An appellate court in Texas has ordered a nonprofit condominium council to give a director access to all of its financial records and not just a computer disk containing copies of its computer entries. The Court has held that the state’s nonprofit corporation law, the condominium law, and the organization’s bylaws all require access to the bills, contracts, and other backup documents that the Council keeps in the normal course of its accounting. (Shioleno v. Sandpiper Condominium Council, Ct. of App., TX, Thirteenth Dist., No. 13-07-00312, 7/17/08.)

 

A member of the Council’s board sought access to the records in 2006 because he suspected accounting irregularities, poor management practices, and mishandling of various reserve funds. He first asked the management company to provide a full accounting and when he got no response, he hired his own accountant and asked for access to the records. 

 

The Council provided a computer disk with 2900 pages of general ledger entries, but the accountant said that it did not provide adequate detail to assure that the entries were proper or correct. After additional back and forth, during which the Council offered to allow the accountant to review the books at 10 p.m. on a Saturday night when the accountant would not be in town, the director sued. He resigned from the Council board a few days later.

 

A trial court ruled that the Council had provided sufficient information, but ordered the Council to provide additional materials if the director paid “administrative fees” ranging between $50 and $80 an hour. The Court of Appeals has reversed the ruling on the adequacy of the production.

 

The Court said that the director, or any member, had a right to inspect the records upon a written request stating a proper corporate purpose. The Council did not prove that the director was seeking the information for an improper purpose.

 

Although it appeared that the Council had made some effort to accommodate the accountant’s schedule, in the end it did not provide a substantial amount of the back-up documentation the accountant had requested, including supporting information for the general ledger entries, depreciation registers, copies of contracts with vendors and employees, correspondence with board members other than minutes, and work papers provided for the audit. The Court concluded that the Council had not complied with the statutes or the bylaws which required the production of all books and records. The bylaws specifically required access “during reasonable business hours” and 10 p.m. on Saturday was not during reasonable business hours, the Court said.

 

The Court did not reverse the trial court’s imposition of administrative fees because, it said, the director had agreed to pay such fees.

 

YOU NEED TO KNOW

 

Cases like this often generate a great deal of ill will between the members or directors asking for information and the insiders who say things are fine and the others shouldn’t be making such a fuss. When the insiders fail to provide the information that is so obviously required, they usually just prolong the dispute and exacerbate the rift. Sometimes the insiders are able to outlast the questioners, but sometimes they provoke costly litigation like this, requiring years in court to be told that they have to do what the law requires. It is not a particularly productive way to run an organization.