Q&A: HOA board should seek expert advice hiring attorney, major expenditure

Question: Our association hired an attorney who promised that with his representation we’d win a lawsuit that was filed against our association, saying, “It’s a slam-dunk.” Board directors aren’t lawyers and understanding legal stuff isn’t easy. At every meeting he pushed his litigation strategy, which we didn’t understand. We figured “he’s the attorney, he should know what he’s doing,” so we capitulated and agreed to what he proposed.

He explained the insurance company would pay for attorneys charging up to $250 an hour; our association attorney’s rate was $375 an hour. He advised the board not to use the association’s insurance-provided attorneys, and convinced the board to raise the HOA dues to cover his additional $125-an-hour fee so he could litigate the case.

He did a terrible job, and his bill came to more than $155,000 – on top of $309,000 our insurance company paid out to him – while the owner who sued our association won $110,000. In total, our association was left saddled with paying more than $265,000, including his fee and the judgment. The board still doesn’t know where we went wrong. Is there any way the board can get our money back from the association’s attorney for giving us really bad advice?

Answer: While board directors may not fully understand litigation, they do not check their common sense at the door just because they hired an attorney. That’s why there’s more than one person on the board; other directors are supposed to serve as a reality check during the decision-making process. Since the homeowner association’s insurance policy included paid legal representation, there should have been a compelling and informed reason to justify the board’s expenditure in lieu of the paid attorneys the insurance company provided.

Whether planning to undertake a lawsuit or extensive plumbing repairs, any decisions involving big expenses or major risks affecting all titleholders necessitates obtaining specialized knowledge. Directors should not just accept at face value advice of advisors and experts. No reputable lawyer would guarantee results in litigation when even experienced trial lawyers say a “slam-dunk” case has a 20-30% chance of being lost. Someone telling you otherwise is trying hard to make a sale by not giving honest advice.

To rely on a single source with a vested interest, such as this association’s attorney, also could undercut protections afforded to board directors under the business judgment rule and insurance-policy indemnification clauses. That could result in personal liability for the directors. Decisions about specialized or professional issues requires substantial research and possibly other expert opinions. Once the research is completed, the board must continue to use caution and good judgment.

Why your association lost the case against it could be for any number of reasons The board may indeed have wronged the plaintiff in a way that created a strong case against the association. Alternatively, the plaintiff may not have had a very strong case, but your attorney was inadequately prepared or too inexperienced to defend the association effectively. But just because the attorney lost the case, or even made some mistakes, does not mean the association can recover fees already paid to him.

However, the board should still take steps to review the attorney’s invoices to verify that everything the board paid for was reasonable and that service was actually rendered. If not, the association can institute a fee dispute with the California State Bar Assn. to recover overpayments and frivolous billings. First consult an attorney who handles fee disputes or malpractice claims. A brief review of your invoices may cost little or nothing and help determine whether you are due a significant refund or have a case for malpractice.

Michael Krieger, a Los Angeles lawyer practicing business contract, technology and intellectual property law, 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 noexit@mindspring.com