Is the Board’s Action with respect to the Annual Members Meeting Legal?

Discussion

The board recently issued a shocking e-mail blast that the members will not be permitted to vote on properly submitted bylaw amendments at the Annual Membership Meeting required even if a quorum of members (500) is represented. I submitted a couple of amendments to allow the members to vote on the big stuff so I was wondering whether what the board is doing is legal. What do you think? Since, as of now, members can’t vote on anything at the Annual Membership Meeting I will allow you to cast your ballot here on whether what the Board has said it will do is legal?

Yes

No

Maybe


Here are some details:

I am sure everyone remembers the annual members meeting where the lawyer came out and said members can vote but it won’t change the bylaws. Since then the bylaws were changed to clearly allow members to change the bylaws (Definitions Section A –Article IV Section 4) if they followed specific procedures and a majority of members voted to change the bylaws. In its recent announcement the Board stated as follows:




ANNOUNCEMENT REGARDING PROPOSED MOTIONS

The Board had received many proposed motions submitted by members. All the motions relate to matters concerning the conduct of the business affairs of the Corporation and deserve further study and research by the Board and Management.

Therefore, pursuant to the provisions of Bylaws, Article IV, Section 4, the Board has elected to study the business and financial effects of the proposed motions.
The motions will not be voted on at the Members’ meeting pending their review by the Board. The Board will, within a reasonable time, announce its decision regarding the business and financial effects of the proposed motions for the information and consideration of the membership. (Emphasis added)




First, let’s be clear, there is a lack of trust by the Board of the Members and by the Members of the Board and Management. That does not help the situation. But let’s be objective and see if there is a clear answer to the question of whether what the Board is doing is “legal”. Please note the discussion below is not a legal opinion and should someone need legal advice they should contact a lawyer licensed in the State of Arizona.

I think the following sections of the Bylaws are applicable.

The Bylaw definition Section A specifically states bylaw amendments ARE NOT Business Affairs of the Corporation.

Article IV Section 4 states the bylaws may be amended by the board or the members and if there is a conflict in between what the members say and what the Board says the members will prevail. The section goes on to say, and this is important, as follows:

“Proposals or matters relating to the conduct of the business affairs of the Corporation, if brought before a Membership meeting, will be referred to the Board for study. Such matters, being solely within the powers delegated to the Board in accordance with the laws of the State of Arizona and Corporate Documents, will be considered only as a recommendation to the Board.”

In its announcement the Board concluded without explaining why that the bylaw amendments submitted by the members are proposals relating to the conduct of the business affairs of the Corporation. Therefore these bylaw amendments can only be considered recommendations that the Board will study. Hmm? Bylaw amendments are by definition NOT business affairs of the corporation but this board has ruled the member initiated bylaw amendments for the annual meeting relate to the business affairs of the corporation. Seems odd, doesn’t it? The bylaws say a bylaw amendment isn’t a business affair of the corporation and can be voted upon but the board says it can overrule the bylaws if they conclude the bylaw amendment relates to the business affairs of the corporation. However, there is no provision in the bylaws which allows the board to overrule the bylaws when they don’t like the result. Has anyone read catch 22 lately?

I think there are at least a few more things the Board overlooked. One is the sentence that says that “Such matters, being solely within the powers delegated to the Board…” This sentence defines business affairs as matters that the Board has exclusive (sole) authority over. Article VIII Section 4 of the Articles of Incorporation clearly states that the Board does not have exclusive authority over amending the bylaws. They can be amended by either the Board or the Members. Either the Board does not understand the Bylaws or they are choosing to ignore them.

Further Article XIII of the Articles of Incorporation provides the members can vote by proxy for “b. Members amending the bylaws of the Corporation” The email blast declares as follows “The motions will not be voted on at the Members’ meeting pending their review by the Board. “ So the Board is indicating it is willing to violate the Articles of Incorporation and not allow the members to vote.

In addition, the E-Mail Blast indicates that “pursuant to the provisions of Bylaws, Article IV, Section 4, the Board has elected to study the business and financial effects of the proposed motions. “ Nowhere in this bylaw section does it provide for the board to make any such an election.

If you are still awake and reading this, may I suggest you write the Board and ask them whether what they are doing is legal? When I was on the Board I was always concerned that our actions did not violate the corporate documents. Why was I concerned about this? Simple, there could be personal liability for any action taken that violates the corporate documents which is not covered by the D&O policy and if the corporation is spending millions on something that violates the corporate documents it could easily bankrupt the richest board member.

Stay tuned as more e-mail blasts are coming from the Board...

 

Further Communication from the Board

The RCSC Board recognizes that we did not provide enough background information regarding the motions submitted for the annual membership meeting. The Board is concerned with many of the motions as follows:

• Some of the motions may have legal implications because they impact on how the Board conducts the affairs of the Corporation. The Articles of Incorporation Article VIII, Section 1 state, “The affairs of the Corporation shall be conducted by the Board of Directors and such Officers as the Board may elect or appoint.” Additionally, the current RCSC Bylaws Article V, Section 6.A.1 state, “The Board will have the authority and responsibility to…direct, control, manage, and supervise the business and financial affairs of the Corporation without limitation except as set forth in the Corporate Documents.” The Bylaws also state in Article IV, Section 4, “Proposals or matters relating to the conduct of the business affairs of the Corporation, if brought before a Membership meeting, will be referred to the Board for study.
• Some of the motions conflict with other submitted motions.
• Several motions refer to proposed Board Policies that don’t currently exist.
• Some motions include changes to current Board Policies. These are not appropriate to the annual membership meeting where only changes to the Articles of Incorporation or the Bylaws are appropriate,

Because of these concerns, the Board requested an opinion from our legal counsel. The recommended opinion was to pull all motions and refer them for review and possible revision.

Based on opinion from our legal counsel and feedback from our community, the Board will form an ad hoc Bylaws review committee composed of Directors and RCSC members. This committee will review the current Bylaws, including all submitted member motions.

The Board is accepting applications from members who wish to be part of this committee. Contact the Corporate Office with a brief resume.

Oh well - And now you have the rest of the story - Members don't matter.

 

Huge slap in the face to all members, worse for the people who worked on this.

 

Oh well - And now you have the rest of the story - Members don't matter.[/QUOTE]

I don't agree with you, John, that Members don't matter. I think what the RCSC Board is doing is prudent here with the amount of the motions proposed. Some are very well thought out; others are too voluminous for Members to be able to digest, understand and comment on in one meeting. Initially I was concerned but the second email blast has calmed those concerns. I know people have put a great deal of effort into what they thought was the correct thing to do. The attorney is saying that the Board needs to review the motions which is in the best interest of the Members. I can live with that.

 

IMO they went about it in the wrong way. A lot of people wanted to go. Now they don't, and if they do someone said it should be a good show and he was bringing popcorn. As soon as they realized it wouldn't work they could have sent an email blast explaining why and maybe postpone the annual meeting. The way it was done just pissed people off, and after everything that happened in 2024 this is just another bad look.

 

I don't agree with you, John, that Members don't matter. I think what the RCSC Board is doing is prudent here with the amount of the motions proposed. Some are very well thought out; others are too voluminous for Members to be able to digest, understand and comment on in one meeting. Initially I was concerned but the second email blast has calmed those concerns. I know people have put a great deal of effort into what they thought was the correct thing to do. The attorney is saying that the Board needs to review the motions which is in the best interest of the Members. I can live with that.[/QUOTE]
Janet, I respectfully disagree. The legal analysis provided would relegate any and all member motions to amend the bylaws to recommendations to the Board. The proper course is to allow a member vote on the motions and then determine the impact of the member vote. In addition, the ethical thing to do is to contact the motion maker with the concern so the motion maker can present why the concern is invalid. And are you telling me the Board cannot review the motions before the annual meeting. I think I understand your real concern but Janet you simply can't stonewall the members because you are concerned about unintended consequences. John

 

Janet, I respectfully disagree. The legal analysis provided would relegate any and all member motions to amend the bylaws to recommendations to the Board. The proper course is to allow a member vote on the motions and then determine the impact of the member vote. In addition, the ethical thing to do is to contact the motion maker with the concern so the motion maker can present why the concern is invalid. And are you telling me the Board cannot review the motions before the annual meeting. I think I understand your real concern but Janet you simply can't stonewall the members because you are concerned about unintended consequences. John[/QUOTE]

 

I have spent a whole lot of hours reading and reviewing Arizona Revised Statutes, primarily Title 10 to do with corporations and member voting. Attached are two articles regarding members right to vote.

10-11003. Amendment by board of directors and members


B. The following apply to amendments to the articles of incorporation by the members, if there are members:

1. If the articles of incorporation expressly permit, the members may propose amendments to the articles of incorporation. If so permitted, the articles of incorporation shall set forth procedures for adopting member initiated amendments, including the percentage of voting power and method of notice required to propose an amendment and the responsibility for calling a member meeting to consider the amendment.

2. For the amendment to be adopted, all of the following shall have occurred:

(a) The members entitled to vote on the amendment shall approve the amendment as provided in paragraph 4 of this subsection.

(b) The corporation shall notify each member in accordance with subsection A, paragraph 4 of this section.

(c) Each person whose approval is required by the articles of incorporation as authorized by section 10-11030 for an amendment to the articles of incorporation or bylaws shall approve the amendment in writing.

3. The members may condition adoption of the proposed amendment on any basis.


10-11103. Action on plan

A. If the members of a domestic corporation or other persons are entitled to vote on or approve the plan, except as provided in subsection G of this section, after adopting a plan, the board of directors of the corporation shall submit the plan for approval by its members and t0
B. For a plan to be approved all of the following must occur:

1. The board of directors recommends the plan to the members, unless the board of directors determines that because of a 0 to the members with the plan.

2. The members entitled to vote on the plan approve the plan.

3. Each person whose approval is required by the articles of incorporation for a transaction of the kind contemplated by the plan approves the plan in writing.

C. The board of directors may condition its submission of the plan on any basis.

conflict of interest or other special circumstances it should not make a recommendation and communicates the basis for its determination
I don't feel the board has sufficiently communicated its basis for its determination.

I feel the articles in question should be spelled out in a clear and concise manner. These are the laws as written in the State of Arizona. I read nothing authorizing a board of directors having the ability to deny a membership vote. Add the corporate documents as written, which states the conditions as to how bylaws and amendments are to be interpreted and we have a board that may not be operating in good faith.

Forgive me, but I need a nap badly. Reading and researching ARS is not a job easily accomplished.
All of this is just my opnion of course

 

Hello Carol,

I did the same type of research and became convinced that an action for injunctive relief would be granted and a vote at the Annual Members Meeting would be required if I were to take my motions to court. I started the filing procedure in the Arrowhead Judicial district court (it is an easy filing) and then stopped myself with this thinking: In my opinion the Board does not want member involvement they want specific projects undertaken. These include building a theater at Lakeview, building an indoor dog training facility, completely redoing the nine-hole Qual Run Golf Course and doing something at MountainView which probably involves a large expansion of pickleball. The total price tag for these projects is in the neighborhood of $35,500,000. None of these projects have a completed business case. If a court were involved it would mean more bad publicity for Sun City, more ill will by the members, having RCSC spend my money on legal fees and further entrenchment of an already isolated Board and management against the members. I hope you agree that none of these likely consequences are worth spending what limited time I have left just so the members have the right to vote on the big stuff. I will register my proxies even though it is a meaningless gesture. I promised those who gave them to me that I would do that. I have always lived by the National Civic League credo that there is nothing we cannot accomplish if we work together. It is clear that allowing members to vote on the big stuff is not something the Board is willing to work together on.

 

John,
I was hoping you would find something with a definitive answer to this dilemma. I tried for a lot of hours, probably read over 500 pages trying to achieve a true clarification.
I have a different take on filing with the court. The members definitely feel alienated and need to feel that they have an advocate on their side. Right now, I think they feel helpless in being able to find representation that is in their corner.
Filing an injunction against the RCSC and the board could rally the members to take an active interest in what’s going on. Being a paralegal a bunch of years ago, I am usually the person to not want to go towards litigation, but in this instance, it may be the best choice. It would draw attention to what is happening within the community and definitely heighten the awareness of the members. What’s the old saying “Any kind of attention is a good thing.”
No matter which way you go, it’s going to get ugly. I am for the board making its review prior to the meeting, then issuing the findings to the members before the meeting and having a vote. If the date of the members meeting needs to be changed, do it. Offer informed consent and options to the members before meeting, not afterwards. That’s a cowardly way to conduct the business of a corporation. Just my opinion, but I think filing the paperwork with the court will definitely get attention for the issues facing the membership. It will be negative attention at first, but if the board decides then to be more transparent about their plans for the amendments, this could be made into a positive outcome.
Understand, I still don’t support the changes you advocate for, but I will defend your rights to present them in the fashion that the bylaws describe.

 

Hello Carole,
Can't any member who believes they will be wrongly denied the right to vote can initiate legal proceedings seeking injunctive relief on their own behalf? So, you could file suit if you felt strongly enough.

John

 

You are right, I could file a lawsuit, but only as one voice. The delays would be started immediately after filing, so I would be pissing in the wind. I am not in a place to hire an attorney to start a class action which is exactly the class of relief that needs to be sought.
Thanks for the info but I don’t think I can pursue this issue any further. It’s going to take time to be able to go to the courts and endure who knows how many delays and be inundated with inane discovery items that are designed to tie a person in knots. The legal process is not for the faint of heart dealing with a significant injury they are trying to heal from.

 

But would you volunteer your time and expertise if someone else filed?

 

Yes, I can contribute some more time as needed. I still get tired quickly at times, the gash has reduced in size, but is still about 5 inches long., I didn’t mess around when I did this.
I don’t know what additional help I can provide but am willing to try to be supportive. Let me know on a message how to be in direct contact and see what I can do to be helpful.

 

Carole, take it from an old paralegal with a JD in street justice, file as a class action. Caption would be:

Carole Martinez and all others similarly situated,
Plaintiff
V
Recreational Centers of Sun City by and through their
Board of Directors, namely and start with the officers and then
the remaining Board Directors, individually and in their capacity
as a Board Director,
Defendants

You only need one person as plaintiff to file a class action although the court might require more named platintiffs or defense might request more. Probably file in arrowhead Court since it is a basic civil matter. Do it pro se for the few dates , need a motion for a TRO and another for Summary Judgment although that might be a bridge too far.Might want to add Matt to this just to piss him off.

Gosh I feel like I am 25 again hustling for plaintiffs for class actions State or Federal Court.I love it, God help I love it. Thanks to General George S Patton for the quote.

How am I doing John?

 

Thanks for the opening header for filing. And I think I could find a few people who would be willing to add their names to such an action.
Now I need to decide if it’s best to plead for a vote for this coming meeting or ask for relief to include changing the date of the meeting. My initial thought is requesting a change of date for about 2 weeks out and then demanding the motions be made ready for a vote by the members. If they try to change the intention of the initial filing of the amendments then declare that the RCSC has not performed in good faith and ask for summary judgment against the RCSC. I think we could prevail, just a bit of work. I am not sure I can be as effective as I once was, age can do that to a person.

 

I would only use a temporary restraining order as a last resort. Great legal maneuver but can take you down rabbit holes that the other attorneys can force you into. Have to be careful on wording when seeking that type of action. It can backfire on you if not approached in the right direction. Another way their lawyers could table the motion for further study and pretty much cancel the annual meeting altogether.

 

Wow - Good Progress. If you could frame the issue as one or two amendments that would clarify and streamline the process.

 

Are you talking about the filing of an injunction through the courts or an appeal to the board? The filing through the courts would be a petition and would state the primary facia evidence as well as the legal pleading seeking relief.
Amendments would be needed to apply through the board asking them to consider what it is that needs their attention.
Just trying to make sure I understand the direction you are seeking.

 

Legal proceedings would start with
John Fast, Carole Martinez and Anyone Else Who is Similarly Situated, as Members of the Recreation Centers of Sun City
Plaintiffs
V
The Recreation Center of Sun City and the Board of Directors, By and Through the Board of Directors, Individually and as a Board Member or General Manager
President Tom Foster
Vice President Chris Nettesheim
Secretary Connie Jo Richtmyer
Treasurer Anita Borski
Director Preston Kise
Director John Bresset
Director James Rough
Director Rick Gray
Director Steve Collins
General Manager Matthew D’Luzansky
Defendants

This is the best heading format I would use to start. It names the principle members for consideration of the suit.
If all you want is a formal request to the board then just remove the legalese.