Page 5 - Nevada Cooperator Winter 2020

NEVADACOOPERATOR.COM THE NEVADA COOPERATOR — WINTER 2020 5 QUESTIONS & ANSWERS Legal Q A& Disclaimer: Th e answers provided in this Q&A column are of a general nature and cannot substitute for professional advice regarding your specifi c circumstances. Always seek the advice of competent legal counsel or other qualifi ed profes- sionals with any questions you may have regard- ing technical or legal issues. EVERYTHING FROM A (ACCOUNTING SERVICES) TO W (WINDOWS). (Sorry, no zebra trainer this year.) LAS VEGAS CONVENTION CENTER — WEDNESDAY, APRIL 29, 10–3:30 FREE REGISTRATION: LV-EXPO.COM THE COOPERATOR EXPO 2020 WHERE BUILDINGS MEET SERVICES Self-Appointed Board Q My HOA board has not had an election in 10 years. Th ey keep reappointing themselves and ap- pointing their friends to the board when there is a vacancy. Is this legal? How can I stop this abuse of power by my HOA? —Reining in Abuse of Power A “No, this is not allowed under Nevada law,” says attorney Eva Segerblom of the Reno-based fi rm Maddox Segerblom Canepa, “unless the board is still declarant controlled. NRS 116.31034 requires that, at the termination of the declarant’s control, an executive board must be elected, and term may not exceed three years. Although there is no limitation on the number of terms, there still must be an election, properly noticed and conducted. If there is a vacancy, there must be an election. Only if there are no candidates may the board consider appointing someone to the board.” Condo President and Property Management Employee? Q Is it illegal or unethical for the is under contract to a company for which of interest with respect to a matter, including, fi nal issue has not been tested in the Nevada board president of an association he worked, or that such company would bid but not limited to, the engagement of a certain courts or in cases before the Commission for to work for the company that man- ages or provides community management disclose that relationship on his candidate’s company, he owns shares in such company, or minium Hotels.” services for his association? If it is okay, can statement, or he would be violating NRS he has family members or friends that work the president then be involved in negotiations 116.31034. and the signing of a new contract with the management company? What if he causes the the following: ‘Except as otherwise provided and recuse himself from voting thereon. Th e new contract to be negotiated and signed on in subsections 11 and 12, unless a person is language relating to such corporate confl icts his own? —Wondering A According to Michael Schul- man, attorney with Wolf, matter before the executive board of the asso- Rifk in, Shapiro, Schulman & ciation; or (3) Th e person, the person’s spouse the board, may not be a board member. Th at Rabkin, LLP in Las Vegas, “Certain provi- sions of Nevada Revised Statutes (NRS) 116, riage or adoption, performs the duties of a tested in court. Arguably, both sections can the law governing common interest com- munities in Nevada, have three sections that are directly applicable to the facts set forth in for a company that is going to obtain the of interest, but not have a fi nancial interest the above referenced question. Additionally, management contract from the association in something coming before the board, and general corporate law in the state of Nevada and such person also serves on the board, or therefore, could remain on the board, but re- provides law which will also govern this par- ticular situation. Th ere is no simple answer to of profi t or compensation based on his em- this question because it is technically not il- legal or unethical for the president to work for the statute is not 100% clear, but most people that comes before the board, the board mem- the company that provides community man- agement services to his association, but there the person concerned would be barred from recuse himself and not vote on such matter. are numerous provisions of the law that touch running for the board if the company he on this particular situation and could be read worked for managed the association. to preclude it. “First, NRS 116.31034 subsection 9 pro- vides, in pertinent part, the following: ‘Each ber of the board cannot enter into a contract that would be a breach of the ethical duties person who is nominated as a candidate for with the association for goods or services. of the board member. …\[I\]f an association is membership on the executive board ... must: Please note that neither of the sections ref- (a) Make a good faith eff ort to disclose any erenced is sophisticated enough to include for which one of its board members or offi - fi nancial, business, professional or personal a prohibition against a company in which cers works, then \[again\] the board member or relationship or interest that would result or the president owns shares or an interest or a offi cer should at least recuse himself and not would appear to a reasonable person to result company for which the president works be- in a potential confl ict of interest for the can- didate if the candidate were to be elected to tract with the association where the company the board member or offi cer has to resign serve a member of the executive board…’ “Clearly, if a candidate for the association’s board of directors knew that the association member of a board of directors has a confl ict from the actual contract. As stated above, that for the contract, the candidate would have to company, either because he works for such Common Interest Communities and Condo- “NRS 116.31034 subsection 10 provides supposed to disclose such confl ict of interest appointed by the declarant: (a) A person may of interest is in both NRS 116 and NRS 82. not be a candidate for or member of the ex- ecutive board or an offi cer of an association confl icts with the language of NRS 116.31034 if:... (2) Th e person stands to gain any person- al profi t or compensation of any kind from a may stand to gain any personal profi t, com- or the person’s parent or child, by blood, mar- community manager for that association;...’ “One would assume that if a person works in which a board member may have a confl ict as an offi cer, that person will gain some kind cuse himself from voting on the specifi c issue. ployment by the company. Th e language of member has a confl ict of interest in any matter would argue that in this particular situation, ber needs to disclose the confl ict and likely “Th ere is another provision in the law with a company he works for without any \[NRS 116.31187\] which provides that a mem- ing similarly barred from entering into a con- would provide management services. “Generally, corporate law provides that if a fi cer if he stands to receive any fi nancial gain for such company, then the board member is Th e interesting part is, it arguably specifi cally (quoted above), which states a person who pensation from anything that comes before confl ict between the statutes has never been be read together and there are certain cases “Th e bottom line is, if any offi cer or board “With respect to the fi nal hypothetical of the board member negotiating a contract other members of the board being involved, going to negotiate a contract with a company participate in the vote. Th e Nevada law may even be interpreted someday to provide that from his position as a board member or of- n