Formal Written Response to the Board of Directors RE: Breach of Fiduciary Duty

March 27, 2011

Oak Knoll Homeowners’ Association

ATTN: Board of Directors

C/O Superior Community Management Company

P.O. Box 1549

Sherwood, OR 97140

RE: Breach of Fiduciary Duty

Dear Board of Directors,

As members of the Board of Directors of the Oak Knoll Homeowners’ Association (HOA), each of you has a fiduciary duty to the homeowners of the Oak Knoll Community. As such, you are obligated with the following duties as the fiduciaries of the HOA: care, acting in good faith and fair dealing, trust, confidence and candor. In the performance of those duties, each of you is expected to act professionally as you exercise your fiduciary role when managing the business affairs of the HOA.

First and foremost, each of you has the responsibility and duty of care towards the homeowners of this Community in your respective roles as members of the Board of Directors of the HOA. As such, you are required to pay attention to the specific details of the Covenants, Conditions, and Restrictions (CC&Rs), Bylaws and the Oregon Planned Community Act (ORS 94.550 to 94.7823) that governs the HOA. This means you have to adhere to that which governs our Community to the letter of the law as it is intended (i.e. written), and not by reading into or interpreting what or how you want the governing documents to mean.

The Board of Directors breached this duty of care when it failed to carefully pay attention to that which is clearly stipulated in the CC&Rs by assuming the personal and financial responsibility of the maintenance, repair and replacement of the sidewalks damaged by the street trees along Foothills Drive. As a result, the Board voted to re-establish a reserve account, in part, to fund the future maintenance, repair and replacement of the sidewalks along Foothills Drive damaged by the street trees.

CC&R 7.1 neither identifies the sidewalks along Foothills Drive as a “common improvement” of the HOA, nor does it state that any damage to the sidewalks along Foothills Drive caused by the street trees as being a legal or financial responsibility of the HOA.

CC&R 7.3 clearly demarcates that personal and financial responsibility of maintaining, repairing or replacing damage to sidewalks caused by street trees to that of the homeowner.

Another example of inattentiveness by the Board of Directors is in regards to providing proper notice to each homeowner prior to each meeting of the Board of Directors.

ORS 94.640 (8)(a) clearly states the following:

(8) In a planned community in which the majority of the lots are the principal residence of the occupants, meetings of the board of directors must comply with the following:

(a) For other than emergency meetings, notice of board of director’s meetings shall be posted at a place or places on the property at least three days prior to the meeting or notice shall be provided by a method otherwise reasonably calculated to inform lot owners of such meetings.

Additionally, the Bylaws of the HOA clearly state that notices of each meeting are to be in writing and “mailed to each member at his address as it appears on the books of the association...not less than fifteen (15) days nor more than fifty (50) days prior to the date of the meeting.”

One mailing per year providing the dates and times of these meetings do not meet either the statutory or Bylaw requirements cited above.

Additional examples of inattentiveness is the lack of enforcement of the CC&Rs, that which include numerous violations by various homeowners over the years in complying with the respective CC&Rs covering the Maintenance of Lots, Landscaping, Parking on the Street, among others; to include consulting the Design Review Committee before a homeowner makes any changes to their respective Lot.

Second, each of you has the responsibility and duty of acting in good faith and fair dealing towards the homeowners of this community. This means that you are to treat all homeowners fairly so as not to deny each individual homeowner the realization of the true intent and purpose of the CC&Rs, Bylaws, and statutory law governing the HOA that benefits them as a homeowner and the Association as a whole.

The Board of Directors breached this duty when it personally and financially assumed the maintenance, repair and replacement of the street trees along Foothills Drive; and as a result, voted to re-establish a reserve account, in part, to fund the future maintenance, repair and replacement of those street trees along Foothills Drive.

CC&R 7.1 neither specifically states that the street trees along Foothills Drive as a “common improvements” of the HOA, nor does it identify that only those street trees along Foothills Drive are “common improvements” in being the responsibility of the HOA.

However, Section 7.1 does state that “certain improvements”... “are for the benefit of all Lots”; and one of those improvements is specifically identified as“...street trees on each Lot.”

The Board of Directors assessing the entire association for the maintenance, repair and replacement of street trees isolated to Foothills Drive leaves the remainder of homeowners who do not live on Foothills Drive not only paying for the upkeep of the street trees on Foothills Drive via that assessment, but also the street trees upon their own lots as an individual homeowner expense. This assessment is not in good faith, nor is it fair and equitable treatment of all homeowners.

As such, either all “street trees on each Lot” “are for the benefit of all Lots” and should be maintained, repaired and replaced as one of the identified “common  improvements” of the HOA in Section 7.1; or no street tree on any Lot shall be considered “common improvements” and left to the responsibility of each individual Lot’s homeowner.

Having said that, the Board of Directors will run into two legal conflicts: (1) CC&R 8.1 specifically states that each homeowner has the responsibility to maintain the trees upon their Lot, “in a reasonably clean, neat, attractive and visually pleasing manner so as not to detract from Oak Knoll being a high-class residential neighborhood”; and (2) the City of Newberg Code Section 96.60 and 96.61 more specifically demarcates that same responsibility upon the homeowner of the property adjoining the planter strips containing the street trees.

Thus on the one hand you have CC&R 7.1 that states the street trees on each Lot is a “common improvement” of the HOA; and on the other you have two dominating city codes that irreconcilably conflicts with that section of the CC&Rs.

Newberg Code 96.60 (A) and (B) clearly states that “it shall be the duty of the owners of land adjoining any street or highway within the city to maintain planter strips adjoining their properties.” That maintenance includes but is not limited to “pruning trees...to keep them healthy.”

In addition to 96.60 (A) and (B), Newberg Code 96.61 (A) clearly states that “All street trees that were required to be installed under a street tree plan or similar requirement shall be maintained in a healthy condition by the adjoining property owner,” which includes the replacement of dead trees by the homeowner as well.

CC&R 7.1 unequivocally conflicts with the City of Newberg’s codes regarding the responsibility of maintaining, repairing and replacing the street trees in the planter strips adjoining their respective property.

In the hierarchy of governing documents, local ordinances (i.e. law) supersede that of a HOA’s Declaration of Covenants, Conditions and Restrictions; especially when a clear conflict arises between the CC&Rs (a contract between landowners whose properties are affected by it) and a local ordinance, where in such cases the law always prevails.

Another example of the Board of Directors breaching its duty to act in good faith and fair dealing towards the homeowners of this community is the fact that the HOA had no legal right to demand of homeowners lacking street trees to have them planted at their expense or face an action by the HOA for violation of CC&R 4.6.7.

The issue of the missing street trees was addressed and dropped by the Board of Directors in 2000. It was then readdressed by the Board of Directors in May 2005, who affirmed in the Oak Knoll Newsletter that the responsibility to have planted the street trees legally rested upon the declarant, developer or individual builder of each lot under contractual agreement with the City of Newberg; an agreement that the Board even admitted that the City was negligent in enforcing.

Notwithstanding, the Board of Directors, under ORS 94.780, had only one year from the date of initial identification or discovery of the violation or deficiency to commence a suit or action. As such, the HOA had no legal right to demand homeowners lacking street trees on their lot to have them planted after August 2001.

Third, each of you have the responsibility and duty of trust and confidence that the homeowners of this community reply upon as you carry out your respective roles as members of the Board of Directors of the HOA.

The Board of Directors breached this duty when it committed the aforementioned breaches of its fiduciary duties; in addition to its reliance on a management company that demonstrably breached the same fiduciary duties with the Board of Directors and the homeowners of this Community.

This raises the question of how can any homeowner, or the collective homeowners in the Oak Knoll Community, legitimately trust and have confidence in the Board of Directors when they respond to homeowners’ inquiries and/or comments identifying clear deficiencies and/or violations of the CC&Rs by the Board of Directors with, “we’re volunteers.” Being a volunteer does not negate any of the fiduciary responsibilities and/or duties each of you are entrusted with by the homeowners of this Community.

The trust and confidence of the Board of Directors is further called into question when either certain members of the Board or the Board as a whole acts in opposition to that trust and confidence of the homeowners where the CC&Rs, Bylaws and/or the Oregon Planned Community act are concerned.

The homeowners trust that each member of the Board of Directors is capable of reading and understanding the CC&Rs, Bylaws and statutory law governing our Community for what each respective governing document(s) state.

As such, the homeowners must trust and have confidence in the members of the elected Board of Directors in that they will not read into what is written, thereby creating and placing an unwritten (i.e. unsanctioned) obligation upon the HOA (e.g. the maintenance, repair and replacement of the sidewalks along Foothills Drive damaged by the street trees) without more than 75% approval of the homeowners (CC&R Section 9).

Additionally, the homeowners further place their trust and confidence in the members of the Board of Directors to exercise their duty of care in ensuring that the management company they voted to hire and continue to employ would equally hold that company to the same standards of fiduciary duty between it (the management company) and the Board of Directors of the HOA; which has not been the case as of late given the shared breach of fiduciary duties cited herein.

Last but not least, each of you has the responsibility and duty of candor towards the homeowners of this community as members of the Board of Directors of the HOA. This means that the homeowners expect an honest and straightforward quality in each of you in carrying out your duties as members of the Board of Directors of the HOA.

As such, if a clear and unmistakable error has been committed by either the Board of Directors through its own action or inaction, or that of the management company, then it is incumbent upon the members of the Board to be honest and straightforward in taking responsibility for that error and in seeing that it is immediately corrected.

When it was brought to the Board of Directors’ attention that a reserve study and maintenance plan was required by ORS 94.595 (3) and (4), it relied on the management company to advise whether or not such was required before it actually voted to re-establish the reserve account in the 2011 budget.

In doing so, the members of the Board received incorrect advice from both the management company and attorneys (one of whom conceded, in writing, that even he recommended to the Board of Directors that a reserve study should be completed) of Vial Fotheringham LLP on this matter. As a result, this clear and unmistakable error has yet to be acknowledged let alone corrected by the Board of Directors.

It is a foregone conclusion that under the Oregon Planned Community Act that the Oak Knoll Homeowners Association is a Class I Planned Community; and when the HOA was established, it had an annual assessment exceeding that of $10,000, to include the reserve account.

This fact was affirmed by Kevin J. Kinney of then Coran & Kinney, LLP in a letter dated November 12, 1999, in which he clearly stated that the Board voted in and established a reserve account as of November 9, 1999. In doing so, all subsequent Board of Directors of the HOA were bound or enjoined to follow the statutory requirements of a reserve account and maintenance plan as outlined in ORS 94.595.

Notwithstanding, the premise of the re-established reserve account voted in by the current Board of Directors is based on improvements that are not qualified as “common improvements” of the HOA. Therefore the current reserve account is illegitimate, as the reasons for its re-creation are not sanctioned by either the CC&Rs or ORS 94.595; both of which clearly state that a reserve account is to be established strictly for maintaining, repairing and replacing common property (improvements).

As such, any and all funds collected and deposited into the reserve account were illegally assessed and are to be returned to the homeowners post haste. Otherwise a legitimate reserve study and maintenance plan needs to be conducted and presented to the homeowners before any reserve funds are expended. And should that study show that the current reserve was over budgeted, that difference should be returned to the homeowners as it was illegally assessed.

If the Board of Directors does not cease and desist in its continuous violations of the CC&Rs, Bylaws, and statutory provisions of the Oregon Planned Community Act cited herein by April 15, 2011, I will have no choice but to file a writ of mandamus on behalf of the entire community of homeowners that will have the effect of a court commanding the Oak Knoll Homeowners Association via its Board of Directors to refrain from said violations, and to perform its fiduciary duties and other obligations as required by law.

Please respond with your intentions in these matters or have your attorney contact me immediately with an answer to each of the issues cited herein.

Sincerely yours,

Sent: Email and Certified Mail

Board of Directors meetings...how does a homeowner know when these take place?

A homeowner asked the following in a previous blog posting:

"How does a homeowner know when the meetings are being held? I haven't received any notices about when/where they are held. I assume they are still held at Avamere, but how frequently?"

That's a really good question, which has an interesting answer.

This so-called "notice" of Board meetings was included in the November 2010 letter announcing that the Board of Directors were hitting us with a $13,650 Reserve Account for repair of the sidewalks and replacement of street trees along Foothills Dr. Neither one of which are a "common improvement" of the HOA, as clearly defined within CC&R 7.1 and 7.3 (please read UPDATE to January 18, 2011 Annual Board Meeting blog post below for more details).

Anyhow, the above written notice that is received but once a year to inform the homeowners of Oak Knoll of the scheduled board meetings is in direct violation of Oregon Revised Statute 94.640 (8)(a) which states as follows:

(8)In a planned community in which the majority of the lots are the principal residences of the occupants, meetings of the board of directors must comply with the following:
(a)For other than emergency meetings, notice of board of director's meetings shall be posted at a place or places on the property at least three days prior to the meeting or notice shall be provided by a method otherwise reasonably calculated to inform lot owners of such meetings.

Though state statute supersedes the ByLaws of our association, it's noteworthy to mention that even the ByLaws state notices of each meeting are to be in writing and "mailed to each member at his address as it appears on the books of the assocations...not less than fifteen (15) days nor more than fifty (50) days prior to the date of the meeting."

The above one-time notice is not sufficient notice to all 198 homeowners in this association; which is why there are only 1-3 homeowners (if any at all) that even show up at the board meetings, and only about a dozen at the annual meeting.

One could inductively reason that the purpose of the Board of Directors' failure to comply with ORS 94.640(8)(a) and/or even the ByLaws is so that they can make decisions without any input from any homeowner present.

For example, the Board of Directors, on bad advice from the association attorney, subjectively read into what Section 7.1 of the CC&Rs says and improperly assumed responsibility and liability for the sidewalks and street trees along Foothills Dr; thus making ALL homeowners financially responsible for the repairs and replacement of such without any input whatsoever from a homeowner.

Section 9 of the CC&Rs make it perfectly clear that the Board CANNOT make such an assumption of responsibility or liability for items within the association that is clearly NOT a "common improvement" of the association without an amendment or modification to the CC&Rs; which requires not less than 75% of the homeowners vote affirming that amendment or modification.

Anyhow, I encourage you and as many homeowners as possible to start attending the Board meetings. We need to start holding them and the management company accountable and implore upon them the need to follow the rules and regulations within the boundaries of the laws that govern our planned community.