No one likes a lawsuit. Whether filing one or finding yourself on the receiving end of one, they can cause stress, anxiety and an upending of daily life. They can be expensive, take months—even years—to resolve, and often result in hurt feelings and ruined relationships. For condo and HOA board members and residents, the situations are no different, where litigation levied by or against a corporation, association, board or even individual resident can lead to countless sleepless nights for all parties involved.
Turn to the Experts
When that unwelcome registered letter arrives in the mail and is opened to reveal notice that a lawsuit has been filed. A lawsuit represents a relative loss of control, a roll of the dice. The only thing you have control over are your own actions. Attorneys say that some adversaries on the other side of the suit may simply want to tie up the case in procedures, and bleed money out of the process until the other side can no longer keep up. A lawsuit against someone with a lot of money tends to not end well for the other side. Given the potentially high stakes, the first thing to do after receiving notice of a lawsuit is to remain calm.
The second thing to do is get in touch with the right people and whatever the specific issue, the 'right people' are the building or HOA’s legal counsel and insurance carriers.
“The first thing the defendant should do is consult their lawyer,” says Adam Cohen, an attorney at the law firm of Pullman & Comley in Bridgeport, Connecticut. “The deadlines, procedures, and strategy are very difficult to navigate without one. In most jurisdictions, the defendant’s first official action is to file an ‘appearance’ form with the court and the plaintiff, which acknowledges the complaint and provides contact information for himself or his lawyer to be used going forward.”
Robert J. Braverman, a partner at the law firm of Braverman Greenspun, PC in New York City, agrees. “The board should have the managing agent immediately forward the legal papers to the building’s attorney so that he or she can ensure that an appropriate and timely response is interposed and to its insurance broker so that the appropriate insurance companies can be placed on notice. Very often there is insurance coverage available under the building’s general liability or directors’ and officers’ liability insurance policy.”
Different types of insurance may cover different types of allegations or claims, says Eric Goidel, partner with the firm of New York City-based Borah Goldstein Altschuler Nahins & Goidel. “Depending on their claim, there are different avenues to pursue. If there is an allegation of personal injury, they should turn to the carrier of their general liability policy as well as their umbrella and directors’ and officers’ carriers. For wrongful termination or discrimination case, the umbrella policy or directors and officers (D&O) coverage might be invoked.”
Some Big 'Don'ts'
Just as important as what to do when on the receiving end of a lawsuit is what not to do. Board members and managers “should not engage the person making the claim, because things might be said or exchanged in a letter that might come back to haunt them and compound the problem later,” says Goidel. So as much as you might want to dash off a salty letter to the person you view as a litigious jerk, it's crucial that you resist that impulse.
Cohen agrees. “The board members, officers, and manager all need to be very careful about what they say or write to anyone about the case or the events which gave rise to it, because they can all be used as evidence against the association. Making sure the association’s own lawyer has all of the information he or she needs to understand the facts is key, as is routine contact, to make sure the lawyer is being proactive to protect the association’s interests.”
And now is certainly not the time to do a clean sweep of the office files, either. “Do not discard any documents or communications—paper or electronic—that may pertain to the lawsuit,” warns Braverman, adding that it's also imperative that all communications between board and legal counsel be handled promptly, otherwise the building or HOA may be put at risk of landing on the wrong side of a default judgment if a filing deadline is missed.
Neighbor vs. Board
Sometimes the source of the litigation arises from within the walls of the building, either when neighbors sue neighbors or when the board files suit against a resident, or vice versa.
When board members are forced to bring a lawsuit against a resident, it is usually for one of a handful of common issues that inevitably arise in multifamily communities. “One of the most common reasons for community association litigation is covenant enforcement,” says Margey Meyer, CMCA, PCAM, president and CEO of CADRExperts LLC, a dispute resolution firm based in New Jersey. “One of the primary reasons for board members deciding to sue is the misconception that approving a variance would mean ‘setting a precedent’ which supposedly opens Pandora’s Box and prevents the board from rejecting similar requests,” says the Houston, Texas-based Meyer, a professional mediator and a national CAI expert on community association dispute resolution.
Many board decisions involve discretion—where the board looks at the specific facts and decides whether the request can be approved under the covenants. While state statutes and governing documents must be reviewed first, if the variance request is reasonable, the board should make every effort to approve it,” says Meyer.
There are other situations where a board may sue a unit owner for negligence or misconduct that may not be in direct violation of those documents, but where the facts may make the person liable for their ongoing misconduct. Those issues of improper conduct can include recurring problems with noise, smells or other bad behavior, says Braverman. “Additional problems can arise with improper or unauthorized alterations to a unit, or Airbnb violations,” he adds.
Alternative Dispute Resolution
Oftentimes, however, disputes can be resolved before they get to court, through the process of alternative dispute resolution, often called ADR. ADR generally involves a process of mediation or arbitration between warring parties. “Mediation is a very effective process by which a neutral party works with the litigants to reach a settlement of the dispute,” says Braverman. “Some governing documents require arbitration of disputes which is generally a quicker, more efficient means of adjudicating a dispute than litigation.”
In states like Florida and in New Jersey, for example, mediation is required by statute as a first resort to settling disputes before taking the warring parties to court.
How an association’s documents are written and enforced in the first place can have an enormous impact on how disputes are created and sustained in associations. Meyer points to documents that can be written in very strict, non-negotiable language that can often put boards in situations where they have to be a bad guy when they otherwise wouldn’t have to. “Without flexible, enlightened governing documents, the board is hamstrung, limited to those words on paper that specifically instruct them what to do and when to do it, without considering special circumstances,” says Meyer.
Attorneys can review the association’s documents to include language that allows for more leeway in specific real-life cases that come up in the community. “Work with your attorney to craft a resolution to allow the variance, using the ‘whereas’ provisions to detail the specific circumstances under which the board is allowing the exception and with which other owners must comply in order to obtain identical approval,” says Meyer. “Such variances, provided that they are properly documented and supported by the facts, do not vitiate the covenants or require the board to approve all similar requests. Only if the covenant has been openly and continually ignored could the association be said to have abandoned the covenant and made it unenforceable,” she says.
Because some governing documents do include these requirements, the pros advise that those docs should be reviewed when the threat of a lawsuit arises. Even if there is no requirement in the governing documents (or in State law, as is the case in New Jersey and a few others), mediation and arbitration are still options. According to one legal expert, “Disputes can be voluntarily submitted to mediation or arbitration before a known tribunal, such as the American Arbitration Association, or may be referred to an agreed upon person to act as mediator or arbitrator.”
The main benefits of ADR is that the process can dramatically shorten the timeframe in which a satisfactory resolution to the dispute is found, and can be far less expensive than a protracted court case for all parties involved.
It's also possible that an association's insurance coverage can be of help in the face of litigation, though when and how helpful it is depends on the nature of both the dispute and the coverage carried by the board and association.
According to Cohen, “Insurance will almost never cover the expense of being the plaintiff in a lawsuit. Routine cases like those to collect unpaid common charges are usually the least expensive, while cases motivated by animosity or principle—like rule violations involving people’s children or pets, fights between current and former board members, and so on—are usually the most expensive. If a lawsuit will require expert witnesses, such as doctors to testify about injuries or computer techs to examine electronic records, the costs will be significant. Jury trials are usually more expensive than cases decided by a judge, and appeals will add even more,” he says. Those more arduous lawsuits tend be covered by a separate D&O policy.
Costs Beyond Court
And what happens to people, boards or buildings that find themselves persistently involved in litigation? It can have a very real effect on their individual and collective futures, says Cohen.
“Litigious associations tend to experience three significant impacts: First, the financial burden of legal fees and insurance premiums drives up common charges and diverts them from more practical uses, such as maintenance and capital improvements. Second, the residents become angry, suspicious, and resentful, and tend to organize into antagonistic groups, which make the community an unpleasant place to live.” Lastly, he adds, “Although it’s difficult to measure, it’s likely that an association involved in an unusually protracted case or large number of lawsuits would be less attractive to potential buyers, which would diminish home values.”
Other pros agree. “Most judgments are public records and can be searched by prospective purchasers—or by their attorneys—as part of their due diligence review,” says one attorney. “Also, the broker community becomes aware of buildings that are often sued, or that have judgments against them. In such cases, potential purchasers usually will stay away from a building if there is a comparable alternative place to live that is litigation- or judgment-free.”
In the end, people do not always get along, and disputes are bound to arise when dozens and even hundreds of residents live side by side with each other. It is to the advantage of those residents, board members and managers to find alternative ways to resolve disputes or end contentious actions. If worse comes to worst, however, it helps to be prepared and know all of the options available whether standing on the side of plaintiff or defendant.
Liz Lent is a freelance writer and a frequent contributor to The Florida Cooperator.