Published in Common Ground magazine, September-October 2007.   www.caionline.org

Advice and Dissent

Think the attorney works for you? Guess again!

By Robert M. Meisner, Esq.

Several years ago, I attended a condominium association board meeting that was followed by a question-and-answer session with me, the association’s attorney. Many of the board members were under the misguided impression that I was at their individual disposal. The board members were facing a recall effort led by homeowners.

One asked: “Well, what’s our defense strategy going to be?”

Another inquired about my legal advice in regard to her remaining on the board.

When I explained that I couldn’t ethically represent them individually even though the case concerned their involvement as board members, they reminded me in clear terms: “We pay your bill!”

This misunderstanding is a common one. While some community association board members may believe that the association attorney should be directly accountable to them as individuals since they hire and supervise the attorney, this is a legal and practical miscalculation and a potential conflict of interest.

The attorney is accountable to the entity that hired him or her, namely the community association itself. The board members manage and administer the community association, but they are not the client.

If the association attorney represents the interests of individual board members or homeowners, he or she may face a severe conflict of interest. What if that member violates the community association bylaws or rules? The attorney may be prevented from taking the necessary legal action against that person on behalf of the association. Since the interest of the individual homeowner is distinct from the corporate entity of the community association, the individuals should seek separate independent counsel.

While the attorney is not accountable to one individual member, the board should appoint a board member to serve as the liaison between the attorney and the full board. This relationship saves time and eliminates confusion by limiting communication to two individuals as opposed to having the attorney communicate and deal with the board members individually.

However, there can be a downside to this arrangement. I recently experienced an unusual situation with a board president who also was serving as the legal liaison. This individual didn’t like the advice I was giving the association on a particular matter and decided to withhold my recommendations from the rest of the board. This seriously hindered the proper functioning of the board. Once the lack of communication came to light, there was a backlash against the president, and the board chose another member to act as the legal liaison. Had the president been sued for breaching his fiduciary duties, he may not have received the protection of certain directors and officers liability insurance, which is negated in some states for intentional acts or omissions such as this.

There also may be times when the community manager thinks the attorney is beholden to him or her. I have seen this happen, particularly in instances when the manager has been instrumental in getting the attorney hired by the association (and perhaps other associations).

Boards sometimes abdicate their decision-making responsibility to the manager, which is not only wrong, but could leave the board open to potential liability. Board members have a fiduciary duty to not relinquish their decision-making power to any other person, including community managers. Neither the board nor the manager should sidestep the attorney and perform any legal action, such as filing liens, which if done improperly could be deemed, among other things, “slander of title.”

Common trouble spots

Potential trouble between attorneys and association boards arises when board members shun the advice of their attorney. They often do not seek the necessary legal advice—and at their legal peril—because they believe it will cost them too much money or they are intimidated by the legal system.

Boards should avoid this mindset. The attorney’s opinion should be respected and considered by the board in its decision- and policy-making process. The board is more likely to be protected from liability if it makes a reasonable business decision based on the advice of the association’s legal counsel.

Another potential area of conflict arises when the board refuses to follow sound business practices. Some board members do not understand that they are effectively running a business. They might be great in their respective careers and occupations, but may not make good business decisions. Board members must rely on the governing documents and applicable laws when running the association, not on their personal beliefs and opinions; the association attorney must ensure that the governance of the association is undertaken in strict adherence to the documents and the laws. In some states, the courts will not interfere with an officer’s or director’s decision if the decision was made in good faith and can be defended under the standards of the “business judgment rule.” You can avoid running afoul of this rule if you don’t have a personal interest in the outcome of the decision, have learned enough about it that you believe the decision is appropriate under the circumstances, and believe that the decision is in the best interests of the association.

Volunteer board members are, by definition, uncompensated and often untrained for their positions, and they are sometimes elected for the wrong reasons. Some board members don’t have the temperament or the economic or business acumen to balance the political, economic, legal and social realities of community association governance. It may appear that I am being unfairly harsh, but this is my experience. This is, of course, all the more reason why board members should take the association attorney’s opinions seriously.

The Board’s Job

The role of the board is to manage and administer the affairs of the community in accordance with the governing documents and applicable laws, including, among other things, maintaining the common elements, planning for the long-range physical and financial condition of the association and enforcing the governing documents. The board may want to undertake a series of audits to help determine the proper future course of the association’s business such as (1) a financial audit to ascertain the need for more reserve funding and the adequacy of the budget, (2) a legal audit to identify provisions of the association documents where the association may not be in compliance, (3) a physical audit to assess the condition of the common elements and to plan adequate financial reserves for their repair and replacement, and (4) an operational audit to determine the effectiveness and legality of day-to-day administration of the association. Generally, the legal and operational audits are performed by the association’s legal counsel, the physical audit is performed by a reserve provider and the financial audit is performed by an accountant.

There is quite a large burden of responsibility placed on a group of volunteers who comprise the board of a community association. There must be a solid, mutually-supportive working relationship between the board and the association attorney so the board can properly establish sound legal policies. If the attorney stays accountable to the association, working through its board of directors, and that board values the attorney’s opinion, the relationship can and should blossom to the benefit of the community association and its members.

 Robert M. Meisner is a founding member of Meisner & Associates, p.c., in Bingham Farms, Mich. He is legal counsel to numerous community associations and developers. He also is a member of CAI’s College of Community Association Lawyers and CAI’s Business Partners Council. He is the author of Condo Living, A Survival Guide to Buying, Owning and Selling a Condominium.