Lawsuits and Membership Approval

I am currently on the BOD of my association. I would like the Association to pursue litigation against former board members for breach of contract and breach of fiduciary duties.

According to our CCR, if I am interpreting it correctly, The BOD would need 50% membership approval from the community. We would also need to special assess for attorney fees, and would need 2/3 membership approval or 60%.

If we get 50% approval for litigation and only 50% agree for special assessment, can we still pursue litigation?

Let's make this easier.

If the Association sues the board members, get a lawyer who will handle it on contingency--meaning that legal fees are paid out of winnings. Does that require 2/3 or 60% approval?

You, as an individual, can sue the former board members through a "derivative suit": you send a "derivative demand letter" to the board, demanding that it sue the former board members. When the board does not do so, then you step into the shoes of the HOA and can sue them. Winnings go to the HOA, though. So you can have your lawsuit without having to get these approvals.

I sent a "derivative demand letter" to a HOA board, which got very angry about it.

The HOA is not party to a derivative lawsuit and wouldn't be paying legal fees so no approvals should be necessary.

Derivative would be if the HOA refuses to sue, so an individual steps up to the plate and sues the individuals on behalf of the HOA.

OP, you might want to check your insurance policy and see what is covered and what isn't covered, and tailor the lawsuit so that the individuals are sued for things that the insurance policy won't cover. As always, AugustinD makes great points.

Unfortunately the police often ignore most everything other than violent crime. Criminal statutes often allow an individual to sue the crook in civil court, and some states allow an individual to pursue a "private prosecution"--stepping into the police's shoes and prosecuting the person.

Thanks to my old HOA board and its antics, I know these things now.

Please file the lawsuit(s). Thanks.

Here is a ton of information:

This is the same association that was formed in 2006.

The BOD that was judiciously removed engaged in a lawsuit without membership approval and incurred $112,000 in legal debt.

They decided to sue the prior BOD to them, for embezzlement within 6 days of being elected, with no evidence. They put liens on a total of 9 units that belonged to the BOD that was accused of stealing, and his family members that also own units in the building all under rumor control also know as "upon information and belief."

The BOD that was accused of stealing refused to turn over any records, including all our financial documents. The BOD that was judiciously removed, demanded that all owners prove they paid their dues for the past 6 years or however long they have been an owner.

One of the relatives of the gentleman accused of stealing circulated a petition to remove them. At the time the association had no bylaws, they were missing, and no owner up to that point in time knew of them.

Out of 41 units in the complex, 23 units wanted to have them removed. Owners did not agree with the embezzlement lawsuit or their demand for owners to prove payment, and/or some did not want the headache or uncertainty of litigation.

The removed board did not recognize the petition because their attorneys said everyone was delinquent with assessment due.

The relative, eventually took them to court and won. They were removed and we were elected. We have inherited a number of problems and financial struggle.

They incurred $50,000 in debt to defend the removal lawsuit (hopefully insurance will cover some of this), and $62,000 in the embezzlement lawsuit. The embezzlement lawsuit is still pending currently.

We want to settle the current embezzlement lawsuit. However, the BOD that was removed will probably sue us for breach of fiduciary duties, because they think we should move forward with their bogus complaint that is full of lies.

We are considering taking them to court to pay the attorneys they hired because we never gave them permission to file a lawsuit.

Its a crazy mess.

Did the Bylaws that went missing for years ever re-appear?
YES THEY DID. WHILE THE RELATIVE WAS SUING TO REMOVE THE BOARD, AN OWNER SUPPLIED THEM TO OUR ASSOCIATION ATTORNEY THAT WAS DEFENDING THE MATTER, HOWEVER THE BOD WAS ALREADY REMOVED AT THAT POINT. THEY FILED A MOTION TO RECONSIDER, BUT ULTIMATELY THE JUDGE RULED IN HER FAVOR. THE ONLY ISSUE LEFT IN THAT CASE IS ATTORNEY FEE'S.

Can you check your CC&Rs and quote word-for-word what direction, if any, they give regarding a losing party in a lawsuit paying the prevailing party's attorney's fees? IN THE EVENT, THE DECLARANT, THE ASSOCIATION, OR ANY UNIT OWNER EMPLOYS AN ATTORNEY OR ATTORNEY'S TO ENFORCE A LIEN OR TO COLLECT ANY AMOUNTS DUE FROM A UNIT OWNER OR TO ENFOCE COMPLIANCE WITH OR RECOVER DAMAGES FOR ANY VIOLATION OR NONCOMPLIANCE WITH THE CONDOMINIUM DOCUMENTS, THE PREVAILING PARTY IN ANY SUCH ACTION SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY HIS REASONABLE ATTORNEY'S FEES INCURRED IN THE ACTION.

I am surprised that the board that filed the lawsuit without permission found an attorney nonetheless willing to represent the HOA and sue someone. The reality suggests to me that, per some aspect of the law, maybe membership approval in fact was not required. ACCORDING TO OUR CCR THE ASSOCIATION COULD INITIATE A LAWSUIT FOR UNPAID ASSESSMENT DUES OR A USE RESTRICTION. HOWEVER THEY DID NOT ASK FOR RELIEF FROM ASSESSMENT DUES (ALTHOUGH THEY PLACED LIENS ON THE UNITS), AND THERE WAS NO USE RESTRICTION. THEY CLAIMED HE STOLE A STORAGE LOCKER ON THE PROPERTY, BUT THE RELATIVE SUPPLIED THE DEED TO THEM (THEY NEVER AMENDED THE COMPLAINT), AND SAID HE USED A UNIT AS A LEASING OFFICE, BUT THE PROPERTIES HAD BEEN VACANT FOR YEARS.

I think a come to Jesus meeting with an experienced HOA attorney would be worth the few thousand dollars the board would spend to inform its decision-making here. That way, the Board can blame its not filing any further lawsuit on the HOA attorney. WE AGREE, AND ARE GOING TO MEDIATION WITH THE BOD THAT WAS REMOVED, BECAUSE AFTER THEY WERE REMOVED THE SUED THE ASSOCIATION. ALL THE ATTORNEY'S WE HAVE SPOKEN WITH AGREE THE INITIAL LAWSUIT STARTED FOR THEFT SHOULD HAVE BEEN HANDED OVER TO THE AUTHORITIES (GREEDY LAWYERS CHIME IN AND SAY NO NO SUE YOU HAVE A GREAT CASE), AND THE ATTORNEY'S WE CURRENTLY HAVE ARE MORE INTERESTED IN MAKING MONEY THAN SOLVING PROBLEMS.

$112,000 / 41 members = $2731 per member. A pittance for some peace.

This may make itself up easily when the member goes to sell and no more lawsuits or debt needs to be disclosed to potential buyers.

Surely this battling has hurt property values.

I agree all of it is a waste of time money and resources. But this other side will not let it go. They have already cost more in attorney fees than what the embezzlement case is all about. I guarantee if we pursued it, none of those board members would survive testimony. Do you move on from not pursuing theft? Can the current BOD vote to “lick our wounds” and move on?

Augustin,

Thank you for approach to all matters I have posted without any bias. Your help is truly appreciated.