Before You Hit “Send” on that Email, Make a Call?

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By Jon H. Epsten, Esq.

Many board members believe that when an email is sent to the association’s attorney, it is automatically a “privileged communication” and therefore not admissible in a legal proceeding.  That mistake has landed clients in hot water over comments which are not necessarily privileged and inadmissible.

If the predominate purpose of the communication is related to an attorney’s advice or opinions, the communication will most likely be protected and not admissible in a legal proceeding.  However, if the email is a communication to the attorney and copied to other board members, but the primary purpose of the email is, by way of example,  to tell all of the recipients the sender’s opinion of another person, it may very likely be discoverable.  Think about this scenario, a board member and the association’s attorney are discussing a contract and in that communication the board member calls the vendor, a liar and a thief.  After signing the contract, a dispute arises between the association and the contractor and the contractor subpoenas the board member’s emails.  A court may not allow the legal advice about the contract in that email to be admitted into evidence, but may allow the board member’s (potentially defamatory) comments about the vendor to be admitted.  Be mindful, this same type of partial admissibility might apply to executive session minutes, as to items discussed and noted in the minutes which are not properly the subject for an executive session.

Beware, too, of sending any emails to “reply to all.”  Take the time to check the actual recipients.  Don’t make the mistake and send a critical email, summarizing attorney advice, to an adverse party—by pressing: reply to all. Yes, this scenario really happens and it happens more frequently than you would expect.

Consider that most Board email communications concerning association business are severely limited by the requirement that normal business of the association is to be conducted only in noticed meetings, pursuant to a published agenda.  While it is still permissible to receive (and send) emails to counsel, any discussion of the subject matter, by a majority of the board, of the email is supposed to take place in a meeting (most likely an executive session).  While under limited circumstances, such as an arbitrary and urgent deadline, discussion via email can be proper, in many cases, it is not.

Remember too that the attorney-client privilege may be forfeited by including persons other than the attorney, the board, and in most cases management.  Whatever privilege may have existed is likely lost when the email is sent to somebody not entitled to assert a privilege (e.g., neighbor, friend, vendor, roommate).

When a privileged communication is inadvertently sent to an opposing party, it must be immediately “clawed back” by the sender.  A “claw back” means taking prompt, specified actions to notify the opposing party of the mistaken transmission.  If you need to claw back an email, it is wise to discuss the process with legal counsel.  Communications between board members are typically not privileged unless the attorney’s opinions or strategies are being shared.  In that case, always copy the lawyer.

Before you hit “Send,” ask yourself, “How would this email look to a judge or jury, or to the media?”  If you can see that the words might be problematic, or that the communication via email might violate the prohibition on communicating with board members via email in place of a duly-noticed meeting, DON’T hit “Send” but rather pick up the telephone and have a “conversation” with the proposed recipient.

 

Related articles of interest:

Email Policies for Community Associations

Emergency Board Meetings via Email

Email Do’s and Don’ts for Community Associations

Association Loans?

By Susan M. Hawks McClintic, Esq. & Jon H. Epsten, Esq.

You may have heard that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 27, 2020 includes the Paycheck Protection Program (“PPP”) to help businesses keep operating during this pandemic.

The PPP gives small businesses access to short-term cash flow assistance to help cover operating expenses, including payroll. Loans received under the PPP are forgivable under certain circumstances, meaning all or a portion may not be required to be prepaid. A primary goal of the PPP loan program is to help businesses keep or rehire employees once businesses can return to normal operations.

It is uncertain whether community associations or property owner associations are considered businesses which are eligible to receive loans under the PPP.

The loan applications are being administered by some FDIC banks so we encourage any associations with employees to discuss the PPP program with their bankers as soon as possible, as it is expected that funds will be depleted soon.

Other loan programs may be available to community associations and property owner associations through the Small Business Administration (SBA) or the association’s bank. In addition to the PPP loan program, the Economic Injury Disaster Loan (EIDL) program is gaining attention. These loan programs, including the qualifications and applications, can be found on the SBA website (www.sba.gov).

Keywords: COVID-19, Coronavirus

Conflict Resolution

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By Jon H. Epsten, Esq.

It should come as no surprise to all of you that life in a community association (or working for one) is fraught with conflict of all types: “You’re playing favorites,” “You’re discriminating against me,” “My neighbor is irrational and he’s making my life a living hell and it’s the association’s job to fix it,” “I’m not paying the assessments until you do what I want you to do,” “Too late for architectural approval, I already finished construction!”

All too familiar. Unfortunately, it’s going to fall on board members and managers to resolve such conflicts. While some of these conflicts will end up in court, it’s wise and a proper discharge of the board’s business judgment and fiduciary obligation to consider how to resolve conflict within the community at the least social and economic cost. At a time in our country where the most basic civility is in short supply, there are pressures which exacerbate the conflict between associations and members, and between the members themselves. Most board members and managers aren’t schooled in how to defuse conflict (and too many attorneys are better at litigating conflicts than facilitating conflict resolution by other means).

Here are some helpful guidelines to remember about the basic nature of a ‘dispute’:

“It takes two to tango.”

For a conflict to really blossom into something ugly, it generally takes two egos, and mouths which operate better than ears. For conflict to be resolved, it’s going to take someone with a better ability to listen than to talk. Find a board member or manager who is a good listener and you’re halfway to resolving a dispute.

“Much conflict is sustained because no one wants to ‘admit weakness’.”

While volumes have been written about that, remember that ‘when you’re at the edge of a cliff, sometimes progress is a step backwards.’ It’s not weakness to search for some middle ground, and if it takes a good display of humility and an attempt to understand the other side of an argument, that’s time (and energy) well spent.

Compromise is not a dirty word.”

Consider that a lawsuit is going to cost just about as much as the other side wants to make it cost. With some basic guidelines (the board can’t give away common area, for example, nor can it afford to overlook egregious violations of architectural restrictions–but many disputes are about far less), with some willingness to compromise, and some imagination (“No, you can’t plant 60′ species which within 5 years will block your uphill neighbor’s view, but you can plant ___________”), there’s a compromise waiting to be found. Think outside that box!

“You can’t always get what you want;
You can’t always get what you want;
But, if you try sometimes,
You just might find,
You get what you need.”
– Mick Jagger and Keith Richards

Because so many community association disputes end up in court, the legislature has over the years created pre-litigation dispute resolution procedures, some of which (ADR) is actually required before most association cases are filed. A quick refresher on “ADR” and “IDR” follows.

IDR

“IDR,” or “internal dispute resolution,” is a relatively new type of dispute resolution. It is unique to the Davis-Stirling Act. Essentially the Act allows an owner to compel a sit-down meeting with a board member to discuss a dispute. If a written demand is made to the association, the association must meet with the owner, in a reasonable period of time, and at no cost to the owner. (Conversely, if the association would like to convene an IDR session with an owner, the owner is not required to participate.) The parties may agree to use the services of a mediator, but it is not required. It is important to note that the Act does not necessarily require the association (or the member) to ask for IDR before moving on to mediation or arbitration, though that is often the case. The Act anticipates that each association will adopt its own IDR procedure, but if the association does not do so, the Act specifies a default procedure (currently found in Civil Code section 5915).

Some observations:

IDR is not a confidential proceeding (unlike mediation). What is said in an IDR proceeding can be repeated in any subsequent lawsuit.

Consider carefully the best candidate to represent the association in an IDR proceeding. It’s not necessarily the president. In general, it’s the director who can listen to an angry homeowner without taking umbrage, while at the same time effectively putting forth the association’s concerns. (A FAQ is whether the board can attend in its entirety. While not absolutely clear from the statute, it’s not generally a good idea. We do like to see more than one person attend, avoiding the “one-on-one swearing contest” scenario. Often times, attorneys are definitely not welcome. An IDR is supposed to be a meeting between the member and a director, leave the mouthpieces–on both sides–out of it.)

Make sure you understand the dispute when a homeowner asks for IDR. The demand is required to be in writing. If the written demand isn’t clear, ask follow up questions before the IDR begins. This is important so that the board can decide how much discretion the director has.

Even though the association isn’t statutorily required to offer IDR before moving to the offer of ADR, it’s a good idea (unless there’s an emergency requiring some immediate court action). First of all, it makes the association look better if the matter later turns into litigation, and second, you just might get lucky, learn something, and avoid the lawsuit altogether. (It’s also free discovery.)

ADR

California law and tradition recognize three types of alternative dispute resolution (“ADR”): binding arbitration, nonbinding arbitration, and mediation. “Arbitration” is a quasi-judicial proceeding, wherein a person selected by the parties (usually) acts as a judge of a dispute, hearing evidence and argument, and making a ruling. At the end of the proceeding (unless the parties settle in the meantime), a decision will be made.

If the arbitration was a “binding arbitration,” the order may be filed with the court, and thereafter it will operate as a judgment. In general, there is no appeal from a binding arbitration order.

“Non-binding arbitration” is precisely that–non-binding. The arbitrator will make a ruling, but it does not bind either of the parties unless and until they agree to that.

“Mediation” is another form of ADR. It is not a quasi-judicial proceeding, but a facilitated negotiation. The mediator, who is chosen by the parties, has no authority to decide a dispute, only to assist the parties to the dispute in attempting to find some middle ground. If at the end of the mediation, the parties cannot agree, then everyone goes home.

For most disputes in a community association (that is, those involving a request for enforcement of the governing documents, the Davis-Stirling Act or the Corporations Code, as well as prior to recording a lien for unpaid assessments), the party anticipating filing a suit will be required to at least offer ADR to the other potential litigant before filing the suit. (Civ. Code §§ 5925, 5930, 5660)

There are exceptions:

If the suit involves damages in excess of the small claims court jurisdiction, the offer of ADR is not required.

If the suit involves a request for a TRO (temporary restraining order) or preliminary injunction, no pre-filing offer of litigation is required.

The Act provides that the offer of mediation shall be in writing, and the offer is to contain a brief description of the dispute between the parties, a request for ADR, a notice to the party receiving the offer that the respondent must reply within 30 days of receipt or the request will be deemed rejected, and if the person receiving the offer is a homeowner, the association must include a copy of the relevant Civil Code provisions (§§5925-5965.)

If the homeowner agrees to the mediation, the mediation is to be held within 90 days of the acceptance, unless the parties extend that time by written agreement. (Civ. Code §5940(a).)

If a party seeking to file an enforcement action fails to first offer ADR, the complaint may be stricken by the court or placed on hold (stayed) to allow ADR. And, if the party who wins an action has refused to participate in ADR, the court may reduce the amount of fees awarded to that party. (Civ. Code §5960.) While the Act provides that the parties to the ADR are to be “borne” by the parties (Civ. Code §5940(c)), one recent case awarded a homeowner his legal fees incurred during the mediation. Grossman v. Park Fort Washington (2012) 212 Cal.App.4th 1128.

Why we need conflict resolution that does not involve lawsuits:

In a word, lawsuits are often times inefficient and a costly way of resolving disputes, as even attorneys agree:

“Lawsuits consume time, and money, and rest, and friends.” – Sir Alan Patrick Herbert

“The courts of this country should not be the places where resolution of disputes begins. They should be the places where disputes end after alternative methods of resolving disputes have been considered and tried.” – Sandra Day O’Connor

And in the context of communities, lawsuits are not the vehicle of choice for dispute resolution for another very good reason: even if you win, you lose because of the residual mistrust and animosity spawned by the court proceedings.

Finally, there are the lingering problems posed by the money. Of course most lawsuits over the CC&Rs will result in an award of attorney’s fees to the prevailing party, but what happens when the loser cannot or will not pay those fees? Will the association pour more money down the drain, or consider settling instead for less than it “should” have received? It’s difficult to explain to the owners that the association won at the same time the board is imposing an assessment to cover the costs of the lawsuit which remain unpaid by the losing owner (not to mention the catastrophic prospect of a fee award which pales in comparison with the actual costs expended or — God forbid — the loss of a case which seemed a “sure thing” way back when the case started.

Important Tips with Purchasing Insurance

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By Jon H. Epsten, Esq.

One of the most important roles a board performs is the purchase of association insurance protecting the association’s assets and its directors, officers and committee members.  Be mindful that most Directors and Officers insurance policies EXCLUDE coverage for the failure of the board to purchase adequate insurance.

Oftentimes I find that association boards spend more time on landscaping issues (e.g., tree trimming, grass cutting and watering) than the purchase of the association’s insurance. In the board’s defense, the squeaky wheel gets the oil and most owners, and oftentimes the board members, care much more about the landscaping than they do about the adequacy of the association’s policies. For this reason, the focus on insurance often becomes secondary to the cosmetic issues an association faces. Not making insurance a number one priority can have devastating consequences to an association. A book could be written on how to make certain your association has adequate insurance!

Let me offer a few basic tips:

  • Use insurance agents who are well versed in association insurance.
  • Review the insurance application and be certain that known or threatened claims have been carefully reported.
  • Have the insurance agent perform policy comparisons showing the different coverages in each policy being offered.
  • Ask questions of the insurance agent, don’t assume he/she knows your association’s liability risks (e.g., association having responsibility to insure an easement area).
  • Talk to your insurance agent about the different types of policies available such as earthquake and cyber insurance.
  • Do not make your decisions based on the amount of the premium but rather on the quality of the coverage.
  • Don’t save money by buying lesser insurance – your association will get what it pays for, guaranteed.
  • Always ask your agent in writing, “Do you have any recommendations on coverage?” Your agent should provide a letter stating that he/she has reviewed the coverages and the coverages comply with the CC&RS and the law, thus placing the onus on your insurance agent.
  • Lastly, meet with your agent no less than annually to check on the health of your insurance coverage.

I urge boards to make insurance a priority and devote the necessary time to make certain the best possible coverage is in place.

Insurance Renewals & Notices of Facts Which May Lead to a Claim

By Jon H. Epsten, Esq. & Mary M. Howell, Esq.

We are seeing with more frequency associations either carelessly completing insurance renewal applications, or allowing an uninformed insurance agent or broker to complete the application form for new or renewed insurance, without making sufficient inquires of the board and management about actual or potential claims. This is particularly important in the context of directors and officers liability insurance.

Liability Definition

In this type of policy, insurers often deny coverage either by alleging the company was not put on notice of facts which might lead to a claim (such as a request for IDR or ADR), and/or failure to disclose a potential claim on the application for insurance.  While the initial denial of coverage may be subject to challenge by the association, it is better practice to notice the carrier of any negative input from owners–even if that means a letter a day!

We also encourage boards and management to take the renewal process seriously, rather than treat the process as a routine ministerial act. Encourage your insurance agent or broker to become actively engaged in the insurance application process and claims reporting process.

The result of not properly reporting information to the insurance company can have devastating financial consequences on an association.

Retirement of Thomas S. Gatlin: Advocate, Colleague & Friend

By: Jon H. Epsten, Esq.

It is with personal regret but with best wishes that we announce the retirement of Epsten shareholder Tom Gatlin. Tom’s departure marks both the end of an era for our firm and the beginning of a new chapter in Tom’s life. While his colleagues and clients will surely miss their day-to-day interactions with Tom, this chapter will be a well-deserved respite for him. Over the years, Tom has been a friend and colleague and I personally look forward to maintaining our long-lasting personal relationship.

Tom Gatlin joined the firm in 1992 and has been a shareholder since 1999. His professional story began when he graduated from the University of California, Berkeley, with academic distinction in March 1971, and obtained his law degree from Hastings College of Law in May 1975. He was admitted to the California State Bar in December 1975. He then worked for several years as the Corporate Counsel and Vice-President of Cygnus Corporation (a.k.a. PMA), a management company working exclusively with community associations. While there, he gained extensive experience in legal issues affecting community associations, as well as practical knowledge of how associations are managed, their needs, authority, and limitations from a business point of view.

Tom’s extensive experience in community association reconstruction projects following construction defect litigation made him the one of firm’s “go-to” attorneys on contract issues. Given his background in community association management, Tom was known for having a unique ability to apply the law to the practical realities faced by an association’s board of directors. In addition to his direct work with clients, Tom has long served the community association industry as a frequent lecturer and an active member of the San Diego and Greater Inland Empire Chapters of the Community Associations Institute (CAI).

We are all indebted to Tom for his commitment to the professional, practical and personal practice of community association law. The efforts and the relationships he has built over the years, both inside and outside of the firm, have assured our success for the coming years. It is our personal hope that he will now enjoy the well-earned fruits of his labor with his friends and family. On behalf of the shareholders, attorneys and staff of Epsten, thank you and congratulations to Tom Gatlin…we wish you all the best.

Note: If you have been working with Tom and need to confirm contact information for the attorney to whom your association has been assigned, please email Abby at [email protected] Thank you.

Insurance Claims: Proper Submission

By: Jon H. Epsten, Esq., and Anne L. Rauch, Esq.

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For those of you who have been involved in managing or sitting on a board of directors for a community association, you are aware that the association typically makes an insurance claim through its insurance agent. For many years, this has been an acceptable method for submission of insurance claims; however, there are pitfalls to making the claim directly to the insurance agent which could result in denial of an insurance claim or the insurance claim never being received by the insurance company. Here are some suggestions on how to properly tender an insurance claim to an insurance company.

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