The Board Is Not The Association

Below is the most complete compilation of information I presented to Dan as part of our discussion of Board authorities.


Sorry it has taken a bit for me to get back to you and continue our discussion about the Board powers as they relate to the term “Association” in the Covenants. I believe we are discussing things that have generated a lot of controversy and are worthy of significant time and effort. I’m sorry this is so long, and hope that by my spending time on it now, helps you better understand my concerns, and likely many other Members as well. I believe our effort will be very beneficial to all Members.

The reference to Montana law at 35-2-414 as holding the Board of Directors responsible for running the corporation, and that Article VI(B) General Powers and Duties as further spelling out the powers and duties of the Board is very helpful. Yet, I fear we may differ greatly in what powers we each feel the Board holds and/or what business activities the Board may conduct for the Association. I believe it best to discuss 35-2-414 first.

Montana statute 35-2-414 is not without limits. The “corporate powers” referenced by 35-2-414 are established and the most important ones are specifically listed during the process of the becoming a Corporation. Our Articles of Incorporation at III Powers, list specific powers necessary to do the business and handle the affairs of GLA as A,B,C,D and E. Item A enables building upon and dedicating uses of land; item B authorizes paying bills/taxes etc.; C allows entering into contracts; D enables adopting, amending and repeal of the Bylaws; and E allows the Bylaws to include additional powers. However, the Bylaws are dominated by our Restated Declaration of Covenants and the Board’s ability to amend the Bylaws is restricted by Bylaws Article XII (A) which requires a 51% vote of Membership Interests.

To help with our discussion, I think it critical to point out that the Articles of Incorporation state the purpose of becoming a corporation is to establish a set of rules to be administered/applied for the “mutual benefit” of the Members. I interpret a lot of the conflicts the Board is facing as being generated from Members feeling decisions have been, and continue to be made, to benefit some individuals at the expense of a larger number of Members. To demonstrate the breadth of time and significance of this issue, I offer the Oct. 5th meeting discussing Board meetings by phone, an obvious attempt to avoid dealing with a Board member’s concern with Pedro’s dwelling, the approval of the Yaney multi-story building on a hilltop (a Covenant violation which is still available for challenge) and the unanimous Board vote on May 14, 2012 to approve the Erickson’s development based on an erroneous presentation that all three criteria of Bylaw VI(B)(2) must be “conjunctive” for (B)(2) to apply. I do not feel presenting a need for all three elements to exist in order for (B)(2) to apply can be viewed as an “interpretation”, but is a obvious change of the requirements because of the obvious impossibility of all three elements to exist in a single contract.

It is important to note that the Covenants are not mentioned in the Articles of Incorporation and as a recorded legal instrument they stand alone. In addition, Bylaw Article XII (D), and common law, state that in conflicts, the Covenants trump the Bylaws. This makes it critical to determine if Association, as used in the covenants, is requiring action by Members and if it limits actions the Board may take while doing the business of the Association.

I am having difficulty understanding how the Board makes decisions on when it is doing the business of the Association, when it requires a vote of Members to authorize or complete a business transaction, and how “mutual benefits” are evaluated. I hope you can provide the guidelines used.

The next issue(s) to review are the policies established by the Board. I believe the policies presented on the web are policies developed and voted on by the Board and not the individual Members of the Association. Some have said the policies “only further define how the Board carries out the intent of the governing docs.” This relies heavily upon Bylaw Article VI (B)(1) which reads “Conduct, manage and control the affairs and business of the Association.” I do not see how this language, or an interpretation of its intent, can be used to further define anything within the Covenants or Bylaws, especially since items 10 and 16 speak directly to enabling the Board to adopt Rules and Regulations.

I believe policies are commonly interpreted as offering clarification or further definition of an action, and the term is often used in place of a rule or regulation offering guidance. Since item 16 specifically addresses “for the conduct of any meeting, election or vote” I believe the Conduct of Meeting/Privacy, Conflict of Interest, and with some corrections, the Closed Meeting polices are within the Board’s authority and do not require a vote by Members. However, the Firearms Policy is just a suggested standard for behavior and the Roads Policy is a proposed method of allocating funds, subject to later action. I do not see them as further interpreting anything in the Bylaws or Covenants.

Unfortunately, I see problems with the Assessments policy. Items 1 thru 5(a), present a summation, and possible clarification of all the Covenants in Section 11to the benefit of Members. I doubt anything in 1-5(a) changes or further define anything within Section 11. However, I believe item 5(b) changes the language and expressed intent of 11.06 and violates Covenant 2.02. Covenant 11.06 clearly and unambiguously states “If any assessment is not paid by midnight on the date when due, then such assessment shall become delinquent and shall, together with any interest thereon, become a continuing lien on the parcel which shall run with the land.” I do not see Bylaw Article VI(B)(10), which is limited to the “affairs of the Association” or (1), (3) or (16), enabling the Board to change when a lien becomes legally binding on the property or empowering a change of the interest rate. In addition, I do not feel it an appropriate act of doing business or making an interpretation of our Covenants to make this change. Please provide me a step by step interpretation or legal construction process that may lead me to believe 5(b) can be done by the Board.

As mentioned previously, I also have great concern about the Board changing the interest rate which is legally binding until changed by the Membership. I quickly offer that the proposed changes to 11.06 only address the interest rate and do not address the status of existing, legal debts. The differences between Members not paying as a method of protest (though financially capable) and Members in economic distress, whom all Members may like to help, is another conflict I suggest be resolved as the governing documents change process proceeds.

I believe the Assessments policy has only been available since 2013 and hopefully can be easily corrected. This will require revealing the process used to establish any existing payment agreements, and asking all Members to vote to establish and/or ratify that process. Hopefully the process of entering into an agreement with the Ericksons was not completed and there are no other existing agreements, such as payment agreements, that exceed the 5 year limitation. Could you please clarify that?

Landowners are members of the corporation by right of owning land. Additionally, some suggest Members have final say “in several areas” which implies there is a higher power that can overrule the Members. I do not believe the listing of items from Bylaw VI(B)(2)(a)(b)(c) is properly used here, as those items are limits/constraints set upon the Board, not examples of authorities the Members hold.

The next item is whether “Montana expects the Board to defer to the advice of attorneys” in respect to collecting 18% as required in Covenant 11.06. I agree once legal action is started, an attorney’s advice is critical, but I also believe they will rely upon financial specialists to build their defense/claims. Thus, I suggest that advice from specialists in the financial field is more critical than attorneys advice when calculating interest rates for overdue assessments.

There is some agreement from others I have visited with that 18% may be too high to expect courts to enforce. But those agreeing with you also raise the question of equitability and how to deal with protesters vs economically stressed Members. Please correct me if I am wrong, but I assume no collection agreements were established with lower interest rates prior to 2013. Could you please confirm that?

I do not believe you and I can resolve the issue of proper interest rates and suggest that the proposed changes to Covenant 11.06 be expanded. Expansion is necessary to specifically address accounts that are currently past due, which are legal debts. Since you helped develop the changes being sought, I ask if there is intent to reduce current debts from nearly $200,000 to only $66,000 by changing 11.06 from 18% to approximately 6%. I am very fearful of reducing debts, and thus potential Association income, this drastically without a vote by individual Members of the Association.

As mentioned above, I personally feel that financial specialists, not attorneys, should guide GLA in setting a proper interest rate for each individual year for all accounts that are currently past due. In addition, I suggest that 11.06 be amended to add the costs for establishing and maintaining a lien be added to the total amount to be collected. I believe a joint effort of financial advisors, economic assistance professionals, and attorneys will result in changes to our Covenants that do not reward protesters, establish a system to set reasonable rates on long overdue assessments, and set up a system that can help people that are financially stressed.

To begin addressing our differing interpretations of Section 12.01, I agree an attorney may be required. I will try to restate my position in more detail to help us develop some questions I can ask the Board, then request that the Board ask of an attorney. I hope this will reduce the attorney’s time to review our positions and thus the charges to GLA.

I offer that the common hierarchy of legal structure related to a home owners association is as follows: 1) U.S Constitution; 2) Federal law: 3) State Constitution; 4) State Law; 5) Local Law as applicable; 6) Articles of Incorporation; 7) Declaration of Covenants; and 8) Bylaws; Each level holds specific powers and sets limits upon the succeeding documents. Our governing documents recognized this with Bylaw Article XII (D) Conflicts stating that “in a conflict between the Articles of Incorporation and the Bylaws, the Articles control, and in a conflict between the Bylaws and Covenants, the Covenants control.”

I spent quite a bit of time looking at the documents in the legal cases with the O’Connell’s, as well as looking at all citations in Montana 35-2. I believe that both GLA and the O’Connell’s stretched interpretations of statutes and actions to justify their case, which is normal in a court process. However, I found nothing in any document that asked the judge to determine if the Board had a legal basis to act as the Association or to be considered doing the business of the Association when granting variances under 12.01.

In looking at a judge’s decision, an issue only really becomes an issue for the judge to decide if; 1) the question is asked of the judge; and 2) it is argued between the parties and 3) the judge clearly presents a decision. Said another way, I saw that the O’Connell’s challenged the process and decisions made, not the authority to make those decisions, and GLA attorneys defended the process, not the authority of 12.01. Thus, any reliance on those court documents to suggest the judge agreed to or supports the concept of the Board doing the business of the Association under 12.01 is not valid.

I did see Judge Gilbert’s statement “The Covenants, at Section 12.01, provide that “the Association reserves the right to wave or grant variances to any of the provisions in this Declaration, where, in its discretion, it believes the same to be necessary and where the same will not be injurious to the rest of the Community.” She included “The GLA Board approved the variance under Section 4.2 of the Master Plan. The Board has discretion to approve or deny variance requests in accordance with Section 12.01 of the Covenants.”

However, she did not present a ruling on whether the Board could act “as” the Association under 12.01 or would be doing the business of the Association since that was not a question before her. She only referenced information that both the plaintiff and defendant had presented as true. In addition, she cited the variance as being approved under Section 4 of the Master plan and she concluded her decision with the statement “In any event, for the purposes of the pending summary judgment motion, the facts underlying the variance decision are not in dispute.” If I missed the question to her on authorities under 12.01, please direct me to the documents and pages where it is presented as a legal question, argued, and decided.

I believe we have fundamentally differing opinions on when and where the Board can be considered doing the business of the Association and when it has independent authority, especially under our Covenants. This is especially significant since a common interpretation is necessary when we look at the numerous uses of “ASSOCIATION” in our Covenants.

I hope we agree that within a legal single legal document a common definition of words must be found either in specific definitions, or in actual use. That is to say, if in one Covenant the word Association clearly means Members, that other uses of “Association” cannot mean “the Board.” As I mentioned in my first e-mail, I believe that since our Covenant 2.03 cites specific actions the Board may take to enforce the Covenants, that such recognition is significant. It demonstrates that the Covenants can and do designate when the Board is acting on behalf of the Association. This is supported by additional authorities given to “the president and secretary of the Association may certify the results of such vote on behalf of the Association and its members.”

The Master Plan, which became covenants upon passage, made major changes to the Board’s ability to grant variances within the Covenants. Section 2.0 states in part “However, the Association is responsible for all project approvals” and Section 4.0 states “The Association board will consider a variance from the requirements of this Master Plan when it can be shown …” These two statements displayed to the Members that the Association Board would have the ability to approve project plans, and, where appropriate, approve variances to 2.0 Residential Design Criteria. By the affirmative vote of more than 51% of Membership Interests, the Members gave recognition to the existence of the “Association Board,” and gave the Association Board authority to grant variances to residential design criteria. That authority is limited to requirements only presented in the Master Plan, which were previously addressed in Section 6 of the Covenants. The Board still cannot use 12.01 to waive or give a variance to any other requirement within any other Section of our Covenants, i.e 4. Agricultural; 5. Health Safety, Nuisance and Land Use; 7. Recreation and Common Use Land; 8. Roads and Easements; 9. Subdivisions of Parcels; 10. Administration; or 11. Community Assessments.

I believe the Articles of Incorporation establishing a “mutual benefit” corporation is critical to determining what business actions and affairs the Board may handle for the Association. Our Covenants, as a contract between Members, are a legal document establishing enforceable requirements on use of land, both private and common use, and are intended to establish and maintain a community with a specific character. That character is clearly stated by the text of Covenant 5.07 “It is the intent of these covenants that the Community of Glastonbury should be a predominantly rural/residential community”. Any change to a covenant, even for a single person/location, has potential to adversely impact or change that character in a manner offensive to a majority of the Members. The requirement that Members vote on variances and waivers assures changes do not adversely impact the majority. As I stated earlier, I believe past Boards have felt empowered to authorize changes that benefit individuals, and though they might have contacted some Members, those contacted did not constitute a majority of people adversely impacted.

I strongly believe the Board members are managers volunteering to conduct business, handle the general affairs (i.e. correspondence, contacts and taxes etc.) and enforce our Covenants on behalf of and under the control of the members. I agree the Board is allowed considerable freedom under the Bylaws in how to best due business. However, their freedom to grant variances and interpret what constitutes an adverse impact under the Covenant 12.01 is very limited. Where limits are listed or set through use of specific language or text, there is no room for interpretation and the Board is obligated to follow the clear and express language.

This leads to a discussion of the power of the Board and back to looking at the lawsuits filed by the O’Connells. What I have presented in addressing Board actions under 12.01 is applicable here.

Previously, I touched upon the basic doctrine of constructing legal documents and that layered documents, i.e. Articles of Incorporation, Covenants and Bylaws, are considered influenced by and worded with specific awareness of the other sequentially developed documents. Our Articles of Incorporation were signed on April 28, 1997 (by Edward L. Francis, Executive Vice President Church Universal and Triumphant Inc.), the Bylaws signed in June 1997 by Patrick Wolbred (President of GLA), and our Covenants signed in Sept. 1997, again by Patrick Wolbred. The authors of our Covenants had ample opportunity and did display awareness that it is necessary to use specific language when delegating authority to the Board. This is a major element of why I believe Covenant 2.03 is significant, why I feel the Board has little power to change or interpret our Covenants, and that the use of the word “Association” in 12.01 is saying individual Members need to vote on variances to or waivers of our Covenants.

As I re-read your reply to my e-mail, I begin to wonder where we separate in our opinions. You presented “I think the point that is possibly in need of clarification is that when the Covenants say Association acts in some way, by and large, due to that power being vested with that Board, it is the Board that would be carrying out the action.” If by carrying out you mean enforcing the Covenants, but not changing or interpreting them and doing the business as directed in them, I believe we may be in agreement. I see carrying out, or enforcing, the specific requirements of the Covenants as doing administrative activities, i.e the business as intended by our Bylaws and described in Section 10 of the Covenants. But I do not see where the “power being vested with the Board” applies, especially since Covenant 2.02 places strict limits on interpretations of the Covenants.

I offer the following to express my interpretations of Covenants in Section 10, Administration. Since administration is actually doing the business of the Association, maybe this will help us as we proceed.

10.01 Association’s Authority. The Association is hereby vested with the discretion and authority to exercise all rights, powers and responsibilities, make all decisions, take all actions, make and enforce all rules and regulations and to otherwise do all things in the administration of the Community that are authorized or required in this Declaration of Covenants or by the Master Plan. The Association is the sole administrative authority in the Community and shall exercise its rights, powers and responsibilities and manage its affairs in accordance with its articles of incorporation, bylaws and rules. (This is similar to the State residents ratifying their Constitution and establishing authorities that may govern them. It is a statement, assurance and agreement among Landowners, that no other entity will be established, or accepted to have control over the Members or their property. This is the major reason the covenants must be recorded and the Bylaws do not have to be recorded)

10.02 Enforcement of Covenants. In the event of any violation of these covenants, the Association or any Landowner may enforce these covenants. … (This is a presentation that the Association may act to enforce the covenants, or if the Association does not act, the Landowners themselves can take legal actions on their own. Within 10.02 are the specific requirements for the Board itself, or Members to follow, in order to assure an assumed violator is adequately notified before any legal action is started. Within the Bylaws (VI)(B)9), the Association places the “Duties” (i.e. requirement for the Board to do for the Members) of enforcing these covenants upon the Board, as part of doing the business and handling the affairs “FOR” the Landowners. At Article XI (B), the Bylaws provide the Board the option to accept the responsibilities to enforce or not to enforce violations asserted by other Members)

10.03 Assignment of Association Rights, Powers and Responsibility. The Association may assign or transfer all of its rights, powers and responsibilities as established under this Declaration or under the Master Plan, at any time in the future, to a successor organization. (This presents that the Members, as the Association must approve of whom a transfer of administration is given to, i.e. back to Church Universal Triumphant, or Story Ranch, Inc, etc.)

10.04 Association Membership. All Landowners are automatically considered to be members of the Association. Each Landowner agrees to notify the Association in the event of the sale or transfer of any of the Landowner’s property in the Community qualifying as a Membership Interest. Each Landowner receiving title to or ownership of any property in the Community qualifying as a Membership interest agrees to register with the Association by providing the owner’s name, mailing address and property description. (The Board may receive and record registrations of new Members as part of doing the business of the Association.)

The Board may emphasize a reliance upon the court decisions in the “suits the O’Connells lost, …the courts reinforced actions of interpretations of the covenants and bylaws to be under the discretion of the Board” as justification for your belief. I have read everything GLA presents, as well as the Supreme Court decisions of Sept. 12, 2012 which includes the statement “As the O’Connells received all of their claims for relief, …..”. I believe I presented an adequate caution toward relying on documents presented in court and the decisions presented by a judge above. I believe the decisions in documents GLA web posting pertain to the process used, not the authority to do. Do you feel those decisions will defeat or prevent an action to determine the authorities under 12.01? Please inform me how or where I am wrong.

I agree the finding of “injurious to the rest of the community” would be an arguable finding. However, I hope you would not presume the Board may make that decision for the rest of the Community.

I will forgo any further discussion on whether collecting back assessments, the substitution of a lower interest rate, and collecting fewer funds is “injurious to the Community.” Hopefully, as the changes to the governing documents are processed, the Members will unite behind a defined collection plan that addresses both assessment protesters and economically stressed Members.

I believe we have shifted our discussion from the Board acting as the Association to the specifics of the Board doing the business and handling the affairs of the Association. I hope we are in agreement that sending in taxes, dealing with contractors, etc. is doing the business as specifically directed to do in Bylaw Article VI(B).

Again, I disagree that the Board has broad powers because State law and our governing documents knew they would not be able to foresee all activity the Board would need to carry out. I feel the laws, which basically include 35-2 and our Covenants, are very specific and contain methods for the Members to adjust what they require or authorize the Board to do. The Bylaws are only a structure under which business is handled, and because they are not recorded, they cannot be used to change the Covenants. Just because something is mentioned in the Bylaws does not necessarily make it lawful, binding or empowering. It is the powers listed in the Articles of Incorporation and Covenants, which are recorded as a legal contract, that trumps the Bylaws, and that is what really counts.

I hope this helps you understand my concerns. I hope to hear from you soon.

Leo