Lawyer can’t serve both parties to a contract

Question: Our board of directors is considering a management company recommended by the association’s attorney. The company sent a contract, saying it “is our standard contract and everybody signs it.” We want it reviewed by an attorney who can propose and negotiate better terms.

We suspect that our attorney also represents the management company, so a few of us think a different attorney should do the contract review. But the board put out this statement: “We are confident that there is no conflict in hiring a management company that does business with our lawyer, in fact, we do not think we could find a management company that has not done business with him.” What should we do?

Answer: Generally, an attorney represents one party, and here that party can be only the association. The attorney’s loyalties must be to his “client,” the “association.” An existing relationship with the management company calls that loyalty into question, creating a presumed conflict.

A management agreement is probably the association’s most crucial contract. During negotiation of a contract, the two parties are adversaries, each trying to gain the advantage of better terms over the other.

Absent an advance and informed written waiver by each party, an attorney’s representation of both parties constitutes a prohibited conflict of interest. An attorney has a fiduciary duty to serve a client’s interests without any contamination by other involvements.

If the management company later does something that damages your association or puts it at risk, the board has a right to expect loyalty and assistance from the association’s attorneys, be it advice, testimony, negotiation, or filing and defending lawsuits.

Your board’s “confidence” is misplaced. Without prodding by anyone, the attorney should have advised seeking another attorney unrelated to his law firm.

Under California’s Rules of Professional Conduct for attorneys, the lawyer must immediately disclose any conflicts. Failure to do so could result in sanctions being imposed by the California State Bar. Your attorney’s relationship with the management company creates a presumption that he is not providing his best unbiased advice.

Short of any directors or owners being contract experts and formally accepting responsibility for the agreement, the board should hire an independent attorney to assist in negotiating and redrafting terms beneficial to the association.

Contracts involving significant money or of long duration require extra attention. They often have phrases that look like ordinary English but that have special legal meaning that only a trained attorney would recognize as dangerous. Watch for terms absolving the vendor of liability for breach or negligence, or requiring the association to indemnify the vendor for wrongful acts. Even the most inexperienced board members should recognize and reject such terms as inappropriately risky.

The board should have a California licensed attorney explain the terms of any major contract so board members can understand what they mean. Beware especially of vendors offering “standard contracts that everybody signs” and insisting it’s OK to sign; it isn’t. Each association has its own unique requirements and problems, many requiring tailored solutions, which means a “standard” contract simply won’t fit.

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