Handling Litigation When Lawsuits Strike Close to Home

Handling Litigation

No one likes a lawsuit. Whether filing one or finding yourself on the receiving end of one, they can cause stress, anxiety and an upending of daily life. They can be expensive, take months—even years—to resolve, and often result in hurt feelings and ruined relationships. For co-op, condo and HOA board members and residents, the situations are no different, where litigation levied by or against a corporation, association, board or even individual resident can lead to countless sleepless nights for all parties involved. 

Turn to the Experts

Unless your co-op, condo or HOA has achieved some utopian ideal, the day will come when it’s named party to some type of litigation. Chances are that lawsuit will involve something like an ongoing noise complaint between neighbors, construction defects, misbehaving subtenants, or an attempt to collect delinquent payments from a resident. But how does a lawsuit begin? According to attorney Barry Kreisler of Kreisler Law, PC in Chicago, “A suit is initiated with the filing of a written complaint, in which the plaintiff sets forth the facts and legal theories under which he believes he or she should prevail in the suit.” 

When that unwelcome registered letter arrives in the mail and is opened to reveal notice that a lawsuit has been filed, the first thing to do is remain calm. The second thing to do is get in touch with the right people—and whatever the specific issue—the ‘right people’ are the building’s legal counsel and insurance carriers. Should a board find itself named in a lawsuit, “They should notify their attorney and make sure that the case is brought to the attention of the board’s insurance carrier as soon as possible,” says David L. Berkey, a partner at the New York-based law firm of Gallet Dreyer & Berkey, LLP. 

And regardless of whether it’s an individual filing suit against the association or vice versa, just because a complaint has been made doesn’t mean the case is on the express route to court. “In Illinois when a lawsuit is brought against you, you can answer the lawsuit, or you can seek to dismiss it,” explains attorney David Hartwell of the law firm of Penland & Hartwell in Chicago. “If you choose to answer it, it means the two parties are at issue. Or you can seek to dismiss it on two grounds: you can say that the pleading itself is insufficient to allege a cause of action, or you can alternatively seek to dismiss by saying by virtue of an affirmative matter, the lawsuit must be dismissed.”

Surprisingly, Kreisler says most cases are settled before the completion of a trial. “Contested litigation is quite expensive for all parties and is very time consuming. Because trial decisions can be unpredictable, most of the time litigants decide it is to their advantage to compromise their position and settle the case before the conclusion of a trial.”

But again, before anything can be settled—much less tried, professionals should be alerted. “The defendant should immediately contact the association’s attorney for an assessment of the situation and to develop a plan of response,” says Kreisler. 

Some Big ‘Don’ts’

Just as important as what to do when on the receiving end of a lawsuit is what not to do. “The defending party should not contact the plaintiff or plaintiff’s attorney until after they have spoken with their association’s lawyer,” says Kreisler. So as much as you might want to dash off a salty letter to the person you view as litigious, it’s crucial that you resist that impulse. Nor should you ever attempt to ‘clean up’—by altering, deleting or destroying—any documents, records or files that might be pertinent to the lawsuit. In addition to potentially compromising the association attorney’s ability to defend against the suit, such a move smacks of impropriety—and can lead to even more costly legal issues down the road. 

Another aspect of propriety is confidentiality. “There are a lot of emotions surrounding lawsuits,” says Hartwell, “especially when a resident names individual board members instead of just suing the association as a whole. Board members should not discuss the lawsuit with other unit owners. They shouldn’t attempt to try a lawsuit by public opinion within the community.” In fact, he adds, the Illinois Condominium Property Act gives boards the power to meet in closed session and discuss the terms of the legal action in order to maintain confidentiality.  

Neighbor vs. Board

Sometimes the source of the litigation arises from within the walls of the condo or association, either when neighbors sue neighbors, or when the board files suit against a resident, or vice versa. When boards are forced to bring a lawsuit against a resident, it is usually for one of a handful of common issues that inevitably arise in multifamily communities. “Boards,” according to Berkey, “bring claims against individual residents for non-payment, violation of bylaws...and violations of house rules. There are other situations where a board may sue a unit owner or tenant-shareholder depending upon that person’s negligence or improper conduct, which may not be violations of those documents, but where the facts may make the person liable for improper conduct.” 

There are some minor differences when it comes to litigation in co-ops versus condos. For example, when a building is sued, says Eric Goidel, a partner with the law firm of Manhattan-based Borah Goldstein Altschuler Nahins & Goidel, P.C. “In a condo, the defendant will be the board of managers. In a co-op, it’s the corporation that is the defendant.” 

The cost and length of time it takes to bring a lawsuit to completion also differs in co-op and condo cases. Pursuing a case involving a condo resident “can be much more expensive, and can take up to three years to work its way through court,” says Goidel. “For a co-op dispute, it’s usually less than a year and costs less than a handful of thousands of dollars.” 

Taking a Different Path 

It’s no secret that lawsuits are expensive, acrimonious undertakings that can severely erode both the finances and morale of building communities. When a disagreement between a resident and the board escalates into a serious dispute and the threat of litigation is brought into the mix, it can make a bad situation worse. And perhaps the most irksome thing about these types of issues is that to a large degree, they’re preventable. Time and again, attorneys and managers cite board inaction or opacity as the reason why resident grievances ignite into litigation.

Regardless of the problem, there are other alternatives for resolving any of these conflicts without resorting to the courts. These range from an informal sit-down between disputing parties to more formal (and legally binding) arrangements reached with the help of a professional mediator. Collectively, these measures are referred to as alternative dispute resolution, or ADR.

Under Illinois Statutes 765 ILCS 605 of the ICPA Section 32, alternative dispute resolution is offered as a solution. “The declaration or bylaws of a condominium association may require mediation or arbitration of disputes in which the matter in controversy has either no specific monetary value or a value of $10,000 or less, other than the levying and collection of assessments, or that arises out of violations of the declaration, bylaws, or rules and regulations of the condominium association,” the Act says.

ADR is generally a quicker, more efficient means of adjudicating a dispute than arguing in court. In ADR, a neutral party (usually a licensed legal professional) works with the litigants to reach a mutually acceptable settlement of the dispute. 

“Disputes can be voluntarily submitted to mediation or arbitration before a known tribunal, such as the American Arbitration Association, or may be referred to an agreed upon person to act as mediator or arbitrator.”

Legal pros also point out that associations or boards may be covered by their general liability insurance or Directors & Officers coverage, and in that case, their insurance carrier should certainly be alerted. 

And, adds Hartwell, although it is important to carefully consider if filing a claim is the best option, “If you wait too long, the insurance carrier may deny coverage on the basis that you failed to provide notice to them in a timely manner.” So again, it’s better to face the music and deal with a lawsuit than just hope it somehow goes away. 

Costs Beyond Court

Unpleasant and expensive as litigation often is, there are some people for whom lawsuits become a go-to response to just about any difficult situation. Serial litigators can surface in any building or association, and can become a chronic issue for board members, managers and even fellow residents. And it’s not just the stress and bad blood between neighbors or the sheer expense of the process, say the pros. While the occasional lawsuit will not cripple an association, a long history of litigation may hurt a community’s standing with prospective buyers and lenders.

“A co-op or condominium is usually required to list pending lawsuits in its financial statements if they might materially affect the finances of the organization,” says Berkey, adding, “Most judgments are public records and can be searched by prospective  purchasers, or by their attorneys as part of their due diligence review. Also, the broker community becomes aware of buildings that are often sued, or have histories of litigation. In such cases, potential purchasers usually will stay away from a building if there is a comparable alternative place to live that is litigation- or judgment-free.”

Kreisler agrees, adding, “Section 22.1 of the Illinois Condominium Property Act requires that an owner obtain from the association certain disclosures with regard to the association. These required disclosures would include a Statement of Financial Condition, which obviously will have been adversely affected by the costs of ongoing litigation, and another statement as to the status of any pending suits or judgments to which the association is a party.” Seeing an association deeply indebted by litigation, may prompt prospective buyers to question the association’s financial stability, in addition to its community relations in general: if there are constant lawsuits, might the board be ruling ineffectively? Are there hostile relations between the board and residents, or among residents themselves? 

Lenders also take a particularly dim view of any type of litigation, says Roth. “All lenders require that the association disclose whether it is involved in litigation, whether as a plaintiff or a defendant. The lender will not loan money to purchase or refinance condominium units unless the lender is satisfied that the litigation does not pose a risk to the lender. Lenders generally look to whether the litigation relates to the structural integrity of the building, and whether any insurance will ultimately cover any damages in the lawsuit. Litigation definitely impacts the saleability of units,” he says. 

In the end, people do not always get along, and disputes are bound to arise when dozens and even hundreds of residents live side by side with each other. It is to the advantage of those residents, shareholders, board members and managers to find alternative ways to resolve disputes or end contentious actions. If worse comes to worst, however, it helps to be prepared and know all of the options available whether standing on the side of plaintiff or defendant.             

Liz Lent is a freelance writer and a frequent contributor to The Chicagoland Cooperator. 

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