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 ARBITRATION HOA ELECTION DISPUTE REGINALD J. KORNEGAY, RICHARD L. KING, ERNEST F. PLOCK, JULIO MARENGO, NANCY RAMOS-ACEVEDO, JUSTIN VINCENT, ROGER VINCENT, MICHAEL MEZENTSOFF and SHAWN GREER as POA for DALE GREER & CECEILIA GREER, Petitioners, v. Case No HOLLOWBROOK HOMEOWNERS ASSOCIATION, INC., Respondent. / SUMMARY FINAL ORDER On January 22, 2016, Petitioners filed a petition for mandatory binding arbitration of an election dispute naming Hollowbrook Homeowners Association, Inc. (the Association) as the respondent. The petition seeks to challenge the election process of the Association s December 3, 2015, board of directors election. The petition further challenges the application of bylaw amendments to the election. On February 26, 2016, the Association moved to dismiss Petitioners petition. On February 29, 2016, Petitioners filed a response in opposition to the motion to dismiss. On the same day, Petitioners filed a motion for summary final order to which the Association filed a response on March 1, Also, on March 1, 2016, the Association filed an answer to which Petitioners filed a rebuttal on March 3, A telephonic case management conference was held on March 21, During 1

2 the conference, the undersigned denied the Association s motion to dismiss filed on February 26, Additionally, the undersigned determined that there are a sufficient number of facts in agreement in order to permit him to summarily rule on the disputes involving the Association s nominating committee, the requirement that proxies be submitted in sealed envelopes, and the second and third amendments to the bylaws. Therefore, the parties were directed, by April 15, 2016, to file legal memoranda regarding these issues. Petitioners filed their legal memorandum on April 15, 2016, and the Association filed its supplemental brief in support of its answer on April 18, On April 21, 2016, the Association filed its motion for leave to rebut Petitioners legal memorandum to which Petitioners filed a response in opposition on April 22, The undersigned has jurisdiction over this dispute and the parties pursuant to sections and , Florida Statutes. This dispute does not involve any disputed issues of material fact. Therefore, this Summary Final Order is entered pursuant to rule 61B , Florida Administrative Code. Nominating Committee/Qualifications The Association s answer states that a nominating committee (the Committee) was convened for the 2015 election consisting of Janice Lomness, Rhonda Simmons, Todd Griffin, and Earnest Plock. The committee received requests for nomination from four individuals: Reginald Kornegay, Janice Lomness, Charles Zalweski, and Geoffrey Hall. At the time the Committee held its meeting on November, 1, 2015, section 3 of article IV of the Association s bylaws stated as follows: Nomination. Nomination for election to the Board of Directors shall be 2

3 made by a Nominating Committee. Nominations may also be made from the floor at the annual meeting. The Nominating Committee shall consist of a Chairman, who shall be a member of the Board of Directors, and two or more Members of the Association. The Nominating Committee shall be appointed by the Board of Directors prior to each annual meeting of the members, to serve from the close of such annual meeting until the close of the next annual meeting, and such appointment shall be announced at each annual meeting. The Nominating Committee shall make as many nominations for election to the Board of Directors as it shall in its discretion determine, but not less than the number of vacancies that are to be filled. Such nominations may be made from among members or nonmembers. All members, except Mr. Plock, were in attendance at the Committee s November 1, 2015 meeting. The Committee members voted in favor of not accepting Mr. Hall as a candidate because he is not a resident in the neighborhood, rather he is an investor who owns and manages homes in the community. The Committee preferred to have a resident on the Board instead of a non-resident investor. Mr. Hall was not included on the ballot or otherwise permitted to seek election. Early on in the Committee meeting, the Committee members were asked to state for whom they intended to vote. Mr. Plock was the only Committee member who indicated that he would vote to nominate Mr. Kornegay. Therefore, initially, Mr. Kornegay did not have enough votes to make it out of committee. Mr. Plock decided not to vote for Mr. Kornegay after other Committee members stated that they were not voting for Mr. Kornegay because his wife, Susan Kornegay, is an attorney representing an individual in active litigation against the Association, and they feared a conflict of interest. Mr. Plock changed his vote in order to vote for Ms. Lomness and Mr. Zalweski. Mr. Konregay was not included on the ballot or permitted to seek election. Because Mr. Kornegay was not on the ballot, any ballot collected at the election 3

4 that had Mr. Kornegay s name on it as a write-in candidate was rejected. 1 Additionally, floor nominations were not permitted at the annual meeting. Effective November 10, 2015, the Association adopted the Second Amendment To the By-Laws of Hollowbrook Homeowner s Association amending Section 3 of article IV of the Association s bylaws to state, in its entirety, as follows: a. Nominations. Nomination for election to the Board of Directors shall be made by a Nominating Committee. Persons qualified to be Directors may be nominated for election only by a nominating petition submitted to the Nominating Committee at least thirty-five (35) days before the meeting at which the election is to be held, and the nominating petition shall either be signed by the nominee or accompanied by a document signed by the nominee indicating the willingness to serve as a member of the Board of Directors. Nominations from the floor made during the annual meeting at which the election is taking place shall only be entertained for the current year if there are fewer candidates than there are Director positions available. Otherwise, floor nominations made during the annual meeting will be considered for the next annual election; provided, however, that the nominee meets all of the requisite qualifications to serve as a Director. b. Nominating Committee. The Nominating Committee shall consist of a Chairperson, who shall be a member of the Board of Directors, and two or more Members of the Association. The Nominating Committee shall be appointed by the Board of Directors prior to each annual meeting of the Members, to serve from the close of such annual meeting until the close of the next annual meeting, and such appointment shall be announced at each annual meeting. The Nominating Committee shall make as many nominations for election to the Board of Directors as it shall in its discretion determine, but not less than the number of vacancies that are to be filled. Such nominations may be made from among the Members of the Association. c. Qualifications. No person shall be eligible for election as a member of the Board of Directors unless he or she is a Member of the Association. No Person shall be elected as a member of the Board of Directors or shall continue to serve as a member of the Board of Directors if: (i) he or she is more than sixty (60) days delinquent in his or her financial obligations to the Association and a lien has been filed against his Unit; (ii) he or she has been convicted of a felony within five (5) years of the date of the election; and (iii) he or she has filed litigation against the Association creating a conflict of interest between himself/herself and the Association. Section (9)(a), Florida Statutes, provides that all members of the association 1 The ballot did not provide a space for a write-in candidate. 4

5 are eligible to serve on the board of directors, and members may nominate themselves as a candidate. 2 Section (9)(b), Florida Statutes, provides two factors which prohibit a member from seeking election to the board of a homeowners association. 3 The statute disqualifies members who are delinquent in the payment of any fee, fine, or other monetary obligation to the association on the last day that nominations may be accepted. Additionally, convicted felons whose civil rights have not been restored for at least five years may not seek election to the board. Chapter 720, Florida Statutes, does not provide any other circumstances under which a member s nomination is prohibited. The Committee disqualified Mr. Kornegay and Mr. Hall for reasons other than provided for by the statute. An Association may only bar candidates from seeking election for the reasons provided for by the statute and may not provide for additional 2 Section (9)(a), Florida Statutes, provides as follows: Elections of directors must be conducted in accordance with the procedures set forth in the governing documents of the association. Except as provided in paragraph (b), all members of the association are eligible to serve on the board of directors, and a member may nominate himself or herself as a candidate for the board at a meeting where the election is to be held; provided, however, that if the election process allows candidates to be nominated in advance of the meeting, the association is not required to allow nominations at the meeting. An election is not required unless more candidates are nominated than vacancies exist. Except as otherwise provided in the governing documents, boards of directors must be elected by a plurality of the votes cast by eligible voters. Any challenge to the election process must be commenced within 60 days after the election results are announced. 3 Section (9)(b), Florida Statutes, states as follows: A person who is delinquent in the payment of any fee, fine, or other monetary obligation to the association on the day that he or she could last nominate himself or herself or be nominated for the board may not seek election to the board, and his or her name shall not be listed on the ballot. A person serving as a board member who becomes more than 90 days delinquent in the payment of any fee, fine, or other monetary obligation to the association shall be deemed to have abandoned his or her seat on the board, creating a vacancy on the board to be filled according to law. For purposes of this paragraph, the term any fee, fine, or other monetary obligation means any delinquency to the association with respect to any parcel. A person who has been convicted of any felony in this state or in a United States District or Territorial Court, or has been convicted of any offense in another jurisdiction which would be considered a felony if committed in this state, may not seek election to the board and is not eligible for board membership unless such felon s civil rights have been restored for at least 5 years as of the date on which such person seeks election to the board. The validity of any action by the board is not affected if it is later determined that a person was ineligible to seek election to the board or that a member of the board is ineligible for board membership. 5

6 disqualifications. See Jerry Moore Florida Operations, LLC v. The Park Homeowners, Ass n, Inc. Arb. Case No , Summary Final Order (December 21, 2016)(Bylaw s residency requirement for nominees found invalid). Therefore, the reasons stated by the Committee were not valid reasons to exclude Mr. Kornegay and Mr. Hall as candidates, and they were improperly disqualified by the Committee. Accordingly, the election was fatally flawed. 4 The Second Amendment to the Bylaws establishes qualifications for election to the board. Of relevance to the instant dispute is the bylaws prohibition against persons seeking election who are engaged in litigation with the Association. Even if it is assumed that the qualifications were applicable to the 2015 election, any restrictions prohibiting a member from seeking election that exceed those found in Chapter 720, Florida Statutes, or the Association s Articles of Incorporation would be invalid. Therefore, the litigation restriction is invalid. 5 Moreover, the restriction is only applicable to members engaged in litigation and does not encompass a member who is not engaged in litigation, but whose spouse is an attorney representing a person suing the Association. Therefore, the bylaw is not applicable to Mr. Kornegay. 4 Section 3 of Article IV of bylaws, as originally adopted, permitted nominations from the floor at the annual meeting, and, therefore, provided a safeguard against the Committee disenfranchising the members. However, the amended bylaw only allows for floor nominations during the current year where there are fewer candidates than director positions available. Otherwise, the amended bylaw provides that any nominations made from the floor will be considered during the next annual meeting. Therefore, if the disqualification of candidates is left to the sole discretion of the Committee and there are no floor nominations from the prior year, under the amended bylaw, the Committee could disenfranchise the membership by nominating a number of candidates equal to the number of vacancies. Furthermore, a committee member who is also nominated as a candidate still has the appearance of a conflict even if the committee member recuses himself or herself from consideration of his or her nomination, because the committee member could vote to otherwise manipulate the process in his or her favor. For example, the committee member could object to nominating a more popular candidate. 5 It should be further noted that the Amended Bylaws requirement that board members be members of the Association conflicts with Article VII of the Association s articles of incorporation which provides, in pertinent part, that the affairs of the Association shall be managed by a Board of five (5) directors, who need not be members of the Association. Pursuant to section 4 of Article of the Articles of Incorporation, the bylaws may not conflict with the Articles of Incorporation. 6

7 Terms/Seats Open For Election Section 2 of IV Article of the Associations bylaws, until it was amended in November 2015, stated a follows: Term of Office. The initial directors of the Association set forth in the Articles of Incorporation shall hold office until the first annual meeting. At said annual meeting, the members shall elect three (3) directors for a term of three (3) years, one (1) director for a term of two (2) years, and one (1) director for a term of one (1) year. The originally adopted bylaws created a cyclic stagger for board seats where all seats are open every six years. Article VII of the Association s Articles of Incorporation provides for identical director terms starting with the first annual meeting. The Association admits that it lost track of the term for each seat. Therefore, the Association claims that it held a reset election in 2013, the results of which were announced in the 2013 Association s Christmas letter as follows: Director Term Bev Mundt 3 Don DJ Silverberg 3 Beth Abramson 3 Nancy Ramos 2 Vacant 1 Based upon the newsletter s announcement, each director s term should expire as follows: Director Term Expires Bev Mundt 11/2016 Don DJ Silverberg 11/2016 Beth Abramson 11/2016 Nancy Ramos 11/2015 Vacant 11/2014 It is not clear whether the Association held all seats open for election in The minutes for the Association s 2013 annual meeting instructed members not to vote 7

8 for more than 4 candidates, indicating that all five seats were not held open for election. Petitioners allege that at the time of the 2013 election, Kenneth Sedler did not stand for reelection, but resigned during the organizational meeting held after the adjournment of the annual meeting. 6 The parties do agree that at the November 19, 2014 meeting, one board position was held open for election to which Thomas Doyle was elected. Based on the 2013 newsletter and the applicable bylaw, this seat s term must be for one year. During the Association s election held on December 3, 2015, only Nancy Ramos seat was held open for election. Janice Lomness was elected to the seat. However, Thomas Doyle s seat also should have been open for election, because its term was for one year. On November 10, 2015, the Board of directors adopted the Third Amendment To The By-Laws of Hollowbrook Homeowners Association, Inc., which amended section 2 of Article IV of the Association s bylaws to read in its entirety as follows: The members of the Board of Directors shall serve staggered terms to provide for continuity within the Association. Beginning with the November 2014 Election of the Director to the vacant seat, each Director shall serve a term of three (3) years. The members of the Board of Directors shall hold office until their respective successors shall have been elected by the Association. The number of positions on the Board of Directors to be filled by election shall be publicized to the members of the Association prior to each annual meeting and shall follow the following schedule until otherwise amended: 2015 One Director elected for three (3) years; 2016 Three Directors each elected for three (3) years; 2017 One Director Elected for three (3) years. As a result of the foregoing procedures, the Board of Directors will be comprised of three (3) Directors serving three (3) year terms, all of whom were elected in the same year; one Director serving a three (3) year term elected the following year and the last Director serving a three (3) year term in the next ensuing year. 6 Any disputes involving the 2013 election need not be addressed, because the relief granted herein will render such disputes moot. 8

9 The amendment attempts to create a permanent stagger that will guarantee that all the seats will never be open for election at the same time. The Third Amendment to the Bylaws only achieves a permanent three part stagger if it is implemented when the only seat open for election is the one-year term seat. Therefore, the amended bylaw expressly applies retroactively to the 2014 election when only the one-year term seat was open. Accordingly, the seat held by Thomas Doyle was not held open for election in The amended bylaw extends the length of the term of the one-year term seat mid-term from one year to three years. This is impermissible because to do so effectively disenfranchises the members who had the right to elect a new director in The only permissible application of the Third Amendment to the Bylaws would have been prospectively in 2020, the next time the one-year term seat would be the only seat open for election. 7 However, on its face, the amended bylaw applies retroactively. Therefore, the bylaw is invalid. It might be argued that in order to change director term lengths, Article VII of the Association s Articles of Incorporation must be amended. Article VII states as follows: The affairs of this Association shall be managed by a Board of five (5) directors, who need not be members of the Association. The number of directors may be changed by amendment of the By-Laws of the Association. [names of the initial directors omitted] At the first annual meeting, the members shall elect three (3) directors for a term of three (3) years; one (1) director for a term of two (2) years; and one (1) director for a term of one (1) year. At each annual meeting thereafter the members shall elect a director or directors to fill any and all vacancies created by the expired term of a director or directors. 7 Alternatively, the Association could amend the bylaw to reset the staggering using a different methodology when all the seats are open in

10 Article VII permits the number of directors to be changed by amendment of the bylaws. Because the length of the terms for the directors for the first board are not all the same, permitting the number of directors to be changed by amendment to the bylaws implies that the term of the seats may be set by bylaw. For example, increasing the number of directors would necessarily involve designating the length of the term for any newly created seats and decreasing the number directors would require setting the term for the remaining seats. Therefore, the undersigned finds it reasonable to conclude that Article VII does not prohibit changing the terms of directors by amendment to the bylaws. Proxies At the 2015 election, proxies and ballots that were not delivered in sealed envelopes were rejected. The Association explains that the requirement that proxies be presented in sealed envelopes originated with the Association s management company and that it was following the advice of its licensed manager. By their nature, proxies identify the grantor and grantee and must be signed by the grantor. 8 The undersigned finds no reasonable basis to reject a proxy because it was not delivered in a sealed envelope. 9 Therefore, the Association may not reject proxies because they are not delivered in sealed envelopes. Based upon the foregoing, it is ORDERED: 1. The December 3, 2015, election was fatally flawed and is hereby declared 8 Section (8)(a), Florida Statutes, requires a proxy to be dated, state the date, time and place of the meeting for which it is given, and that is must be signed by the authorized person who executed the proxy. 9 Petitioners also claim that initial proxy forms sent to the members contained the name for another homeowners association. Whether this error impacted the election need not be determined, because the relief ordered would not change if it were found that the error affected the election. 10

11 void. 2. Janice Lomness is removed from the board and Nancy Ramos is reseated on the board. If Ms. Ramos is unable to serve, the Association may appoint a replacement to fill the vacancy created by Ms. Ramos unavailability. 3. Because the Association s next regularly scheduled election will be held in November 2016, the undersigned finds it more efficient and less confusing not to require a special election in the interim. 4. The Third Amendment to the Bylaws is hereby declared void and, therefore, directors elected at the November 2016 election shall serve terms in accordance section 2 of Article IV of the Association s bylaws as originally adopted. 5. The terms of the three-year term seats are due to expire at the 2016 election. Therefore, these seats shall be held open for election at the November 2016, election. The persons elected to these seats shall serve three-year terms. 6. Because The Third Amendment to the Bylaws is void, the one-year term seat shall also be open for election at the November 2016 election. The person elected to this seat shall serve a one year term and the seat shall be open for election in The two-year term seat was properly held open for election in However, because that election has been voided, the seat shall be open for election during the November 2016 election. The person elected to the seat shall serve the remainder of the two-year term and the seat shall be 11

12 Florida. open for election in The three candidates who receive the most votes shall be seated to the three-year term seats. The candidates receiving the fourth and fifth highest number of votes shall be seated to the two-year term and oneyear term seats, respectively If there are an equal or fewer number of candidates as vacancies, a vote shall still be held in order to determine the seating. However, should there be three or fewer candidates, no election is necessary and the candidates will fill the three-year term seats. In this case, the remaining seats may be filled at the discretion of the new board. DONE AND ORDERED this 22 nd day of July 2016, at Tallahassee, Leon County, James W. Earl, Arbitrator Department of Business and Professional Regulation Arbitration Section 2601 Blair Stone Road Building B, 4th Floor Tallahassee, FL Telephone (850) Facsimile (850) Attorney s Fees As provided by section (1), Florida Statutes, the prevailing party in this proceeding is entitled to have the other party pay reasonable costs and attorney s fees. Any such request must be filed in accordance with Rule 61B , Florida Administrative Code. 10 The undersigned acknowledges that, effectively, two candidates will be elected to serve for one year. However, because of the Association s past history of losing track of the term of each seat, the undersigned finds it prudent to declare to which type of seat a director has been elected. 12

13 Certificate of Service I hereby certify that a true and correct copy of the foregoing Summary Final Order has been sent by U.S. Mail and facsimile to the following persons on this 22 nd day of July, 2016: Susan I. Kornegay, Esq Biscayne Drive Winter Springs, FL Attorney for Petitioners Javier Soto, Esq. PO Box 993 Goldenrod, FL Attorney for Petitioners Brandon W. Banks, Esq. Brian M. Walsh, Esq. Walsh Banks, PLLC. PO Box 2271 Orlando, FL Attorney for Respondent James W. Earl, Arbitrator 13