is this a conflict of interest by a board member

Started by RickJ6 • 4 replies • 56 views

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RickJ6 (Nevada)
Posts: 31

Posted:

The community is post transition and is now in a construction defect claim against the builder. It is in pre arbitration stages, and the HOA has hired a construction defect firm to represent them. The law firm had 3 experts come out, and they prepared 3 reports , architectural, electrical and geo-thermal. In the meantime Fannie has issued a no lending order for the community based upon the findings in the reports.

On the board is a V.P. of one of the largest construction defect expert witness firms in the country. This firm during the negotiation has been actively representing the same builder in a different construction defect case. The board member stated on their pre-election questionnaire that they had no conflicts and is intending to run again. He has not recused himself from any decision making.

The question I have is whether this is a clear cut conflict of interest. Or whether there is any viable argument that it is not.

Any insight anyone can give would be appreciated. One of the reasons I bring this up is the time line of events to me is very strange, along with some of the decisions being made , to name a few.

But the first step would be figuring out if this is a clear cut conflict of interest.

Thanks

ElleN (Idaho)
Posts: 1,289

Posted:

The conflict of interest is clear cut enough that I feel this HOA director (simultaneously the VP of a construction defect expert witness firm) should have complied with the Nevada Non Profit Corporation Act's (NRS 82) requirements re conflicts of interest.

This HOA director should disclose his relationship to the builder and so stop any further controversy. If he will not, then bring it up in executive session. Get the facts down. Inform the director that either he can disclose his relationship, or the board will. Disclose the relationship to the owners at an open board meeting.

NRS 82.226 Restrictions on transactions involving interested directors or officers; compensation of directors.

1. No contract or other transaction between a corporation and one or more of its directors or officers, or between a corporation and any corporation, firm or association in which one or more of its directors or officers are directors or officers or are financially interested, is void or voidable solely for this reason or solely because any such director or officer is present at the meeting of the board of directors or a committee thereof which authorizes or approves the contract or transaction, or because the vote or votes of common or interested directors are counted for such purpose, if the circumstances specified in any of the following paragraphs exist:

(a) The fact of the common directorship, office or financial interest is disclosed or known to the board of directors or committee and noted in the minutes, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient for the purpose without counting the vote or votes of the common or interested director or directors.

(b) The fact of the common directorship, office or financial interest is disclosed or known to the members, if any, and they approve or ratify the contract or transaction in good faith by a vote sufficient for the purpose. The votes of the common or interested directors or officers must be counted in any such vote of members.

(c) The fact of the common directorship or financial interest is not disclosed or known to the director or officer at the time the transaction is brought before the board of directors of the corporation for action.

(d) The contract or transaction is fair as to the corporation at the time it is authorized or approved.

2. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or a committee thereof which authorizes, approves or ratifies a contract or transaction, and if the votes of the common or interested directors are not counted at the meeting, then a majority of the disinterested directors may authorize, approve or ratify a contract or transaction.

3. Unless otherwise provided in the articles or the bylaws, the board of directors may fix the compensation of directors for services in any capacity.

Rick, is this a condominium or a single family home HOA?

RickJ6 (Nevada)
Posts: 31

Posted:

This is a condominium project. Condo/townhome community. My view is that conflict of interest rules are there for a reason. And in some instances, even though there is a conflict of interest, the person is ethical enough to decide in the best interests of the community rather then the builder who is their client in another case. But, saying that, the community should not have to depend on that. As the conflict rules seem to indicate at the very least the person should have disclosed it in their preelection questionnaire. In addition, recusal seems to be appropriate, if it could be done. But in this instance, since the construction defect litigation involves a long list of defects, serious enough to cause Fannie to stop lending, why should the community even have to think about this issue? It has enough to think about let alone that a board member might have an undisclosed conflict of interest.

I am just trying to figure out if I have overlooked anything.

ElleN (Idaho)
Posts: 1,289

Posted:

-- I agree the statute section is there for a reason.

-- I think you overlooked that anyone can disclose the conflict. It does not have to be the conflicted director who discloses the conflict. Then how to handle the conflict is in the board's hands. This is huge.

-- I think you overlooked that the statute section says the conflicted HOA director's vote will not count.

-- I think you overlooked that the statutory requirement to disclose puts the issue (of the conflict of interest) in owners' hands and the board's hands. Owners have the option of removing a director (granted this is not easy). Boards have the option of voting on whether a conflict of interest is present and so enforcing the statute section that says this director's vote will (effectively) not count.

-- Practically speaking: At this point I think the problem is less this HOA director and more those who know of the conflict and have not told the Board.

-- If you are on the Board, you should ask that this be put on the agenda, probably for executive session, to start.

RickJ6 (Nevada)
Posts: 31

Posted:

I am a homeowner, not on the board. But my feeling is that some of the board members know of this , as does the property management company.

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