Castle Pines North Homeowners Association Number One

Election Review-Pg 13-15

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responsible to the Association for any damages caused by their actions. This is true even if the damages may have been compounded by questionable legal advice. Any such claim for damages against the individual Board members belongs to the Association as a whole. The claims do not belong to any individual members, and individual members do not have the right to pursue the claims in the form of a derivative action or otherwise, unless the Association wrongfully declines to do so.

It is the conclusion of the ERC that this Association, in the exercise of sound business judgment, should not pursue any claims against any of the current Board members with respect to the events that transpired in the September 1998 elections. In reaching this conclusion, the ERC has considered a number of factors which include, but are not limited to, weighing the possible benefits to the Association against the potential costs of pursuing the claims, considering the legal merit and the factual basis for the claims, weighing the public relations aspects of pursuing the claim together with the impact pursuit of the claim would have upon community relations and the future operation of the Association. Applying these factors in a good faith manner, untainted by any bias or prejudice, it is clear that there exists no sound justification to pursue any claims.

The tangible damages incurred by the Association from this incident consist of the approximately $12,000 of non-insurance reimbursed attorneys fees incurred by the Association between the day after the election and January of 1999. The ERC declines to include any attorneys fees incurred after that date as an element of damages because it concludes that those fees were not caused by the actions of the Board. Any fees incurred after January 4, 1999, were incurred as a result of MST’s continued pursuit of the lawsuit. Although MST may argue that they continued to pursue the lawsuit seeking the truth, that argument is specious. The simple fact of the matter is that the District Court ultimately dismissed the lawsuit, in effect holding that after the temporary restraining order was made permanent and the first round of attorneys fees ruled on, there was nothing left to pursue.

If the Association decided to pursue a claim against Board members, it would have to institute a lawsuit which would entail pretrial proceedings encompassing much of what this committee has performed although in a much more structured and adversarial climate. To date, the members of this committee have each expended approximately 75 hours of time in the investigation and preparation of this report. It is estimated that if this investigation had been conducted through formal litigation process, the amount of time spent on it would at least triple. Thus, applying the billing rates charged by the Association’s attorneys, one is looking at an expenditure of approximately $40,000 (225 hours times $175/hour) just to get to trial to pursue an approximately $12,000 claim.

Additionally, even if one did pursue the claim to trial, there is no guarantee of the outcome of the claim. Although the legal issues are not that difficult, the factual issues are, and involve objective and subjective determinations of intent. Although this committee concluded that there was a partial lack of good faith, it has also concluded that there was no malice; thus, it is entirely reasonable to consider that at a trial of this matter, a judge or a jury could reach an opposite

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conclusion on the issue of good faith. There is no guarantee of success if the claim is pursued. As both the Board and MST hopefully learned from this incident, litigation is an expensive and risky proposition and should not be resorted to lightly.

Finally, this committee is also of the opinion that pursuit of litigation would not be in the best interests of the Association. Litigation between the Association and Board members and the individual members would presumably have a chilling effect on the prospect of other members of the Association being willing to donate their time and efforts to serve on the Board or otherwise contribute to the Association. It would be perceived as a negative attribute by those outside of the community, thus having a potential negative impact upon property values within the Association. Lastly, pursuit of litigation would further fragment the community and continue to foster and increase the disharmony that currently exists. For the foregoing reasons, there exists no basis to pursue any further litigation over this matter.

13. Although this committee was asked to review only the September 1998 Board of Director election and events leading up to it and resulting from it, there is a history of deep dislike and distrust between some of the MSST and some Board members. These deep-seated feelings were influential in the actions of both sides in this matter. The MSST may have resorted to legal action before other remedies; the Board may have been influenced by a perception that the floor nomination was an MSST attempt to gain a Board seat. Neither side is without blame, and both sides of this fracture in the community must share the responsibility of its effects.

14. The proxy used in this election is flawed. It contained no date or time information making it difficult to determine which proxy supersedes if there is more than one presented.

15. The conduct of the annual meeting was too casual. There was no formal adjournment. The counting committee lacked sufficient instructions causing them to have to seek guidance at least twice during the tabulating process.

16. The Board was not u
as familiar with the Association bylaws and other documents governing their responsibilities and duties as they should be.

17. There was a period of one month between the annual membership meeting and the next monthly Board meeting during which time there was no president of the Association.

RECOMMENDATIONS

1. The Nominating Committee should publicly announce the names of all people seeking nomination to the Board of Directors. Along with that list should be an explanation of any people seeking nomination but not accepted.

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2. The Nominating Committee should conduct the election portion of the annual meeting. A formalized set of procedures should be adopted for the election.

3. The Board of Directors should periodically conduct a session to review responsibilities and duties of their position. The review should cover the articles of incorporation, declaration of covenants, and the Colorado revised statutes as they apply to the HOA.

4. The Board of Directors should seek out legal experience in the community to volunteer time to conduct part of the periodic review session and be available to participate in HOA positions such as on the Nominating Committee, parliamentarian, or to otherwise assist in the procedural conduct of HOA business.

5. The Board of Directors should actively work to "get out the vote" at annual meetings. Work should be to get out the vote, not who to vote for.

6. The results of this inquiry should be made public with a full version including attachments/exhibits on permanent file with the secretary of the Association. Every household should receive a copy of the report excluding attachments/exhibits.

7. Even though some of the MSST requested the ERC recommend removal of up to 6 of the 7 Board members, we flatly decline to do so. Such action would seek to impose the will of this committee of three people on the association as a whole--a clear violation of the bylaws. All members of the Board of Directors should serve out the entire length of their present terms. The membership of the HOA can decide who will represent them beyond that. Any member who wishes to seek a recall of Board members may do so following procedures in the bylaws.

8. Individual members or groups of members within the HOA should refrain from tactics against Board members whose intent is to pressure them to resign. Such actions work counter to the Articles of Incorporation of the HOA and the declaration of covenants and restrictions. These documents contain procedures for the removal of Directors that should serve as the only legitimate and acceptable process for such action. Any ongoing intimidation actions should cease as they only lead to divisions within the community out of which no good can come.

9. The Board of Directors should avail themselves of information sources pertaining to the conduct of HOA business. This committee's work in a short period of time uncovered sources of information invaluable to HOA's. Web sites such as http://www.regenesis.net offer information for no charge. A local law firm (Orten & Hindman) at 303 432-9999 offers seminars periodically to Board members.

10. The Board of Directors should seek as many avenues as possible to improve the information flow within the community.

11. From time to time there is a necessity for HOA business to be conducted by the Board of Directors outside of the monthly meetings. When this is necessary all Board members should be consulted and a record of the HOA business conducted should be made a part of the next regularly scheduled meeting's minutes.