Wednesday, January 26, 2011

Good Legal Advice or Confidence Game? You Decide.

By Tyler P. Berding and Sandra M. Bonato

     A new community association experiences some leaks. Management tells the board about an attorney who will provide a free seminar on the fiduciary duty of board members in the face of construction problems. The board accepts the offer. So far, so good. The attorney arrives and asks that the “seminar” be held in executive session with just members of the board. The attorney proceeds to tell the board members that they could face personal liability if they fail to thoroughly investigate construction defects throughout the project and bring suit against the developer. The attorney “advises” the board that they should hire him and his consultants. The attorney pulls out a fee agreement for himself and his consultants and urges the anxious board to sign it on the spot.

      The developer offers to fix the problems, but the attorney won’t permit it. The attorney fails to file the necessary statutory notices required by Title 7 of the California Civil Code. The board tries to cancel the agreement for legal services, but is again “advised” by the attorney that they could be held personally liable if they don’t follow his instructions. At a board meeting a motion is made to discharge counsel and the consultants. The attorney tells the board it cannot discharge him or his consultants, again “advising” that they could be personally liable if they were to do that.

What theme does this story present? An over-reaching attorney, who uses the lure of a “free seminar” to get access to the directors of a community association and, once in the door, threatens the board with personal liability if they don’t immediately hire him and his consultants to investigate and pursue a construction defect claim. This scenario is not fiction. It is apparently happening with alarming frequency in the current over-heated market for construction defect legal work. Let’s analyze it.

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