Madison Community Cooperative referendum to sell Lothlorien violates bylaws, appears to be illegal

lothlorien color

This post is meant to

1) Alert MCC members that there is a referendum on the sale of the Lothlorien building.

MCC called the referendum on December 19th. MCC says it will distribute ballots to each MCC member and voting will take place March 25th 12:00 to March 31st at 12:00.

2) Alert MCC members that there’s reason to believe that the referendum was called for in a meeting that does not conform to MCC’s own bylaws and is therefore illegal.

3) There are other issues with the MCC board which I will not summarize – I prefer that MCC members read about them in the letter below.

Given what I’ve heard, I strongly suggest that the Friends of Lothlorien Coop retain a lawyer to review the legality of last week’s meeting and to advise them in their future communications and dealings with the MCC board.

Below is a letter written by somebody I trust, Gregory Gelembiuk.

The letter was shared directly with the MCC board on March 21st and it has been sent to many people who are concerned about the future of Lothlorien.

——-

eating outside

I’m writing this letter to be sent to members of the MCC Board of Directors and to be disseminated to the general membership.

I’m an MCC alumnus from the 1980’s and 1990’s. During those years, I devoted much of my life to Madison housing coops. That included intervening to rescue International Coop House when it failed and shepherding it into MCC (I organized the rescue, putting in close to 2000 hours of labor; others involved during that time period will confirm that ICH probably would no longer exist as a coop if not for that extreme effort). I and a woman named Kimmerly organized the restart of Hypatia (in part we chose that name to honor its early heritage as Grove’s Women’s Coop), and I was also involved, though less centrally, in the restart that gave rise to Phoenix Coop, and in aiding Nottingham when it came near failure. And I served on the MCC Board for years.

I’m one of a number of old coopers who are activating as word has begun to spread among MCC alumni of the move to sell Lothlorien Coop. Many of us are disturbed by certain aspects of what is currently occurring, and especially aspects of the process being used. The network of concerned alumni includes former MCC officers, some former MCC staff, and some of the founders of MCC.

I never lived in Lothlorien myself, so in my case, what I’m about to say is not coming from a deep personal sentimental attachment to Loth – but it is coming out of a loyalty to MCC and the long-term principles of MCC. Over the intervening years I’ve basically watched MCC from a distance (very occasionally having a dinner at a house), but the current circumstances appear to require that I actually speak out.

1. I and other MCC alumni/former MCC staff believe that the Board action to recommend sale of Loth and initiate a referendum was executed in violation of MCC bylaws. This is a consequence of the adoption and manner of implementation of the new “Executive Session” policy (adopted by the MCC Board of Directors in December, 2013). The Board deliberation to endorse selling Loth (and initiate a referendum for this purpose) was done in an “Executive Session” that general MCC members were prohibited from attending (and with minutes not taken).

MCC bylaws state:
“4.05 Operation of the Board of Directors
H. All meetings of the Board are open to any interested members. Those who come shall have the right to speak on issues. Only authorized directors or their alternates may vote.”

The Board deliberation and vote to recommend sale of Loth (and enact a referendum for this purpose) did not meet this requirement, and instead, apparently occurred via a closed “Executive Session” that general MCC members were prohibited from attending. From the Board packet:

“Executive session:
The decision on whether to recommend that the general membership approve the sale of the property at 244 W Lakelawn Pl. involves long-term financial liabilities for MCC. Members of the Board of Directors have fiduciary responsibilities to the organization, and have the right to make this decision without the presence of MCC members that do not share these responsibilities.

Coordinating staff will be included in the executive session as informational resources. However, they will be asked to leave during the voting process. After votes are taken the results will be reported to the notetaker.”

Bylaws trump policy. Members of the Board have a legal responsibility to uphold the bylaws and do not have the power to implement policy or take actions in violation of the bylaws. The exclusion of general members from the deliberation appears to be illegal. The general membership cannot be excluded from all or part of a Board meeting.

This is not entirely dissimilar from Wisconsin open meetings laws. For example, the WI legislative votes passing Act 10 (the union-busting law) violated open meeting requirements – the right for citizen access (to be present at the meeting/vote). This was the basis for a lawsuit attempting to strike down Act 10. Ultimately, the conservative majority on the WI State Supreme Court overturned a lower court decision (that had ruled Act 10 null and void due to failure of the legislature to follow open meeting law) and upheld Act 10, but only on the grounds that the state legislature, unlike other state bodies, has the right to write its own rules (and thus need not abide by open meetings laws). With regard to MCC bylaws, the MCC Board has no such analogous power to rewrite or disregard the bylaws.

The new “Executive Session” policy for Board meetings was passed on December 11, 2013. The policy states:

“An executive session is defined as a discussion or decision item that only certain members, such as elected board reps from each MCC house, MCC officers, MCC staff, and/or special invitees, may be present for. A particular board member may be asked to leave if they will be a subject of the discussion. The length of the session will include both discussion and final vote and no notes will be kept of the discussion, although the tallies of any votes taken will be included in the meeting minutes.

Instances in which an executive session can be called are limited to:

Discussions of staff or officer performance or hiring/dismissal
Issues involving conflict or mediation
Accommodations made for personal or health issues
Specific member issues such as eviction or appeals to the board
Issues of MCC or house liability or legal repercussions
Executive sessions, including who is included in the session, must be announced in advance on the front of the board packet. The text of the proposal also must contain a notification and a reason that an executive session is being proposed. In unexpected circumstances, an executive session for an item may be requested at the board meeting during agenda review and must be approved by at least a 2/3 majority of voting members.”

Though this policy states that secret Executive Sessions can only be used for particular circumstances, the listed circumstances can be construed so broadly as to make everything subject to executive session (from which people may be excluded and where notes are not taken). Essentially every single decision by the Board (of any sort) involves potential “Issues of MCC or house liability or legal repercussions”. Everything has potential liability consequences/legal repercussions.

During the years I served on the Board, we did on rare occasion implement something analogous to Executive Sessions, but in a manner that was far more restrained and that did not violate MCC bylaw. For example, if Rosebud (MCC’s attorney) wished to speak about an ongoing lawsuit involving MCC or provide other delicate legal advice, we might vote not to make minutes of that discussion publicly available. If a committee was considering a grievance against a member, they might be asked to leave during deliberations. I’ve spoken to other old members about years when I was not present, and consistently, I’ve been told that such actions were used as minimally as possible, under very restricted circumstances.

No-one on the Board would ever have dreamed of excluding the general membership from being present (and speaking) during policy decisions, and especially consequential policy decisions (such as deliberation about sale or acquisition of a house). Not only did all recognize that this would be against the bylaws, but it would be against the fundamental principles under which we operated as an organization.

And “Issues of MCC or house liability or legal repercussions” was interpreted very expansively to justify use of a closed Executive Session for deliberation about the fate of Loth. We’re not talking here about a restrictive application – e.g. application to a discussion in which Rosebud was giving some advice that MCC wouldn’t want published in meeting minutes.

Expansive interpretation of the “Issues of MCC or house liability or legal repercussions” condition makes essentially any Board decision – and especially consequential ones – the subject of closed meeting excluding general membership (and lacking even the transparency provided by meeting minutes – since no minutes are taken in “Executive Session”), in violation of MCC bylaw. And bylaw violations introduce a whole new set of liability and legal issues for MCC and MCC Board members.

2. In the past, a decision of this nature and magnitude would never have been made without one or more General Membership Meetings for discussion/deliberation. The whole point of General Membership Meetings is to allow full and open deliberation, to prevent faulty decisions from being made (which could otherwise occur due to restricted or incomplete information, or the failure to recognize and discuss important factors). The membership meetings would occur before a referendum. In my experience (and that of others I’ve spoken to from other time periods), that’s how it always had been done, and there was much wisdom to that process.

For example, when the decision was being made about whether to go for tax exemption, or whether to acquire International Coop House, multiple General Membership Meetings were held, to insure that everyone’s voice had been heard, to insure that all who wished were adequately informed, and to insure that all potential issues/perspectives/caveats had been brought to light and considered (all prior to referendum). In the case of MCC acquisition of International Coop House, there was substantial opposition in certain quarters of MCC. I wanted to save the house (which would not have occurred if MCC membership declined the acquisition; even though ICH was a valuable asset, it required extensive repair and lacked alternative sources of funding for that repair).

I remember thinking that General Membership Meetings might provide a forum that could intensify opposition to the acquisition – that strategically, ramming it through on quick referendum without General Membership Meetings could increase the odds of it passing. But I and everyone else recognized that this would be wrong – contrary to the fundamental principles of MCC and, in the long run, destructive to the function of the organization. There were some very spirited discussions (to say the least) at those General Membership Meetings. And as an organization, we ended up stronger for it – with a better understanding of relevant factors, better dissemination of information, and a sound decision that everyone recognized as fully legitimate (with all voices heard).

In the current case – of potential sale of Loth – no General Membership Meetings are to occur prior to referendum. A Board decision (made via deliberation in a closed session that MCC general members were barred from attending) is to be followed, very quickly, by a referendum. The absence of open, extended, deliberation by the membership of MCC means that only very restricted sources of information can end up being considered, disseminated, and incorporated into the decision-making process. That’s the essence of how flawed decisions occur.

I’ll also note that there appear to be problems with information availability. I’ve heard that Loth members complained that for months, they were seeking information, and little to none was provided (until the sudden initiative to sell the property). I might not give this credence except for my own experience. Shortly after the Loth fire, I stopped by the MCC office, wanting to find out what the situation was. I was in touch with a network of old coopers, and people were concerned, some wished to offer assistance (and potential financial donation), etc.

When I went to the office, I was met with a rather close-lipped response from staff (not the open and informative response I had expected based on my experience of the MCC office from prior decades). I stopped by the MCC office again, just a few days ago. Upon entering, I stated “I’m an old MCC member, from years ago, and I’m stopping by because I have some questions about the Lothlorien situation, and some thoughts I’d like to share”.

I was met with unexpected suspicion and secrecy. I was told that an e-mail with the information I was asking about (e.g. estimated Loth repair costs) had been sent to Board members, but that it was “privileged information”, intended only for Board members. Given this response from staff (and at Michael’s suggestion), I e-mailed the MCC coordinating officer, asking to be granted permission to see Michael’s e-mail concerning repair costs, and the request was declined (and the language of the e-mail response was marked by suspicion and a substantial degree of disrespect).

It’s true that I’m not a current MCC member, but in the past, an old member arriving under these circumstances would have been treated quite differently. My current personal experiences (as a third party) thus lead me to give some credence to the complaints from current Loth members of secrecy/withholding of information.

3. Under the reasoning used to justify the sale of Loth, your house may be next on the chopping block.
A number of people have focused on the estimated repair costs. I’m going to focus on something that appears to have received relatively little attention – the estimated per unit replacement cost provided by Michael. As stated in the Board packet (used by the Board for deliberation on Loth):

“MCC’s rent structure can absorb development costs at about $33,000/bedroom, for each ‘bedroom’ developed. The cash flow model described below conservatively estimates a higher per-bedroom development cost of $40,000”

“31 units replacement housing @$40,000 per unit.”

The problem is that 1. The “replacement” option (of selling Loth and developing an equivalent number of units elsewhere) is attractive only if the replacement cost is sufficiently low, and 2. $40,000 is a lowball estimate.

I compiled information on a set of Madison housing coops for which I could find estimated values (I found such data for 11 Madison housing coops). Given the number of units in each of these coop houses, one can then calculate a per-bedroom cost. Across the coop houses, the mean per unit cost was $57,760 and the median per-unit cost was $56,222. I also looked at two Madison SRO developments – single room occupancy housing that had recently been developed or that was in the process of being developed, essentially for the very-low-income or homeless population.

For one structure (48 units – consisting in part of rooms plus communal kitchen and showers, and in part of small efficiencies), the per unit cost was $83,333. For another SRO structure that’s currently being developed (and that consists only of 40 rooms plus communal kitchen and bath facilities), the per unit cost is projected to still be well above Michael’s estimate of $40,000 per replacement unit. I need to note that these SRO developments are minimalist, relatively unattractive housing (developed essentially with the utilitarian goal of providing a roof over the heads of those who would otherwise be homeless; checking out photos of the rooms – not a place I’d personally want to live).

It’s always possible to drive theoretical replacement cost lower (and rather arbitrarily low) by building something of lower quality in areas that are less desirable (cheaper property). However, lower quality buildings in less desirable areas will be in less demand, commanding lower rents, and with an increased vacancy rate (leading to potential ongoing operating deficits – a long-term financial drain).

Two examples of less desirable MCC coop buildings that failed in part for that reason were Tralfamadore Coop (the architecture was never really that suitable for a communal coop) and Kianga Coop apartments on the far south side of Madison. “31 unit” buildings are not interchangeable. I heard there was some talk of building a replacement 31 unit structure somewhere near the MCC office. I live in that neighborhood. I think such a coop would likely ultimately fail – people who are students or young are willing/interested in living communally in a 31 unit building. That demographic is downtown near campus. People on the near east side in the Willy-Atwood area are, in general, a different, older demographic.

On the whole, they will not be drawn to living in a 31 unit communal house – those who would be interested in living in a coop would, for the most part, only be interested in living in a smaller house (e.g. Syntropy, Black Walnut, Sophia, etc.). A 31 unit house out here would likely have a lot of vacancies, and would be drawing on residents less suitable for communal coop living. It potentially could be made to work if the structure consisted of individual apartments or was some type of cohousing arrangement, but the per unit cost for that would be much higher.

Basically, I think the fiscal analysis that makes sale of Loth look attractive is not accounting for critical variables regarding equivalent replacement units (so is skewed). Architectural structure, attractiveness, and location are crucial determinants of the long term success (or failure) of individual housing coops. IMHO, tossing out the one of the crown jewels of MCC, ideally located, for cheap units elsewhere doesn’t make long-term financial sense. As an aside, I’ll also mention that the large houses near campus (Phoenix, ICH, Amboria, Loth, and Nottingham) play a critical role in the development of coopers in Madison (they’re predominant gateways into coop living – people move into these houses, have intense formative experiences that such houses uniquely provide, acculturate to coop living and absorb the principles, then often migrate to smaller houses).

Given the assumed, per unit cost of developing cheap housing elsewhere (i.e. $40,000 per unit is assumed by MCC staff), it would appear to make sense to sell many of the MCC houses, since a similar number of units could be developed more cheaply somewhere else. I don’t have “highest and best value” appraisal values for Phoenix and Ambrosia, but they would almost certainly fall in this category (and according to this rationale, should be sold). In fact, most existing Madison housing coops (both MCC and non-MCC ones) appear to exceed (and often far exceed) in value the assumed $40,000 per unit development cost. For example, homes.com gives an estimated value for Syntropy of $436,300, and it has 8 beds.

So (according to the reasoning) MCC should sell Syntropy and develop cheaper $40,000 per unit housing elsewhere, to keep down MCC rental costs. It would be financially irresponsible not to do it.

To state this again – If, as I’ve heard one person argue, Board members have a fiduciary responsibility to vote to sell Loth (to restrain MCC rental cost, per MCC’s mission), and given Michael’s $40,000 estimate of per unit replacement cost, then they also have a fiduciary responsibility to sell many of the other MCC houses (Phoenix, Ambrosia, Syntropy, etc.). The problem here, of course, is the combination of a flawed conception of fiduciary responsibility and a lowball estimate of per unit replacement cost (that doesn’t adequately account for relevant factors).

Finally, a brief note on repair costs. This has been addressed in more detail by others, but I’ll simply note that in estimating the costs of repair, there appears to have been little effort taken to explore how these costs might be minimized or offset. For example – fundraising from MCC alumni and other community members. A “Friends of Loth” Facebook page that was set up March 3 already has 434 “likes” (most of those acquired in recent days, as word filters out) and a linked SaveLothlorien gofundme page set up two weeks ago has already raised $24, 573.

Volunteer labor can also be used for certain repairs (e.g. when restarting International, I repainted much of the interior myself) – and this is especially pertinent here given the huge pool of Loth alumni (with a deep attachment to the building). Code enforcement costs can be reduced by filing for variances (pleading hardship and citing the social mission of MCC). The failure to consider or initiate such measures (to restrain or offset repair costs for MCC) is surprising and problematic.

The whole point of fully open information flow, fully open Board meetings, and General Membership Meetings prior to any referendum is that points such as those I’ve raised above (and points raised by others) could be fully considered, vetted, and incorporated into the decision-making process (i.e. to avoid the pitfalls/errors that invariably accompany less open and thorough decision-making processes).

In Cooperation,
Gregory Gelembiuk

Resources:

Friends of Loth facebook page

GoFundMe fundraiser page to preserve Lothlorien
[$25,051 raised as of writing of this post]

Repair Lothlorien Cooperative petition

MCC Statement on Upcoming Referendum

Discussion of Lothlorien at reddit

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7 thoughts on “Madison Community Cooperative referendum to sell Lothlorien violates bylaws, appears to be illegal

  1. I really hope that MCC can resolve this situation without lawsuits, and in a way that a vast majority of members feel comfortable with the process. That being said, I agree almost 100% with everything Greg says.

  2. The Kimmerly you refer to from the Hypatia Restart is Kimmerle Green. Thank you for making this analysis, Greg!

  3. I am a member of the Board of Directors, and I was unaware of the particulars of using an executive session within the MCC bylaws. I am familiar with its typical uses in other organizations though, and when I asked a few questions about the executive session before the meeting I wasn’t given the impression that anything unusual was going on.

    Personally, I think that using the executive session was unnecessary, but that the final vote should have been taken by ballot rather than by show of hands. This issue raises passions, and opposing votes could be damaging to the future working relationships of various members, officers, or staff present.

    In hindsight, I wish there had been a ballot for a second reason – I have seen the result of the vote reported incorrectly on more than one occasion. That would have been less likely if a written record existed.

    • Steve – Yes, I think most house reps were given the (incorrect) impression that nothing unusual was going on.

      I suspect a few people with a strong agenda have skewed information flow (he/she who controls information controls outcome) and, in important ways, have acted to circumvent the normal process (used historically by MCC) for making decisions of this nature/magnitude. I think that, in a way, they’re perfectly well-intentioned, convinced of their own rectitude and the correctness of their preferred course of action (which justifies some of the maneuvers being used – I recognize the temptation to do so from when I myself was on the BOD; the temptation to believe that such a course of action is necessary). I suspect there may be an element of groupthink operating also (which along with top-down relatively-non-open discussion/information flow, can really mess with the quality of decision-making). And some of the skewed financial information may reflect cognitive biases (given preferred outcome) rather than deliberate attempts to mislead. And a feeling of being embattled may be causing some people to entrench further (to become even less reflective).

      The historical process for such a decision included general members being present at the BOD deliberation/vote, development of more sources of independent info prior to the BOD vote, two or three GMMs at different houses, at least several days apart – so as to maximize participation/exposure and development of analysis/info/recognition of caveats, etc., then finally a referendum. I just went to a house meeting (I won’t mention the house), and was yelled at by a BOD rep, who said she couldn’t believe a non-member was being allowed to attend a house meeting and speak (i.e. contrary to her preference for course of action on Loth). It left everyone else very uncomfortable. That kind of attempt to seal off outside info leads to impaired decision-making.

      I suspect another issue here might be staff role – MCC has always functioned best when staff had a very strong sense of their role being very constrained, with no agenda (that the ship must entirely be steered by membership). When staff strongly push a course of action, things have always gone awry. I don’t know for sure to what extent that’s occurring here, but have a sense.

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