McNally v. Sun Lakes (CA1 10/13/16)

In which a homeowners’ association tries to blaze new trails in corporate law

Plaintiff was an elected member of  the Board of the Sun Lakes HOA. She received an email accusing HOA employees of malfeasance. The Board, in executive session,  discussed the email with its lawyer, who advised it to do nothing and to shut up about the email. (Apparently he thought the information too serious to reveal but not serious enough to investigate.) The Board also passed a strange resolution disavowing any responsibility for “maligning” the employees. Plaintiff then tried to read the email in open session but the chairman shut down the meeting. On the further advice of its attorney the Board “banned” Plaintiff from attending the Board’s executive sessions. She sued, seeking among other things an injunction to attend them. She sought a preliminary injunction; the trial court denied it. She appealed.

The Court of Appeals reverses. Nothing in the law or the HOA bylaws allows such action. Plaintiff had both a right and a duty to attend meetings, A.R.S. 10-3825. Apparently the Board’s only legal argument was that by excluding Plaintiff it was simply creating a committee. It hadn’t actually thought to try that at the time, inventing the excuse after the fact (presumably after insurance defense counsel was retained), but in any event the Board “could not have done so for the sole purpose” of excluding Plaintiff. Otherwise a Board could nullify 3825 “by creating a special executive session committee.”

The Board argued that it had no other way to keep executive-session information confidential. Whether Plaintiff had refused to do so was apparently in dispute; in any event, the Court points out that there are things called “injunctions.” It doesn’t explicitly say that an injunction would lie here but suggests that a court may exclude a Director from executive sessions that address, for example, misconduct, conflict of interest, or potential litigation involving the Director. There is also a statutory process for removing Directors for cause.

The Court remands with instructions to grant the preliminary injunction. It awards Plaintiff her fees on appeal but because other issues are pending below it denies her earlier fees, deferring to the trial court’s eventual determination of who is the prevailing party.

(Opinion: McNally v. Sun Lakes)