Do the Proposed Governance Documents Fix Anything? – Unfortunately Not

Here are some details:

CCRs:

The best of the collection is the set of restrictive covenants.  I only say this, because the document appears that it would do no harm, if it were properly modified to remove the sections that are erroneous and repetitive relative to the other documents.

That said, the document also appears to do no good as well.  In other words, if we passed the CCR changes and nothing else, we would change nothing of any substance as opposed to simply leaving the existing CCRs in place.  There is no compelling reason for this change, and unnecessary document changes introduce unnecessary legal risk.

The primary errors in these documents are found in Section II (Governance) and, to a lesser extent, Section VI (Architectural Control Committee and Maintenance Committee).

• Section II largely contains prose that is repeated in the Articles of Incorporation. It describes in considerable detail about the SAEPOA board composition, election processes, even dates and schedules.  Most of these details are proper for the Bylaws and not the AoI or the CCRs.  Placing these details in the CCRs could make future modification very difficult.  It could also create conflict due to the repetitive nature – if one document is changed, the other must be as well.
  • Typically, CCRs do not contain any detail about property management associations – they are attached to the property, and thus are associated with restrictions on the land use.
  • Our existing CCRs are much better in this regard, only containing 2 references to the SAEPOA. One reference is just to define the term.  The other notifies lot owners that they are automatically, and of necessity, included as members in SAEPOA.
• Section VI contains details about our two formal committees (architecture and maintenance). These details are more appropriate for the organizational documents (AoI and/or Bylaws), but they may be included here because the Board is still hoping to dissolve the Association, and therefore it may hope that these two committees continue as standalone entities.  We should reject this notion for multiple reasons – namely that this case would involve two “disembodied” committees without a reasonable method of election, enforceability, management, etc.

Most importantly, although these CCRs were developed from scratch, I could not see anything that would change of any substance.  There were a few minor points, like a restriction of 3 aircraft per lot (why?), but I could not find any reason to change our current CCRs to these.

I gave them a grade of “C+/B-” because they were unnecessary, but relatively harmless if the repetitive portions were cleaned up.

Articles of Incorporation (AoI):

The Articles are much more problematic.  They need more than just a cleanup of repetitive text, specifically, they contain changes that are harmful, or potentially harmful to the Association and the members.  The changes to the Articles also contain nothing of benefit (solve no major problems for the association).

• Harmful – Article IX (Indemnification) is one of the most convoluted legalese paragraphs ever written.  For example, let me show you just the first sentence:

  “Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter, a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or while a director or officer of the corporation is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another corporation or of a partnership, joint venture, trust, or other incorporated or unincorporated enterprise, whether the basis of such proceeding is alleged action or inaction in an official capacity as a director, officer, partner, trustee, employee, or agent or in any other capacity while serving as a director, officer, partner, trustee, employee, or agent shall be indemnified and held harmless by the corporation to the fullest extent authorized by the New Mexico Nonprofit Corporation Act as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys’ fees, judgments, fines, taxes, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors, and administrators; provided, however, that the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or a part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation.”

• Article IX appears to say that board members are to be completely protected from any misdeeds. They already enjoy considerable protections via the corporate veil and protections from legal malfeasance when done with attorney advice, if in good faith.  Why is this page-long gobbledygook needed?  Could it cause harm?
• Harmful – Article X (Dissolution) removed the prior protection against hasty dissolution, requiring 66 signed votes. Given that this board tried to dissolve the Association, and it ignored this provision, this change could lay the groundwork for another attempt by the Board.  Is the Board signaling another dissolution attempt?
• Harmful — Article VI and Article VIII establish 51 vote thresholds for several actions (removing a board member, reversing a board decision, sanction an errant member).  On the surface, this appears to be a check on board power, but it is a much more difficult standard to reach a conclusion than our current requirement of a simple majority vote in a meeting.  Furthermore, the restated documents require a special meeting for such votes, and the document does not state that the members can call the meeting, and thus it is very likely that these provisions could never be exercised.  
• Article VI (Director/Officers) is largely repetitive to Section II of the CCRs. Very confusing.  It’s even more confusing because this section would normally belong in the Bylaws.
• Finally, Article XI (Effective Date) specifies how the Board plans to pass the new document. Current Articles (which would apply) require a signed vote by 75% of the members (75 lots must approve!).  This paragraph, however, simply says that the new measure would be passed by a vote of a quorum of 75% of the members.  Is the Board expecting to get away with passing this with a simple majority in a meeting of 75 attendees/proxies?  If so, it runs afoul of multiple guidelines that are must stricter.  This is perhaps an oversight, but there appear to be several major oversights.

Again, there are no major problems solved by the proposed Articles.  There is no reason to take the risk of adding these bad provisions and bad writing.

I gave this document a grade of “D” because it’s not acceptable, even with simple cleanups.  It would need substantial revision to avoid harm.  Even then, it adds no value to the Association.  Just stay with what we have – it’s cleaner and provides better protection.

Bylaws:

Frankly, the proposed Bylaws would be a disaster for the Association.  The proposed changes would formalize the Board’s tyranny over you, the members of the Association, and you would lose your voice as a member.

Traditionally, SAEPOA members have enjoyed many rights and opportunities to rectify situations.  Jerry Powers illustrated this well when he moved for a vote during a meeting to ensure that the runway corporation be paid, despite board reticence to pay the due bill.  Jerry’s motion was seconded, and a vote was held requiring the Board to honor its obligation to pay the debt and we were kept in the clear again.

Now, we have a board that does not respect our current Bylaws that require such meetings, motions and votes.  Our Board, largely run by Jerry, does not allow the same rights that he used to pay the bills.  (And this board has, in fact, not paid the bill, causing a compounding financial problem.)

The proposed Bylaws changes would formalize the Board’s current disregard for member participation in governance.  Your voice would be reduced to simply being allowed to vote for officers once per year, in an election process also completely run by the Board.

Let’s take a closer look at the problems:

• Repetition (again!) – Article IV (Director/Officers) opens with the same repetitive prose that is also largely in the CCRs and the Articles! Again, any changes would require changing all 3 documents!
• No quarterly meetings – The word “quarterly” does not appear anywhere in this document, because these Bylaws clearly eliminate quarterly meetings! However the quarterly meetings were your guarantee that you have a voice and an ability to repair damage from any improper board actions/inactions.  Perhaps this is why the current board is not holding any quarterly meetings in violation of the current Bylaws.
• Provision for “special meetings” (4.4) – The proposed bylaws make allowance for “special” meetings. We have seen what is meant, because so far every meeting called by our current board has been deemed as “special”.  “Special” has come to mean that members cannot make motions or take votes.  In fact, all year, this board has only allowed one vote – their failed attempt to dissolve the Association.
• Electronic meetings (4.5) – This section states that board meetings will provide for electronic means of connecting. Although this is not harmful, and perhaps helpful, we now know that this board has taken the view that meetings should not be held in-person, and it appears to be a means of squashing dissent.  Although it’s fine for meetings to offer electronic presence, we need a requirement that the meetings be held in-person even more.  These two are not mutually exclusive.
• One of the most disturbing sections is the bizarre “Manifestation of Dissent” (4.6). Our current board campaigned on ending “automatic yes” votes that had already ended years ago.  Now, they have reintroduced a strange “automatic yes” vote within the Board, in which any dissenting member must be extremely clear on their dissent, make sure the dissent is in the minutes, or dissent promptly via registered mail.  Otherwise, they are automatically counted as having given their agreement with what the board leadership has proposed.  So even board members are being stifled if they disagree!
• These proposed Bylaws specifically prohibit the creation of any committees outside of architecture and maintenance (Section 4.10), perhaps to ensure that members can’t request committees to do things like address governance or nominations.
• No restrictions are placed on the President regarding authority to make contracts or otherwise bind the Association. The prior restraint requiring a member vote is gone in this new document.  We know that the current board ignores the requirement in the Bylaws for such approval.  These Bylaws would formalize it, and you will have no ability to register any dissent or restraint as a member.
• Article VI (Contracts, Loans, Checks, and Deposits) – Makes it even more clear that the Board is the sole entity with a role in any major decisions. All checks/balances from before are removed, and the Board can go as rogue as it wishes.
• The Bylaws conclude with the same confusing statement about approval with a quorum at a meeting, rather than the required 66 votes.