It’s far better for an HOA to have its own attorney than one with a conflict
Los Angles Times
Donie Vanitzian
30 December 2017
I almost didn't post this page as up
to recently, I rarely heard of a condo management company, or the
developer, using the same law firm as the condo corporation.
However I recently I came across the
second incident of this happening in Toronto. In one case, the condo
board, that was installed and controlled by the developer ,used the
developer's law firm. So handy for them but far from so for the condo
owners.
In the second case, the condo board
used the same law firm as the management company. In that condo, it
appears that the law firm may have acted in the interests of the
management company, whether or not the lawyer was aware of this is
uncertain, but the condo was paying the legal fees.
This is something that condo boards, and the owners, need to be aware of.
—CondoMadness
Question:
I am a board director and was shocked to discover that the
association’s attorney and his firm represented our management company
in a recent lawsuit. When I asked about this I was told that the
management company also has a current retainer with this same attorney
and his firm.
The board was never given notice of any of this by our attorney or
manager, and when I asked about conflict waivers for representing both
parties, our attorney looked at me as if he'd never heard of such a
thing.
He said his firm's representation of our management company has nothing
to do with representing our homeowner association, but then added that
should our association and the management company have a dispute, he
would “withdraw” from representing either party.
He treated me as if I was out of line to even suggest there might be a
conflict. Does our association need to sign a waiver for our attorney
to represent the management company?
Answer:
Whether or not your association has to sign a waiver, your attorney and
your management company should have disclosed their relationship with
you. The attorney also should have made it unequivocally clear who the
“client” was for purposes of invoking attorney-client privilege and
respecting issues of confidentiality.
A management company’s interests are often diametrically opposed to
your homeowners association and its directors’ interests. If those
differences are ongoing and significant, then the association cannot
enter into a waiver of conflict and the attorney must decide which
party to represent.
It is also important to know if representation of the other party was
limited to civil litigation or if the attorney continues advising the
management company. By signing the waiver, your association risks
having its representation limited by their lawyer’s responsibilities to
another client.
The importance of disclosure and consent is highlighted by a U.S. 9th
Circuit Court of Appeals decision that spells out a lawyer’s ethical
obligations to fully disclose representation of multiple clients at the
same time. There must be an explanation of the nature of the conflict
of interest in such detail that the parties can understand the reasons
why it may be desirable for each to have independent counsel that
provides them with undivided loyalty. (Unified Sewerage Agency vs.
Jelco Inc.)
California Rules of Professional Conduct for attorneys also recognize
that clients must not only be informed of the conflict but appreciate
the risks and possible adverse outcomes of dual representation. That is
why the rules say an attorney also has an obligation to tell each party
that they should each obtain independent counsel to review the matter
before giving consent.
This obligation is certainly not satisfied when you have to investigate
and discover the potential conflict on your own and when your concerns
are dismissed without any additional relevant information provided by
your attorney.
Even if your association and management are not currently engaged in a
dispute, you are still on opposite sides of a contract — a contract
that may need to be renegotiated or litigated at some point in the
future. It will be extremely difficult, or impossible, for your
attorney to give you unbiased counsel on how to deal with your
management company or negotiate a new contract while also representing
management.
Similarly, if a homeowner or third party ever sues the association or
its management, one or both of you may need to sue the other for
indemnification or contribution, which would then deprive you both of
your long-term legal representative.
With a better understanding of the respective relationships and
possible repercussions at issue, your association can now make an
informed decision. Because of the possibility of losing representation
in the event of withdrawal or termination, consider shopping for a new
attorney or management company.
Zachary Levine, a partner at Wolk
& Levine, a business and intellectual property law firm, co-wrote
this column. Vanitzian is an arbitrator and mediator.
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