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 co-op, condo and HOA board members and residents, the situations are no different, and 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, they should remain calm. “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.”
The second thing to do is get in touch with the right people—and whatever the specific issue, the 'right people' are the building’s legal counsel and insurance carriers. Should a board find itself named in a lawsuit, they should notify their attorney and make sure that the case is brought to the attention of the board’s insurance carrier as soon as possible, says Robert J. Braverman, a partner at the law firm of Braverman Greenspun, PC in Manhattan. “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 (D&O) liability insurance policy.”
Different types of insurance may cover different types of allegations or claims, says Eric Goidel, a partner with the Manhattan-based law firm 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 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 overly litigious, it's crucial that you resist that impulse.
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,” says Braverman. “Nor should the board members discuss the lawsuit with anyone outside of the board, other than the building’s hired professionals.”
It also is imperative that a response is made in an appropriate amount of time. Legal pros all stress the importance of facing the music and addressing the suit in a timely manner, or risk missing deadlines and incurring a default judgment.
Neighbor vs. Board
Sometimes the source of the litigation arises from within the walls of the co-op or condo 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, president and CEO of CADRExperts LLC, a dispute resolution firm headquartered 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 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.
The cost and length of time it takes to bring a lawsuit to completion also differs in co-op and condo cases. Pursuing a case involving a condo resident “can be much more expensive, and can take up to three years to work its way through court,” says Goidel. “For a co-op dispute, it’s usually less than a year and costs less than a handful of thousands of dollars.”
Alternative Dispute Resolution
Oftentimes, however, disputes can be resolved before they get to court, through the process of alternative dispute resolution, or ADR. ADR generally involves a process of mediation or arbitration between warring parties. In New Jersey, mediation is required by state statute as a first resort to settling disputes before taking the issue to court. “Before an association can file a complaint for what's called a housing-related dispute, they’re supposed to offer them ADR,” says Anne Ward, an attorney at the law firm of Ehrlich, Petriello, Gudin & Plaza in Newark, New Jersey.
In ADR, parties can meet on their own, even without the presence of an attorney, but many residents and associations opt to seek the guidance of mediation experts, who serve as a kind of neutral buffer and offer constructive methods to reaching compromise. If that doesn't work, other methods of resolution are available.
“Arbitration, which is legally binding is also a possibility to avoid some of the drama of litigation,” says Goidel. “Arbitration is quicker, and a little less costly than litigation, and you get arbitrators who probably have some experience in the field, as opposed to a judge who just has experience in the law, and has to learn about the field. Once the arbitrators decide, it's binding, and there's no right to appeal. We make the boards understand, 'This is it. This is your bite of the apple. If you win, you win. If you lose. you lose.'”
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.
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.
It is all too common for arguments or disagreements to escalate into threats of litigation—threats that often grow into actual lawsuits. “This is a real problem and, unfortunately, there is no good solution,” says Braverman, though he acknowledges that “in rare instances, ‘frequent flyers’ are enjoined by a court from commencing further litigation.” It's the judicial equivalent of a bartender cutting off an over-served patron and sending them home to sleep it off.
Goidel’s firm also has experience with residents and shareholders who have had that very thing happen to them. “We’ve had success in situations where the judge has said no more lawsuits against the building without permission from the court,” he says. “It’s rare, but we’ve had two situations where this has occurred and the judge has said to the person that they have to show that their case has merit before bringing it before the court.”
Other methods of discouragement involve the pocketbook. “Some proprietary leases and condominium bylaws award attorneys’ fees to the prevailing party called upon to defend a lawsuit filed by a tenant-shareholder against a board, or by a unit owner against a board,” says one attorney. If they know they will have to cover attorneys’ fees in a losing battle, more people may be willing to take a hard look at the merits of their case before moving ahead with it.
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 New Jersey Cooperator.