Headhunter or not, hiring well was board’s duty

Question: My homeowners association fired our previous building manager and hired a lawyer to help us find a replacement. We paid an upfront retainer fee of $5,000 and agreed to his hourly rate of $395 plus an additional $1,500. He made it clear he was not responsible for the employee’s performance or work habits, and we would owe him the fees whether or not the employee worked out. He billed us $500 for finding the applicant and another $457 to read and review her resume. Next, he billed us $1,625 for verifying the accuracy of her resume. We hired the applicant he recommended and he billed us $2,435 to negotiate her salary and perks.

It’s been 11 months since she started, and we are extremely disappointed in her work and skills. We complained to the attorney and he expressed surprise because he’s “known her for a long time and she’s competent.” That was the first he mentioned he knew her. We since discovered she was the only applicant. Do we have any recourse against the attorney or the manager?

Answer: An association board of directors has a duty to perform due diligence when hiring an attorney or any professional. Accepting this attorney’s representations at face value was a breach of fiduciary duty. In this instance, due diligence required seeking out, investigating and interviewing several attorneys and headhunters before hiring.

Whether the association can obtain damages from the attorney depends on the agreement it had with him. Don’t expect a refund simply because the association is unhappy with the results.

The board agreed in advance to pay known fees for specific services. If the attorney did not perform those services but merely recommended his friend for the job, or failed in some other way to properly perform the services he promised, there may be a cause of action against him for breach of contract and a possible refund.

The board’s own investigation into the number of resumes received, background checks conducted and other services supposedly rendered by this attorney is imperative. On request, the attorney must turn over the association’s files containing all information collected or uncovered during his representation. Failure to do so could be grounds to file a court action compelling the attorney to return the association’s files.

Performing adequate impartial due diligence could mean the difference between being named in a lawsuit, paying substantial damages, or being absolved of liability. The board’s performance must be predicated on good faith. Aspects of good faith might be negated by such actions as a board’s failure to investigate claims made by the attorney-headhunter.

Some board members think that they can alleviate their time-consuming responsibilities, such as shopping for attorneys, interviewing managers or advertising for employees, by hiring a third party to do it. Oversight and supervision of the third party cannot be delegated to any vendor. That duty clearly rests on the shoulders of the board.

Depending on the contract the attorney negotiated, you may be able to fire the new manager.

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Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mindspring.com.