Owner suing HOA counsel, and owner filing derivative suit: real-life stories?

Years ago an old guy in my HOA filed a lawsuit pro se, making around a dozen claims against the HOA Board and HOA. The old guy named various directors (past and present) and the corporation as defendants. The HOA attorney motioned to dismiss about half the claims, because they were (1) derivative; (2) violated the local court rules requirements for a derivative action; and (3) violated a local court rule that requires corporations to use a licensed attorney. The judge granted the motion.

A tiny percentage of the HOA members cheered on the pro se plaintiff. After two years, all the pro se plaintiff's claims had been dismissed through motion practice. The pro se plaintiff lacked sophistication. If he were smarter, he might have been able to do the legwork to meet the requirements for a derivative suit. But he would still be stuck with hiring an attorney for the half dozen or so claims that were derivative, as required by the court rules for corporations.

JohnS111

I would love to hear about some of this. I just started a thread under "current lawsuit" here and I was advised by someone responding to my thread to look at filing a derivative demand claim. I had never heard of this, however it is an absolutely brilliant and perfect consideration. To recap, first HOA attorney sends out a formal opinion letter to all homeowners per board demand stating the list of use restrictions in our Declaration requires unanimous consent. There is a specific section in our declaration that mandates unanimous consent for a variety of things explicitly listed. All other sections of the Declaration may require 67% for an amendment. The attorney at the time was present for a special owners meeting to formally discuss this issue, and also openly discussed the two cases in CO that were recent that upheld unanimous consent clauses in HOA documents. Statute also specifically supports these super majority percentages in the event they are described in the Declaration for Use Restrictions, amongst other things like allocated interests. The HOA conceded and announced that the amendment they wanted to create would be impossible due to the need for unanimous consent.

Then 3 months later suddenly homeowners received another legal opinion letter from an attorney in another firm. Apparently the previous HOA attorney resigned as we were told, and the HOA hired a new attorney. This attorney sent a letter to all homeowners contradicting the previous attorney's opinion letter, claimed we weren't changing a use restriction (though explicitly listed as a use restriction in the Declaration) and said we could amend the declaration (a use restriction) with 67%, however did not provide any legal support or case law to support her claims. The board members were all personally invested and determined to create this amendment, so jumped on the new attorney's opinion under the business judgment rule, and moved forward with a vote. The vote was dirty... statute was not followed requiring proper notice of the amendment, and the vote was held over 60 or 90 days (I can't remember now) with mail in votes, votes picked up by other homeowners, etc. At any rate they obtained the 67% and immediately filed the amendment with the county.

Within the year statute of limitations a group of homeowners, me included, filed suit against the HOA claiming the amendment was not properly adopted and required unanimous consent, amonst a laundry list of other claims where the HOA had not followed policies, had not followed statute (ie: providing requested documents), had deviated from covenants... quite a few other issues. However our primary was the improperly adopted amendment. Now the HOA is actually after me to enforce the amendment, despite the fact that the entire issue is under litigation in District court. They are actually sending violations and threatening fines as they are being further advised by their counsel that they should enforce the new amendment unless and until the courts rule in our favor.

The lawsuit has now cost all owners in the association additional $ and last year we were all (including us as plaintiffs) forced to pay a special assessment for the legal costs. They did file a claim with the insurance, so the insurance has hired thier own attorney, however the HOA board has been convinced they should continue to pay this private HOA attorney as well to protect them and continue to provide advice outside of the insurance attorney. Legal fees this year are topping $15000 when the court case has had zero activity while sitting in the courts for all of 2019.

So.... with all that being said, would you agree a Derivative demand claim would be appropriate, and if we go that route must the HOA concede? Must we pay costs as well? I am surprised our attorney didn't think of this option but better late than never. After all, apparently the backlog of cases is so significant in our county that our judge hasn't even looked at our case and it was filed in July 2018 and litigated until Dec 2018. Nothing has been filed in a year now.... it is painful.

Thanks in advance for the advice!

Lawyers are not scribes. We are professionals with legal duties to comply with ethical rules, regardless of what the client wants. For example, we can’t sloppily interpret a document to help a client commit wrongdoing. And we can’t aid a client’s wrongdoing.

But, perhaps, Melissa, you should not have done so.

Please recall why this forum exists.

I’m not sure you’ve hung around enough HOA attorneys. But stick around.

Derivative suits have a very high bar to prove them, better just to sue the HOA.

You are correct. I’ve only dealt with a handful. I have not been impressed with what I’ve seen, but I don’t want to say that all HOA lawyers are like the ones I’ve encountered.

Derivative suits do have specific prerequisites under state law that must be met: you’re correct. There are notice requirements and more. In my situation, sending the derivative demand alone worked; I didn’t need to file suit for those demands.

Any competent attorney would define “wrongdoing” as it’s defined in the applicable rules of professional conduct.

You can not help those who will not see... Good luck in believing what you want to see not what exists...