Tuesday, September 18, 2012

Cease & Desist

In the U.S. Supreme Court case of American Society of Mechanical Engineers v. Hydrolevel, the justices concluded that a nonprofit association could be held liable for the actions of its officers, directors & volunteers - even when the association did not know about, approve or benefit (as long as the volunteer appeared to outsiders to be acting with authorization).  In this particular instance, a volunteer chairman issued written responses to another company, making assertions that were not supported or approved by the association. 

Community associations must take steps to outline the authority of each agent, regulate access and use of things such as letterhead, a community logo or community website, and immediately act when it sees unauthorized activity.  A typical example is that of a former Board member who continues to interact with vendors or government officials as if he were still on the Board, directing or influencing others based on this false perception.

Appropriate responses include:
  • Having the association’s legal counsel issue a cease & desist letter to the former member
  • Limiting access to proprietary information
  • Notifying vendors and all association members of the volunteers change to non-director status
  • Placing the insurance carrier on notice

Nefarious actions are not limited to former volunteers.  Disgruntled homeowners or vendors may choose to act on behalf of the association as a means of retaliation.  It is vital that social media and other forms of public communication be frequently reviewed to detect and respond to such activity, before the situation becomes expensive.

In this Supreme Court case, the Association ended up paying $6 million (in 1982) in damages and legal expenses because of one person’s unauthorized actions – be sure your community does not face the same exposure!

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