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

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1 STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS, AND MOBILE HOMES IN RE: PETITION FOR BINDING ARBITRATION - HOA Fred Karmatz and David Doolittle, Petitioners, v. Case No Gulf Harbors Woodlands Association, Inc., Respondent. / SUMMARY FINAL ORDER Comes now, the undersigned arbitrator, and issues this summary final order as follows: Petitioners Karmatz and Doolittle filed their petition for arbitration on May 30, Petitioners allege that the homeowners association violated the election procedures contained in the bylaws by conducting the 2004 and 2005 elections by electronic voting machine rather than written ballot. Additionally, as to absentee ballots, petitioners allege that the election procedure was violated where absentee ballots were hand delivered rather than mailed to the association. Further, petitioners allege that a resident, Mr. Klein, was not allowed to vote although he was in good standing. 1 Petitioners also state that a board member, Mr. Keohli, was not dismissed from the board where he missed three consecutive meetings. Petitioners request entry of a final order invalidating the 2004 and 2005 elections and requiring the board to conduct a new election in accordance with the bylaws. 1

2 The association filed its answer on January 23, 2006, and stated that the 2004 and 2005 elections were conducted in accordance with prior election procedures. Petitioners have voted electronically in prior elections without objection, and the association raises estoppel and waiver. Voting was conducted by electronic voting machines supplied by the local county board of elections office and by absentee ballots that were requested in writing. Two electronic voting machines were placed in the association meeting room and a diagnostic check was performed. Authorized voters were checked and allowed to vote using the voting machines. The ballot on the voting machine indicated that it was for the office of director, listed the names of the candidates in alphabetical order, and provided instructions as to number of votes to be cast. In its answer, the association also argued that the association had complied with the letter and spirit of the bylaws. The association also argued without elaboration that the Division lacks jurisdiction over the dispute. The answer was stricken by order entered on January 27, 2006, where, as to estoppel, it was stated: Without deciding the merits of the issue, if the association conducted its current elections in the same manner as past elections, and if that past method was unlawful, the association cannot now hide in the shadow of its past transgressions to justify the current violations. This defense is struck. In the order striking defenses, the association was directed to answer a number of inquiries stated by the arbitrator. Petitioners filed a motion to supplement the record on February 9, 2006, in which it was stated that the association had previously unsuccessfully attempted to amend the bylaws to permit electronic balloting, and that 1 Petitioners obviously have no standing to argue that a different owner was denied the right to vote. 2

3 the prior board had resigned. Petitioners also stated that the 2004 and 2005 boards had appointed its officers rather than electing its officers, and that director Hill was illegally appointed to fill a vacancy on the board. Additionally, the motion states that while the original bylaws allowed for or required cumulative voting, the current bylaws provide for block voting; petitioners argue that the amendment to the bylaws has diluted their voting authority. The order on the motion to supplement the record acknowledged that the motion was more in the nature of a motion to amend the petition and required each party to supply additional information. In its reply to the order striking answer filed on February 24, 2006, the association admitted that its past elections were conducted by electronic voting machines and has done so since The association admits that it accepted absentee ballots that were hand-delivered in addition to those received by mail. The answer states that Mr. Klein was notified of his delinquency prior to the 2005 election and that he would not be allowed to vote. The answer admits that Mr. Koechi did miss three consecutive meetings, and that he had subsequently resigned. 2 In its response to petitioners motion to supplement the record, the association stated that the board members elected at 2 This dispute is now moot. 3

4 the 2005 election had resigned and been replaced. The association argues also that the amendment to the bylaws eliminating cumulative voting, as approved by the membership (but less than all members), did no injury to the voting rights of the petitioners. Petitioners moved for summary judgment on May 18, The association responded to the motion on May 30, The association argues that the bylaws, in allowing printed ballots, do not exclude electronic voting machines. The association further argues that substantial compliance with the mandated voting procedures has been achieved, and that an election should not be set aside under these circumstances. The association argues that the petitioners have an evil motive in bringing this action which seeks to counteract a court action filed by the association against these petitioners on an unrelated issue. It is plain that the bylaws do not authorize the conduct of elections by electronic voting machine. 3 The bylaws plainly contemplate that elections shall be conducted by written ballot. Article VII of the bylaws provides that the election of directors shall be by printed ballot and that each eligible member shall be given one ballot for each lot owned. Notwithstanding the association s creative argument that electronic ballots are allowed under the bylaws, the inescapable conclusion to be drawn is that the bylaws contemplate written ballots and not electronic ballots. The association must follow its bylaws unless and until the bylaws are duly amended. Having concluded that the association violated its bylaws, however, does not inevitably lead to the conclusion that a new election must be conducted where, as here, there are no allegations that the 4

5 failure to follow the procedures set forth in its bylaws tainted or compromised the outcome of the election. There is no indication that the will of the electorate was thwarted 4, and in the absence of allegations and ultimately, proof, that the outcome of the election failed to reflect the will of the homeowners, the arbitrator will not order a new election and will not hereby exalt form over substance. Instead, the association will be required to follow its bylaws. Next, the parties do not disagree that Mr. Hill was not a candidate in the 2005 election held in November 2005, yet he was appointed by the board on December 31, 2005 to fill a vacancy. Article VIII of the bylaws clearly requires the board to give preference to those unsuccessful candidates in the prior election in filling an interim vacancy. Thus, the association violated its bylaws by appointing Mr. Hill to the board. Mr. Hill is hereby removed from the board and the board is directed to appoint a person consistent with article VIII of the bylaws. Petitioners next argue that the association membership is required to elect its officers as well as its directors and that the board erred in appointing officers. It is true that article V of the articles of incorporation provides some generalized language to the effect that the directors and officers shall be elected biannually by the voting members of the association. However, the election procedures set forth in the bylaws only set forth an election procedure applicable to board seats and there is no reference anywhere else in the documents to officers being elected by the membership. Section , Florida Statutes, contemplates that the board shall elect or appoint officers: 3 Unlike section (2)(d)3., Florida Statutes, Chapter 720, Florida Statutes, does not expressly permit a homeowners association to hold elections via electronic voting machine but instead requires the association to follow its documents which could permissibly provide for voting by electronic means. 5

6 In the absence of any such provisions, all officers shall be elected or appointed by the board of directors annually. Arguably, this section of the statute should be interpreted not as giving the documents the ability to provide that the membership would elect officers, but as giving the documents the ability to allow officers to stay in office for more than a one-year term. Further, section , Florida Statutes, provides that the board may remove officers; it would arguably infringe on the right of the owners to vote for officers (assuming they had the right) if the board was authorized to remove the duly elected officers. As a final consideration, the bylaws in article VIII specifically provide that the board is authorized to select officers for the association. Based on all of these considerations, the arbitrator is unwilling to interpret the articles to require that officers be elected by the membership. Rather, the more specific provision of the bylaws should govern this issue, and the documents should be interpreted in a manner as to harmonize them with the statutory scheme. Therefore, the arbitrator rules that the board may continue to appoint or elect its officers and that the board did not violate the documents by doing so in the past. Next, petitioners argue that the bylaw amendment exchanging cumulative voting for block voting violates section (1)(c), Florida Statutes, providing: c) Unless otherwise provided in the governing documents as originally recorded or permitted by this chapter or chapter 617, an amendment may not materially and adversely alter the proportionate voting interest appurtenant to a parcel or increase the proportion or percentage by which a parcel shares in the common expenses of the association unless the record parcel owner and all record owners of liens on the parcels join in the execution of the amendment. For 4 This same rationale would apply concerning the argument that absentee ballots were hand delivered, as well as mailed, to the association. 6

7 purposes of this section, a change in quorum requirements is not an alteration of voting interests. The original bylaws provided that: In all elections of Directors, each member entitled to vote as is set forth in Article II, shall be entitled to as many votes as shall equal the number of votes which he is entitled to cast on any matter other than the election of Directors multiplied by the number Directors to be elected, and he may cast all of such votes for a single Director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit. The bylaws as amended prohibit an owner from casting more than one vote for a single candidate. The amendment obviously does not change the percentage of sharing expenses, so if the amendment violates the statute at all, it must be shown that the amendment materially and adversely alter[s] the proportionate voting interest appurtenant to a parcel. The bylaws provide that each parcel is to have one vote, and there is no special protection built into the documents that otherwise insulates the right to vote from change. The statute currently in effect, as relevant here, only prohibits changes to the proportional voting interest; 5 in this case, the 5 Compare, section (4), Florida Statutes, which offers far greater protection for property and voting rights than the current section , Florida Statutes, and it is not, therefore, decided herein whether this amendment would violate Chapter 718, Florida Statutes. 7

8 proportionate voting interest has not been altered. Petitioners continue to have one voting interest each for the parcel each owns, and in this manner their percentage voting interest has remained the same. The procedure or manner of casting their votes has altered, such that in an election where there are three vacancies, instead of being able to vote three votes for a single candidate, they have to vote for three separate candidates. While the documents in a HOA are perhaps free to offer greater protection than afforded by the current statute, the documents in this case go no further than the statute and arguably go far less towards offering any significant protection from intrusion on voting rights. Thus, the arbitrator concludes that the bylaw amendment did not violate section , Florida Statutes. WHEREFORE, the arbitrator finds that the association violated its documents in holding the elections by electronic voting machine instead of written ballot; 6 that the association did not violate the documents by appointing its officers; and that the amendment ending cumulative voting did not violate the statute. The arbitrator does not order a new election but hereby orders the association to follow its bylaws in the conduct of future elections. Florida. DONE AND ORDERED this 31st day of July, 2006, at Tallahassee, Leon County, Karl M. Scheuerman, Arbitrator Division of Florida Land Sales, Condominiums, & Mobile Homes 6 Quite arguably, petitioners insistence that the election be conducted by written ballot provides for a less reliable election outcome and places a more onerous burden on the association in the conduct of the election. Nonetheless, the association is require to follow (or amend) its documents. 8

9 Dept. of Business & Professional Regulation 1940 North Monroe Street Tallahassee, Florida Certificate of Service I hereby certify that a true and correct copy of the foregoing final order has been sent by U.S. Mail to the following persons on this 31st day of July, 2005: Fred Karmatz 4353 Dewey Drive New Port Richey, Florida Robert Johnson, Esquire P.O. Box Tampa, Florida Karl M. Scheuerman, Arbitrator 9