Is a Community Association’s Board of Directors Required to Make Board Meetings Open to Association Members?
The State of Michigan primarily has two so-called “Sunshine Laws”- the Open Meetings Act (“OMA”), MCL 15.261, et seq., and the Freedom of Information Act, MCL 15.231, et seq. These two acts together help promote and create open government by making certain governmental meetings open to the public, and in allowing the public access to governmental documents and records. In many cases, however, residents within a community may believe that these same laws and principles apply to the nonprofit corporation that “governs” their association. That is not the case in Michigan. Unless a community association were construed in some way be a “public body,” it is unlikely that either the OMA or the FOIA would apply to a private condominium or homeowner’s association. Under Michigan law, a community association’s board of directors has great flexibility in administering the affairs of the association and is generally constrained only by the corporation’s bylaws, the fiduciary duties owed by each director to the corporation, and the Michigan Nonprofit Corporation Act (“NCA”), MCL 450.2101, et seq.
The Open Meetings Act
The OMA provides that all meetings of a public body must be open to the public and held in a place available to the general public. MCL 15.263(1). The OMA only applies to a “public body” and defines a public body as follows:
“Public Body” means any state or local legislative or governing body, including a board, commission, committee, subcommittee, authority, or council, that is empowered by state constitution, statute, charter, ordinance, resolution, or rule to exercise governmental or proprietary authority or perform a governmental or proprietary function; a lessee of such a body performing an essential public purpose and function pursuant to the lease agreement; or the board of a nonprofit corporation formed by a city under section 4o of the home rule city act.
MCL 15.262. Under this definition, the OMA will generally not apply to a condominium association or homeowner’s association.
The Freedom of Information Act
The Michigan Freedom of Information Act, (“FOIA”), MCL 15.231, et seq., declares that all persons (except those who are incarcerated) are entitled to full and complete information regarding the affairs of government and the official acts of those who represent them as public officials and employees. MCL 15.231.
Under FOIA, all public records are subject to full disclosure unless the material is specifically exempt under an express exemption. Swickard v Wayne County Med Exam’r, 438 Mich 536, 544; 475 NW2d 304 (1991). FOIA defines a “public record” as “a writing prepared, owned, used, in the possession of, or retained by a public body in the performance of its official function, from the time it is created. Public record does not include computer software.” MCL 15.232. A “public body” for FOIA purposes includes employees and bodies within the executive branch of government, (though not the governor or lieutenant governor, or their employees); agencies, boards, commissions, or councils within the legislative branch of state government; local governments and their officials; and any other body created or funded by state or local authority. MCL 15.232(d). A “public body,” however, does not include the judiciary. MCL 15.232(d)(v).
Accordingly, under the above definitions, FOIA will generally not apply to a condominium association or homeowner’s association.
The Michigan Nonprofit Corporation Act: Rights of Members
Though neither the OMA nor FOIA would generally be expected to apply to a condominium association or homeowner’s association, there are several provisions in the NCA which would apply to the conduct of a meeting or a request for information by a member.
With respect to meetings, under the NCA, a corporation is required to hold an annual meeting of its shareholders and members. MCL 450.2402. Except as otherwise provided by the NCA, each shareholder or member of the corporation entitled to vote at the meeting is entitled to notice. MCL 450.2404(1). In addition, with respect to records, the NCA requires that each corporation keep “books and records of account and minutes of the proceedings of its shareholders or members, board and executive committees, if any.” MCL 450.2485. These records must be made available to a corporation’s shareholders or members for inspection in accordance with the NCA. MCL 450.2487(2). A similar provision is contained in the Michigan Condominium Act. MCL 559.157(1) (“The books, records, contracts, and financial statements concerning the administration and operation of the condominium project shall be made available for examination by any of the co-owners and their mortgagees at convenient times.”). In certain instances, a condominium must also perform an audit of its books, records, and financial statements. MCL 559.157(2). Further, if a member of a nonprofit corporation is being oppressed and denied rights to which he or she is entitled, such member could bring an action for relief pursuant to MCL 450.2489 seeking, among other things, to require the corporation to comply with the NCA. These provisions can be used to ensure that the members of a nonprofit corporation are able to keep apprised of the management and affairs of the corporation.
The Michigan Nonprofit Corporation Act: The Board of Directors
Ultimately, however, the business and affairs of a nonprofit corporation are managed by its board of directors. MCL 450.2501. The rights of members to access books and records exists because it is the board of directors which will conduct corporate business. Further, subject to the limitations set forth in the NCA and in a corporation’s bylaws, the board of directors has great flexibility in managing the affairs of the corporation and in conducting its business. Over half a century ago, the Michigan Supreme Court described this authority as follows:
It is a well-settled rule of law that the authority of the directors is absolute when they act within the law, and that questions of policy and internal management are, in the absence of nonfeasance, misfeasance, or malfeasance, left wholly to their decision.
Ayres v Hadaway, 303 Mich 589, 594; 6 NW2d 905 (1942) (quoting Nahikian v Mattingly, 265 Mich 128, 251 NW 421, 423 (1933)). The Court further explained:
It is not the function of the court to manage a corporation nor to substitute its own judgment for that of the officers thereof. It is only when the officers are guilty of willful abuse of their discretionary powers or of bad faith or of neglect of duty or of perversion of the purpose of the corporation or when fraud or breach of trust are involved that the court will interfere.
Ayres, 303 Mich at 594 (quoting Barrows v J N Fauver Co, 280 Mich 553, 274 NW 325, 328 (1937)).
This flexibility extends to the conduct of a meeting of the board of directors of the corporation. For example, the requirements of notice of a meeting of the board of directors is to be described in a corporation’s bylaws. Notice is not required by statute for a regular meeting of a board of directors, but is required for a special meeting, as prescribed in the bylaws. MCL 450.2521(2). The NCA, however, does not require that notice of a regular or special meeting of the board of directors be given to a shareholder or member of the corporation who is not a director. Accordingly, the NCA does not require a board of directors of a condominium association or homeowner’s association to permit members to attend a meeting of the board of directors, or even to provide notice of such a meeting to members of the association. So long as the conduct of the board of directors does not oppress one or more members of the corporation, or violate the bylaws or an applicable duty owed by the board of directors, there is no requirement that a meeting of the board of directors be open to the members of the corporation.
Notwithstanding the foregoing, directors are also elected by the members of the association. The fact that the board of directors is not required to make its meetings open to association members does not necessarily mean that the board should prohibit member attendance in all cases. If the board of directors refuses to allow access to its meetings, or if the minutes of the meetings of a board of directors fail to adequately inform members of the manner in which the association is being administered, then the members of the association could simply elect a board which is more responsive and keeps its members better informed.
The OMA and FOIA are effective means by which to keep Michigan citizens informed regarding governmental affairs by requiring public meetings to be open, and by making governmental records readily accessible. They will not generally apply to a private community association. Nonetheless, a board of directors may want to keep the policies underlying these laws in mind when conducting its affairs. While there is no express requirement that a board of directors of a community association make its meetings open to all members, a board that fails to keep its members informed may find themselves to be a “former” board of directors.
Matthew W. Heron is a Member of Hirzel Law, PLC where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, land use, large contractual disputes and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. Mr. Heron concentrates his practice on drafting, revising, amending, restating and interpreting governing documents of condominium and homeowner’s associations in Michigan. He can be reached at (248) 478-1800 or [email protected]. You can also follow him on Twitter at @mwheron75.