, 2016 annual election meeting.
In January of 2017, the 2015 Board was mandated to relinquish control to the board elected on March 2, 2016.
Mandate ordering 2015 board to relinquish control to board elected March 2, 2016.
Unfortunately, due to the slow grind of the legal process and DBPR’s refusal to arbitrate the dispute over the 2016 election, for most of the year, the 2015 board has remained in control of both finances and internal communications for PACC2. During that time, property manager James Martin has launched a PR campaign against challengers elected to the 2016 board, using PACC2’s official website, and posting announcements on locked bulletin boards in PACC2 buildings.
It is important to understand that, in an Association-Governed community, the Board of Directors generally controls all communications (including the website, printed newsletters and electronic messages) distributed to members, as well as the posting of announcements in common areas. That means that the Association’s Board can spin the facts in any way that benefits their cause and censor information from other members with whom they disagree.
For example, prior to the December 2016 appellate decision reversing Judge Haury’s ruling, James Martin, administrator for the official PACC2 website, posted the following legal summary for condo owners.
James Martin, manager of PACC2 hired by the 2015 board, filters and selectively posts announcements on the Association’s website, painting owners challenging the board as “imposters” seeking personal gain. Source – http://www.pacc2.org/about
The board elected March 2, 2016, disputes James Martin’s claims, and objects to his misstatement of the facts.
Norman B. Arnoff, Esq. describes James Martin’s conduct as “abusive” and “working hand in hand with the Shendells.” He cites as an example, Martin’s refusal to accept a hand-delivered assessment check, insisting that it be sent to the Shendell law firm instead.
In response to James Martin’s / Shendell’s accusations against the 2016 board using Association funds to indemnify (pay legal fees for) minority board members Kretz and O’Neill, Norman B. Arnoff, Esq. offers the following legal justification: (emphasis added)
Did the Shendells commit legal malpractice and breach their fiduciary duty to the Association and its members as it relates to the 2015 election? In my opinion, yes. Peter Kretz rightfully challenged the removal of candidates on the day of the election for alleged delinquencies. The candidates were wrongfully removed on the day of the election, notwithstanding that the Florida Condominium Law, Chapter 718, only allows for an election challenge within sixty (60) days after the results are announced and clearly does not allow the taking candidates off the ballot on the day of the election. The removed candidates actually won when the votes were counted. The Shendells either did not know or research this point or ignored the clear written law .
Peter Kretz paid $105,000 to cover the Shendells’ legal fees, although ultimately the $105,000 might come out of the pocket of the Association because the By-Laws provide that a director who is sued in his capacity of being a director acting in good faith (and as long as he or she did not commit fraud or gross negligence) will be indemnified by the Association. The reality is that under the By-Laws the legal fees paid to the Shendells will be taken out of the coffers of the Association, if the By-Laws are fully operative in this context. This is both legal malpractice and breach of fiduciary duty (i.e. preferring one’s own interest over those whose interests should be preferred and protected by the fiduciary). From what it appears, the Board never gave its informed consent to this possible ultimate result and needless exercise. If the Association is made to indemnify Peter Kretz, as it should, the funds to indemnify the Association should come from the Shendells or their professional liability insurance carrier.
The other legal malpractice is that the Shendells, in advising the 2015 Board that they could postpone or cancel the March 2,2016 election, ignored the clear written law that stated the By-Laws (which includes setting the date of the annual meeting and election of directors) can only be modified by a majority vote of all the unit owners of the Association and not just the Board alone. This was validated by the holding of the Fourth Circuit District Court of Appeal December 14, 2016.
In order to set the record straight, Concerned Owners attempted to go door to door or to distribute flyers relevant to internal politics at PACC2. They were slapped with written warnings to cease and desist all “solicitation,” as that is against the CC&Rs.
In essence, the 2015 board wishes to deny condo members’ First Amendment rights to free speech and assembly.
The next PACC2 Board election is scheduled for March 1, 2017.
Contrary to CAI’s usual talking point about owner apathy, there are 24 condo members running for election to the board this year.
Members elected to the board of PACC2 in 2016 are among those candidates, and are running for reelection. Their hope is that fellow condo owners will consider their side of the story – the one they have been unable to tell over the past year.
Norman Arnoff supports re-election of the 2016 board. “I understand the 2016 Board will be running on a platform of proposing a ‘special procedures engagement’ with an independent auditor to make inquiry into financial irregularities and abuses including the highly questionable unethical and illegal fees the Shendells were trying to generate in the collection of assessment delinquencies,” says Arnoff. “Further, the 2016 Board will be proposing when a unit owner falls behind to have a board member or a delegated unit owner try to work out a cooperative installment payment plan that will avoid the predatory, litigation, and excessive cost generating tactics of Martin and the Shendells.”
Arnoff cites several Florida statutes that, in his legal opinion, have been violated by Shendell & Associates:
Chapter 718.125 and 718.303(1) constitutes an exception to the American Rule against fee shifting in that it allows attorney fees to the prevailing party in an action and when the court determines their reasonableness.
Chapter 718.116(6)(b) allows the unit owner in a foreclosure proceeding not to be subject to an award of attorney fees if payment is made before entry and execution of the judgment.
Chapter 718.112(3) (c) provides “Any challenge to the election process must be commenced within 60 days after the election results are announced.” (Emphasis Added)
Regardless of who is ultimately elected to the 2017 PACC2 board (and as the writer of this blog, I take no position on candidates), there are several important conclusions to be drawn.
First, it’s clear that, even in a state with specific laws governing election procedures for condominium associations, election irregularities are common, and, in some associations such as PACC2, pervasive.
Sound accounting practices and accurate financial record keeping are crucial to ethical and effective governance in association governed communities, especially condominium associations. Neither ignorance nor intentional manipulation of acceptable accounting practices should be tolerated in any mandatory owners association.
Florida DBPR has not been very helpful to condo owners at PACC2. The Division did little to enforce 2014 accounting and 2015 election irregularities, and refused to Arbitrate the March 2016 election dispute. Because the agency lacks appropriate authority, and underlying statutes lack “teeth” to provide effective enforcement, the 2014/2015 majority PACC2 board members, its management agent, and attorney have been able to ignore or defy warnings to improve its assessment billing process, and an order to conduct a new 2015 election.
PACC2 owners’ experience with DBPR mirrors that of thousands of other condominium owners in the state of Florida, according to a scathing report just released by the Miami-Dade Grand Jury.
See State fails to protect condo owners from board fraud, grand jury finds, Miami Herald:
The Florida state agency that regulates condominium associations does not work to protect the tens of thousands who live in condos, resulting in extensive fraud, mismanagement and conflicts of interest among the boards and management companies that govern them, according to a Miami-Dade grand jury report issued Monday.
“Unfortunately, the [Department of Business and Professional Regulation, or DBPR] seems ill-suited to resolve, correct or prevent many of the recurring problems that have been brought to their attention,” the grand jury report said.
From the Grand Jury Report, take note of the following paragraph that directly applies to events at PACC2:
The Grand Jury goes on to make specific recommendations:
All Florida condo owners should read this report. Condo owners in other states will find it instructive as well.