Tuesday, February 18, 2014

Who Is Representing Whom?

Boards of Directors and Community Association Managers (CAMs) should be mindful of the boundaries that their legal counsel faces.  Too often, a request or inquiry creates a conflict, because the attorney’s first duty is to the corporation, not individual Directors or managers.
For example, a Director provides non-Board related services to neighbors in the community.   This could be anything from CPA work, to drafting architectural plans, to handyman construction.  During an executive session, the Board of Directors is notified of a health-safety issue that impacts the clients of this particular Director.  He asks the Association’s attorney what he can and should disclose to his clients.  This is a conflict of fiduciary duties, and the Board should form an executive committee to handle the life-safety issue without the conflicted Director’s involvement.

To compound the situation, the Association’s attorney can’t advise the Director on handling the client-homeowner information conflict.  This Director would need to retain his own attorney for such advice, but that attorney is barred from using the Association’s information regarding the safety hazard.  If the conflicted Director attempts to pass on this information to his attorney, the attorney is obligated to destroy it and notify the Association’s attorney of the attempt.  Quitting the Board does not release the former Director from his duty of confidentiality.

If and when to release this sensitive information is an Association-only privilege:  No single Board member may unilaterally decide to disclose.  The Board as a group will need to consult with the attorney before voting to release any information.  Any Director who releases information without group approval exposes himself to liability and loses the protection of the Association’s Directors & Officers insurance coverage.

Board members and managers should also be aware that any private statements that they make to the Association’s attorney are subject to disclosure in certain situations, at the discretion of the attorney, even if it could expose the Director or manager to personal liability.    The protection of the Association as a corporation comes first. If a lawyer learns that an officer or agent of the community is engaged in or intends to act in a way that violates a legal obligation, leading to substantial harm for the Association, the lawyer is required to take whatever actions are necessary to protect the Association.  A Board member violating his duty to the association by stirring up dissension in the community, or instructing vendors to conduct work without formal Board approval – either of these could trigger the attorney to act. 

Related to this are required lines of communication.  For situations where the Association is being represented by an attorney, all correspondence must be solely to the Association’s legal counsel.  A vendor in a contract dispute, a homeowner in collections, or raging Board member must have the attorney’s consent before reaching out to any Board members directly.

As you can see, the proper handling of Association information is not easy.  After annual elections are held, the Board as a group should invite its corporate counsel to visit and provide in-depth discussion on this topic.

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