Question: I was on the board of directors when our homeowners association got sued. Some directors were sued individually for breach of their respective fiduciary duties. I wasn't sued, and after a short hiatus from the board, I was reelected.
When the lawsuit occurred I wasn't privy to meetings between the board president and the insurance company attorneys representing the association. Years later, I learned of information the attorneys gave to the other directors during the lawsuit. Those attorneys told certain board directors to get rid of their hard drives and ensure "everyone knows that you have hard-drive failure."
During the suit, subpoenas were issued for computer-related items such as emails and hard drives. At the time, the president, who was also the main liaison between the attorneys and the other directors, made repeated comments that he suddenly had hard-drive failure. On advice from those attorneys, he conveniently intercepted all files from the management company, which he then took to his home and "purged." Directors were advised "what you don't have, you don't have to produce."
In preparation for depositions those same directors began creating documents and rewriting existing documents to cover up their actions while on the board. All this and more was prompted by attorneys hired by the insurance company. Because this and other information remains secret, these contemptible ex-directors remain idolized in our community. What can be done about this?
Answer: The board directors' actions are reprehensible and possible violations of law in that they destroyed evidence and association records. Boards are vested with the duty to preserve and protect the association's information and knowledge base. The retention of vendors, attorneys included, does not replace good judgment, and these directors cannot hide behind counsel's obviously bad advice.
You, and the current board, have an obligation to pursue claims against the association's former attorneys, and former board, to minimize potential liability and remedy past mistakes.
The destruction of association records is a violation of Civil Code section 5210(a) requiring associations to maintain records for at least three years and minutes permanently. Under Corporations Code section 8215, the law imposes liability for falsification of, or tampering with, reports or records and does not allow for "removing, erasing, altering or canceling any entry in any books or records of the corporation with intent to deceive" — that includes hard drives. Corporations Code section 8813 prescribes penalties for every director or officer who falsely reports the association's financial condition or fraudulently exaggerates a report.
Any action taken to destroy or conceal records, or advice to do the same, is a crime and is subject to prosecution pursuant to Penal Code section 135. Presuming your information is accurate, these attorneys may have done enough to have their licenses to practice law revoked. File a complaint detailing violations with the California State Bar demanding an investigation. Complaints filed with the State Bar are protected by Civil Code section 47. Though enacted in 1872 and amended several times, it has managed to maintain the spirit of encouraging public participation in good faith while partaking freely in the complaint process. Should these attorneys be disbarred, it may deter similar actions in other associations and by other attorneys.
All attorneys in California have ethical duties to uphold the law, as well as the decorum of the profession. These attorneys can be held liable for their actions regardless of whether they represented the current board, a past board, or are an insurance company providing coverage and representation to the board or the association. Any person who has been harmed by an attorney in their professional capacity can bring a claim before the bar.
Some advice given to the board by its attorneys may be confidential. Releasing some information may breach the privilege, exposing even the new board to possible consequences, but because you are the client, you can waive the privilege and disclose the contents of the discussions between the board and the attorneys.
Directors must do what is right when no one is watching. Wanting to protect one's self at the expense of everyone else is not the credo of a law-abiding board director.
Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or email@example.com.