Dealing With Legal Disputes
Take a moment and imagine your family or circle of friends: each person with his or her unique personality, attitude, experience and background. In a co-op building or condo association, hundreds of people live together, sharing common areas and trying to abide by the same rules and regulations. That’s hundreds of different backgrounds, experiences and personalities coming together and like your own family, it's inevitable that there will occasionally be friction—or outright conflict—between members of the group, no matter how harmonious things usually are.
Boards suing unit owners is more common than you’d think. “Typically boards will sue residents when they violate the house rules,” says Daniel T. Altman, a partner at the law firm of Belkin, Burden, Wenig & Goldman, LLP in Manhattan. “For example if the house rules stipulate that before a resident will do an interior alteration to your apartment, you must file an alteration application with the board and that alteration application will have several different requirements. One, you need to know who the contractor is. The contractor has to provide proper insurance naming the board as an additional insured so that they are covered in case anything happens. That’s a very common lawsuit. Another common lawsuit is if a shareholder is illegally subletting its apartment and not complying with the proprietary lease or if they don’t pay their maintenance obligations.”
Stephen W. O’Connell, co-managing partner of Manhattan-based law firm Hartman & Craven LLP says disagreements between board members and unit owners can range from harboring an illegal pet to running an illegal B&B to creating a nuisance.
“In most cases what a board would do before taking legal action is that you would serve the unit owner with a requisite notice, a notice to cure or a notice of termination before you would start an actual legal action,” says O’Connell. “What you do is you serve them with these notices and also copy their banks that lent them the money because there is something called a recognition agreement which requires that the bank gets notice of notices sent to its borrower alleging any default. Once you do that then the banks’ interest is peaked, they might take independent action to get the offending shareholder to stop doing what it’s doing and to stop causing problems.”
Nip it in the Bud
When it comes to the various types of disputes that arise between boards and residents, or between residents themselves, O'Connell says that if legal action has been brought against an individual or board, it’s important to take the proper steps, and take them promptly.
“The first thing a member or board should do upon receiving notice that a legal action has been brought against them is to notify their counsel,” says O'Connell, “because there are time frames that must be observed or else they can be in default of pleadings. Generally the time frame is 30 days, with occasional exceptions. If it’s a co-op, likely they are going to be serving the Secretary of State, and the Secretary of State then mails the pleading to the designated agent. You have to be mindful because they are going to lose some time by reason of the mailing. So the very first thing to do is to call [your building's] lawyer and alert him/her.”
Altman agrees with O’Connell, but adds that “After consulting their counsel, the board's next step should be to advise the insurance carrier who is insuring the board. Depending on the lawsuit the board would typically be covered by its own directors and officers liability policy.”
O'Connell believes it is equally important for a board member or individual to know what not to do after receiving legal action. “It’s important not to engage in email exchanges with other members of the building, the board, or the managing agent,” says O’Connell. “Because it may be discoverable to attorney client privilege, or it may not attach depending who is on the chain of emails. The other thing is to not destroy any documentation that may have to do with the case. You have to preserve all the emails and all the other documents and files. You want to preserve all the evidence.”
“It’s also important not to call the plaintiff on your own,” adds Altman. “You want to first find out what the factual basis is for the action and you don’t want to rush into anything and make a mistake that might be irreparable. The worst thing that could happen if they contact the plaintiff is to admit guilt or wrong doing, or if it is taken that way.”
Mediate Versus Litigate
June Jacobson, an attorney and senior mediator based in New York City recommends mediation over litigation whenever possible for numerous reasons.
“I absolutely recommend mediation over litigation,” says Jacobson. “Mediation is quicker, it’s cheaper and it really allows parties to think outside of the box and to consider all of the values and concerns and the interests and the needs that they may bring to the conflict, whereas the court is only interested in applying legal concepts to the conflict.”
Jacobson’s hourly mediation rate is $400 and parties may also decide to have her draft an agreement at the conclusion of the mediation process which will range from $1,500 to $2,500 depending on the complexity of circumstances, whereas litigation can run into the tens of thousands depending on the dispute.
“Just to initiate a lawsuit it can cost between $3,000 and $6,000” says O’Connell. “Lawsuits can be costly. It depends on how aggressive the parties are. I always urge for a settlement because litigation is protracted, extremely expensive and uncertain.”
A mediator is someone who acts as a neutral party, listening to both sides in a dispute and making a decision. Unlike arbitration, a more formal process where the third party actually renders a decision about how the conflict should be resolved, mediators only assist the parties in their efforts to formulate a solution of their own.
Jacobson also believes that mediation is personal and private and it allows parties to maintain control over the process as opposed to having the court control all aspects.
When parties mediate to solve a dispute it’s a private and confidential process. If a dispute goes to litigation, there is the possibility that it will be open to the public because it is common for the public to have access to court records.
An arbitrator is a private, neutral person chosen to arbitrate a disagreement, as opposed to a court of law. An arbitrator could be used to settle any non-criminal dispute, and settling a disagreement through an arbitrator is substantially less expensive than resolving it through a court of law.
It’s Not Just the Economy
In today’s economy, money is a huge underlying factor in many disputes. Many of these disputes, if not resolved internally, can result in litigation in the courts, which is expensive, frustrating and time consuming.
Alternative dispute resolution, specifically mediation and, in appropriate cases, binding arbitration offers an economical and efficient alternative to resolving these condominium disputes through litigation in the courts.
“Mediation is always cheaper than litigation and it’s voluntary. It’s an opportunity for the two parties who are having a dispute to discuss what the issues are,” says Jacobson. “How it works is that the mediator allows them to have that conversation and that helps them to clarify their own point of view. It also helps them understand what the other person is trying to say, so it allows them to have a conversation about the issues. If a mediator is also an attorney with subject matter expertise then the mediator is able to give legal information, not legal advice, about the subject matter of the dispute.”
According to O’Connell, co-op and condo boards should not forget to notify their insurance carriers because it is likely there may be insurance defense available so the board wouldn’t have to pay out-of-pocket to defend itself.
In a community where there are different personalities that often clash, settling disputes might just be as simple as getting to know your residents better. As author Harper Lee wrote in To Kill a Mockingbird, “You never really understand a person until you consider things from his point of view, until you climb inside of his skin and walk around in it.”
Creative Thinking Helps
To solve problems before they escalate into litigation Jacobson suggests getting to the root of the problem and examining the dispute from all angles.
“There are often interests, needs and concerns that are not addressed in a court of law,” says Jacobson. “And there is no opportunity for parties to communicate with one another in litigation. Mediation really gives them the opportunity to be heard and it allows people to think outside of the box. People think they are going to be heard in court but court is really not a place for that. A court is a place for an attorney to make arguments on your behalf about legal principles.
Perhaps those living in condo communities should also take heed of Henry Ford’s wise words: “Coming together is a beginning, staying together is progress, and working together is success."
Lisa Iannucci is a freelance writer and a frequent contributor to The Cooperator. Staff Writer Christy Smith Sloman contributed to this article.