by Clyde Duke, Board President; James Nelson, Board Vice President; Scott Lancaster, Treasurer; Joseph Cohen, Secretary; Michael Cleveland, Director; Rick Christmas, Director
You are likely aware of the pending recall effort underway — spearheaded by Steve Smith and Tenar Hall (who are both former Board Directors). This communication is provided to EWUA members to advise you of the reasons for the increased professional services costs incurred to date and our anticipation of spending on professional services in the future.
First, the EWUA Board serves you — the members. We are all volunteers — of our time and expertise. When questions or legal problems arise that are not within our skill set, we are obligated by our fiduciary duties to the Association to seek professional advice on such matters.
Over the past year, the Association has, indeed, experienced a significant increase in spending on professional services, such as legal counsel and a professional forensic accounting firm, to respond to legal risks and improve its processes. Thus, we offer a few insights below to explain the necessity of this increased spending, and in response to Smith’s and Hall’s allegation that the Association has unnecessarily incurred such expense.
In short, the vast majority of the legal costs incurred by the Association this past year were to mitigate damage and potential liability caused by poor decision-making of two former Board Directors, who have since resigned or been removed. The most significant expenses are summarized below.
Employment Liability Dispute
In March, the Association received an employment-related demand letter from an attorney representing our General Manager Dan Burke. The allegations included numerous instances of employment harassment of Burke by the two former Board Members (Hall and Smith), and included claims for defamation, retaliation in violation of public policy, intentional infliction of emotional distress, and additional inappropriate conduct from these two Board Directors.
EWUA engaged with our existing employment legal counsel to assess the seriousness of the allegations and the risk to the Association. To reduce cost and eliminate financial risk to the Association, a settlement agreement was achieved — which removed significant financial risk to the Association. A condition of the settlement agreement was that Smith no longer serve on the Board – a step that a majority of the Board also felt appropriate under the circumstances. Hall resigned prior to a settlement being reached.
This matter is now closed, and given that the two Board Directors who caused the legal risk to the Association are no longer serving on the Board, the Association does not anticipate any additional legal spending is necessary with respect to this issue.
Updating the Bylaws, Employee Handbook, and Financial Oversight Processes
In July, the Board voted unanimously to update its Bylaws (a process that was already underway), its employee handbook, and financial oversight processes. All of these updates required direction and review of legal counsel. The Association also incurred costs with Acuity Forensics this year, who was hired to review the Association’s books and to specifically look into the allegations and concerns raised by Hall and Smith. The investigator reviewed all the Association’s accounting information and found no evidence of financial malfeasance, and instead identified only a PTO compliance issue, which has since been addressed by the Board. The investigator also provided recommendations for improved bookkeeping in the future, all of which the Board has already implemented.
Response to Unlawful Disclosure of Confidential Association Information and Demand for Additional Confidential Information
Following his removal from the Board, Smith has refused to return confidential Association material, leading to additional legal expenses as the Association took appropriate steps to ensure that such information – such as its water members’ personal contact information – was not misused or inappropriately disseminated.
In response to the Association’s demand that Smith return such information, Smith has retained legal counsel himself to demand disclosures of additional confidential information from the Association. Legal counsel has been necessary to evaluate which documents can and cannot be disclosed under the law. To the extent Smith continues to serve the Association with such demands, additional legal expense will unfortunately continue to be necessary.
The Ongoing Recall Effort
As a result of the Smith/Hall Recall Petition, the Board has been forced to retain legal counsel to guide its volunteer Board of Directors through the legal process and procedure under both the statute and the Association’s Bylaws for performing a recall vote. The Association will also need to expend additional funds to hire a professional election’s officer to oversee the recall process if that proceeds.
The Association hopes that, with the adoption of new procedures and the removal of the two Board of Directors who caused the legal claims stated against the Association, it may be able to operate efficiently and without the need for significant legal spend in the coming year. The Board of Directors very much look forward to getting back the much more crucial work of serving this Community on water-related matters.
Thank you for your time and for being a valued Eastsound Water member.