Guest Commentary: Lawyer responds to Dana Krone’s analysis of FORHA bylaws

Scott Russell | Guest Commentator

The Hill Country Weekly recently printed an article written by Mr. Dana Krone which amounted largely to an amateur legal analysis of FORHA’s proposed bylaws and their compliance with Texas law. In his analysis, Mr. Krone draws faulty legal conclusions, and similar to the statistical analysis he tried his hand at in connection with the parks survey that many of us are all too familiar with, he misses the mark.

Without even getting to the specifics of Mr. Krone’s arguments, it would be reasonable to conclude that his analysis and conclusions are worthless based merely on the facts that Mr. Krone (i) is not an attorney and is merely offering uninformed legal speculation, and (ii) is a member of the board of FORT, an organization with ties to the drafters of the alternate bylaws and a frequent opponent of the leadership of FORHA and the City of Fair Oaks Ranch.

Mr. Krone is a director of an organization called FORT which has repeatedly come out against the FORHA board and our city leaders with unsupported claims of a lack of transparency. Irene White, another director of FORT, is actively engaged in soliciting proxies for the drafters of the alternate bylaws. Ironically, neither of these champions of transparency has commented on the fact that the proxy group has not disclosed its draft bylaws to the community. Mr. Krone’s leadership role in FORT, his relationship with Irene White, and his failure to criticize the proxy group for its lack of transparency suggest that Mr. Krone’s analysis may be biased and should be read accordingly. None of this information is disclosed in his piece.

Mr. Krone claims to have had his legal conclusions reviewed by “multiple qualified HOA attorneys.” Given the superficial and faulty analysis, it is difficult to believe that an attorney with expertise on Texas HOAs signed off on Mr. Krone’s conclusions. This suggests that either (i) the conclusions were not reviewed by any attorneys, or (ii) the attorneys were not qualified or did not give their analysis the appropriate level of attention. Perhaps these attorneys are friends of Mr. Krone’s who did a passing review as a favor. We would need more information from Mr. Krone to draw a meaningful conclusion, but to date he has been unwilling to share the identity of his attorneys.

This context means that all legal conclusions drawn by Mr. Krone are unsupported, and it would be irresponsible to use them to make decisions. If Mr. Krone wants someone to publish a legal analysis of the bylaws, he should persuade an attorney (whose qualifications the public can vet for themselves) to do so. Otherwise, the piece is entirely unreliable and muddles rather than clarifies the discussion.

I am an attorney and member of the bar in Texas and Massachusetts. While I am currently on inactive status in both states, as a corporate attorney I have extensive experience drafting and reviewing corporate governance documents and analyzing legal compliance. That said, this rebuttal is intended to reflect my personal opinion as a member of FORHA and should not be construed as legal advice. Ultimately, I recommend that we all defer to the qualified lawyers engaged by FORHA for the purpose of amending the bylaws.

Let’s turn to Mr. Krone’s untrained legal conclusions:

  1. Article IV(b) – Term of Office: Mr. Krone’s first legal conclusion is that the term limits in Article IV(b) are in “direct violation” of Texas statute. To support his conclusion, he references TPC 209.00591(a), which says that provisions that restrict a property owner’s right to run for a position on the board are void. Of course, a thorough analysis of this provision would require one to research what the legislature meant by a “restriction on a property owner’s rights.” If a review of the legislative history shows that the legislature was concerned about discriminatory provisions that restrict one’s rights based on being part of a protected class, then it is reasonable to conclude that the legislature did not intend to prohibit term limits. Even if we give Mr. Krone the benefit of the doubt and assume that the legislature did intend to prohibit term limits; the inclusion of a term limit in the bylaws is of very little consequence. First, the term limit provision will not be an issue for a minimum of 6 years. By that time, it is likely that there will be additional clarity around the legislature’s intent in the form of legal precedent. This is exactly how laws are clarified – questions arise through disparate interpretations until the courts or legislature establishes a settled meaning. Mr. Krone references legal fees in the range of $100,000 if it becomes necessary to litigate the matter and suggests that this would be a deterrent to litigation. Again, Mr. Krone’s legal analysis fails. First, to the extent the cost of litigation is a deterrent, it is a deterrent to both sides in litigation. It would act to deter someone from pursuing a third consecutive term in the face of opposition and it would deter someone from trying to stop them. Further, the legislature’s intent in using the term “restrict a property owner’s right” is likely a question of law. Therefore, if it were ever to be the subject of litigation, the issue likely would be quickly dealt with by a judge in the early stages of litigation and legal fees would be minimal.
  2. Article VII(a)(8) – Proxies: From here, Mr. Krone turns his attention to Article VII(a)(8) and concludes that limits on proxies violate Texas statute. Another swing and a miss from Mr. Krone. To support his conclusion, Mr. Krone cites faulty legal analysis that was supposedly done by a member’s lawyer. The lawyer cites Section 22.160(c) of the Texas Business Organization Code to conclude that the proxy requirements dictated by that section (i.e., that proxies are revocable and expire within 11 months of grant) represent the only limitations that can be placed on proxies. There is no justification for this conclusion as nothing in this section claims to be an exhaustive list of permissible proxy restrictions. In fact, Section 22.160(b) of the same code permits an organization to prohibit proxies altogether in its bylaws. If proxies can be prohibited by the bylaws, certainly the form of acceptable proxy can be prescribed by the bylaws. In his supporting analysis, Mr. Krone conflates absentee or electronic ballots with proxies and concludes that the rules that apply to one must apply to the other. The voting methods are distinct and there is no basis for conflating them or concluding that the statutes that apply to one somehow apply to the other.
  3. Article XI(e)(1) – Uniform Rate of Assessment: Mr. Krone next claims that Article X(e)(1) gives rise to some undefined conflict of interest. It would be more helpful if Mr. Krone would give specific examples of the types of conflicts he anticipates. He suggests that the board will be in a position to unfairly benefit from this provision but doesn’t give any examples of what that benefit might look like. He suggests that the conflicts should be managed, but doesn’t offer any solutions for managing them. He ignores the fact that Article XI(e)(1) expressly requires that the board make decisions that are “beneficial to FORHA”. He further ignores the extensive conflicts of interest provisions of Article VII(g) of the BRC’s bylaws which clearly define the manner in which conflicts of interest must be handled. Lastly, Mr. Krone ignores the copious legal protections that govern the behavior of fiduciaries for the benefit of those they serve. These protections ensure that the actions of a board meet a high standard of care and that any self-dealing by a board member is fully transparent and proactively managed. If a conflict results in a director putting his or her interests ahead of FORHA’s, then that director would likely be found to be in violation of the bylaws and in breach of his or her fiduciary obligations to the membership. Can’t these alleged conflicts that Mr. Krone is so worried about be sufficiently managed through (i) application of the express language of the bylaws, (ii) enforcement of fiduciary duties owed by the board to the membership, and (iii) the membership’s ability to vote out board members?
  4. Article XI(g) – Commencement and Collection of Special Assessments: At FORHA’s 2018 member meeting, a part of the community was upset about the $15/year assessment increase to be used to improve parks and trails. Those community members requested a 10% cap on assessments going forward. The BRC’s bylaws include that cap. Mr. Krone’s contention is that the exception to that cap in Article XI(g) for increases necessary to remedy damages caused by Acts of God somehow guts the provision entirely and amounts to a disservice to the membership. Mr. Krone ignores the requirement in the bylaws that any increase in assessment must be presented and voted on in open meeting. Mr. Krone prefers to focus on the “blank check” nature of this exception to the cap, rather than acknowledge that in a representative government we elect our leaders and put faith in them to steer us through difficult situations like Acts of God. It seems that, in the aftermath of a disaster in FOR, Mr. Krone would like to have a line item discussion of park repairs rather than trusting our elected representatives to use their good judgment when working to restore our common areas to their pre-emergency condition. The request after last year’s meeting was that the bylaws include a cap on assessments. They do.
  5. Article XVI – Amendments: Lastly, Mr. Krone contends that Article XVI’s increase in quorum required for bylaw amendments from 10% to 25% is somehow a win for the board. This conclusion assumes that the bylaws that have been drafted by the BRC with input from our entire community are board-friendly and that the board therefore has an interest in them remaining unchanged. I think that assumption is incorrect. The BRC’s bylaws are a balanced approach to governance that protect our community while still allowing the board the discretion to manage our HOA in a responsible manner. Further, I believe that our community has experienced the downside of having too low of a quorum requirement – a small group of disgruntled citizens can force unwanted and unnecessary change and can distract our community from more important issues for an extended period. Absent some evidence that 25% is somehow way above market for bylaw amendments (and I seriously doubt that it is), I think Mr. Krone is merely expressing his unsubstantiated opinion.
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