Lake Forest - Daphne, AL

Property Owners File Lawsuit against the Lake Forest Board of Directors.

June, 2008

Ed Kirby and Mitch Davis, two former board presidents, have filed a lawsuit against the Lake Forest Board of Directors on behalf of the LFPOA membership as a result of an action the current board took at their monthly stated meeting in April. That action, if allowed to stand, gives the board the right to amend by-laws, increase their own limit for borrowing money, increase member dues and more. The two former directors agreed that the board's action violates association rules and demonstrates a flagrant disregard for the will of the membership. What follows is a brief overview of the situation.

The amendments in Exhibit I were offered at the 2003 Annual Meeting by the LFPOA Board of Directors. The one in question is the amendment to Section 6.6, which defines how by-laws may be changed. The proposed amendments were sent to all members 30 days in advance of the meeting as required by the by-laws. After the members received the proxy, there were many objections to the provision that would allow the board to amend the by-laws without member approval. Unfortunately there was not enough time to alter the amendment and still comply with the 30 day requirement of membership notice. The amendment to Section 6.6 did two things. It changed the wording that defined what constituted a majority vote on amendments and it allowed the board to amend the by-laws without member approval. Because the original wording about what constitutes a majority was so ambiguous, the board asked the membership to vote for the amendment in spite of the objectionable part, based on their promise that their one and only act with that authority would be to remove the board's ability to amend by-laws from the section 6.6. The amendment passed due to developer support. Without the developer's vote, the amendment would have failed, which demonstrates how the Lake Forest property owners felt about giving up their control over the by-laws. See the originally proposed amendments. Here is an example of the kind of statement made during discussions leading up to the annual meeting that year. "That may be fine for your board (allowing the board to amend the by-laws), but you don't know what kind of boards may follow you in the future." That argument made sense then and has proven particularly perceptive with this current disagreement. See the vote results on the amendments offered at the 2003 annual meeting. Note the membership's attitudes about dues increases and borrowing money by the vote numbers on the various amendments.

As promised, a motion was made and passed with a unanimous vote of the 2003 Board of Directors to amend Section 6.6 of the by-laws to remove the board's ability to ever amend those by-laws again without membership approval. This action took place in November of 2003 at the monthly meeting of the board. See the motion that was made at that meeting. The motion was made by Sarah Coxwell and seconded by Ed Kirby. Also, see the minutes of that November 2003 meeting. You will find other things of interest there. The minutes of the April 2008 meeting of the board of directors at which they voted to rescind that November 2003 motion may be found on the LFPOA's official website. The specific motion is recorded under New Business. For your convenience a link to those minutes is included here.

Exhibit I: Original amendments

Proposed Amendments to By-laws: 2003 Annual Meeting

1. Section 2.4/Dues, Charges and Assessments

The existing Section 2.4 reads as follows:

2.4 Dues, Charges and Assessments

Members of the Association shall be obligated to pay dues, charges and assessments imposed by the Association. Annual increases in dues must be approved by members of the Association at the annual meeting. The Board of Directors has no authority to increase dues. The power of authority of the Board of Directors is limited to one (1) assessment annually, if deemed necessary, for the preservation of the Association. This assessment cannot exceed $50.00 per member annually.

Proposed Change of Section 2.4 to read:

2.4 Dues, Charges and Assessments

Members of the Association shall be obligated to pay any dues, charges and assessments imposed by the Association. Dues adjustments, commencing on or after January 1, 2005, will not exceed the Consumer Price Index published by the U.S. Bureau of Labor Statistics.

2. Section 3.6 / Quorum

The existing Section 3.6 reads as follows:

3.6 Quorum

At all meetings of the members of the Corporation (except as otherwise provided by statute, by the Articles of Incorporation or by the By-laws) the presence, in person or by proxy duly authorized, of persons holding at least twenty-five percent (25%) of the total votes eligible to be cast at such meeting, shall constitute a quorum for the transaction of business; but in absence of a quorum, a majority of such members present in person or by proxy may adjourn, from time to time, but not for a period of more than thirty (30) days in any one time, until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. No notice of any adjourned meeting need by given.

Proposed Change to Section 3.6:

3.6 Quorum

At all meetings of the members of the Corporation (except as otherwise provided by statute, by the Articles of Incorporation or by the By-laws) the presence, in person or by proxy duly authorized, of persons holding at least five percent (5%) of the total votes eligible to be cast at such meeting, shall constitute a quorum for the transaction of business; but in absence of a quorum, a majority of such members present in person or by proxy may adjourn, from time to time, but not for a period of more than thirty (30) days in any one time, until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. No notice of any adjourned meeting need by given.

3. Section 5.25 / Re-Election

The existing Section 5.25 reads as follows:

5.25 Re-Election

Any Director of the Association who has served a full three (3) year term in the office shall not be eligible for re-election to the Board of Directors for one year.

Proposed Change to Section 5.25:

Delete Section 5.35

4. Section 5.35 / Borrowing Money

The existing Section 5.35 reads as follows:

5.35 Borrowing Money

The Board of Directors shall not have any authority to borrow money in any amount in excess of $100,000.00 per fiscal year, secured by Association property or on open account, without the approval of a majority of the membership present or represented by proxy at a duly called membership meeting. This limitation shall not apply to renewal, refinancing or extensions of existing loans.

Proposed Change of Section 5.35:

Delete Section 5.35

5. Section 5.10 / Nomination of Directors

The existing Section 5.10 reads as follows:

5.10 Nomination of Directors

The Board of Directors shall appoint a Nominating Committee consisting of a Chairman, who shall be a member of the Board, and two or more full voting members of the Association in good standing. Members shall serve for a period of one year. There shall be an interval of two years before a member of a previous Nominating Committee may be reappointed.

The Nominating Committee shall, through its Chairman, present to the Secretary of the Board of Directors, in writing, its selection of eligible nominees along with their qualifications for the Board of Directors, to fill vacancies occasioned by expiration of terms or resignation. The number of members so nominated shall be twice the number of Directors to be elected. The Board by majority vote may name additional nominees of its choice and endorse nominees otherwise selected.

Proposed Change to Section 5.10 to read:

5.10 Nomination of Directors

The Nominating Committee shall, through its Chairman, present to the Secretary of the Board of Directors, in writing, its selection of eligible nominees along with their qualifications for the Board of Directors, to fill vacancies occasioned by expiration of terms or resignation. The Board by majority vote may name additional nominees of its choice and endorse nominees otherwise selected.

6. Section 6.6 / Amendments

The existing Section 6.6 reads as follows:

6.6 Amendments

A proposed amendment to the By-laws of the corporation must be presented to the voters 30 days prior to a vote, then the By-laws of the Corporation may be altered, amended, or repealed, in any particular, and any new By-laws, not inconsistent with any provision of the Certificate of Incorporation or any provision of law, may be adopted by the affirmation vote of a majority of the votes eligible to be voted at a meeting of the membership given at an annual meeting or at any special meeting of the membership.

Proposed Change of Section 6.6 to read:

6.6 Amendments

A proposed amendment to the By-laws of the corporation must be presented to the voters 30 days prior to a vote, after which the By-laws of the Corporation may be altered, amended, or repealed, in any particular, and any new By-laws, not inconsistent with any provision of the Certificate of Incorporation or any provision of law, may be adopted by (1) the affirmation vote of the majority of the membership present or represented by proxy at a duly called membership meeting. The notice of any such meeting shall include the form of the proposed alteration or repeal or the proposed new By-laws, or a summary thereof, or (2) by a vote of a majority of the Board of Directors an any meeting thereof; provided, however, the Board of Directors may not alter, amend, or repeal any By-law establishing the number of directors, the time or place of stockholders’ meetings or what constitutes a quorum at such stockholders’ meetings.

Exhibit II: Motion at first stated meeting of 2003/2004 board to honor their promise to remove the objectionable wording from Section 6.6. This is from the approved minutes of that meeting.

Move that we change Section 6.6 of the By-laws which read:

To read:

Exhibit III: Minutes of November 2003 Stated Meeting of the Board of Directors

LAKE FOREST PROPERTY OWNERS ASSOCIATION
STATED BOARD MEETING
November 20, 2003

Members Present: Sarah Coxwell, Mitch Davis, Dr. John Deloney, Ed Kirby, Pam Dimoff, Dennis Ivanjack, Mary Joe Carelli, Ken Eslava, R. Underwood

Members Absent: None

Staff Present: Jake Bodiford , Steve Jernudd

The President, Mitch Davis, called the Stated Board Meeting of the Lake Forest Property Owners Association to order at 7:00 p.m.

1. MINUTES FOR APPROVAL

1.1 E. Kirby motioned to approve the minutes from the Stated Board Meeting of September 18, 2003. K. Eslava seconded the motion. Motion passed unanimously.

1.2 D. Ivanjack motioned to approve the minutes from the Special Board Meeting of October 16, 2003. E. Kirby seconded the motion. Motion passed unanimously.

1.3 D. Ivanjack motioned to approve the minutes from the Organizational Board Meeting of October 27, 2003. E. Kirby seconded the motion. Motion passed unanimously

2. OLD BUSINESS

1.1 None.

3. NEW BUSINESS

1.1 S. Coxwell motioned to approve the proposed amendments to By-laws 6.6. E. Kirby seconded the motion. M. Davis discussed the details regarding the proposed change stating that the Board of Directors promised the membership that the change would be made at the first stated meeting following the Annual Meeting if the by law was passed. M. Davis requested a roll call vote on the proposed motion. Motion passed unanimously.

The change to the By-Laws removes the ability for the Board of Directors to change those By-Laws without a vote of the membership.

1.2 D. Ivanjack motioned to increase the non-voting membership dues from $17.00 to $21.00 per person. R. Underwood seconded the motion. Motion passed unanimously.

1.3 J. Deloney -" From retrospect to prospect: Hope for the future in the organization of the Lake Forest Directors"

Called out of order by the chairman

4. COMMITTEE REPORTS

Yacht Club & Marina - P. Dimoff stated that Friday remains the busiest night at the Yacht Club. She further stated that they continue to try to increase utilization at the Yacht Club.

Finance - R. Underwood stated that Lake Forest came very close to running out of money this month ending with only 5K cash in the bank and attributed much of the cash flow shortage to past due and doubtful accounts receivable.

Underwood stated that there are two areas in particular have shown significant shortfalls in 2002. Golf being the first area, which is $136,400 less in revenues than expenditures year to date. Much of this shortfall is attributed to poor weather conditions for much of the year. The second area R. Underwood stated is Food and Beverage, which is down $67,000 year to date even though many things have been attempted to improve sales in Food and Beverage over the year.

R. Underwood continued saying that the increase in dues was absolutely necessary because closing the amenities is not an option at this time so they must be kept in good condition. Underwood addressed the Board regarding the newly proposed budget for 2003 stating that it is only a draft and it is the responsibility of each Board member to review, clarify, and discuss the proposed draft with the General Manager and the CPA.

Buildings and Grounds - E. Kirby reported that once the budget for 2003 is approved he would be able to determine what actions need to be taken in the department.

Food and Beverage - M. Carelli reported that karaoke is still doing well at the Yacht Club with Friday nights remaining the busiest of the week. She stated that lots of improvements have been made year to date but utilization still needs to increase.

Architectural - S. Coxwell reported that there are several homes pending approval and additions recently approved. Lake Forest currently receives about fifteen telephone calls daily for information and about five requests for enforcement of covenants daily. Coxwell further stated that there are numerous violation letters that have been sent over the past month for issues including boat and trailer violations, yard violations, outbuilding violations, etc. There are currently about a dozen unresolved violations being pursued by the attorney.

Communications - M. Davis reported that the Spectrum continues to go out monthly and the web page is updated constantly. There is a feedback and suggestion box on the web site, which he encouraged members to utilize.

Greens - D. Ivanjack reported that the new Greens superintendent is doing an excellent job and that the course is in great condition.

Recreation/Activities - K. Eslava stated that future projects would be pursued following the 2004 budget approval. M. Davis stated that the someone recently tried unsuccessfully to break into the tennis clubhouse. Although they did not get in, they did damage molding around the door.

Special Projects - K. Eslava stated that he is reviewing studies done in the past regarding cleaning of the Lake and Channel. He also reported that the City of Daphne has a Maritime Specialist analyzing the possibility of a Ferry service from Mobile to the Eastern Shore. Eslava stated that such as service would provide revenue for the Yacht Club in the future and that he will keep the Board and membership advised on the issue.

General Manager's Report - Jake Bodiford

This report will be added shortly

Member Comments

Mr. Reynolds on Buena Vista Drive said that he is outraged about the $7.50 dues increase and asked why the proposal to increase dues was not on the proxy distributed to the membership. He asked who was present to represent Purcell and said that he would have preferred the membership to have been told about the raise in dues. He further asked what would be done with the money from the dues increase and whether or not there would be an assessment next year. He also asked about the purpose of the escrow account?

M. Davis responded stating that there was no plan to present the motion to increase dues until it was brought to the Board's attention by the attorneys at the last minute that the only way to get a dues increase would be to make a motion at the Annual Meeting. Davis further stated that the Board is not made up of salaried persons but rather of volunteer community members who are trying to do the best for their community.

M. Davis said that the Board has promised not to do an assessment next year and will stick to its promise. Davis said that the purpose of the assessment originally was for use only in emergencies but that the difficult financial situation in Lake Forest caused by having to operate on dues frozen for __years resulted in annual assessments necessary just to run the basic operations on 19__dues. M. Davis stated that Purcell did have a representative at the Annual Meeting to cast their vote. M. Davis answered that the 2.50 escrow account charge is for property taxes that run about $60,000 a year.

Ron Drummond at 367 Ridgewood Drive asked if the modified 6.6 by-law is now back to the original version. He said that he is now paying more in dues than property taxes. He further stated that Lake Forest should be making money and that it doesn't make sense that he can't afford to use the amenities. Mr. Drummond requested to talk to Purcell regarding the rumors that the corporation is planning to sell their property in Lake Forest and asked if such a sale would allow the buyer the same rights as Purcell has currently.

M. Davis responded saying that Mr. Drummond could contact Purcell in Bay St. Louis, MS but that he could answer the questions himself. M. Davis said that anyone who buys all of Purcell's holdings in Lake Forest would be entitled to the same rights as Purcell has currently. He continued saying that no one would buy the property in Lake Forest from Purcell if not for the purpose of developing it.

Mr. Drummond said that he wants the Board of Directors to state that there will be no assessment next year in writing.

R. Underwood responded that there is no assessment allocated in the proposed budget for 2004 and that this Board will not vote for an assessment next year.

Mr. Westerfield said that he couldn't sell a house in Lake Forest. He also asked why Dr. Deloney wasn't able to speak. M. Davis responded that references made by name and to the character of Lake Forest employees must be made at a Special Executive Session and not at an open meeting.

Mr. Westerfield said that he wants the Board to put in writing that there will be no assessment next year.

R. Underwood responded again that there is no assessment in the proposed budget for 2004 and that this Board will NOT vote for an assessment next year. R. Underwood further stated that after the Budget is approved the absence of the assessment would be published in the Spectrum and on the web page.

Steve Eiland of 106 Windsor Court asked for a response to his recent letter to the Board.

M. Davis responded that a letter of response was already in the mail and that he had a copy for Mr. Eiland to view in the meantime.

Mr. Eiland questioned Purcell's right to vote and asked if the Board was interested in pursuing action to challenge the developer's such rights.

R. Underwood responded saying that Purcell has 1308 votes. The number is determined by acreage and verified by the Baldwin County probate judge. Purcell has one vote per quarter acre. R. Underwood stated that he has spent two and a half years and $41,000 of his own money and gone all the way to the federal court to fight against their legal right to vote. He said that Purcell's right to vote has been confirmed as legal by the court system and that he will not pursue it any further or want the Board or Lake Forest to waste any more time and money pursuing the decision of the federal court. Underwood said that Purcell could not vote for Board of Directors after 2004 but that it can vote for changes in the by-laws. He said that Purcell is trying to sell its lots in Lake Forest and that it is unclear if the deal will go through. Underwood said that he has spoken with the prospective buyer and told him that "Lake Forest does not want another Purcell". He said that the possible buyer has a ten-year plan to develop the lots with upscale homes and that financing is already in place.

Mr. CE Don Wright of 123 Wildoak Drive said that he'd like to offer his time to speak over to Dr. John Deloney.

M. Davis said that there is no time limit to speak and that everyone is allowed to speak as long as he or she would like.

Dr. John Deloney of 125 Wildoak Drive said that he is insulted at being censored. He said that the rumor that he is trying to hurt Lake Forest is ridiculous. He said that he strongly protests people on the Board not being able to speak.

ADJOURN

M. Davis stated that the Board meets the third Thursday of every month and that ideas and suggestions are encouraged.

D. Ivanjack motioned to adjourn the meeting. S. Coxwell seconded. Motion carried unanimously.