SB 1560 - Clean Up Legislation Attempts to Remedy Confusion Surrounding New Election and Voting Procedures

Feldsott & Lee
A Law Corporation

On September 18, 2006, the Governor signed Senate Bill 1560 (“SB 1560”) into law. SB 1560 is effective retroactive to July 1, 2006, meaning it must be complied with now. SB 1560 amends Civil Code §1363.03 in an attempt to clean up SB 61, the election rules and procedures legislation enacted last year. As a result of SB 1560, many associations that drafted new election and voting procedures earlier this year in the belief that they would be in compliance with the new legislation, have found themselves having to amend their election rules just a few months after their adoption. While tedious, such revisions are necessary in order to avoid any chance of a meritorious challenge of an election. Additionally, directors do not want their status subject to challenge. Under existing law, a member may bring a civil action to enforce his or her rights under the provisions governing elections. In addition, a court can impose a civil penalty of up to $500 for each violation. Therefore, in an effort to steer clear of costly and unnecessary litigation and avoid chaos within the association regarding a challenged election, special attention must be paid to the changes and clarifications within SB 1560 and an association’s election rules redrafted accordingly. The remainder of this article will outline the most relevant changes and clarifications effectuated by SB 1560 with respect to its amendment of the election procedures of Civil Code §1363.03.

The so-called clarifications for the procedures for secret ballot elections in common interest developments set forth by SB 1560 are as follows:

1. Election rules adopted by an association are now required to specify the times at which the polls open and close, consistent with the governing documents. In addition, SB 1560 says the Inspector or the Inspectors of Election (an association can use one or three) shall determine when the polls shall close, consistent with the governing documents. It is unclear whether this means a specific opening and closing time must be specified within the election rules, whether a provision may be used that refers to the opening and closing time of the polls as those times specified in the notice of election, or whether another method may be used. With the Inspector of Elections being given the authority to determine when the polls shall close, it seems the legislature may have intended a provision be allowed that would allow the Inspector of Elections some discretion in when to close the polls, rather than listing a specific time at which the polls must open and close at each election.

2. An Inspector(s) of Election can now appoint and oversee additional persons to verify signatures and to count and tabulate votes as the inspector(s) deems appropriate. These appointed persons must be independent third parties as defined by the statute.

3. It is now clear that the secret ballot election procedures apply to both the election and removal of members of an association’s board of directors. SB 61 stated the secret ballot procedures must apply to elections regarding “selection of members of the board of directors”. SB 1560 now makes it clear that these election procedures apply to both elections to place directors on the board as well as recall elections to remove them.

4. SB 1560 states that a quorum shall be required at the election only if so stated in the governing documents of the association or other provisions of law. At first glance, it would appear that this would mean an association whose documents are silent as to a quorum requirement would not have to reach quorum for an election. However, Corporations Code §7512 establishes a quorum of one third (1/3) of the voting power to transact business if the governing documents are silent. If an association wishes to eliminate the quorum requirement, it may do so through a bylaw amendment. However, if a quorum requirement is reduced below one third (1/3) of the voting power, the only matters that may be voted on at a regular meeting are those matters the general nature of which notice was given.

5. SB 1560 specifies that ballots received are to be counted as members present for the purpose of establishing a quorum, if a quorum is required for an election by the governing documents. The member casting the ballot need not be present at the meeting to be counted toward a quorum.

6. It is now explicitly stated that an association can use cumulative voting if provided for in the governing documents.

7. Use of proxies remains allowable, and SB 1560 defines them as “a written authorization signed by a member or the authorized representative of the member that gives another member or members the power to vote on behalf of that member”. This means that a proxy holder must now be a member.

8. SB 1560 goes on to clarify that an association may use proxies if permitted or required by its governing documents, but is not required to prepare or distribute proxies under the election legislation. It also states that proxies may not be used in the place of ballots, meaning a proxy holder may not place the proxy into the ballot box as a vote. The proxy holder must fill out a ballot for each proxy held. While proxies are still permitted, the new election procedure seems to make them obsolete as both SB 61 and SB 1560 require ballots and two pre-addressed envelopes with instructions on how to return the ballots to be mailed by first-class mail or delivered by the association to every member not less than thirty (30) days prior to the deadline for voting. This provision, in effect, requires a mail-in ballot to be sent out in every election applicable to the new election legislation. Therefore, if someone cannot attend a meeting at which an election will take place, they need only return the received ballot as directed, avoiding the need to enter into a proxy and allow another member to vote on their behalf.

9. Inspector(s) of election or his, her, or their designated representatives may now verify the validity of members’ signatures and addresses on the ballot envelope prior to the meeting at which the ballots are to be tabulated, when ballots are sent in prior to such meeting.

10. The inspector(s) of election, in addition to keeping the sealed ballots in his or her custody or at a location designated by him or her until after the tabulation of the vote, must now also retain custody of the ballots until after the time limitation for challenging the election set forth in Corporations Code §7527 has expired. Said time is nine (9) months from the date of the election. At the conclusion of nine months, the ballots must then be transferred to the association where they must be held for at least three (3) additional months. Whoever is the custodian of the ballots at the time of a challenge to an election requiring a recount shall make the ballots available to a member or their authorized representative for review and inspection.

It must be noted that in requiring the inspector(s) to retain ballots “until the time allowed by Corporations Code §7527 for challenging the election has expired” some ambiguity is created with respect to the amount of time a member has to challenge an election. This ambiguity is seen when comparing Corporation Code §7527, which provides for nine (9) months to challenge the validity of an election with Civil Code §1363.09 which provides for a time frame of one (1) year. It appears the legislature may have been trying to shorten the time allowed to challenge an election based on a violation of the new election procedures to nine (9) months. However, SB 1560 (n) provides “[i]n the event of a conflict between this section and the provisions of the Nonprofit Mutual Benefit Corporation Law (Part 3 [commencing with Section 7110] of Division 2 of Title 1 of the Corporations Code) relating to elections, the provisions of this section shall prevail.” The one year provision in Civil Code §1363.09 should therefore prevail over the nine-month limitation provided for in Corporations Code §7527 when an election is challenged based on non-compliance with SB 1560.

11. It is now clear that rules adopted for elections may provide for the nominations of candidates from the floor of membership meetings or nomination by any other manner. Rules may provide for write-in candidates on the ballots. A nomination procedure may not disallow any member of the association from nominating himself or herself to the board of directors. Since mail-in ballots are by their nature irrevocable, nominations from the floor are, for the most part, idle acts.

12. Elections by delegates or other representatives are now exempt from the secret ballot procedure.

These are the majority of the “clarifications” provided for by SB 1560. As you can see, SB 1560 has clarified some issues, but created further ambiguities with respect to others. In addition, some of the ambiguous parts of SB 61 remain. The bottom line, however, is that association elections must now comply with SB 1560. If not, the association risks having that election challenged, along with the added expense of the litigation and possible penalties that come along with it. Aa association should contact its attorney to implement the required changes to its election rules.

The legislature has turned the annual meeting into little more than a registration nightmare and counting of ballots. Why have speeches or discussion when irrevocable ballots have already been cast? Yes, the legislature leveled the playing field, but inadvertently cancelled the game.