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Executive Sessions of the Board:  Documentation and Minutes

Executive Sessions of the Board: Documentation and Minutes

Article Written By: Deon Stein, Tuesday, June 25, 2013

Many people are unaware that the term "executive session" does not appear anywhere in the California Corporations Code.  This is because for most types of California corporations,[1] meetings of boards of directors are always closed to the non-director shareholders/members and thus there is no need for the executive session concept. However, with respect only to owners associations that manage common interest developments (CIDs),[2] the opposite is true:  the Davis-Stirling Act (specifically, California Civil Code Section 1363.05) requires that most meetings of CID association boards be open to all members, and the Act limits when such boards can meet in closed, or executive session, to certain specified circumstances.[3]  Unfortunately, the Civil Code executive session statutes that apply only to CID associations were not written as clearly as they could have been.  That has created numerous complex and confusing legal questions that could easily take an entire day (or longer) to discuss.  Fortunately, this article will focus only on what California law requires with respect to (1) keeping minutes of executive sessions and (2) what documentation is necessary to show that an executive session occurred.[4]

Keeping Minutes of Executive Sessions

 In the authors' experience, even the threshold question of whether or not California law requires boards to prepare minutes of executive sessions has led to spirited debate among legal practitioners over the years.  In our opinion, the relevant starting point for answering this question is California Corporations Code Section 8320(a)(2) which provides as follows:

 Each corporation shall keep minutes of the proceedings of its members, board and committees of the board.[5]

 Since boards discuss official business and take official actions at executive sessions, executive sessions are "proceedings of [the] board".  Therefore, the authors firmly believe that boards are required to keep separate minutes of all executive sessions.

Further support for this conclusion is found in Civil Code Sections 1363.05(d), 1365.2(a)(1)(H) and 1365.2(d)(1)(E)(iv).  Each of these sections make express reference to executive session minutes, confirming that the legislature considers "executive sessions" to be "proceedings of the board".

Questions often arise as to how detailed executive session minutes should be, and whether they should be less detailed than open meeting minutes.  The purpose of minutes, regardless of whether they are for an open meeting or an executive session, is to clearly document what actions were taken at a particular meeting and why.  Then, if such actions are ever called into question in the future, a clear record exists of what actions were taken, and who voted for and against such actions.  In many circumstances, it might also be appropriate for minutes to documents votes by the board that failed to obtain approval of a majority of the directors.  It is the authors' opinion that executive session minutes should be at least as detailed as open session minutes, and in some situations, even more detailed.  That being said, the reality is that executive session minutes are usually shorter than open meeting minutes simply because open meetings deal with more topics and tend to last longer.

Remember, the reason why association boards are allowed to meet in executive session is to protect privacy, confidentiality, etc., not so that the board can do "bad" or "wrong" things and hope noone finds out about them.  That is why the authors believe that executive session minutes should be as detailed as necessary to properly document each and every action that occurred by the board and why.

Documenting the Existence and General Subject Matter of Executive Sessions

Next, properly documenting that an executive session occurred, and properly describing what was discussed in that executive session without breaking the confidentiality of the proceeding, have proven to be quite confusing as well, mostly due to how the legislature worded the relevant statute, California Civil Code Section 1363.05(c).  That statute provides as follows:

Any matter discussed in executive session shall be generally noted in the minutes of the immediately following meeting that is open to the entire membership.[6]

This seemingly simple sentence is actually more complicated that it appears, because in practice it is rather counter-intuitive.  To illustrate and better explain how to properly document executive sessions in executive session and open session minutes, we offer the following very specific hypothetical series of meetings (please pay close attention to the dates and other details of the meetings in this example):

Imagine that a particular board held a board meeting on March 5 (we'll call this meeting BM #1).  At the "open" portion of BM #1, the board discussed normal board meeting topics.  Then at the very end, the board had a quick executive session (ES #1) to discuss a lawsuit filed by an owner named Beckham against the Association (we'll call it the Beckham lawsuit, for the purpose of this example.)

On March 12, the board met in executive session (ES #2) to conduct a disciplinary hearing against an owner named Owen for a violation of the governing documents.

Board meeting #2 (BM #2) took place on April 6.  At the "open" portion of BM #2, the board again discussed normal board meeting topics.  Then again, at the very end, the board had a quick executive session (ES #3) to discuss the possible termination of one of the association's employees for alleged misconduct.

Board meeting #3 (BM #3) took place on May 8.  At the "open" portion of BM #3, the board again discussed normal board meeting stuff.  And there was nothing to discuss in executive session, so there was no executive session.

So to summarize, there were three "open" board meetings (BM #1 on March 5, BM #2 on April 6, and BM #3 on May 8), and three executive sessions (ES #1 on March 5, ES #2 on March 12, and ES #3 on April 6).  Therefore, there should be six separate minutes, three for the three "open" board Meetings, and three for the three executive sessions.  With the two statutes quoted above in mind, let's discuss the minutes and documentation requirements for each of the hypothetical meetings in the above example:

BM #1 (March 5):  The minutes of BM #1 must summarize what occurred during the "open" portion of BM #1.  With respect to ES #1 (which, as you recall, was part of BM #1), all that the minutes of BM #1 have to say is something like "The Board then adjourned to Executive Session" (because that is an accurate summary of what occurred at the end of BM #1).  However, the authors recommend that the minutes of BM #1 give a little more detail and say "The Board then adjourned to Executive Session to discuss a litigation matter".  The minutes of BM #1 must be approved by the board during the "open" portion of a future board meeting, e.g., BM #2.  All members of the association have the right to review and obtain copies of the minutes of BM #1.

ES #1 (March 5):  The minutes of ES #1 must summarize what actions the board took during ES #1 with respect to the Beckham lawsuit.  And remember, because non-director members of the association do not have the right to review and obtain copies of executive session minutes, the minutes of ES #1 must be approved by the board at a future executive session (e.g., ES #2), not during the "open" portion of a future board meeting.

ES #2 (March 12):  The minutes of ES #2 must summarize what actions the board took ES #2 with respect to the Owen disciplinary hearing.  Again, the minutes of ES #2 must be approved by the board at a future executive session (e.g., ES #3), not during the "open" portion of a future board meeting.

BM #2 (April 6):  Here's where it starts to get really interesting and a little confusing:

               1.       The minutes of BM #2 must summarize what occurred during the "open" portion of BM #2.

               2.       With respect to ES #3 (which, as you recall, took place at the end of BM #2 on April 6), all that the minutes of BM #2 have to say is something like "The Board then adjourned to Executive Session" (because that is an accurate summary of what occurred at the end of BM #2).  Again, however, the authors recommend that the minutes of BM #2 give a little more detail and say "The Board then adjourned to Executive Session to discuss a personnel matter".  (Note:  the employee's name is not mentioned here.)

               3.       With respect to ES #1 (which, as you recall, was at the end of BM #1 on March 5) and ES #2 (the Owen disciplinary hearing which took place on March 12), the minutes of BM #2 must say the following (even though the Beckham litigation and the Owen disciplinary hearing were never discussed at BM #2):  "Executive Sessions Held on March 5 and March 12:  The board met in Executive Session on March 5 to discuss a litigation matter and the board met in Executive Session on March 12 to conduct a member disciplinary hearing."  The reason that the minutes of BM #2 have to generally mention what occurred during ES #1 and ES #2 is because BM #2 is the first "meeting that is open to the entire membership" following those two executive sessions (see Civil Code Section 1363.05(c).

               4.       The minutes of BM #2 must be approved by the board during the "open" portion of a future board meeting, e.g., BM #3.  All members of the association have the right to review and obtain copies of the minutes of BM #2.

ES #3 (April 6):  The minutes of ES #3 must summarize what actions the board took during ES #3 with respect to the employee's personnel matter.  The minutes of ES #3 must be approved by the board at a future executive session (ES #4?), not during the "open" portion of a future board meeting.

BM #3 (May 8):

                1.       The minutes of BM #3 must summarize what occurred during the "open" portion of BM #3

                2.       With respect to ES #3 (which, as you recall, was part of BM #2), the minutes of BM #3 must say the following (even though the personnel matter was never discussed at BM #3):  "Executive Session Held on April 6:  The board met in Executive Session on April 6 to discuss a personnel matter."  (Note:  again, the employee's name is not mentioned here.)

               3.       The minutes of BM #3 must be approved by the board during the "open" portion of a future board meeting (BM #4?).  All members of the association have the right to review and obtain copies of the minutes of BM #3.

To summarize, each executive session that takes place in conjunction with an open board meeting gets two mentions in open board meeting minutes:  one in the minutes of the open board meeting on the date the executive session actually occurred, and one in the next open board meeting's minutes, as a back-reference for notification purposes to meet the requirements of Civil Code Section 1363.05(c).  However, with respect to stand-alone executive sessions that take place separate and apart from an open board meeting, they only get one mention in open meeting minutes as a back-reference for notification purposes to meet the requirements of Civil Code Section 1363.05(c):  in the minutes of the next "meeting that is open to the entire membership", whenever that might be.

It is unfortunate that such  simple concepts must be so complex, but thankfully we can blame the legislature (and not the association's attorney) for that!  Of course, please understand that this article won't necessarily fit every situation that you may encounter, but the authors hope that it will provide a general framework and thought process to help you comply with these important statutes.


 

[1]E.g., general for-profit corporations, nonprofit public benefit corporations (see Corporations Code §5110 et seq.), nonprofit religious corporations (see Corporations Code §9110 et seq.), and many (but not all) nonprofit mutual benefit corporations (see Corporations Code §7110 et seq.).

[2]Most of which are incorporated as nonprofit mutual benefit corporations.

[3]The five circumstances specified in Civil Code Section 1363.05(b) are:  (1) litigation, (2) matters relating to the formation of contracts with third parties, (3) member discipline, (4) personnel matters and (5) meeting with a member regarding the member's payment of assessments.  Most legal practitioners, including the authors, believe that there are other circumstances where boards may lawfully meet in executive session, such as when a board meets with the association's attorney to discuss matters that are not "litigation", because all conversations between an attorney and his/her client are protected by the attorney-client privilege.

[4]As noted above, the vast majority of California CID associations are nonprofit mutual benefit corporations.  Accordingly, the analyses in this article apply only to such associations.  If your association is some other form of corporation, or is not incorporated, other statutes apply, although in most cases, with the same result.

[5]Emphases added.

[6]Emphases added.

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