Ultra Vires: The Revisiting

The association's attorney recently clarified the authority of individual members of the association's board to expend association funds prior to approval of a majority of the members of the board. In response to this clarification, I sent the following email, in response to a previous email that I had sent, to the homeowner who originally inquired as to the status of his/her petition for a veto of the rules.

On the advice of legal counsel, it appears that I was wrong in accusing our board president of an ultra vires act in contacting our attorney and expending association funds without the prior approval of a majority of the board. According to counsel, it is sufficient that the board review and approve expenditures (even after the fact).

I would like to use this opportunity to extend my sincerest apologies to Mr. Crowder for the accusation. My reading and interpretation of our governing documents and the law was incorrect.

For the record, I am sincere in that apology. It was and is still my understanding, as I explained previously, that the expenditure of association funds is the exclusive province of the board of directors. Based on that same research, I further believed that our governing documents and the law precluded any one member (or a minority of the board, for that matter) from expending association funds prior to the approval of a majority of the board. According to counsel, it is this latter belief that is in error. As long as the board conducts reviews and approves of such expenditures, there is no illegality in its or its members actions. I was wrong; I admit it; and I apologized to the affected party for my incorrect accusation.

So, where does this leave what I had said previously:

As such, I will be voting "no" on the approval of the financial statements for the months of March, April, and any other month in which I find such expenses so as not to give credibility to these illegal acts after the fact. Members of the association should be questioning not only why such expenditures are taking place but why other board members are approving them.

Finally, let me be clear that I do not necessarily object to these expenditures but rather the lack of authority with which these expenditures are taking place. The board, in approving expenditures after the fact, would be acting as a "rubber stamp" for one (two, in the case of reserve expenditures) of its board members and would essentially be vesting its fiduciary duties entirely in that member (or members). [...]

In accordance with what I had previously written, I did vote "no" on the approval of March's and April's financial statements. I have mixed feelings about what to do with regard to future votes, however. The method of spending that the board has adopted is not illegal, per the association's attorney. In spite of that, I still feel that it lacks transparency, not only for the remaining board members who are only finding out about expenditures via individual review of the financial statements each month, but also for members of the association who wish to track expenditures and who do not have such ready access to the financial statements. Furthermore, I don't believe it is necessitated by the association's circumstances or in the best interest(s) of the association. With the proper allowances for "emergency" expenditures (which could be accomplished via an "action without meeting" even though probably not legally required), I see no reason that the board cannot at least discuss, if not approve, expenditures prior to their undertaking.

Aside from the lack of transparency, the current procedure has a number of other drawbacks. There is apparently (currently) no limit to the amount of money that can be spent by a board member prior to its (dis)approval by the board. There is no opportunity for discussion about the best use of association funds, e.g. if the cost is truly necessary or if bids should be solicited to find a better price. There is little, if any, opportunity for the board to reverse any expenses of which it disapproves. It is these issues in addition to the lack of transparency that give rise to my ambivalence about how best to vote on the approval of future financial statements.

Voting "no" at the last meeting was easy because I believed that a "yes" vote was aiding an illegal act. Now that that basis is gone, the reason to vote "no" would be because I disagree (in spite of the legal advice) with the method, not the expenditures themselves. (Disagreement with the expenditure(s) themselves would render this ambivalence moot.) There is a good argument to be made, I think, that the method of expenditure is not in the best interest(s) of the association, but a "principled" stand like that is admittedly somewhat pedantic and not likely to be well received. Another option is to vote "yes" when I don't take exception to the expenditures themselves, but this would give tacit approval to the method of expenditure. The final option is to "abstain" from the vote. This would avoid the tacit approval of the method of expenditure but may also open me up to claims of breach of fiduciary duty by refusing to vote on the matter.

Needless to say, I have not yet reached a conclusion.