By Martin Stone, PCAM
HSR Property Services, LLC
Tinley Park, IL
Yeah, yeah, just what you needed, another article on Palm, right? We’ve seen a lot of articles about Palm, mostly written by learned attorneys, some written by experienced Managers, and one, I’m told, that was written by an emu. The latter, unfortunately, was not as widely distributed or published as the others, which is a great tragedy, as I’ve heard emus have wonderful senses of humor as well as a flare for the dramatic.
In any case, what we haven’t yet seen-or at least what I have not yet seen-is a very straight forward, no holds barred statement (rant?) from someone willing to go on record and give the whole Palm situation a big slap in the face (see what I did there?) So, here you are. I am your emu.
To clarify for those who have not read or heard the many lectures pertaining to Palm, “Palm” refers to a, now, infamous court ruling more formally known as Palm v. 2800 Lake Shore Drive. This court ruling establishes ‘case law’, which is the interpretation or reinterpretation of an existing statute. In this case, that existing statute was the Illinois Condominium Property Act, particularly Section 18(a)(9) which states (and always has stated) that the Board must conduct all Association business in an open meeting. And because the Common Interest Community Association Act or CICAA (the condo Act for non-condo associations) has the exact same language in it pertaining to Meetings, the Palm ruling affects CICAA in the same way.
Up until 2014 BP (before Palm), the big question had always been: What constitutes conducting ‘business’ at meetings? Furthermore, the consensus (again, before Palm) had always been, quite simply: Voting. Workshops, walk-throughs, emails discussing repairs or proposals, violations, exterior modification requests, etc… it was all just talking or addressing routine maintenance needs, not conducting business.
Whether a vote before an action was taken (voting at an April meeting to replace roofs in June), or voting to ratify a decision already made (voting at a June meeting to approve the plant replacements completed in April), so long as that voting was done at an Open Meeting, it was argued quite successfully for decades that the Board was being transparent and providing full disclosure of all business being conducted.
But then Palm happened, and now the definition of ‘business’ conducted at meetings has been expanded and redefined as any voting or discussion involving a quorum of the Board. In short, it means that any instance where a majority of the Board members discuss any association-related matter, whether by phone, electronically (email), or in person, for which the owners are not previously given notice and the opportunity to be present, the Board of Directors is breaking the law.
‘But that’s ridiculous!’ we have all said. ‘How do we avoid this?’ we have all asked. As your trusted and faithful emu, I’m giving it to you straight, and I’m here to tell you that it is not only ridiculous, but complying with the Palm ruling is downright impossible.
Emus are nothing if not controversial in their opinions, but let me first say that Palm ruling was a good thing in that the Board of Directors that was sued was doing very naughty things, including but not limited to repeatedly voting in closed sessions and refusing to provide owners access to Association documents (minutes, contracts, etc.). This was clearly a Board that needed to be reprimanded for such bad conduct.
But, as mentioned, fully complying with the requirements set forth by the Palm ruling is not possible as it would mean that a Board of Directors would have to either a) have a meeting every 2 weeks or b) not talk to each other at all about anything Association-related except for those 4 times per year when they get together for a meeting. And let’s face it, neither is the slightest bit realistic.
Even if an Association could find Board members willing to give up 2 nights per month for meetings, what facility short of an Association’s own clubhouse would be available that frequently? Most Association’s do not have clubhouses, so their Board meetings are held at libraries, town halls, community centers, and police stations. But if you took the number of community associations in any given City or Village, and multiplied it by 2 meetings per month… you would run out of availability pretty darn fast!
What’s that you say… have the meetings in someone’s driveway? What about November-March, and in this year’s case, the collective better half of April? What’s that you counter… have it inside someone’s garage? Okay, aren’t we getting a little silly now?
What do the Attorneys have to say about all this? I’ve spoken to many attorneys ever since Palm happened, mostly venting my incredulity, but also trying to wrap my head around how to help my associations adapt to this new world order.
Let me just say, Attorneys are very good at pointing out all of the things that would constitute a violation of the Palm ruling, but they seem just as flummoxed as I when it comes to the question, how does a Board comply with Palm? Here are the most straight-forward suggestions that I’ve heard:#1: Assign more spending and decision-making authority to Management. This will eliminate micromanaging by the Board and allow the manager to make judgment calls and decisions consistent with the policies and procedures adopted by the Board. I love and admire the attorney who suggested this, but I must admit, I laughed out loud when I heard this one. The Board of Directors giving their Manager cart blanche when it comes to maintaining the property is just not going to happen for 2 reasons:
1) Boards don’t trust their manager to this extent, nor are they able to give up this much control over where the money goes. Speaking from personal experience as a Manager with a $1,500 spending authority in most of our Management Agreements, I still get questioned by a Board when I cut a $1,300 check for roof repairs without checking with them first, or asked why I couldn’t find someone cheaper. Can I justify my actions? Absolutely. But do I really want to spend all my time doing that if my spending authority was increased to, say $5,000? Would it really make anything easier? No. .#2: Assign more decision-making authority to the Board president or another designated Director, and eliminate unnecessary Board discussion.
2) This suggestion essentially puts Managers in a position of decision maker. And most Managers do not want to be (nor should they be) the decision maker because, while a Board member cannot generally be held personally liable for their actions (i.e. decisions), a Management company most certainly can be. And why would a Manager take on additional risk and liability? A manager, first and foremost, carries out the decisions and directives of the Board, who can delegate tasks, but cannot delegate responsibility
#3: Have monthly Board Meetings, and Board members should refrain from any discussions of any kind outside of said monthly meeting.
Second verse, same as the first. While there are some Boards out there whose directors are more than happy to sit back and let that designated Director call most of the shots, the majority wish to be involved in the decisions making process. So I strongly believe this suggestion would fail for much the same reasons the first suggestion would... most Board members aren’t going to give up all the control to someone else, whether it’s another Board member or their Manager.
While this suggestion comes closest to plausible, it doesn’t quite hit the mark. Though some associations have monthly meetings, most do not. Whether it’s because they aren’t able or willing to give up more of their free time to have more meetings, or that it’s simply too difficult to coordinate all of the different Board members’ collective personal schedules in order to do so, monthly meetings just aren’t going to happen for many Associations. And if the solution isn’t applicable to all Associations, then it isn’t a very effective solution.
So, what do you do? How do you comply with the Palm ruling? More accurately, how can you avoid violating Section 18(a)(9) of the Condo Act now that it has been filtered and interpreted by the Palm ruling? First, let’s keep in mind the following:1) There is no Board of Review or governing body that enforces Palm or issues fines for violations. “There is no Palm Police,” says Dawn Moody of Keough & Moody, but adds quickly with a chuckle “…at this time.” Therefore, in order to be found in violation of Palm, someone would have to be so disgruntled that they sue you and a judge would have to rule that you are indeed a stinker.
2) Since this type of case would not be for personal damages, no attorney would take the case for a percentage of a monetary judgment, because there would not be any monetary award or judgment. Meaning, the disgruntled owner would have to flip the bill if he wanted to sue. According to Stuart Fullet of Fullet, Rosenlund, Anderson, the first year of litigation will cost anywhere between $25,000 and $50,000, and that’s on the low side, meaning a 14-year litigation would cost somewhere in the neighborhood of $400,000. You know anyone willing to cough up $400,000 because you ratified the Board’s approval of the sealcoating contract a month after the parking lot was sealed?
3) In said lawsuit, in order to be entitled to monetary damages, said disgruntled owner would have to prove that they suffered a loss by the Board’s alleged non-compliance with Palm. I don’t see how ratifying the renewal of your Lawn Maintenance contract can cause anyone a loss, but maybe I’m too insensitive to people’s feelings.
4) The Association’s Directors & Officers insurance policy would generally cover the cost of the Association’s or Board’s defense in the event that the Board is sued for violating the Act. In other words, the plaintiff needs a whole heck of a lot more money than the Defendant would.
5) “Palm” was the end result of a 14-year lawsuit, filed by an Association member by the name of Gary Palm (who happened to be an attorney), against his Association and its Board of Directors for what were clearly violations of the Condo Act. This was not a Board that signed a snow removal contract in late October and waited until their November Board meeting to ratify the approval. This was a Board that repeatedly had closed sessions at which they did all their voting and stonewalled Gary Palm when he requested copies of Association records the Act clearly entitled him to examine. And Mr. Palm (now deceased, by the way) was not an individual who spent hundreds of thousands of dollars of his own money, which 14 years of litigation would most certainly have cost him. This was a disgruntled owner who happened to be a lawyer with enough time and energy to handle the suit himself.
So, keeping these things in mind, what should you do about Palm? Now we come to the most controversial part of the article. My suggestion…
To confirm, do nothing provided you have always been sure to make all votes in an open meeting (4 per year is just fine), so that all owners know every decision you are making on their behalf. Continue to be as transparent as possible. Schedule your meetings, albeit 4 of them, around the main decision making times of the year (plant replacements, painting projects, paving projects, roof projects, contract renewals, etc.) so that, as often as possible, the Board is discussing and voting before the actions are taken.
And in the event you are in a situation where you need to sign a contract before the next meeting, maybe to avoid a lapse in service or missing out on a significant cost savings, then make sure you ratify that decision at the very next meeting. Truth be told, I’m not a big believer in ‘emergency meetings.’
Make sure any owner hearings you have for violations are scheduled for the same night as a Board meeting. Be sure you host an open forum for all owners present as the last agenda item of every Board meeting.
To confirm, this is just one Manager’s opinion, and I don’t necessarily expect too many others to share it. But I am nothing if not brutally honest and blunt. And it is with that honesty and bluntness that I say to my Boards: If you’re truly not doing anything wrong or inappropriate, what can anyone do to you? Form everything I’ve seen and heard over the past 2 years since we all got smacked with Palm (see? I did it again), the answer is ‘nothing.’ So, to the question, ‘What should we do about Palm?’… I give the same answer: Nothing. Again, just one fed up Manager’s opinion.
Finally, what about all of those ‘illegal’ email discussion threads among the Directors that eventually end with a Board consensus? (shrugs) The world is different than it was 14 years ago, when Gary Palm first got his britches twisted enough to file suit. There were no smart phones. Email in offices wasn’t as prevalent as it is now. Faxing was the quickest way to put printed word in someone else’s hand and now faxing is an antiquated joke. Many offices are completely paperless! The result… People are now accustomed to and therefore demanding of instant gratification. So to try to tell a Board of Directors to deny themselves that instant gratification, and to keep it all bottled up until the next meeting … you’d have better luck trying to put lipstick on an emu.