RESEARCH INVESTIGATION: Irregularities in the Dual Roles of President and Property Manager at PGA Patio Homes.

Summary. A thorough analysis of the provisions of recent Florida Statutes and our own governing documents shows without any reservation, by three separate interpretations, that Elizabeth Moose is not authorized to function in her dual roles as President of the Board of Directors and Property Manager of the Patio Homes HOA. An in-depth investigation of our official records shows that the initial appointment in 2007 was made without legal counsel, without any accountability of her dual positions since that time, and reveals a sustained pattern of her calculated opportunism and abuse of trust of the board and the Patio Homes community. A closed coalition of four out of 140 homeowners made the critical decision to create an illegal conflict of interest, in rushed short-order, and without the communitys prior knowledge or expressed approval. By the time the community could have known of the initial appointment to the dual roles, it was too late for us to influence it. The Independent Contractor Agreement crafted by Ms. Moose is more notable for its omissions from the earlier guidelines than it is for its inclusions, demonstrating a clear trend towards unrestrained self-interest, and personal isolation from the community she serves. The formal approval process for the renewals of the management contract each year has been consistently ignored, without any oversight or performance review by either the board or the community.

Lack of Authorization. As a result of SB1196 in 2010, Florida law now prohibits HOA directors, officers, or committee members from receiving any salary or compensation from the association for the performance of his or her duties in those roles. This part of the statute is now basically the same as the rule that applies to condominium association directors. Effective since July 2010, Florida Statutes 720.303(12) states: A director, officer or committee member of the association may not directly receive any salary or compensation from the association for the performance of duties as a director, officer, or committee member and may not in any other way benefit financially from service to the association. This subsection does not preclude: (d) Any fee or compensation authorized in the governing documents. (e) Any fee or compensation authorized in advance by a vote of a majority of the voting interests voting in person or by proxy at a meeting of the members. This HOA Statute significantly expands the restrictions on directors, officers, and committee members by stating that a director, officer, or committee member may not in any other way 1

benefit financially from service to the association. This language is not limited to those services performed in direct connection to the duties of the director, officer, or committee member, and represents a substantial change in the law. This additional language means that an HOA director cannot work as a contracted manager, or an association employee, or provide services through business entities in which s/he holds a financial interest. The previous law [prior to July 2010] allowed the association to enter into contracts with companies involving interested directors, if the director disclosed his or her financial interest, if the contract was fair and reasonable, and if the interested director refrained from voting. The 720.303(12) statute of 2010 allows for exceptions if the association has pre-existing contracts with companies in which the director has a financial interest. The statute lays out two options available to the association: compensation is permitted if it is authorized by the governing documents, or if the association members vote to authorize compensation. Such a vote must take place in advance of contracting with the interested director. The official records of the Patio Homes show that no membership vote has ever been taken to authorize the HOA to contract property management services with Ms. Elizabeth Moose, before or after her appointment to this position was approved at a board (BOD) meeting on 8/20/07. Ms. Moose has been President of the BOD since March 2006. Consequently, lawful compensation of Ms. Moose as Property Manager after July 2010 therefore requires explicit authorization in the governing documents of Patio Homes. Given that our governing documents do not explicitly allow for a board director to hold the dual position of Property Manager, the basis of authorization must be inferred from the intent of several related provisions in our By-Laws: By-Laws, Article VII, Section D (as amended 12/15/10): An officer [of the Board] must be a member of the Board of Directors and of the Association. By-Laws, Article III, Section A: Membership [of the Association] shall be appurtenant to, and shall not be separated from, ownership of property subject to the Declaration. By-Laws, Article III, Section C: No member [of the Association] shall have any vested right, interest or privilege in or to the assets, functions, affairs or franchises of the Association This set of provisions starts out as follows: a member of the BOD must be a member of the HOA, an officer must be a member of the BOD, and HOA membership is inextricably linked to ownership in the community. The last provision states that no HOA member can have any access to the assets of the association. The HOAs finances are an integral part of its assets. Since Ms. Moose is foremost a member of the Patio Homes HOA by virtue of her ownership in the community, she is therefore prohibited from having a financial interest in her role as the Property Manager to the association, regardless of her other [unpaid] roles as director and officer of the BOD.

Further analysis reinforces that prohibition. By-Laws, Article VI, Section M states that The powers and duties [of the Board] shall include.The power to contract with any person, firm, corporation or real estate management agent, in order to provide for the maintenance, operation and repair of the Associations property. While this provision appears to allow the BOD to contract with anyone, By-Laws, Article VII, Section A(1)(b) goes on to state: The President shall be chief executive officer of the Association and shall: sign, together with the treasurer, if the Board so requires, all checks, contracts, promissory notes, deeds and other instruments on behalf of the Association. Any argument claiming that Article VI, Section M allows the BOD to contract literally with anyone, including the President of the BOD, must then lawfully rationalize Article VII, Section A(1)(b) that would allow President to sign her own contract and compensation checks to herself as Property Manager. Nothing in Florida case law can be construed to permit such a blatant conflict of interest. Any rational interpretation of our By-Laws must show a self-consistency among all of its provisions, and cannot lead to an obvious ethical impasse. Consequently, the ability of the BOD to contract with any person must logically exclude an officer of the BOD. This logical exclusion is further reinforced by a provision of Roberts Rules of Order, by which our BOD must conduct all of its business, according to our By-Laws, Article XIII. Specifically, Roberts Rules, 10th edition, page 570, lines 30-33 state, When a provision of the bylaws is susceptible to two meanings, one of which conflicts with or renders absurd another bylaw provision, and the other meaning does not, the latter must be taken as the true meaning. This thorough analysis of the provisions of our own governing documents concludes without equivocation, by two separate interpretations, that Ms. Moose is not authorized to function in her dual roles as President of the BOD and Property Manager in our HOA. Since this prohibition of dual functionality dates from the root of title of Patio Homes in 1980, and gains overriding reinforcement from the enhanced Florida Statute in July 2010, the question arises about how the initial appointment was made back in 2007, and what scrutiny has been directed to the contract renewals since that time.

The Appointment Process. The appointment of Ms. Moose as the Property Manager for Patio Homes was initiated at a Special Meeting of the BOD on 7/19/07. Noticing of the community about this meeting was the routine minimum of two days, stated in the Meeting Minutes as Notice of the meeting was sent to all directors, posted at the mailboxes and the pool. By-Laws, Article V, Section E states, Special meetings of the Board of Directors may be called by the President or by a majority of the members of the Board upon 2 days notice to each member delivered by mail, telephone or in person. The notice shall state the time, place and purpose of the meeting. The ambiguity of the notice to each member, as a member of the board or a member of the association, was made unequivocal in 2008 when Florida Statute 720.303(2)(a) became effective, stating All meetings of the board must be open to all members, and 720.303(2)(b) stating Members have the right to attend all meetings of the board. 3

Four items were on the agenda of this Special Meeting, which lasted a total of 70 minutes: Bomanite Causeway, Siding Replacement, Landscape Improvements, and Management Company. Five (of seven) members of the BOD were present, and there is no record of any homeowners or other guests in attendance. The entire minutes of the meeting related to the last agenda item are as follows: Two management companies submitted proposals that were reviewed and compared to our existing contract with Communities Management Company. Extensive discussion ensued. [A director] made a motion to issue the required 60-day notice to terminate the management agreement between PGA Patio Homes and CMC, and to decide the issue of Property Manager at the next BOD meeting when we have the entire board present. The motion was seconded and passed unanimously, including a vote from the President. Unfortunately these two proposal bids have been purged from the official records of Patio Homes. It is standard practice to purge the files of contract bids annually. Several issues arise from this account of the discussion of Property Manager. First, the fact that one proposal was from Ms. Moose was not disclosed. Something as significant as the BOD President bidding for the position of Property Manager in this community was not seen as important enough to include in the minutes. Also, although Ms. Moose did incorporate as a business entity in the state of Florida on 3/1/10, she was not a company at the time of her contract bid in the summer of 2007. Therefore, one company and one individual bid for the management contract at this meeting. Second, the explicit issues considered in the extensive discussion are completely absent. Third, the need to notice CMC of their termination clearly implies that their contract with Patio Homes was not about to expire and therefore not up for imminent renewal. Rather, the CMC contract was intended to be canceled in the middle of its term. Fourth, the decision to choose the winning proposal is deferred to the next meeting at which all the board members would be present. The next meeting of the BOD on 8/20/07 was noticed in the routine way, except for an additional posting on Channel 63. Five members of the BOD were present, not the full 7-member BOD. Ms. Kathy Riccobono of CMC and two homeowners were also in attendance. The presence of Ms. Riccobono at the meeting clearly implies an interest of CMC in the proceedings after being notified of the BODs intention to terminate. Under the agenda item of Old Business, the minutes state A lengthy discussion ensued regarding the issue of Elizabeth Moose serving as both President and Property Manager of the Patio Homes. [A director] made a motion to accept continuance of Elizabeth Moose serving as President while also being compensated as the Property Manager for Patio Homes beginning October 1, 2007. The motion was seconded and passed by a simple majority, with no dissenting votes, and with Ms. Moose correctly abstaining. The decision to choose the winning proposal did not occur at a meeting with all the board members present, but rather, at the very next meeting with a bare-minimal quorum for the critical vote. . For the first time in the official records, one of the two bids for the position of Property Manager is explicitly identified as Ms. Moose, who is confirmed to the post in the same meeting. That is, by the time the community can possibly know of the dual role issue Ms. Moose has created, it is 4

too late for any of the homeowners to have an opinion or input about it. the BOD, scheduled for 9/17/07, was cancelled for lack of a quorum of BOD. So, before the following BOD meeting on 10/22/07, Ms. Moose payroll as of 10/1/07, and therefore the minutes of the critical meeting approved and released for public viewing until late October.

The next meeting of the members of the was already on the of 8/20/07 were not

Ms. Mooses dual roles were discussed at a total of two meetings, one called on short order, and held in the summer, when essentially all of the snowbird homeowners are not in residence, and many year-round residents are also on vacation. These meetings were inadequately noticed to the community, and the minutes give absolutely no details of the issues discussed, especially of how the significant potential for a conflict of interest was debated and resolved. Issues of the legal liability of an individual acting as both principal and agent in the same contract agreement are not addressed. Also, no follow-up policies for performance review related specifically to the conflict issue were instituted in the approval process. If significant cost savings were part of the cited lengthy discussion at the time of approving the appointment, they are not mentioned. Also, there is nothing in the record since that time to show any follow-up accounting of the savings to the association achieved by the dual appointments. The associations attorney was not present at either meeting, and the record shows no invoices for legal counsel related to assessing the legality of Ms. Mooses dual roles in the period from January 2007 up to the confirmation vote in August. That is, Ms. Moose was given carte blanche authorization by the BOD, with no supporting legal advice before, no details released of the resolution of the obvious conflict, nor any performance-evaluation mechanism after, the appointment was made. A closed coalition of four out of 140 homeowners made this critical decision in short-order and out-of-sight, without the communitys knowledge or expressed approval.

The Management Contract. A reading of a copy of a recent Independent Contractor Agreement between Elizabeth Moose and Patio Homes HOA [for 1/1/10 through 12/31/10] shows that its format and content is closely modeled after a property management agreement between Patio Homes and PGA National Management Company from 1987. Features of this early agreement are elaborated in a 31page document created by the BOD in 2001 that details The PGA Patio Homes community management policies and responsibilities for the Board of Directors and standing committees and details the elements and property management of the community. The Independent Contractor Agreement crafted by Ms. Moose is more notable for its omissions from the earlier guidelines than for its inclusions. Appropriately, essentially all of the included terms of the agreement are directly borrowed from the earlier documentation. But, notable among the omissions is the Agents Practice of Disclosure provision, which states that the Agent agrees not to collect or charge any undisclosed fee, rebate or discount; should any such

fee rebate or discount be received by Agent, the same shall be credited to the account of the Association. This anti-kickback provision is left out of Ms. Mooses contract. Also omitted is the Owner Involvement provision, which would have the Manager advise the homeowners of their rights, duties and obligations as members of the HOA, and assist to establish a communication program.including informing unit owners of rules, regulations, rights, and obligations, to encourage homeowners to participate in the function of the association. In short, this provision would have the Property Manager function as a liaison between the BOD and the community, by providing an effective communication channel between the two. The Moose contract indicates that there is no need or intention for the manager to communicate with the community she serves. Also missing is an Emergency Call system achieved simply by providing a direct phone number to the Property Manager for homeowners to call in a community emergency. Instead, Ms. Moose has posted a one page document entitled Selected PGA Patio Homes Association Rules and Regulations, which is permanently posted in the mailbox bulletin boards. It is a short list of the main provisions of an earlier version of the patio Homes Rules and Regulations, and has remained in its posted position for the last few years. In the fine print at the very bottom of this bulletin is the following, All other problems [aside from traffic violations and golf course infringements] should be reported in writing to the Patio Homeowners Association Management Office. The Management office phone number is ., and the PGA POA phone number is... In short, the homeowners have no direct way of calling the Property Manager in an emergency. On weekends, the Management [Sunrise] office is closed. Other omissions in Ms. Mooses contract include Maintain Association Files, Agents Financial Responsibilities, and Making Disbursements. These omissions occur because they are managed by another separate agreement with the aforementioned Management Office, which is Sunrise Companies in Jupiter. In other words, a major portion of the total scope of the property management tasks is handled by another agency. However, there is nothing in the Moose contract referring to the existence of this parallel agency, and exactly which specific tasks are assigned to it. Another irregularity surfaces in the language of the Moose contract, with regard to managing service contracts. Both the 1987 model-contract and the 2001 guidelines explicitly state that the property manager must obtain from any independent contractor, certificates of insurance required by the Association for contractors or subcontractor work or services, naming the Association and the Management Company as an insured in a policy of general liability and property damage. In contrast, the Moose contract states, Reasonable efforts shall be used for obtaining from any independent contractor, certificates of insurance required by the Association for.. This change of focus could leave the HOA liable for property damage resulting from a contractor who did not happen to have the necessary insurance coverage, because the reasonable efforts were inadequate. The term and renewal provisions of the management agreement between Ms. Moose and the Patio Homes HOA are modeled directly on the contract agreement of 1987. With regard to renewal, the agreement states: Extension of Agreement: The parties may agree in writing to 6

extend the term of this Agreement for one (1) year periods upon terms and conditions mutually agreeable. There is nothing in writing in the official records indicating that the extensions of the management contracts with Ms. Moose each year were preceded by any formal renewal documentation between the two parties. Also, there is nothing in the BOD meeting records showing that the renewals of these Agreements were discussed or approved by a vote of the BOD in the period prior to the contracts expiration each December. The only way that one party to the agreement, the Patio Homes HOA, can agree in writing to extend the term is through a motion approved by the majority vote of the BOD, which must be reflected in the minutes. After all, the BOD is a group entity, and can only agree to anything through a consensus vote. This formal approval process has been consistently ignored. Instead, the each new contract is authorized solely by the signature of the Vice President of the BOD, a close personal friend of the President/Property Manager, without any oversight by the rest of the BOD, or the community-at-large. The need for the BOD to approve a renewal contract is made all the more essential when the provisions of the contract submitted to the association change from one year to the next. This happened in 2011, when the Moose contract included three new features for the first time. One is a new provision in Section (2) related to an exemption for tax withholding. There is also a change in the language of the Assistance to the Board of Directors section. The wording The Association Manager shall also assist the Board in resolving individual owners problems as they pertain to the Association, common areas, and governing rules and regulations, which appeared in the 2010 contract, is absent in the 2011 contract. This omitted wording clearly shows that Ms. Moose has no interest in resolving owners problems in the community beyond the course of action involving expensive litigation, which she directly influences as BOD President. In addition, the 2011 contract changes the management agent from Elizabeth Moose as an individual person, to Elizabeth Moose Inc., an incorporated company in the state of Florida. The incorporation occurred in March of last year. The legal significance of this change of agency in the management contract is that any duly licensed agent employed by Moose Inc. can be tasked with the specified management duties. Prior to this change, only Elizabeth Moose herself could perform the contracted duties as property manager. Nothing in the record indicates that the BOD was ever made aware of this change or the other two changes to the 2011 management contract, let alone approved of them. The conflict of interest associated with the dual-roles issue also arises in the 2001 guidelines for Patio Homes Property Management contracts: Any expenditures [by the manager] which exceed the Board authorized budget of $500 will be made only with the prior approval of the President or Vice President of the Association. It is difficult to construe that this language would possibly allow Ms. Moose as President to authorize excess expenditures to herself as Property Manager. The clear intent of this language is that the role of principal and agent in this relationship be separate. Clarity of the intention to keep the roles separate is further provided by another statement in the 2001 guidelines that [the manager be excluded from] such duties that are required to be personally performed by the Board of Directors. The formulators of 7

these guidelines never anticipated the authorization of such a conflict of interest, because our By-Laws clearly prohibited it. Separate examinations of this boards actions over the last several years show that its laxity in following proper due process is widespread, and not isolated to this particular example of appointing the property manager. These irregularities are addressed at length in several other in-depth documents, and amount to a clear pattern of exceeded authority, and repeated misrepresentation by our board to the Patio Homes community. The findings draw conclusions in stark contrast to the BODs self-congratulatory statement in the Meeting Minutes of 4/20/10 that [this] Board does a tremendous amount of research that the previous one never did. All of these documents are available to the entire membership of Patio Homes, who can judge from a solid factual basis whether they are served well by this board.