Rockery Wall Lawsuit NRED Intervention

At the June 27h BOD Meeting, via a “Legal Update” Attorney Letter dated June 27th, it was revealed that the SOA’s decision to proceed with the Rockery Wall lawsuit was under investigation by the Nevada Real Estate Division’s (NRED) Enforcement Section. This as a result of an Ombudsman Intervention Affidavit filed by a Somersett homeowner. The Affidavit alleges that the SOA BOD violated NRS 116.31088 by authorizing a civil action to proceed without the required number of Association Member votes to ratify such action. Specifically, out of the approximately 3100 Association ballots sent out, 953 ballots were returned, of which 716 were in favor. This represents only 23% of the total number of allocated members, not a majority as required by the statute. However, the Board subsequently voted to proceed based on the returned ballot results only. The NRS Statute, whose violation is in question reads as follows:

“To protect the health, safety and welfare of the members of the association. If a civil action is commenced pursuant to this paragraph without the required vote or agreement, the action must be ratified within 90 days after the commencement of the action by a vote or written agreement of the owners of the units to which at least a majority of votes of the members of the association are allocated. If the association, after making a good faith effort, cannot obtain the required vote or agreement to commence or ratify such a civil action, the association may thereafter seek to dismiss the action without prejudice for that reason only if a vote or written agreement of the owners of the units to which at least a majority of votes of the members of the association are allocated was obtained at the time the approval to commence or ratify the action was sought”.

Following an owner letter to the Board, the alleged violation was placed on the agenda for the May 23rd BOD meeting and addressed by Association Attorney John Samberg in which, per the meeting Minutes, “John Samberg was present and discussed that the Board acted in good faith and in accordance with the four corners of the law while filing this lawsuit. The Nevada statute has various components and requirements. We (the SOA attorney) believes that those requirements were met and the Board was acting in good faith on behalf of the community”. Although the wording of the statute leaves something to be desired, the requirement for a majority vote of all homeowners appears to be quite clear. Since Mr. Samberg did not offer any other legal basis to proceed with the lawsuit, a subsequent appeal to the NRED Ombudsman was initiated via the Intervention Affidavit process.

In retrospect, Mr. Samberg’s opinion that: “…the Board was acting in good faith on behalf of the community…;” is questionable given the following:

  1. The SOA law suit was filed with the District Court on December 29th without any prior notification to Association Members.
  2. Association Members were first notified of the lawsuit on February 23rd, almost 60 days after filing of the lawsuit, and provided with a ballot to either Ratify or Not Ratify.
  3. A Homeowner Information Meeting was held on March 10th to discuss the basis for the lawsuit. A major concern by those present was the 6-year statute of limitations on a Chapter 40 Claim for Damages. The SOA Attorney, without citing any other statutes, felt there was a work-around here, but would not reveal their litigation strategy.
  4. To be eligible for counting, all ballots were to be received by March 28th, which coincidently corresponded to the NRS 116.31088 90-day limit for ratification after commencement of the action (i.e., the lawsuit filing date).
  5. The vote count was not made available to Association Members until mid-April, citing Attorney reasons, which closely corresponds to the date of the “Unanimous Written Consent“ document referenced below.
  6. The BOD via a Unanimous Written Consent document, effective April 14th, approved proceeding with the lawsuit based on the returned ballot results. It should be noted that the Unanimous Written Consent process is normally reserved for emergency and/or time sensitive issues.  This in lieu of discussion and approval at the next regularly scheduled open Board meeting. Also it was not a unanimous consent as Director Roland abstained.

Should one consider the preceding a “Good Faith”effort on the part of the BOD? Of concern is why the BOD waited 60 days after filing of the lawsuit to notify Association Members and distribute ballots. Thus, leaving only 30 days for ratification with no time for any extension to solicit additional ballots should a majority vote not be reached. It should have been obvious to the BOD, based on past history, that a majority vote could not be reached in this time frame. Was the BOD counting on this, knowing that initial ballots are usually in favor, and that many who oppose will just not bother to submit ballots without further prompting? Especially given that at the March 10th Information meeting, a BOD spokesperson, in soliciting ballot submittals, stated that a non-submittal was essentially the same as a “No” vote.

The ratification issue is now in the hands of the NRED’s Enforcement Section, for which the SOA BOD has until July 16th to provide a response to the alleged violation. Will the NRED determine that the SOA BOD made an appropriate “Good Faith” effort and can proceed with the lawsuit, or that they are in violation of Nevada Law and must curtail activities until a majority vote of all allocated owners is accomplished? Only time will tell.

Note: Previous posts on this subject may be accessed via the following links: