Page 12 - CooperatorNews NY July 2022

12 COOPERATORNEWS — JULY 2022 COOPERATORNEWS.COM makes things very uncomfortable and partments of the Hackensack, New Jersey a lawsuit filed by a tenant-shareholder or of law. Others, like Illinois, specify that awkward for all involved. Ongoing litiga- tion can be very taxing on all parties, and discuss the case with anyone, and don’t ig- can have a multitude of negative impacts. I nore it. Even if a board member is a lawyer, \[the building or community’s\] legal costs tion or arbitration of disputes in which the would say one of the biggest negative im- pacts is board burnout and resignation. sel. Anything you say can be used against ager who prefers to remain anonymous. monetary value or a value of $10,000 or Finding candidates for board seats can be you in ensuing litigation. Get professional “But so many disputes arise from unaware- very difficult in many communities, so it help. Don’t try to confront the person and ness of the bylaws in the first place. What of assessments, or that arises out of viola- can be very detrimental if board members try to intimidate them. Go through normal they should really understand is that by tions of the declaration, bylaws, or rules resign.” “All of this makes for some difficult lo- gistics,” adds Andrew Freedland, an attor- ney with Herrick, Feinstein in New York pros, are to immediately notify both the against the co-op or condo, or if the parties City. “If you have a shareholder suing the corporation’s or association’s legal counsel choose to settle, the insurer might pay in or the path a particular complaint takes, co-op,” he continues, “it goes without say- ing that depending on what the suit is, large the latter, coverage may depend on timely set in the policy. Of course, this all depends any community. Prospective purchasers, or small, you may not be able to release any and proper notification. details at an annual meeting. Other share- holders may be very curious, because they plaint has been served,” says Chris Florio, of fraud, negligence, or decisions made in past, ongoing, or potential for litigation are ultimately responsible if there is a judg- ment against the co-op, which could result renceville, New Jer- in an assessment.” This brings up two important issues at surrounding any community’s legal imbro- glios: who knows, and who pays. In fact, tracts—we learned a questions about transparency and liability long time ago that if are the two that appear most frequently in there’s the potential CooperatorNews reader emails, online com- ments, and social media channels. If you give written notice to are wondering why your board won’t share the insurance broker details about ongoing litigation with the of that potential. Poli- other owners or shareholders, or if you ex- pect that you won’t be financially respon- sible for someone else’s lawsuit, read on. Co-op/Condo Confidential In most jurisdictions, even where own- ers/shareholders have statutory rights to access specific information and documen- tation about their community, litigation is resident or contractor is suing the board, to defuse potential litigation before it gets lawsuits can also lead to a less trusting one area where certain details and discus- sions must be kept confidential. As soon covered by a Directors & Officers (D&O) pute resolution, or ADR. In ADR, the par- as even a suggestion of litigation arises, policy that the building or community ties at odds work with a neutral third to many lawsuits (Is the board incompetent boards should proceed with extreme cir- cumspection. Hartwell is firm on the subject. “Board association as a whole—a slip-and-fall, through either mediation or arbitration. members should not discuss a lawsuit construction defects, and so forth—would with other unit owners,” he states. “They likely be covered under its general liability interchangeably, they’re actually two dif- shouldn’t attempt to try a lawsuit by public policy. Some governing docs contain pro- opinion within the community.” “Don’t discuss the case,” echoes Mark tions taken in good faith. This indemnifi- Hakim, attorney with New York City law cation can be over and above any available one or more impartial persons (known as who make their living trying these cases firm Schwartz Sladkus Reich Greenberg D&O liability insurance. Atlas LLP. “Don’t admit anything. If you run into the complainant in the elevator, litigation or submission of a claim does not writing and are generally final and bind- say ‘Hi’ and get out of the elevator. There risk premium escalations, say the experts. ing on the parties in the case. Mediation, than a fat lawsuit. is no good to having a discussion, wheth- er on or off the record. The last thing you litigation and other risk factors that might an impartial third party facilitates com- want to do is prejudice the case by saying be present in a building or community munication and negotiation and promotes the wrong thing with the right intent.” That said, attorney David Berkey of such as a pool or a gym). That is, if a co- Manhattan-based law firm Gallet Dreyer op or condo has been sued a lot—or if a Berkey, LLP notes that “A co-op or condo- minium is usually required to list pending factors—that co-op or condo should main- lawsuits in its financial statements if they tain a more robust policy to protect it ad- might materially affect the finances of the equately, and should expect higher premi- organization,” and adds that most judg- ments become public record, allowing any- one to find case information if and when it in their monthly carrying charges. reaches that stage. Meanwhile, says Scott Piekarsky, a minium bylaws award attorneys’ fees to mandate the use of ADR before a housing- partner in the litigation and real estate de- office of law firm Phillips Nizer LLP, “Don’t unit owner against a board. “Owners are “\[t\]he declaration or bylaws of a condo- leave it to your \[condo or co-op’s\] coun- channels. That’s why they exist.” So Sue Me The ‘normal channels,’ according to and its insurance provider. In the case of some circumstances—at least up to limits frequent lawsuits are not a good look for “A lawsuit starts even before the com- an attorney with Stark & Stark in Law- sey. “When you look insurance poli- cies—which are con- for a suit, you need to cies contain language that state if you don’t give adequate notice for a suit, the carrier may issue a declina- tion of the claim.” Coverage also depends on what type of toll it takes on everybody involved—it’s er will not be able to easily sell their unit.” suit is being brought, and by whom. If a almost always preferable to at least attempt for example, the legal defense is normally to the court stage through alternative dis- should maintain under its insurance plan. reach a mutually agreed upon resolution or unfair? Are the residents hot-tempered, Other claims against the corporation or of the dispute. This can be accomplished litigious jerks?), but the fine line that the visions that indemnify the board for ac- Either way, notification of impending known as an ‘award.’ Awards are made in other than litigation. What does affect the premium is historic on the other hand, is a process in which (e.g., its age, size, location, or amenities voluntary decision-making by the parties carrier deems lawsuits likely given certain explains Phillips. “Ones that cannot be re- ums. Ultimately, those premium costs are and usually result in a win/loss outcome. borne by the shareholders or unit owners Mediation typically has a win-win out- Some proprietary leases and condo- the prevailing party called upon to defend related case can be adjudicated in a court often surprised when they get the bill for minium association may require media- when they threaten to sue,” says one man- suing their building, they’re basically suing and regulations of the condominium asso- themselves and their fellow owners.” When there is a damages judgment on dotting all the i’s and crossing all the t’s or their representative brokers and/or at- in the first place, and does not apply to acts torneys, normally look for evidence of bad faith. But when there is no coverage, as part of their due diligence review. As or if the damages such, says Berkey, “The broker community exceed policy lim- its, those costs fall sued, or that have judgments against them. on the sharehold- ers or unit owners will stay away from a building if there is a as a maintenance comparable alternative place to live that is increase or special litigation- or judgment-free.” assessment, de- pending on how naires do ask if the condo association is the board chooses part of any litigation, and those who are to allocate its fi- nancial resources. I Won’t See You in Court Because of the time and expense in- volved in litigation—not to mention the unit at a specific community, then the sell- While sometimes those terms are used discretion in these matters can cause ru- ferent processes. According to the Ameri- can Arbitration Association (AAA), “Ar- bitration is the submission of a dispute to for all parties involved. Even the lawyers ‘neutrals’) for a final and binding decision, suggest that disputes be resolved by means to the dispute.” “Not all lawsuits are created equal,” solved in mediation and end up in court tend to be more damaging, as they are of- ten drawn out for longer periods of time come that both parties can live with.” Some jurisdictions, such as New Jersey, matter in controversy has either no specific less, other than the levying and collection ciation,” per the state’s Condominium Act. The Court of Public Opinion Regardless of the outcome of litigation becomes aware of buildings that are often In such cases, potential purchasers usually Additionally, “Many lender question- need to disclose that information. De- pending on the status of the lawsuit, buyers may have a difficult time purchasing at that community,” warns Phillips. “Equally, if a buyer has a hard time finding funding for a On a more qualitative level, frequent and less harmonious community. Not only will it beg the question of why there are so board must tow between transparency and mors, suspicion, and hostility to brew. No matter the process, perception, or outcome, lawsuits are always a headache As they say, a lean compromise is better n Darcey Gerstein is Associate Editor and a Staff Writer for CooperatorNews. THE IMPACT OF... continued from page 1 “Ongoing litigation can be very taxing on all parties, and can have a multitude of negative impacts.” —Alison Phillips