Board president and HOA lawyer sued by owner

Started by JohnS111 • 21 replies • 580 views

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JohnS111 (New York)
Posts: 228

Posted:

I had posted before about the board of a HOA where I own a vacation home. Among other things, the board hired a lawyer who had been disciplined for using client funds for his own use.

I had approached the board president (as recommended by this board), offering to help find a lawyer without a disciplinary history, and the board president to me that "the board's choice of a lawyer does not concern you."

Now one owner (frankly, a busybody but who is also a lawyer) went through the HOA's financials and checks and has filed a "shareholder derivative suit" against the board president and lawyer, accusing them of "conversion" of over $200,000, and demanding that they pay that amount to the HOA.

This is interesting, although it's infuriating if the claims are valid.

MarkM19 (Texas)
Posts: 1,459

Posted:

John,
I have a few questions regarding your HOA.

1) How many units?
2) Are you Managed by a Property Management Company?
3) How many Board Members are on your board?
4) What is your annual budget?
5) How long has the President been on this board?
6) Who signs the checks?

This seems like a strange case but without knowing much more details hard to take a side.

NA1 (Massachusetts)
Posts: 190

Posted:

what's "conversion"?

SheliaH (Indiana)
Posts: 6,964

Posted:

Google is your friend - basically, it's whe

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

SheliaH (Indiana)
Posts: 6,964

Posted:

Whoops, hit the wrong button. Basically it's when someone takes the property of another with tge intent of depriving them of it. Fir example, if you found a Rolex watch and decided to sell it( because you thought "jackpot! Some fool lost his Rolex!), technically that's conversion, even 5hough you didn't know the owner lost the watch while loading a bunch of groceries into his car.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

ElleN (Idaho)
Posts: 4,420

Posted:

John,

How do you know the lawsuit was not settled?

Is the plaintiff acting pro se?

Is an attorney paid for by the HOA insurer providing the legal defense?

SheliaH (Indiana)
Posts: 6,964

Posted:

As for you, John, you know it's one thing yo fike a lawsuit, another to win it and still another to actually collect. 9n it's face, this lawsuit can mean everything and nothing - and if the case hasn't been decided yet , you don't know if this lawsuit is based on fact or something else. Have you actually read the documents? Is this the same attorney attorney from your last conversation ?

More than that, what do you plan to do about it? If you're concerned this board shows horrible judgement in selecting attorneys to represent the association, that's fine, but the board is responsible for selecting them. Since they didn't want your help on finding another attorney, you either didn't make a good enough argument (or just insulted the president or something else) or you're going to have to convince a significant number of homeowners to vote the president out in the next election (I think you and he have beef, but haven't said if this extends to everyone else on the board). Or mount a recall.

You may have valid suspicions, but without action, so what? Decide what you want to do, find some owners that agree and get to work

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

MelissaP1 (Alabama)
Posts: 13,836

Posted:

JohnC11 is a "lawyer" and seems to post questionable legal actions. It's almost like trying to have people try these methods as options. Part of me question if he has a "Friend" or IS the "Friend" in this HOA?

There still is the "corporate shield" one would have to pierce in order for a board member/officer to be sued personally. The HOA lawyer being sued is kind of a stretch for an owner to do it. The relationship of the HOA lawyer being with the board and NOT individual owners. The HOA would have more of a case against their lawyer if given bad advice or actions etc...

The proof of burden would be on the owner to prove malfeasance. Is the money missing or put into another account? It would not be unusual for a HOA to put extra money into money making options like CD's for a time being to put into Capital funds later.

Again suing your HOA is suing yourself and your neighbors. If the member feels that strongly about the issue, then they must accept that consequence. Which may include the HOA using their insurance and or losing that said insurance.

Former HOA President

JohnS111 (New York)
Posts: 228

Posted:

Quote:

Posted By MelissaP1 on 03/19/2023 7:33 AM

There still is the "corporate shield" one would have to pierce in order for a board member/officer to be sued personally. The HOA lawyer being sued is kind of a stretch for an owner to do it. The relationship of the HOA lawyer being with the board and NOT individual owners. The HOA would have more of a case against their lawyer if given bad advice or actions etc...

Again suing your HOA is suing yourself and your neighbors. If the member feels that strongly about the issue, then they must accept that consequence. Which may include the HOA using their insurance and or losing that said insurance.

No, that's not true and you seem to have totally misunderstood. You should knock off your personal vendetta.

In a derivative suit, an owner can step into the shoes of the HOA and, on behalf of the HOA, sue its lawyer or the board president or anyone else who the HOA would have a claim against. The corporate veil is irrelevant. That's what has happened here. It's not the HOA being sued.

Quote:

Posted By MarkM19 on 03/18/2023 4:34 PM
John,
I have a few questions regarding your HOA.

1) How many units?
2) Are you Managed by a Property Management Company?
3) How many Board Members are on your board?
4) What is your annual budget?
5) How long has the President been on this board?
6) Who signs the checks?

This seems like a strange case but without knowing much more details hard to take a side.

1: approximately 75
2: Yes
3: 3
4: I don't know
5: About a decade
6: The president

Quote:

Posted By ElleN on 03/18/2023 5:26 PM
John,

How do you know the lawsuit was not settled?

Is the plaintiff acting pro se?

Is an attorney paid for by the HOA insurer providing the legal defense?

I searched PACER and the lawsuit has been filed, but no response has been filed. The plaintiff is acting pro se, but he is an angry litigator so he can handle it himself. I don't know who's doing the defense.

For the case, yes, I have read the complaint. The complaint alleges that the board president paid $200,000 in legal fees to the HOA's lawyer during one year, and the HOA's lawyer paid a kickback of $100,000 to the board president. Copies of checks (by the HOA, signed by the board president and paid to the HOA's lawyer) the were attached to the complaint. The HOA was sued, but the neighbor who sued the HOA provided a statement that is attached to the complaint, saying that the HOA's fees were paid by its insurer and the total legal fees were less than $50k.

ElleN (Idaho)
Posts: 4,420

Posted:

Does the filed complaint (now on PACER) give any inkling of the evidence for the alleged kickback to the President?

I have long thought a main purpose of hiring an attorney is so emotion and self-bias are removed when evaluating strategy. Oh well.

Didn't you say you already won one derivative lawsuit against this HOA?

It would be nice if this story ended up being verifiable.

MarkM19 (Texas)
Posts: 1,459

Posted:

John,
That seems like an extremely large sum of money for a small HOA to pay for legal services. What litigation transpired to cuase anywhere near 200K in fees?

To find out your annual budget it is pretty simple.

Dues times 12 if paid monthly times 75 owners = Annual budget

Our HOA has over 1450 homes and we spend less than 5k annually on legal affairs.

JohnS111 (New York)
Posts: 228

Posted:

Quote:

Posted By ElleN on 03/19/2023 1:43 PM
Does the filed complaint (now on PACER) give any inkling of the evidence for the alleged kickback to the President?

I have long thought a main purpose of hiring an attorney is so emotion and self-bias are removed when evaluating strategy. Oh well.

Didn't you say you already won one derivative lawsuit against this HOA?

It would be nice if this story ended up being verifiable.

A neighbor had gone after the HOA before, so there has been litigation before.

Yes, the complaint does show alleged evidence of the kickback to the president: a copy of the president's own bank statement, showing checks from the lawyer. Who knows how the plaintiff got them. Some identifying information is removed from the bank statement (such as the bank account number).

Quote:

Posted By MarkM19 on 03/19/2023 1:51 PM
John,
That seems like an extremely large sum of money for a small HOA to pay for legal services. What litigation transpired to cuase anywhere near 200K in fees?

To find out your annual budget it is pretty simple.

Dues times 12 if paid monthly times 75 owners = Annual budget

Our HOA has over 1450 homes and we spend less than 5k annually on legal affairs.

Yes, you're exactly right. The legal fees from year to year have been about $3k. Then in the year of the lawsuit, they were $200k. But the insurer paid the HOA's legal fees.

The annual budget would be around $450,000 but dues vary by home and the HOA has other sources of revenue, such as fines, so that's just a guess.

ElleN (Idaho)
Posts: 4,420

Posted:

John, PACER is for federal court records. Did your neighbor file in federal court? I do not see how a federal court would have jurisdiction.

JohnS111 (New York)
Posts: 228

Posted:

Quote:

Posted By ElleN on 03/19/2023 4:09 PM
John, PACER is for federal court records. Did your neighbor file in federal court? I do not see how a federal court would have jurisdiction.

You are correct. Yes, done in Federal court, alleging violation of Federal laws (Among other things).

GuyM1 (Ohio)
Posts: 318

Posted:

Evidence in Discoveries.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Fines are NOT an option for income for an HOA. They are PUNITIVE damages charged to correct a violation. It is NOT income making. Neither are Liens or Foreclosures. Those are legal instruments to get money back that is owed. Which is unpaid dues. A foreclosure ONLY stops the bleeding.

This is exactly why I state at nauseum that suing your HOA is suing yourself and your neighbors. The HOA being incorporated has to be represented by a lawyer in court. (Or assign someone but who hires a non-lawyer for court?) Once it hit trial or actual lawsuit outside of small claims, the HOA then needs to put a lawyer on "retainer". Otherwise, don't need a lawyer on retainer. (IMO).

So whomever is suing their HOA is shooting themselves in their own foot and the shrapnel is hitting every neighbor. Sounds like a stand up person wanting to be everyoe's hero here? Sounds NOT...

Former HOA President

JohnS111 (New York)
Posts: 228

Posted:

Quote:

Posted By MelissaP1 on 03/22/2023 6:43 AM
Fines are NOT an option for income for an HOA. They are PUNITIVE damages charged to correct a violation. It is NOT income making. Neither are Liens or Foreclosures. Those are legal instruments to get money back that is owed. Which is unpaid dues. A foreclosure ONLY stops the bleeding.

This is exactly why I state at nauseum that suing your HOA is suing yourself and your neighbors. The HOA being incorporated has to be represented by a lawyer in court. (Or assign someone but who hires a non-lawyer for court?) Once it hit trial or actual lawsuit outside of small claims, the HOA then needs to put a lawyer on "retainer". Otherwise, don't need a lawyer on retainer. (IMO).

So whomever is suing their HOA is shooting themselves in their own foot and the shrapnel is hitting every neighbor. Sounds like a stand up person wanting to be everyoe's hero here? Sounds NOT...

THE HOA IS NOT BEING SUED.

THE HOA IN THIS CASE IS THE PLAINTIFF.

NA1 (Massachusetts)
Posts: 190

Posted:

Who do you think will pay the legal fees for the board president and the lawyer?

I would bet the HOA docs indemnify the board president and the agreement with the lawyer indemnifies them.

Guess you will find out how good the HOA’s insurance is.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Dude the HOA includes the President AND the neighbors? Do you think this is just suing the President??? Seriously? No. The President is a member of the HOA. The President gets the HOA insurance liability coverage from the HOA insurance. You have to "Pierce the corporate shield" to sue the President individually. This means the HOA insurance is footing the bill for the defense as if it is a claim. That means that EVERYONE paying dues in the HOA is paying the bill.

Unless the President is doing something blatantly illegal and not within scope of their position, most likely will get tossed out of court. Plus if it is illegal this should be reported to CRIMINAL court or the D.A. Office to prosecute. This is NOT a private case between 1 HOA member and the 2 parties. It's 1 person suing a HOA AND the lawyer they HOA hired.

However did you pass the bar???

Former HOA President

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By MelissaP1 on 03/22/2023 9:40 AM
This is NOT a private case between 1 HOA member and the 2 parties. It's 1 person suing a HOA AND the lawyer they HOA hired.

It's one person suing on behalf of the HOA corporation, in a derivative action. Typically both the shareholder (meaning the owner here) and the corporation are the plaintiffs. The lawsuit is called "derivative" because the right of the shareholder to sue "derives" from the right of the corporation not to be harmed by its directors or officers.

Why this is being heard in federal court still puzzles me. I cannot think of a federal statute that speaks to the tort of conversion.

LayaS (Nebraska)
Posts: 249

Posted:

Quote:

Posted By ElleN on 03/22/2023 11:34 AM

Posted By MelissaP1 on 03/22/2023 9:40 AM
This is NOT a private case between 1 HOA member and the 2 parties. It's 1 person suing a HOA AND the lawyer they HOA hired.

This puzzled me at first but now I get it. Does the HOA insurance cover the President of the Board and their hired attorney's legal fees? Who covers the legal fees of the derivative action?

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By LayaS on 03/22/2023 11:54 AM
Does the HOA insurance cover the President of the Board and their hired attorney's legal fees? Who covers the legal fees of the derivative action?

The standard in many states (typically per statute) is: As long as "willful misconduct or recklessness" is absent, the HOA insurance is supposed to pay for the President-Director's defense.

I do not believe HOA insurance would cover the costs of the HOA attorney's defense. I know HOA insurance does often cover, for one, HOA managers. But the HOA attorney? I think not. The HOA attorney needs to have her or his own insurance or pay out of pocket.

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