“Trouble in Paradise: Much Ado About . . . the PAC”
The Laguna Woods Performing Arts Center is the crown jewel of this celebrated senior residential community. In addition to being home base for our two (extremely active) theater groups, all 6 of its classical music concerts each year are sold out, as are the Champagne series, free movies and twice yearly Chinese New Year’s performances; not to mention numerous well-attended pop concerts throughout the year.
However, the building is showing its age: its roof is in dire need of repair; there is dry rot in the structure and mold on many of its walls; its curtain is a real fire hazard; many of its several hundred stage lighting fixtures are being held up with bungee cords! And a major need is the removal and replacement of the PAC’s air conditioning (HVAC) system. In sum, the building in its present state is a disaster waiting to happen.
As a result, numerous proposals have been bandied about for years for how to treat this local disease, from spot repairs to full-on renovations, to outright replacement. Following years of advisory discussions and professional advice, finally a proposal to patch the roof, install a new curtain, completely upgrade the stage mechanics and lighting, and replace the aging air conditioning system was put to a vote at the June closed door GRF board meeting. The proposal squeaked through by the slimmest of margins: 6-5. But that was only the beginning of our own version of “the Troubles.” GRF president Bunny Carpenter made clear that she would not sign a contract to put the proposal into effect.
Why, you might ask, would GRF’s president flatly refuse to support her majority’s decision? The answer may be found in our governing structure, and is just the latest example of our failure to respect the lines that demarcate our various boards’ powers.
Village governance is parceled out among our three housing mutuals, which control what goes on within their physical boundaries; and GRF, whose jurisdiction covers community-wide facilities, such as our community center, golf courses, equestrian center, club houses, and – pointedly – the PAC.
The housing mutual boards are elected by the thousands of individual Laguna Woods Village members. In contrast, the GRF board is elected by the directors of the housing mutuals (the corporate members). But – and this is a big “but” – they may also be removed by the directors of the housing mutuals . . . without cause, which leaves a Damoclean sword hanging just above the GRF directors’ heads. And therein lay a problem: While a bare majority of the GRF board favored proceeding with the PAC upgrade, the boards of the principal corporate members (United and Third) hotly opposed the expenditure . . . and clearly made their hostility known. Thus did the issue come to a boil when the fateful vote was taken.
So the vote was not taken in a vacuum: the directors knew full well that the United and Third boards could – and perhaps actually might – remove anyone who voted to approve the PAC upgrade. As the contract would require further negotiation, the housing boards may have felt they still had time to remove enough directors to kill the project. Nor did the boards lose any time showing their antipathy: the day after the GRF vote, United’s board voted to call a corporate members meeting to consider (meaning to disapprove) the PAC contract.
Viewed from a purely political perspective, the pressure brought to bear by the corporate members seemed to put all these directors between a rock and a hard place. Whether or not that figured into Bunny’s thinking, I have no idea.
Of course, why do anything directly when you can camouflage your true intention under a lofty-sounding principle? So instead of coming right out and opposing those PAC upgrades, the boards of both United and Third took the position that the GRF board was prohibited from entering into the contract in the first place, citing GRF by-law §2.1.4, which provides:“As to any expansion of facilities or construction of new facilities, either the construction of a new facility or an addition to an existing facility of at least 1,000 new or additional square feet or a minimum cost of $500,000 … GRF shall obtain approval of the Corporate Members . . . .”
To support their boards’ antipathy to the PAC contract, the attorneys for both United and Third trotted out their opinions that §2.1.4 required the approval of their corporate member clients. Since the interpretation of documents (statutes, judicial opinions, contracts, by-laws) is sort of a specialty of mine (it is, after all, how I acquired my modest reputation), I would have been drawn to this issue even absent my strong attachment to all things theatrical.
But did §2.1.4 really require corporate board approval?
I would ask a different question: Did the corporate boards even need to ask their lawyers for that advice? I mean, when the answer is staring you in the face, do you really need a lawyer to tell you the time of day? That both United’s and Third’s lawyers then advised that §2.1.4 did apply truly gobsmacked me. Because in my opinion – everything here is just my opinion – their interpretation was clearly wrong.
The improvements listed in the proposed contract do not fit into any of those by-law categories. Patching the roof, replacing the air conditioning and curtain, and rehabbing light rigging are not an “expansion of facilities,” a “new facility,” or an “addition to an existing facility.” You don’t need training in law or linguistics to know that. Just use your good common sense. Replacing an air conditioner (regardless of cost) is not an “addition” and certainly not itself a “facility;” it is just an air conditioner. (To quote my wife, “Sometimes an air conditioner is just an air conditioner.” Sounds a bit Freudian, doesn’t it?) Nor do any of the ADA upgrades or the new sound system alter my opinion.
What §2.1.4 really means:
So let’s unpack this by-law. Can we determine the intention of its drafters, which is – after all – the paramount consideration in interpreting it? In my opinion, their intention was crystal clear. The terms they used (over and over … and over again) – (a) “expansion of facilities;” (b) “construction of new facilities;” (c) “construction of a new facility (sic);” or (d) “addition to an existing facility” – showed that their focus was the limits of GRF’s authority to build out, to create or increase the dimensions of a facility without corporate member consent. [Emphasis added] And nothing more. (Quick: go back and read the by-law right now, and you’ll see how those 8 words perfectly describe every one of those four by-law phrases.) Only if a proposed improvement fit into that listing of (redundant) actions would the remaining limiting phrase even become relevant. And since none of the PAC improvements would increase the physical dimensions of that facility, the by-law was inapplicable. Even use of the word “addition” must mean an addition to the facility’s footprint (or dimensions); else that one word would have two different meanings.
Nor were the drafters’ intentions in adopting the remaining text any less clear: any work that increased the dimensions of a facility by less than 1000 sq ft or cost less than $½Million was not sufficiently important to require corporate member approval; anything less was therefore de minimis. Hey, this is not rocket science; it’s just plain common sense. Just read the by-law!
And when the United board – in knee-jerk fashion – voted the very next day to convene a corporate members’ meeting to disapprove the GRF vote, they were operating on an erroneous reading of §2.1.4, an interpretation apparently encouraged by their lawyer, of all people! The minutes of that meeting show that the resolution was based on the understanding that §2.1.4 applied to an “improvement … worth at least $500,000.00.” [Emphasis added] And it clearly did not. The word is never mentioned in the by-law.
If the drafters wished to grant the corporate members the right to approve any improvement in excess of $500,000.00, they could have easily amended the by-law to say so:“Corporate Membership approval shall be required for (1) construction of a new facility, (2) a 1,000 square feet or more expansion of any facility, or (3) any expenditure in excess of $500,000.00.”
But they did not, and the housing boards and their lawyers had no right to amend the by-law for them.
Since I am a lawyer and am questioning the advice of two other lawyers, permit me to sound like a lawyer for a few paragraphs: The most that can be said in support of the lawyers’ interpretation would be that the word addition is ambiguous; and therefore it was reasonable to interpret the by-law to include the HVAC system, because it was going to be added to the PAC (a facility). [In contrast, I have argued that the word addition just means something that added to the square footage of the facility.] But in order to do that, the lawyers had to ignore a basic canon of judicial interpretation, the rules that judges apply to determine the intent of the drafters, when faced with an ambiguous term.
In this case, the controlling canon is Noscitur a sociis, a rule that, as the late Justice Antonin Scalia writes, “counsels that “the meaning of an unclear word or phrase should be determined by the words immediately surrounding it. …. [The canon] is just an erudite … way of saying what common sense tells us to be true: ‘[A] word is known by the company it keeps’ …. that is to say, which of various possible meanings a word should be given must be determined in a manner that makes it ‘fit’ with the words with which it is closely associated.” [James v. United States, 550 U.S. 192 (2007) (Scalia, dissenting)]
The words immediately surrounding “addition” in the by-law are expansion of facilities, construction of new facilities, and construction of a new facility, all words that clearly describe just one concept: increasing the dimensions of the facility; its footprint; its square footage. Logically, therefore, it was improper to change the meaning of the word to include just any old work specification that costs more than half a million. (And these canons are not a grab-bag; they are rules to prevent grab-bag interpretations of rules.)
Legal advice generally starts with a fixed set of rational principles (and commonly-accepted definitions); those principles and definitions are then applied to a variable: the facts at hand. Since principles and definitions should not change (after all, they are “fixed” and “principles”), providing competent, unbiased legal advice – as to whether a particular rule applies – should be a piece of cake: the facts logically will determine the outcome. Here, since the PAC contract specs would not create – or increase the dimensions of – the facility, logic compels a single conclusion: §2.1.4 does not apply, period. And the law follows logic.
But I believe an opposite logic – an illogic – took hold for the housing boards: start with the conclusion (kill the project), and work backwards to find a rational predicate; something that passes the “straight-face” test; something the boards can point to as a reason for sticking their noses where they didn’t belong. The way they got to that predicate, I believe, was to misinterpret the by-law. The process they followed reminds me of how a monkey makes a bow-tie: Hold the monkey down; put the bow-tie on it; film it tearing the bow-tie off; and then run the film in reverse. Whether – or to what extent – Third’s and United’s lawyers may have been influenced by their clients’ consuming desire to block the proposal is something only they can answer.
There is another important point that must be made: Kelly Richardson, GRF’s lawyer, certainly knew GRF’s by-laws, and he advised the board that corporate approval was not required. And his opinion was the only one that mattered. And his opinion was correct.
So what’s the problem? GRF is a stepchild of the housing mutuals; so arbitrarily removing and replacing the GRF directors was clearly within their power, but it was not within their rights. Just like the Congress has the power to remove federal judges with lifetime appointments. . . but they don’t do that just because they don’t like a particular decision – unrelated to the judge’s competence. That would be an abuse of power. Wasn’t it Spiderman who famously said, “With Great Power Comes Great Responsibility”? (OK, in 1974, I was Marvel Comics’ trademark lawyer.)
The responsibility for the PAC belonged exclusively to GRF; and that is where it should have remained. The housing mutuals have no experience with that building, and no competence with its maintenance.
Interestingly the housing boards didn’t remove any directors. They just huffed and puffed. So we are left with the Third and United boards manufacturing a chimerical (in my opinion) excuse for insinuating themselves into a dispute they had no competence, experience or responsibility to resolve. Did their huffing and puffing influence the resignation of 4 highly-regarded and well-liked GRF directors who actually did have the competence and the experience to make the hard choice to proceed with the GRF upgrade? You tell me.
Remarkably, the reconstituted GRF board then quickly dispatched their lawyer, Kelly Richardson, who was just doing his job when he provided his honest, accurate opinion. His prompt firing is a classic example of the disreputable practice of killing the messenger. They had already dispatched the 4 “meddlesome” directors. But instead of recognizing Kelly’s professional integrity, it looks like they simply opted for someone they hope will be more malleable. Is that what GRF should be looking for when hiring a lawyer? Malleability? Good grief!
It is remarkable the number of wrong turns taken by so many, all in the service of defeating a proper (if expensive) GRF decision. And the simple explanation is that the folks running our local governments – the United and Third boards – failed to respect the limits of their authority. Had they done so, none of the chaos that we’ve now read so much about would have occurred. Similarly, had Bunny Carpenter stood up to the improper pressure by the housing boards, had she backed her board’s vote and demanded respect for GRF’s independence, directors Perak, Soule, English and Fitzkam might still be on the board and Kelly Richardson still be their lawyer. But they didn’t; and she didn’t. Too bad.
Readers should get seriously upset over this, because in my opinion the corporate boards and their lawyers violated the law, by mis-interpreting §2.1.4 to obtain an improper result, with 4 competent directors and a damned good lawyer as just so much road kill. If they are allowed to get away with this with no outrage, it will only encourage more lawlessness in the future. Look at the Republicans who assured us all that Trump needn’t be removed from office, because he had “learned his lesson.” He learned a lesson, alright: Having escaped punishment for his Ukraine mis-adventure, he promptly “hit up” Xi and Bolsonaro for help with his re-election bid! And he is now openly seeking to cripple the Postal Service in a blatant attempt to hamper mail-in voting. That is the perfect example of the dangers of tolerating lawlessness.
Our lives are filled with rules we hardly ever even think about, yet they govern so many of our inter-actions: statutes, ordinances, executive orders, emergency decrees, regulations, CC&Rs, corporate charters, HOA agreements . . . and by-laws. Rules are comforting; they provide secure boundaries. We hardly even think about them because ordinarily they fit so seamlessly into our daily lives; they make so much sense. [And when they don’t, we change them … or we change the people who wrote them] So when a dispute arises, we use those rules to smooth out the wrinkles . . . to keep our relationships on an even keel, to quickly find an answer so we can keep moving forward. Referring to – and relying on – those rules does something else: It reaffirms our respect for the society – the form of government – we have chosen to live with. It reaffirms our self-respect. We make decisions, and we solve problems, we resolve disputes in a civilized – rule-based – manner, and we move on. There is something refreshing about doing the right thing, following our rules without hesitation.
So when boards . . .or their officers . . . and their lawyers fail to follow their own rules, they insult us, and they insult themselves. And they wave a red flag, because decisions have consequences.
Board officers are not given a special right to ignore a board decision. Like it or not, GRF president Bunny Carpenter had an obligation to support the board’s decision, not sabotage it. Since the board’s lawyer properly authorized the contract vote, it doesn’t matter what the other boards’ lawyers may have said. Following that 6-5 vote, the GRF board – all 11 directors – should have strongly and publicly affirmed their determination to put that contract into effect; and to protect their jurisdiction. Such a shot across the bow might have been all that was needed to prevent the housing boards from making any trouble.
There is another reason why Bunny et al should have nevertheless supported the decision . . . and ignored any corporate membership pressure: GRF had been wrestling with this issue for over four years; they had spent a ton of money obtaining the best (or at least the most expensive) advice money could buy; they had gotten great input from an army of member advisors; and the issue was finally ripe for disposition. Under these circumstances, who better to make that decision than the 11 members of the GRF board? Many of them had been living and breathing this issue for years, investing a simply inordinate amount of time and energy . . . and emotion before finally making a critical decision. The idea that people foreign to those deliberations could come out of the woodwork at the 11th hour and snatch the ring away is preposterous. It is an insult to logical thinking. The GRF board was peculiarly qualified to make that decision . . . and no one on the face of this Earth had anywhere near their competence. That is the singular reason why their decision should have counted . . . and no one else’s opinion was worth a damn.
There is something to be learned – something truly refreshing – about this brouhaha. What we saw in that 6-5 board vote was a demonstration of real courage, real character. Here were 6 GRF directors threatened with removal; yet, they did what they thought was right. Right or wrong, they fulfilled their fiduciary duty. Kudos too to attorney Kelly Richardson for providing honest advice, even though he too must have known the risk he faced. They taught us all a lesson . . . in integrity. If more people like those 7 individuals just did their jobs, day in and day out, we would be living in a better-managed community . . . and a better-managed country.
It may sound hokey, but even here in Laguna Woods, we operate with “a government of laws and not men and women.” The reason we respect our rules is because when we violate our laws, our rules, our by-laws, all hell can break loose. Failure to follow our rules just encourages more violations; and chaos naturally follows.
The idea that our housing boards can intervene any time they object to a GRF decision upsets me. Any time someone takes the law into their own hands, that upsets me. Because where will it stop? So I encourage everyone reading this blog post – all 5 of you! – to let Bunny Carpenter and the United and Third boards know how disappointed you are with their failure to respect GRF’s vote . . . and GRF’s independence.