Court: Emails Between Homeowners’ Association Board Members Not a Meeting

In M4 Holdings v. Lake Harmony Estates Property Owners’ Association, 2020 Pa. Commw. LEXIS 635 (Aug. 14, 2020) the Commonwealth Court stated that a series of email exchanges between members of the board of directors of a homeowners’ association did not constitute a meeting of the board of directors and, therefore, action taken by them during the email exchanges was not validly adopted by them.

This case arises out of the efforts of the board of directors to regulate new construction in the planned community located in Carbon County, the opinion said.

Over the course of consecutive days, the board members exchanged a series of emails in which they discussed whether to exercise a right of first refusal related to the properties at issue and the adoption of a rule limiting construction of new residences to homes no larger than 2,500 square feet, with no more than five bedrooms and three bathrooms (2,500 square foot rule), the opinion said.

Soon thereafter, M4 Holdings closed on the purchase of two lots located within the planned community.

After purchasing these lots, M4 Holdings submitted building applications to the board of directors seeking approval from the homeowners’ association to construct a residence on each of these lots.

The board of directors denied both building applications stating, in relevant part, that the proposed residences violated the 2,500 square foot rule, the opinion said.

M4 Holdings and others then initiated declaratory judgment action in the Carbon County Common Pleas Court against the homeowners’ association challenging the denial of these building applications.

In the complaint, M4 Holdings argued that the 2,500 square foot rule was not validly adopted by the board of directors because such a rule change cannot be made via email.

After a three-day bench trial, the trial court initially ruled in favor of the homeowners’ association as to all counts of the declaratory judgment action. In doing so, the trial court found that the 2,500 square foot rule was validly adopted because the bylaws of the planned community allowed the board of directors to conduct meetings and vote by email.

After M4 Holdings filed a motion for post-trial relief, the trial court reversed its initial findings in favor of the homeowners’ association and instead held in favor of M4 Holdings, concluding that the board of directors did not validly adopt the 2,500 square foot rule.

M4 Holdings then appealed the trial court’s ruling to the Commonwealth Court, challenging the enforceability of the 2,500 square foot rule.

What Constitutes a Meeting?

As a preliminary matter, a nonprofit corporation’s action is authorized when the action is not prohibited by the Nonprofit Corporation Law of 1988 (NPCL), 15 Pa. C.S. Sections 5101 et seq., or the corporation’s articles or bylaws.

Under 15 Pa. C.S. Section 5708, except as otherwise provided in the bylaws, one or more persons may participate and vote in a meeting of the board of directors of a nonprofit corporation “by means of conference telephone or other electronic technology by means of which all persons participating in the meeting can hear each other.”

Moreover, according to the bylaws of the homeowners’ association in M4 Holdings, “one or more directors may participate in a meeting of the board of directors via conference telephone or similar on-line communications equipment or other technology that enables all Board members to participate in the meeting” and “participation in a meeting pursuant to this section constitutes presence in person for quorum and voting purposes.”

The homeowners’ association in M4 Holdings argued that the series of e-mail exchanges over the course of consecutive days between its board members constituted a meeting, relying upon the bylaws which provides that the board may conduct meetings via email.

In response, M4 Holdings asserted that the NPCL “does not allow a meeting to exist perpetually by emails” and requires board members to be able to hear each other during meetings and emails do not allow persons participating in meeting to hear each other.

Furthermore, M4 Holdings took issue with the fact that there was no notice to the board members of the purported meeting which took place via e-mail over the course of consecutive days.

The Commonwealth Court’s Analysis

The Commonwealth Court highlighted that the difference from Section 5708 of the NPCL and the bylaws of the homeowners’ association is that the bylaws does not contain the phrase that “all persons participating in a meeting can hear each other,” as does Section 5708.

Citing to the bylaws, the Commonwealth Court pointed out that the bylaws do not specifically use the phrase “can hear each other” and instead provides that the “online communications equipment or other technology” used to participate in a meeting be “similar” to a “conference telephone.”

The Commonwealth Court noted that, at first glance, there could be a question as to whether “similar” applies only to “online communications equipment” or whether it also applies to “other technology.”

Applying the rules of statutory construction, the Commonwealth Court reasoned that, if the drafters of the bylaws intended to allow board members to participate in meetings via any technological communications equipment, there would be no need to include the phrase “conference telephone or similar online communications,” which would be unnecessarily redundant.

Thus, the Commonwealth Court interpreted the bylaws to provide that board members may participate in a meeting using online communications or other technology that is similar to a conference telephone.

To determine whether the series of email exchanges at issue constituted “online communications equipment or other technology” that is “similar” to a conference telephone, the Commonwealth Court looked to the common usage of the terms “teleconference,” “meeting” and “assembly.”

Based upon the definition of these terms, the court concluded, when using a conference telephone to participate in a meeting the gathered members are interacting in real time.

While some of the emails were sent in relatively close proximity to one another, others were sent hours apart.

The gaps in time between the series of email correspondence demonstrated to the Commonwealth Court that the board members were not simultaneously communicating with each other like they would be through the use of a conference telephone.

Since the series of email exchanges at issue were not similar to the simultaneous contemporaneous communication that would occur with the use of a conference telephone, the Commonwealth Court held that these email exchanges did not constitute a meeting and, thus, the 2,500 square foot rule was not validly adopted, as required by the bylaws.

Lessons Learned

The Commonwealth Court’s ruling in M4 Holdings illustrates why it is so important for organizations to regularly review their organizational and governance paperwork.

As more and more communications are being handled remotely due to the COVID-19 pandemic, organizations should confirm whether they may legally take corporate action being remotely, whether via conference call or online such as through Zoom.

—Clementa Amazan, an associate at Nochumson P.C., assisted with preparing this article.

Reprinted with permission from the September 4, 2020 edition of The Legal Intelligencer © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.