No Gain, All Pain: Litigation Hurts. Head off the Trauma by Following These Practical Tips

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Litigation is expensive, time-consuming and emotionally draining for all involved. This holds true whether an association is initiating a claim or defending itself.

Documents must be gathered, arguments prepared, and hearings, depositions and trials attended. Litigation can turn a community inside out and make it even more difficult than usual for board members and managers to do their jobs.

Although it’s not always possible, every association should try to avoid litigation. Board members and managers can do that by adhering to governing documents, federal and state statutes, and taking proactive and preventive measures.

Taking the initiative

Collections. Delinquencies are a problem for most associations. Much of the time, litigation can be avoided if the association stays proactive with its collection efforts.

Every association should implement and utilize a practical, multi-tiered collections policy that protects the community’s interests while resolving arrears without litigation. For example, after an account is deemed to be delinquent, the association should send the owner a warning, requesting payment within 10 days. Should the owner not pay by then, a final letter is sent, requesting payment within five days. Should the unit owner fail to pay again, the association should turn over the matter to its attorney. Depending on the collections policy, the attorney can either send a demand letter in compliance with the Fair Debt Collection Practices Act or initiate suit to collect from the delinquent account.

Utilizing this type of policy allows the association to have a two, or perhaps three, strikes and you’re out approach. Some associations create a payment plan, offering to waive late fees, to entice a delinquent owner to pay. However, some owners steadfastly refuse to make good on their late accounts, and litigation simply can’t be avoided.

Transition. The majority of lawsuits filed by an association against a developer are filed after many months, or even years, of communication and negotiation between the parties. The earlier the parties begin to communicate and attempt to resolve disputed issues the better.

For instance, associations often wait until the formal transition process begins to bring up any outstanding issues related to the common elements. While the developer certainly needs to address valid issues at that time, there’s no reason why the association has to wait until then to point out a deficiency. By opening up the lines of communication early, the developer is put on notice. Sometimes, a developer will handle any issues as they occur to keep the relationship between the parties positive and to avoid handling everything all at once at transition.

As for the formal transition, rather than digging in, puffing out chests and litigating every issue, each side should be encouraged to respectively discuss and negotiate positions and enter into a transition settlement agreement to finalize any remaining issues.

    Contracts.

Most contractual disputes involve a business partner that the association believes didn’t live up to its end of the bargain. While a contract breach is sometimes inevitable, associations can avoid litigation by crafting contracts that encourage the parties to resolve issues or terminate the contract with an agreed-upon recourse, such as liquidated damages.

Associations should have their managers review and assist in contract negotiations; managers generally have many years of experience developing contracts. When it comes to large, costly and more complicated contracts, have the association attorney review them to ensure the association is protected. Many times, onerous and one-sided—and sometimes unenforceable—clauses are present in contracts; these provisions should be removed at the outset. Attorneys also can strengthen clauses pertaining to breach, notice and damages.

Being proactively involved in the drafting of a contract is the best way to avoid litigation in this instance.

    Enforcement.

A proactive approach also helps in covenant enforcement.To start, associations should enact reasonable rules and regulations that comply with their governing documents and enforce them uniformly. Associations should incorporate proper notice, hearing and appeal requirements in the rules and regulations. Doing so provides owners due process and a mechanism for remedying violations prior to engaging in litigation.

Only after an association makes every effort to communicate and provides a noncompliant owner with every reasonable opportunity to fix a violation should an association engage in litigation to seek injunctive relief. However, if a violation involves actual or potential damage to property or could result in physical harm to a person, an association may want to expedite its efforts to seek a remedy and obtain emergency injunctive relief.

    In defense

Injury and liability. Associations must manage risk appropriately to avoid litigation in premises liability matters. Proactive risk management measures include, but are not limited to:

• Asking the association’s general liability insurer to perform a risk management assessment that includes techniques to minimize risk
• Ensuring that various contractors, such as landscapers, security guards and lifeguards, fulfill their duties in an appropriate manner
• Making sure the association is eliminating risks on common elements, such as fixing broken or uneven sidewalks, potholes, trees and tree limbs
• Asking the community manager to perform a routine property inspection
• Enforcing rules and regulations when an owner’s violation puts others at risk

    Fiduciary Duty.

Litigation brought by owners for an alleged breach of fiduciary duty by board members is a growing phenomenon. Boards can avoid these claims by acting in good faith, treating all unit owners equally, and performing duties reasonably and with sound business judgment.

The more documentation an association has to substantiate its actions, the better suited it will be when a claim is made. With that in mind, it’s imperative for an association to keep minutes of all board decisions, correspondence with owners and copies of all contracts, accounting statements and audits, among other things.

Associations should obtain adequate directors and officers liability insurance coverage to protect the board and the association.

    Enforcement.

Owners frequently bring claims against an association for selective or unequal enforcement. An association board should never pick and choose which covenants it will enforce or selectively decide which unit owners it will pursue for enforcement.

Associations should always act in good faith, reasonably and with sound business judgment. By following the enforcement procedures and enforcing covenants equally and uniformly, the risk of litigation is greatly reduced.

    Defamation.

In Pennsylvania and many other states, an owner or board member can successfully sue an association for defamation by proving, among other things, that an association published a communication that is defamatory in nature, that it applied to the owner and that the owner was harmed by the communication.

Thankfully, many defamation suits brought by owners are baseless, but an association still must defend the suit. Some frequent issues that bring about defamation complaints include:
• Publishing the name of an owner who is delinquent in a newsletter, on a website or a community bulletin board
• Publicly discussing an owner’s alleged covenant violation at an open board meeting prior to issuing a final determination

    Contracts.

Business partners often bring claims against an association for breach of contract. More often than not, the vendor or contractor sues when the association withholds payment because it believes work hasn’t been performed pursuant to the terms of the contract or it has been overcharged.

An association can avoid these suits by acting reasonably during a contract dispute. Simply withholding payment will likely cause the situation to escalate. Instead, the association should communicate with the business partner in an effort to amicably resolve the dispute. Frequently, these disputes can be negotiated and resolved in a manner that’s beneficial to both parties, especially when compared to the cost, energy and time involved in litigation.

    Fair Housing.

The Fair Housing Act and its amendments make it illegal to threaten, coerce, intimidate or interfere with anyone exercising a fair housing right or assisting others who exercise that right, or to advertise or make any statement that indicates a limitation or preference based on a protected class, which includes race, color, national origin, religion, gender, familial status and individuals with disabilities.

Fair Housing Act claims generally fall into two categories of discrimination: disparate treatment, which involves treating someone from a protected class differently; and disparate impact, which occurs when a neutral policy or procedure has a disproportionately negative effect on a protected class.

Fair housing claims have been increasing steadily against associations. The most common complaints include:
– Failing to provide a reasonable accommodation for a disability, such as denying requests for service and emotional support animals, and parking issues
– Failing to provide a reasonable modification for a disability
– Treating families with children differently or instituting rules specific to children

Associations need to be educated on the Fair Housing Act, make reasonable determinations and respond to accommodation requests in a timely manner. (Read more about fair housing in “All’s Fair,” Common Ground, July/August 2014.)

Alternatives to litigation
Finally, sometimes the only way to avoid litigation is to submit the dispute to alternative dispute resolution, which can be binding or nonbinding. Many associations turn to mediation and arbitration. Generally, mediation is heard by a neutral party and is more of a summary proceeding where the parties submit information without the need for evidence or actual testimony. Arbitration frequently is heard by a panel and can include testimony and evidence.

By Edward Hoffman, Jr., Esq.

Originally published in the July/August 2015 issue of Common Ground magazine.

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