STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES AND MOBILE HOMES

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1 STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES AND MOBILE HOMES IN RE: PETITION FOR BINDING ARBITRATION - HOA John Beck, Petitioner, v. Case No The Manors at Emerald Island Resort Homeowners Association, Inc., Respondent. / SUMMARY FINAL ORDER Procedural History On June 28, 2010, John Beck (Petitioner) filed a petition for mandatory binding arbitration of a homeowner s election dispute naming The Manors at Emerald Island Resort Homeowners Association, Inc. (Association) as Respondent. By Order entered on July 7, 2010, Petitioner was directed to file an Amended Petition, copies of the governing documents and copies for service on the Association by the Division. On July 19, 2010, Petitioner complied with the July 7, 2010 Order. On July 22, 2010, an Order Requiring Answer was entered. On July 29, 2010, the Association requested an extension of time to file an Answer, which was granted. On August 23, 2010, the Association filed an Answer. On August 31, 2010, an Order Setting Case Management Conference was entered. The parties filed alternative, agreed upon dates for the conference in October The case management conference was rescheduled for October 13, On 1

2 September 9, 2010, Petitioner filed Petitioner s Objections to Respondent s Answer and Affirmative Defenses. By Order entered on September 28, 2010, the Association was directed to file supplemental information. On October 11, 2010, the Association filed the required supplemental information. On October 12, 2010, the Association filed Respondent s Response to Petitioner s Objections to Respondent s Answer and Affirmative Defenses. On October 13, 2010, the rescheduled case management conference was conducted with counsel for each party in attendance. On October 14, 2010, the Association filed supplemental information as directed at the case management conference. On October 15, 2010, Petitioner filed supplemental information. On October 19, 2010, a Notice of Intent to Enter Summary Final Order was entered. On October 28, 2010, Petitioner filed Petitioner s Memorandum of Law in Support of Argument. On October 29, 2010, the Association filed its Notice of Filing Final Argument and/or Memorandum of Law in Support Thereof. Statement of the Issue The issue presented in the Amended Petition is whether Petitioner was required to stand for election at the December 2008 election pursuant to a January 2008 amendment to the Articles of Incorporation creating four new seats on the board of directors (board). Findings of Fact 1. Petitioner is the owner of a lot in the subdivision governed by the Association and the governing documents, including the Neighborhood Declaration of Covenants, 2

3 Conditions, Easements and Restrictions for the Manors at Emerald Island Resort and the Articles of Incorporation and By-laws of the Association. documents. 2. The Association is the entity responsible for implementing the governing 3. There is no dispute that in December 2007 the Articles of Incorporation of the Association, as filed with the Florida Secretary of State in October 2001, provided for the number of members of the board, the term of office of board members and the requirements for amending the Articles, as follows: ARTICLE VIII BOARD OF DIRECTORS Section 1. Number. Until Turnover of control by the Class B Member, the affairs of this Neighborhood Association shall be managed by a Board of not less than three (3) Directors, who need not be Members of the Neighborhood Association and who shall be appointed by the Declarant. After Turnover and for so long as Declarant owns at least five percent (5%) of the Lots platted or to be platted in the Properties, the Declarant shall be entitled to appoint one member of the Board. At such time as Declarant no longer owns any Lots within the Properties, the number of Directors may be increased or decreased by amendment to these Articles, provided there shall never be less than three (3) Directors. All affairs of the Neighborhood Association shall be governed by the affirmative vote of a majority of the Directors in attendance at a duly called meeting unless otherwise specifically provided for in the Neighborhood Declaration. Section 2. Term. Directors shall be appointed to serve for three (3) year terms, unless a Director sooner dies resigns, or is removed. There shall be no limit to the number of terms any one Member may serve as a director.... ARTICLE XII AMENDMENTS 3

4 Amendment of these Article of Incorporation shall require the assent of two-thirds (2/3) of the Board. Such amendment shall be recorded in the Public Records of Osceola County, Florida. 4. With respect to the number of directors and the term of office of each director, the provisions of the Association s initial Bylaws at Article IV, Sections 1 and 2, are identical to those of Article VIII of the Articles of Incorporation set out immediately above. 5. In contrast to Article XII of the Articles of Incorporation set out above, the Bylaws, at Article XI, provide for amendment of the Bylaws by a vote of a majority of a quorum of members present in person or by proxy. 6. On January 3, 2008, the board unanimously adopted an amendment to Article VIII of the Articles of Incorporation. 1 The amendment states as follows: ARTICLE VIII BOARD OF DIRECTORS Section 1 Number. Until Turnover of control by the Class B Member, the affairs of this Neighborhood Association shall be managed by a Board of not less than three (3) Directors, who need not be Members of the Neighborhood Association and who shall be appointed by the Declarant. After Turnover and for so long as Declarant owns at least five percent (5%) of the Lots platted or to be platted in the Properties, the Declarant shall be entitled to appoint one member of the Board. At such time as Declarant no longer owns any Lots within the Properties, the number of Directors may be increased or decreased by amendment to these Articles, provided there shall never be less than three (3) Directors. All affairs of the Neighborhood Association shall be governed by the affirmative vote of a majority of the Directors in attendance at a duly called meeting unless otherwise specifically provided for in the Neighborhood Declaration. Effective upon the filing of this amendment with the Secretary of State the number of Directors is set at seven (7), and the additional seats created hereby shall be filled by appointment. Persons so appointed shall serve until the next annual meeting of membership, at which time such Seats shall be filled by election. 1 The Association filed a copy of the meeting notice and a copy of minutes of the board meeting showing the amendment immediately following in the text was adopted unanimously by the board. 4

5 The amendment reflects no change was made to Section 2 of Article VIII relating to the term a board member serves. The amendment was filed with the Florida Secretary of State on February 27, 2008, however there is no evidence this exact amendment was recorded in the Official Records of the Clerk of Court for Osceola County, Florida. 2 In any event, the parties do not dispute that this is the amendment at issue in this case. 7. In March 2008, Petitioner and three others were appointed to fill the four (4) newly created seats on the board. 8. For the December 3, 2008, annual meeting and election, Petitioner submitted his information sheet for his candidacy as a board member. Petitioner s name, along with twelve other names, was on the ballot for one of the four vacant board seats. Petitioner did not receive enough votes to be elected to one of the four seats. Conclusions of Law The Division has jurisdiction over the parties and the subject matter pursuant to Sections (9), and , Florida Statutes. In support of Petitioner s contention that he was appointed to a three year term on the board and that he continues to be a board member, Petitioner argues that the board s adoption of the amendment in January 2008 created a conflict between the Articles of Incorporation and the Bylaws that renders the amendment unenforceable. Specifically, Petitioner argues that the board could not establish additional seats on the board and temporarily fill those seats until the next annual meeting as set out in the 2 An amendment was recorded in the Official Records of the Osceola County Clerk on February 25, 2010, before the amendment noted in the text was filed with the Florida Secretary of State. The amendment includes the new language noted in the text, but the amendment does not include any underlining to indicate that it is new language. The amendment also adds a new final sentence to Section 1, indicated by underlining, relating to eligibility for director seats after turnover. 5

6 January 2008 amendment to the Articles of Incorporation, without amending the same relevant provisions in the Bylaws which amendment requires a vote of the membership. 1. Controlling Law First, the controlling law must be established. The Association is a not for profit corporation. Section , Fla. Stat. (2010), provides, in pertinent part, In the event of any conflict between the provisions of this chapter and... chapter 720 regarding homeowners associations,... the provisions of such other chapters shall apply. The provisions of ss [relating respectively as follows: Transfer of membership interests; Resignation of members; Termination, expulsion, and suspension; and Purchase of memberships] do not apply to corporations regulated by any of the foregoing chapters or to any other corporation where membership in the corporation is required pursuant to a document recorded in the county property records. In pertinent part, Section (5), Fla. Stat. (2010), provides, Unless expressly stated to the contrary, corporations that operate residential homeowners associations in this state shall be governed by and subject to... chapter 617, if the association was incorporated under that chapter, and this chapter [Chapter 720]. This subsection is intended to clarify existing law. Petitioner points to language added to Section (9), Fla. Stat., by the Legislature at the 2010 session in support of Petitioner s argument that Chapter 720 addresses the circumstances of the case at hand. The language added is as follows: Unless otherwise provided in the bylaws, any vacancy occurring on the board before the expiration of a term may be filled by an affirmative vote of the majority of the remaining directors, even if the remaining directors constitute less than a quorum, or by the sole remaining director. In the alternative, a board may hold an election to fill the vacancy, in which case the election procedures must conform to the requirements of the governing documents. Unless otherwise provided in the bylaws, a board member appointed or elected under this section is appointed for the unexpired term of the seat being filled. 6

7 Even assuming the above provision applies retroactively, although there is no indication that it does, the provision does not apply to this case. The provision could only apply if Petitioner s appointment in March 2008 was for a three year term. As explained below, Petitioner was not appointed to a three year term. provides, Section (1)(b), Fla. Stat., also does not help Petitioner. Paragraph (b) (b) Unless otherwise provided in the governing documents or required by law, and other than those matters set forth in paragraph (c) [not relevant to the case at hand], any governing document of an association may be amended by the affirmative vote of two-thirds of the voting interests of the association. The qualifications in the first part of the introductory clause of the paragraph apply to this case making a vote by the voting interests inapplicable. 2. Conflict Between Articles of Incorporation and Bylaws Petitioner s primary argument that the January 2008 amendment created an impermissible conflict between the Articles of Incorporation and the Bylaws must fail. Because there is no conflict between the provisions of chapter 720 and chapter 617, the provisions of chapter 617 apply. Section , Fla. Stat. (2010), provides, in pertinent part, (1) Unless the articles of incorporation provide an alternative procedure, amendments to the articles of incorporation must be made in the following manner: (a) If there are members entitled to vote on a proposed amendment to the articles of incorporation, the board of directors must adopt a resolution setting forth the proposed amendment and directing that it be submitted to a vote at a meeting of members entitled to vote on the proposed amendment, which may be either an annual or a special meeting.... ; or (b) If there are no members or if the members are not entitled to vote on proposed amendments to the articles of incorporation, an amendment may be adopted at a meeting of the board of directors by a majority of the directors in office. 7

8 Article XII of the Association s Articles of Incorporation provides a procedure for adopting amendments to the Articles - amendments to the Articles may be approved by the assent of the required number of board members. It is true that after the January 2008 amendment to the Articles of Incorporation, the provisions of the Articles and the Bylaws with respect to the number of directors and the initial appointment to fill the four additional seats are no longer the same. However, the Bylaws, at Article XII, Section 2., provide for the resolution of conflicts in the governing documents as follows, In the case of any conflict between the Articles of Incorporation and these Bylaws, the Articles shall control; and in the case of any conflict between the Neighborhood Declaration and these Bylaws, the Neighborhood Declaration shall control. Thus, the amended Articles control. See Potts v. Shell Island Beach Club Ass n, Inc., Arb. Case No , Summary Final Order (Sept. 2, 2009) Petitioner, relying on the case of Hopkins v. The Viscayans, Inc., 582 So. 2d 689 (Fla. 3 rd DCA 1991), argues that where an Association creates a conflict between the Articles and the Bylaws, the amendment should be declared null and void. Petitioner s reliance on Hopkins is misplaced. Hopkins involved a dispute between two not-for-profit corporations relating to the fact that one of the corporations amended its Articles of Incorporation in accordance with a 1989 statute instead of using the amendment procedures in the Articles of Incorporation. Footnote 2 in Hopkins notes that the 1989 statute was repealed in 1990 when Section discussed above was enacted. Section was last amended by the Legislature in The Association in the case at hand was incorporated in Given the unique facts in Hopkins, that case is 8

9 not controlling precedent for the instant case. As discussed above, the application of Section is dependent on the terms of that statute and the terms of the Association s Articles of Incorporation. As noted above, the undersigned finds in favor of the Articles, as amended, based upon the hierarchy of controlling documents set out in the Bylaws. 3 Finally, in Petitioner s memorandum of law filed on October 28, 2010, Petitioner argues that because Section 2 of Article VIII of the Articles of Incorporation was not amended in 2008, Petitioner was appointed to a three year term. Section 2 of Article VIII states that Directors shall be appointed to serve three year terms, unless a Director sooner dies, resigns or is removed. (emphasis added). Essentially, Petitioner s argument is that Section 1 and Section 2 of Article VIII should be read in isolation rather in pari materia. Petitioner s argument is rejected. It is clear from the amendment to Section 1 that the newly created seats on the board, to one of which Petitioner was appointed in March 2008, initially would be filled by appointment, but such appointees would be subject to election at the next annual meeting. This specific language controls over the general language regarding term of office of appointees in Section 2. Thus, when Petitioner was appointed to one of the four new seats on the board, the appointment was only until the December 2008 election, and despite his alleged protests, Petitioner submitted his name as one of the 12 candidates for the four new seats on the board. However, Petitioner was not elected. 3 In any event, it should be noted that even if Petitioner prevailed on the issue and the amendment to the Articles was stricken, Petitioner would be in the position that his appointment to the board would be void, because there would be no board seat for him to fill. 9

10 3. Application of Condominium Administrative Rule In this Chapter 720 homeowners association case, Petitioner advocates for the application of an administrative rule relating to elections promulgated under the authority of Chapter 718 relating to condominiums. Petitioner argues that Rule 61B (1), Fla. Admin. Code, should be applied, because there is no similar rule in the homeowners association context. In pertinent part, the rule provides, (1)(a) Unless otherwise provided herein, the provisions of this rule apply to all regular and run-off elections conducted by a condominium association, regardless of any provision to the contrary contained in the declaration, articles of incorporation, or bylaws of the association.... (c) In order to adopt different voting and election procedures in its bylaws pursuant to Section (2)(d), F.S., an association must obtain the affirmative vote of a majority of the total voting interests even if different amendatory procedures are contained in an association's bylaws. Such vote must be taken on or after June 14, The phrase different voting and election procedures as used in this rule and as used in Section (2)(d), F.S., refers to procedures used only for the election of board members. The only applicable language in Section (2)(d), Fla. Stat., referenced in the rule is that found at the very end of paragraph (2)(d) which states as follows, (2) REQUIRED PROVISIONS. The bylaws shall provide for the following and, if they do not do so, shall be deemed to include the following:... (d) Unit owner meetings.... Notwithstanding subparagraph (b)2. [relating to the use of proxies which is not relevant in the context of the case at hand] and sub-subparagraph (d)3.a. [relating to the timing of the regular election and annual meeting, meeting notices, candidate information, and quorum which are not relevant in the context of the case at hand], an association of 10 or fewer units may, by affirmative vote of a majority of the total voting interests, provide for different voting and election procedures in its bylaws, which 10

11 vote may be by a proxy specifically delineating the different voting and election procedures. The different voting and election procedures may provide for elections to be conducted by limited or general proxy. There is no language in Chapter 720 similar to that in Section (2)(d) quoted above that would support a rule similar to Rule 61B (1) in the homeowner s association context. Thus, there is no basis for extending the rule to homeowner s associations, and such extension will not be made in this case. Additionally, even if there were such a rule in the homeowner s association context, the rule would not apply in this case. First, the rule only applies to an association of 10 or fewer units, and the Association here consists of considerably more units than 10. Further, the rule addresses providing different voting and election procedures in the bylaws. The actions in this case were taken pursuant to the articles of incorporation which, as noted above, are controlling when there is a conflict. Based upon the foregoing, it is ORDERED: Petitioner s request for relief in the form of reinstatement to the Association s board of directors is DENIED. DONE AND ORDERED this 4 th day of November, 2010 at Tallahassee, Leon County, Florida. Glenn Lang, Arbitrator Division of Florida Condominiums, Timeshares & Mobile Homes Dept. of Business & Professional Regulation 1940 North Monroe Street Tallahassee, Florida Telephone: (850) Facsimile: (850)

12 Certificate of Service I hereby certify that a true and correct copy of the foregoing final order has been sent by U.S. Mail, postage pre-paid, to the following persons on this 4 th day of November, 2010: Barbara Billiot Stage, Esq. Law Offices of Stage & Myers, P.A Ashley Park Court, Suite 503-T Orlando, FL Peter P. Hagood, Esq. Gifford & Hagood 1053 Maitland Center Commons Suite 101 Maitland, FL Glenn Lang, Arbitrator 12