Apr 07

QUESTION: The board is wasting our money calling a lawyer for anything and everything. Our dues are already too high–does a lawyer have to be called every time someone sneezes??

ANSWER: It depends on whether its an allergy or a cold. Knowing when to call legal counsel is no easy matter for boards. There is no need to call an attorney for routine decisions. However, eliminating legal counsel altogether can backfire and subject directors to potential liability.

Personal Liability. As volunteers, directors are protected against personal liability by the Business Judgment Rule, i.e., when they perform their duties (i) in good faith, (ii) in a manner the director believes to be in the best interests of the association, and (iii) with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

Breach of Duties. As part of their reasonable inquiry or “due diligence,” boards can seek the advice of legal counsel. (Corp. Code §7231(b).) Failure to seek advice on an important legal issue that results in damage to the association could serve as the basis for an action against the board for breach of their fiduciary duties.

Following are categories of matters and events where boards should seek legal advice:

1.
Amending Documents. Whenever CC&Rs and bylaws are amended or restated, legal counsel legal should be involved in drafting and recording the changes.

2. Architectural. Failure to enforce as well as arbitrary and capricious enforcement can lead to costly litigation. Whenever an architectural dispute arises, legal counsel should be called to discuss how to achieve proper resolution or to position the association for litigation.

3. Assessment Collection. Setting up proper collection policies and consistently following those policies is important to maintaining the association’s finances and minimizing legal challenges.

4. Contracts. Agreements not reviewed by an attorney can have significant hidden liabilities.

5. Ethics. Whenever a director or committee member has a conflict of interest and refuses to recuse themselves, it is time to call legal counsel.

6. Injuries. Whether it be slips and falls or other types of injuries in the common areas involving residents, guests, employees, vendors or otherwise, injuries should immediately be reported to insurance and to the association’s attorney so conditions can be documented and steps taken to protect against further injury.

7. Lawsuit Threatened. In addition to putting the association’s insurance carrier on notice of a potential claim, boards should talk to counsel about how best to respond to the threat so as to (i) reduce the risk that a claim is actually filed, (ii) better position the association to defend itself in the event one is filed, and (iii) take the matter into ADR if appropriate.

8. Lawsuit Served. Tendering a claim to the association’s insurance carrier is the first order of business. Sending a copy of the complaint to the association’s attorney is the second. General counsel needs to know of the litigation so he/she can protect the association’s interest in the event insurance is slow to respond or declines coverage. In addition, the board may need guidance on how to respond to the plaintiff on issues outside of the litigated matter.

9. Personnel. The most common high-risk areas are when an employee is hired, disciplined or fired. Employment litigation tends to be expensive so it is best to avoid it.

10. Recall Petition. Emotions run high in recall elections and issues of defamation often arise. Failure to properly handle a recall can lead to significant problems.

11. Request for Reasonable Accommodation. Failure to properly evaluate and respond to a request for disability accommodation can result in costly litigation.

12. Rules & Regulations. At least once, the association’s rules and regulations should be reviewed to make sure proper fine and hearing procedures have been established and to ensure they are enforceable (and not discriminatory, such as rules against children or restrictions on who may use pools, etc.). If enforcement issues are more than routine because of the particular individuals involved or because the issues may be more complex than normal such as with architectural issues, then legal counsel should be consulted before matters deteriorate into litigation.

13. Vendor Disputes. Disputes between the association and its vendors can erupt into litigation. Legal counsel needs to analyze appropriate contract provisions, evaluate the alleged breach, and advise the board on how best to resolve the dispute.

COMMENT: To keep costs under control, many law firms (ours included) offer retainer programs where boards can make unlimited free telephone calls to an attorney. That way, if an issue comes up and directors wonder if they should call legal counsel, they can do so without incurring any expense.

CITY HOUSING AUTHORITY

QUESTION: Our condominium complex has 216 units. The City Housing Authority owns 110 of our units, all of which are used for Section 8 housing. This has a very big impact on our HOA re complying with our CC&Rs, obtaining FHA insurance, being able to get reverse mortgages (too many rentals), and the ability of that entity to use its votes for and against nominees for the board. Could you address my issues in your newsletter?

ANSWER: You need help from someone way above my pay grade. This might be a good time to start a prayer group.

FEEDBACK

Restricting Candidates. We dealt with the horror of a husband and wife on the board at the same time. They’re gone now but a year later we’re still trying to put the place back together after all the deferred maintenance/cost savings they implemented which is costing far more than if it had been done right at the time. My advice: immediately get going on changing the bylaws to disallow more than one person from the same unit to be on the board at the same time. While we were at it, we also did away with cumulative voting. -Nancy H.

Litigation Experience
. I notice from your recent newsletter that your new attorney has lots of experience in litigation. When there are HOA conflicts, I hope you are encouraging boards to seek litigation only as a last resort and only then after all other attempts to solve the problem have failed. Litigation is expensive and leaves very hard feelings. What is the point of that? We really need to learn how to work together to live in community, and this means learning to solve problems without filing a lawsuit against our neighbors. -Jan M.

RESPONSE: I prefer that my attorneys have solid litigation experience, the more the better. With that experience, they can more easily advise boards on the significant financial and emotional costs of litigation as well as the vagaries of litigation. (Vagary [vey-guh-ree] n., erratic, unpredictable, capricious.) In the event attempts at resolution fail, I want my attorneys to know how best to represent our clients in court.

NO NEWSLETTER

Sorry, no newsletters for the next two (maybe three) weeks. I will be traveling to North Korea with Dennis Rodman to try and talk some sense into that country’s Supreme Leader Kim Jong-un and avert World War III.

In between my talks with Mr. Kim, I will be gearing up for oral arguments in the Court of Appeals in one case and testifying as an expert in another.

My office manager tells me I will be too preoccupied by these events to write any newsletters. I always do whatever she tells me.


Adrian Adams, Esq.
Adams Kessler PLC


Legal solutions through knowledge, insight and experience.” We are friendly lawyers; when your association needs counsel, call us at (800) 464-2817 or email us at info@adamskessler.com.

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