These past several months unit owners have received many more mailed documents from PTCA and noticed a significant increase in the number of board meetings. These are but a few of the changes the association is making due to recent rulings and interpretations of court cases known as Palm I and Palm II.
Palm began in 1999 in the Circuit Court of Cook County and has continued more recently in the Appellate Court. Palm I and Palm II are shorthand for rulings related to these cases.
More specifically, Palm II refers to the case titled, Gary Palm, Plaintiff-Appellee, v. 2800 Lake Shore Drive Condominium Association, an Illinois Not-for-Profit Corporation; Board of Directors of the 2800 Lake Shore Drive Condominium Association; and Kay Grossman, individually and as President of the Board, Defendants-Appellants.
The long title of this publication speaks to the importance and impact of the cases. For the purposes of this story, the two cases will simply be called Palm.
Gary Palm is past president of the board of directors at 2800 Lake Shore Drive Condominium Association. In 1999, the year after his term of office ended, Mr. Palm sought from the association copies of certain documents. When the association refused to provide them, he filed a complaint in the Circuit Court. The case has continued since then and has had dramatic, far-reaching repercussions for condominium associations across Cook County.
Note that the these rulings are considered to be binding not only on the parties involved but on all condominium associations in Cook County. This is so even though the rulings relate to very specific circumstances in those cases.
Also, it is notable that condominium associations in Cook County are quickly adjusting their conduct to comply with the rulings, thereby acknowledging that the rulings are significant and expected to remain applicable regardless of future court cases.
The most recent decision in this case is from the Illinois Appellate Court for the First District, Fifth Division, published May 2, 2014. The original ruling may be found online. See footnote at end of this story.
Many interpretations and discussions are available online under the search term, “palm v 2800 2014.” They make for good cold weather reading if you’re so inclined.
The findings in this case are dependent on the many prior cases cited in the documents and on several ruling documents:
- the association’s declaration and by-laws
- the Illinois Condominium Property Act (the Condominium Property Act) (765 ILCS 605/1 et seq. (West 2004))
- the General Not for Profit Corporation Act of 1986 (the Not for Profit Act) (805 ILCS 105/101.01 et seq. (West 2004))
- the Chicago condominium ordinance
This most recent decision renders an analysis of issues in the judges’ rulings. Below is a summary of what to this writer appear the most relevant.
Conducting Business in Closed Sessions The board must conduct association business in open meetings for which prior notice is given to unit owners and at which a quorum of the board is present. The term, “meetings,” includes workshops and executive sessions. The term, “conduct,” includes discussion and voting. The board may neither discuss nor vote via email, phone calls or otherwise in a manner that does not allow the participation of the entire association membership. However, a closed, unannounced meeting comprising less than a quorum of the board does seem to be permitted. Also, notice to association members of meetings must be done via postal mail.
There are three instances in which the board must discuss business in closed session:
- discussion of litigation
- discussion of employee hiring/firing
- discussion of rules violations
Although the discussion of these three subjects are to be held in closed session, the voting on them is to be held in open session at which a quorum of the board is present, and with the further requirement that all members of the association were informed in advance about the session and were invited to attend.
Board Vote on Contracts and Enforcement of Management Agreement Management must receive approval of expenditures from the entire board, not from any subset of the board, and only if the association’s declaration and by-laws allow such approval.
As they apply to spending by management without specific prior approval of the entire board, dollar limits vary depending on the association’s declaration and by-laws, and according to motions of the board voted on in open session for which prior notice was given to the unit owners and with the presence of a quorum of the board.
The board of directors may vote either to give management discretion to enter into contracts on behalf of the association and especially with monetary limits — or to not give management this power at all. The vote must take place in open session for which prior notice is given to the unit owners and the vote must be conducted with a quorum of the board present.
The board has fiduciary responsibilities to the association and if the board, as a whole, or its individual members, do not meet their responsibility, then they may be liable to association members. However, if the board members inform themselves of the material facts necessary to make decisions and, especially, if legal, financial, etc. counsel is sought and followed, then board members are not likely to be judged as negligent and thus not liable.
Other issues noted in the ruling include “failing to itemize reserves in the budget, failing to credit unit owners with surpluses, commingling operating and reserve expenses, allowing funds in bank accounts in excess of the FDIC-insured limit…”
Another ramification of the ruling is that there is no time limit on the maintenance of records and that an association must, upon the proper request from a member of the association, produce the requested document to the member within three business days.
To these ends, if a board seeks legal advice before reaching its decisions and relies on that advice in reaching its decision, it will be found to have properly exercised its business judgment. This judgment is best documented in writing and with a date. This is applicable to advice in many other realms, as well, such as engineering, insurance, financial, etc.
These decisions lead to a greater understanding of how the board and management must operate, and what members of the association may expect from their board and management. They also entail a far greater workload for members of the Board of Directors and for Management.
(I pause here to give thanks that our entire board, the members of which are volunteers, has not yet resigned as a consequence of trying to meet the new constraints to which they are subject according to the ruling.)
How PTCA measures up to these rulings in its past and present conduct is a topic of importance for all of us. Owners would be well advised to read and become familiar with the documents governing our association and to attend meetings of the board and its committees.
Until there are more rulings in related cases, condo associations throughout Cook County are working to meet the demands of these rulings and trying also to take a common sense approach with respect to the new workload.
Note that all documents ruling our association are available from the office and will soon be available at our new website, PTCondo.com, both in legal form and in a more easily read form.
In a recent conversation, Tim Patricio, our property manager, confided to me that the Palm “really makes management read the fine print, understand it and follow it. Everything now is hyper-intense and there is technical analysis of everything management does. It has really made things a lot more difficult and cumbersome.”
An example of what has become more cumbersome is the mailing of board meeting notification to all association owners. Prior to Palm, notices of board meetings were posted on bulletin boards, announced on our television channel (RCN 195), contained in emails to those owners who have joined the PTCA email list, and included in bold print on every monthly assessment statement.
Now, a separate mailing must be done, which requires an extra forty staff hours to write, reproduce, stuff envelopes, etc – all the while conducting normal office operations. The total cost of postage, materials and man-hours for a single mailing, is about $1,200.00!
Tim observes that while it is important for all owners to know about board meetings, there was not been a significant increase in attendance after these meeting-specific mailings were started. Therefore our board, in its wisdom, took the sensible approach of setting dates for all of its meetings through the next Annual Meeting in June, 2015 – then listing them in a single mailing to all unit owners.
This helps keep our assessments down and enables the office staff to devote more time to their already demanding schedule. Reminders continue via postings, television, email and assessment statements. Since there is no ruling about meeting cancelations, the board does so when they are determined not to be needed.
Another consequence of Palm, noted here at PTCA, is that communications between the board and management has become more complicated and hence more stressful.
Board members and management used to exchange emails frequently. This allowed dialog to be spread over time, with the possibility that greater understanding would emerge prior to votes, Now, Palm makes it illegal for such email to occur if more than a quorum of the board is included. In our case, three members of the board constitute a quorum, so email back-and-forth may not involve more than two board members.
The same is true if more than a quorum of the board wish, let’s say, to have dinner together or just talk with each other in the office. In fact, any time a quorum of the board is in one place at the same time, that may be construed as a disallowed closed meeting, with negative consequences definitely possible. As Tim notes, “rulings are inorganic but people and organizations are organic and need room to breathe.”
Associations like PTCA, in order to remain healthy, need both announced meetings and casual gatherings. They allow relationships to develop between board members, staff, and owners. Under such conditions, people relax and speak freely.
In an effort to keep everyone informed, while honoring the rulings, Tim has increased his communication of news and information. He sends weekly emails to the board and weekly News & Updates to owners who have joined the PTCA email list. The effort includes posting information of all sorts to the association’s new website, ptcondo. com. Staff continues to make sure posts go up on bulletin boards, door drops get done as necessary, and channel 195 is kept up-to-date.
Tim does note that Palm has its good points, especially for owners who take advantage of the increased communications. The renewed emphasis on attending board and committee meetings, the expanding venues for minutes and other documents – all these make for a better informed association.
He also notes that pursuant to the financial rulings of Palm ruling, PTCA has been found by its auditors to be in good shape with regard to its reserves and its process of budgeting.
It may take several years for all of the causes and effects of Palm to be understood and reinterpreted through subsequent court cases. However, its current impact is great and will continue to be so for many years to come.
by Sheldon Atovsky, with thanks to Tim Patricio, property manager, for his help with this story.
References relating to this story may be found at http://www.ptcondo.com/TTref