How to Handle HOA/Condo Board Member Resignations

By Chris Gelwicks, Esq.

From time to time we receive questions regarding the resignation of directors, term expiration and what to do in the event of a mass resignation by the existing board.  The North Carolina Planning Community Act, Condominium Act, and the Non-Profit Corporation Act address certain issues with regard to directors’ terms and how to fill vacancies.  Generally, the remaining board members appoint a replacement to serve out a resigning director’s term. But what happens when directors resign and do not appoint their successors, or when there are not enough remaining directors left to appoint replacements? 

Section 55A-08-05(d) of the North Carolina Non-Profit Corporations Act provides that when the term of a director expires, that director continues to serve until his or her successor is appointed or elected and takes office.  This seems to be in contrast with Section 55A-08-07 which indicates that a director’s resignation is effective upon communication of that resignation to the board (unless the resignation sets forth another effective date).  The key difference between the two statutes are the terms “expire” and “resign”.  Normally, in either case, the remaining directors would appoint someone to fill the empty seat unless the bylaws indicate differently. The board could also choose to hold an election for the empty seat(s).

Where we run into problems is where an entire board resigns at once and no successors are appointed.  Pursuant to Section 55A-08-30, directors on boards have a duty to act in good faith, with reasonable care, and in a manner that is in the best interest of the association.  Such fiduciary duties include that directors enforce the declaration of covenants, collect assessments, and ensure that the association is run and continues to be run effectively.  It is a reasonable conclusion that if an entire board resigns at once and appoints no successors to fill vacancies, then the association cannot be effectively run.  Those directors who resigned en masse potentially subject themselves to liability by not finding and appointing replacements; those directors, by basically abandoning their posts, could be construed to have violated their fiduciary duties.

The same could also apply if so many directors resign that the board can no longer reach a quorum to make a decision on appointing replacement directors.  Keep in mind that the bylaws of your homeowners association ultimately control and can provide a different procedure than these North Carolina state statutes.  If you are reading this and are on the board of your association, you may wish to review your bylaws to determine what they say in these situations and whether changes might be necessary to provide better procedures, such as stating that even board members who resign also continue to serve until their successors take office.

The bottom line is this: Resignations, vacancies and the like are not to be taken lightly.  Directors who resign should always find a successor if at all possible and submit those names to the remaining board members.  If an entire board intends to resign – which is an extremely bad idea to begin with and should be avoided at all costs – they should do so in a manner that allows successors to be appointed and the association to continue to function.  For example, the resignations may be staged over time to allow replacements to come aboard.  And remember that, at least in North Carolina, board members whose terms expire continue to serve, and continue to have fiduciary duties to the association and the members, until their replacements take office.

Failure to appoint successors in a way that results in a dysfunctional board can result in personal liability to the resigning directors for breach of fiduciary duty.  As always, don’t hesitate to contact us to discuss strategies, procedures and potential liabilities when dealing with board matters.

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The immigration ban case - a primer for nonlawyers

I read the full Ninth Circuit Court of Appeals opinion on the immigration ban and thought it might be helpful to provide a little background for those of you who are not lawyers or haven't read it. This is an explanation as of February 11, 2017; if you're reading this much after that date, then the case has probably proceeded along since then and this explanation may no longer be as helpful. This is not a political post, just explaining where the case is right now. Bottom line, the substantive issues involved have not even been heard by the trial court yet – all that has happened so far is that the trial court and the court of appeals imposed a stay on enforcing the immigration ban until the substantive legal issues can be fully argued at the trial court level.  The Court of Appeals opinion is easily found online should you wish to read it yourself, although it will be a bit of a slog for nonlawyers.

The lawsuit filed by the states to try to stop the immigration ban has not been heard by the Federal District Court. All the District Court has done so far is to place an injunction on the enforcement of the ban until a full trial is held on the legality of the ban. To grant the injunction, the District Court had to make the threshold determination that irreparable harm would occur if the executive orders were allowed to go forward prior to a full trial, and that the states challenging the ban are more likely than not to win their challenge at the full trial. Again, no hearing or trial has actually been held yet on the substantive issues involved.

The Trump administration appealed the injunction, arguing that the executive order should remain in place and be enforceable pending the full trial. Remember, all an appeals court does is review what the trial court did and determine if there was a proper legal basis for the trial court's determination. An appeals court does not re-hear the factual issues in the case or make any factual determinations. In fact, an appeals court does not hear testimony or really weigh evidence at all, it only looks at what was done at the trial court below and listens to the arguments of the attorneys as to whether or not what the trial court did was proper. The appeals court generally defers to the factual determinations of the trial court since the trial court judge actually heard all the evidence and testimony and the appeals court does not.

In this case, the Ninth Circuit Court of Appeals looked at the injunction put in place by the trial court and declined to reverse the trial court's conclusion that an injunction was proper in this case until a full trial on the substantive issues could be held.

I cannot take great offense at these rulings and they are not out of the mainstream with regard to how court cases generally proceed. The trial court basically said that there is no great emergency requiring the immigration ban to take effect immediately and that it made sense to keep the status quo as it existed prior to the ban until the legality of the ban can be fully determined. Personally I believe there are parts of the ban that are perfectly enforceable and there are parts of it that obviously are not.  I would have preferred for the trial court to have enjoined the parts that were not enforceable and to let the other parts proceed, but it chose not to do that and the Court of Appeals really does not have the authority to delve into that level of detail at this point in the case. The case will proceed at the District Court level presumably and I believe ultimately parts of the ban will be upheld and parts of it will not be. But I think it is important to understand that the substantive legal issues have not even been fully heard at this point. I hope this explanation was helpful.