Q: Is property management influence of an HOA board election a criminal act?

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Q: Is property management influence of an HOA board election a criminal act?

Can property management companies send condo owners false information in an effort to influence elections for board of directors? Secondly, is this not a conflict of interest on the part of a property management company?

iStock_000031387756_Smallanswer-icon-masterThere are two levels to think about here: The first is whether the management company in question broke a law – that is, committed a criminal act – in trying to influence a Board of Directors election. The second level is to consider whether the management company may be committing a tort. That is, whether they are committing an act that someone could plausibly sue for and win.

Criminal Law

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As far as the criminal side of things is concerned, I agree that it’s a bit scummy, but violates no Florida law. I am joined in this opinion by Joseph Adams, an experienced condo law attorney in Florida, blogging here.

People have freedom of expression – and as the Supreme Court established in their Citizens United ruling, people don’t cede those rights when they choose to organize themselves as corporations or associations.

Generally, the Constitution shields from criminal sanction even free speech (or written expression) that is false. And that is a very good thing, lest courts get bogged down adjudicating an endless series of competing claims from candidates and partisans for every election down to the town dogcatcher.

However, the protection of free expression against criminal sanction does not relieve anyone from potentially being held accountable for the consequences of this expression. If anyone should spread derogatory information about someone that is later determined to be untrue, then the wronged party can sue for damages under defamation laws (libel laws being a subset of defamation laws).

So if the management company happened to spread information about the board candidates running against their preferred candidate, and that information happened to be false (or, more precisely, that the management company cannot prove to be true), then the management company may have committed a tort. The individuals may sue for damages to their reputation (though the association likely wouldn’t have much of a case as a whole). It would probably have to be brought by the individuals running.

Was there a non-interference provision in your property management contract? If so, you may have grounds for a breach of contract claim against the management company.

Furthermore, if the management company’s favored candidates win seats on the board, then you have a potential ethical issue when the management company is up for renewal. Is there a conflict of interest there?

California’s Davis-Sterling Act contains some of the stricter prohibitions against conflicts of interest in the country when it comes to HOA and condo boards. Here’s how California threads the needle:

Interested directors may be counted in determining the presence of a quorum at a meeting of the board or a committee thereof which authorizes, approves or ratifies a contract or transaction. (Corp. Code §310(c).) However, directors must recuse themselves from discussion and voting on issues in which they have a direct personal or pecuniary interest not common to other members of the board. (Robert’s Rules, 11th ed., p. 407.)

So California board members that received any kind of material support during a Board election may be expected to recuse themselves from voting on the new property management contract.

I say “may,” because obviously a strict interpretation of that passage won’t work too well if the management company directly supported all the board members in their elections! Then again, in this case, they wouldn’t have a personal or pecuniary interest not common to other members of the board!

There’s no straight-ahead parallel in Florida law that I’m aware of. But understand this: If a board member is seen to have an extra-special relationship with a management company, that opens a lot of ugly doors to accusations of conflict and potentially lawsuits arising from the perceived failure to act as a fiduciary.

This can happen even where the board member has done nothing wrong. In positions of leadership, perception counts.

Now, in the last part of your question, you ask “is this not a conflict of interest on the part of the property management company?” I would say no, it is not. It is the board members who win election, possibly as a result of the false information distributed by the management company, who may be facing a conflict of interest when they make decisions concerning the management company. The management company has no similar divided loyalty.

Author Bio
Writing about personal finance and investments since 1999, started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.
Author Bio for Jason Van Steenwyk

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