Lawsuits are an unfortunate, often expensive fact of life these days, and co-op and condo communities are not immune from seeing the inside of a courtroom, or at least a lawyer's office suite. An issue that arises between a resident and the board or between two or more residents can spiral out of control, wind up involving the managing agent, and end up in court. Then it becomes a battle of he-said/she-said until the lawsuit is over, a settlement is declared and it's back to building business as usual. Or is it?
Although it isn't currently listed alongside participating in active combat or shark-wrangling as the most stressful experience a person can have, being involved in a lawsuit is most certainly stressful. For the managing agent, it can temporarily supercede other building responsibilities as the manager tends to what is needed by the courts and attorneys. Lawsuits not only cause tension between the residents named in the litigation, but strain among those tenants who are not involved as each draws their own lines in the sand and chooses up sides. In some cases, lawsuits also cause financial damage, leading to additional worries and pressure for board, management, and residents alike. Even when it's over, it's sometimes not over; when the lawsuit is settled, management can be left dealing with lingering Hatfield and McCoy-type hostility among residents.
Like many stressful situations, however, managers (and boards, to a lesser degree) can take steps to resolve lawsuit stress in an efficient and less-stressful manner through notification, organization and communication.
The managing agent is usually first informed of a lawsuit through the super or resident and when they are, they should spring into action and notify their insurance carrier.
"Management should be apprised of all lawsuits," says David L. Berkey, a partner with the law firm of Gallet Dreyer & Berkey, LLP in Manhattan. "Often shareholder-versus-shareholder lawsuits are a result of issues that management should have been dealing with, such as noises, or leaks. If it's a shareholder-versus-building lawsuit, those also generally come about because the shareholder is not obtaining appropriate services, or because repairs have been requested and not made. Depending on the substance of the claim, management should be brought in immediately because you can [try to] diffuse the problem if management and the board resolve it together."
Managing agents should immediately notify their insurance carrier that a lawsuit has been filed. "The insurance company may disclaim the insurance if management doesn't give them proper notice," says David Lesch of the Manhattan based law firm of Lesch & Lesch, PC. "The insurance company will appoint an attorney for management, ask questions and ask for statements. Once an attorney has been appointed, the only time the agent will get involved is through deposition or if they are subpoenaed to testify at trial as a witness."
Or, a manager could even be sued, according to Adrian Zuckerman of the Epstein Becker & Green, PC law firm in Manhattan, although typically the management agreement with the board has restrictions on what the manager may be sued for—for example gross negligence, as opposed to simple or accidental negligence.
"Management agreements also provide that the building indemnify and defend the manager from claims in the ordinary course of business, such as slip-and-falls, etc.," says Zuckerman. "Typically the manager will be sued for malfeasance (defined as wrongdoing, misconduct or misbehavior), misapplication of funds or other fraudulent/tortuous conduct not in the ordinary course of business."
Being organized is not just for the Felix Ungers of the world. If you've ever watched an episode of Judge Judy or The People's Court, you will know that not having proof of communication or purchases can be the downfall of either a plaintiff or a defendant. Having a manager who has crossed all their T's and dotted all their I's will help to prevent any legal messes later. Keeping complete and accurate records of communication and responsibilities are vital in lawsuits. Staying well-organized with written documentation of residents' complaints and correspondence will help to move the case along to, hopefully, a swift and efficient resolution.
"Depending on the nature of the lawsuit, the management may be the repository of the information that is usually going to be given in this case," says Berkey.
Management may also be required to testify for or against the board. "The managing agent—either in a deposition pretrial or trial—has to tell the truth and it's possible that they will give testimony that is damaging to the board," says Berkey. "The important point is to gather the information the management knows early so that the statements do not come out in a surprise. The board should know what management is going to say, but it shouldn't be held against them. As long as they've been truthful to the board or attorneys, I don't see how they can hold it against the management."
Zuckerman advises management to retain their own counsel should they be required to testify. "Additionally, the board/building may consider whether there are any issues of liability on the part of the manager where the board/building may have a claim against the manager," says Zuckerman.
"No comment!" is what Berkey urges all managers to say prior to talking to their counsel. "We always tell the managing agent to discuss with counsel before making comments on lawsuits or describing claims or situations," he says. "You don't want something distributed that is harmful or inaccurate."
Management can build a good rapport with building residents by keeping them in the loop during the entire lawsuit process.
"One of the most important things to do is to communicate with other shareholders or unit owners so they know what the case is about and how management and the board is trying to deal with it," says Berkey. "Don't let imaginations run wild. Next, if a lawsuit is resolved by settlement, it would be a good thing for management, board and attorneys to prepare a settlement agreement that is worded favorably for the building, even if they have to pay money and make repairs. If you settle early so you don't have to incur a legal expense, you'll even look like heroes—coming to a resolution is good business."
In Hollywood the old saying is "even bad publicity is good publicity." That's not the case in these lawsuits. Bad publicity is just plain bad publicity, so no matter which side wins the case, or even if it was settled out of court, there may be some damage control to be done after the case is over. It's important for management to work on building a solid, positive reputation with residents.
"Send a letter to the shareholders after the judgment, saying that, for example, the building has taken steps to fix the condition so that it doesn't happen again," says Lesch. "Let them know the building will comply with the court order and everything will be back to normal. Let them know the residents can trust the manager to make sure the building is run in a proper manner."
Residents may still be harboring ill will post-litigation, so Phyllis Weisberg, a partner with Manhattan law firm Kurzman, Karelsen & Frank, LLP suggests that management treat all residents fairly and the same.
"Don't hold the litigation against any residents who were involved," she says. "There may be hostility among the residents; there may still be something between the warring residents. If it's spilling over and interfering in co-op relations, managing agents may have to get involved."
Nobody wants to contemplate the potential for a lawsuit, but there are resources available to managers.
Berkey suggests that management consult with experienced counsel to review their management agreement with the building and make sure they are protected to the fullest.
There are also trade groups that offer educational seminars on dealing with management issues and claims, and seminars given by insurance companies on liability insurance.
Lisa Iannucci is a freelance writer, published author and mother of three living in Poughkeepsie, New York.