Mop­ping up le­gal is­sues af­ter a leak.

Los Angeles Times - - BUSINESS - By Donie Van­itzian Zachary Levine, a 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


Ques­tion: I am a board di­rec­tor for a large as­so­ci­a­tion that is plagued with ma­jor plumb­ing leaks, burst­ing pipes and pres­sure reg­u­la­tion prob­lems.

About three years ago, one of the up­per units had a sink sup­ply-line burst, re­sult­ing in water dam­age to that unit and the one be­low, which hap­pened to be owned by an­other di­rec­tor. In­de­pen­dent plumb­ing ex­perts for the in­surer of the up­per unit owner and the in­surer of the as­so­ci­a­tion both de­ter­mined that the up­per unit owner was not neg­li­gent be­cause the source of the prob­lem was com­mon-area prop­erty.

Given the sub­stan­tial dam­age to the lower unit, the as­so­ci­a­tion not only quickly re­paired the com­mon area prop­erty but also the dam­age to the di­rec­tor’s lower unit. This was con­sis­tent with past prac­tices.

How­ever, un­be­knownst to the other board mem­bers, the di­rec­tor se­cured as­so­ci­a­tion funds for an up­grade to his unit that was con­ducted while re­pairs were be­ing made. The di­rec­tor later said the up­grade was com­pleted cost ef­fec­tively, and by rais­ing the value of his unit raised the re­sale value of all units in the com­plex.

The board now wants to get com­pen­sa­tion for the as­so­ci­a­tion, but given our his­tory of plumb­ing prob­lems, the ma­jor­ity is re­luc­tant to file a claim with our in­surer lest it re­sult in higher in­sur­ance pre­mi­ums.

In­cred­i­bly, some di­rec­tors are even mulling over mak­ing a de­mand to the up­per unit owner for the to­tal cost of the re­pairs, in­clud­ing the up­grades con­ducted on the lower unit — a fig­ure amount­ing to tens of thou­sands of dol­lars. Mean­while, the as­so­ci­a­tion at­tor­ney is en­cour­ag­ing the board to sue the board di­rec­tor who owns the lower unit for the up­grade funds he should not have re­ceived.

As a mi­nor­ity di­rec­tor, I’m won­der­ing what I can do to help re­solve the prob­lem.

It seems to me that su­ing the up­per unit owner is not only patently un­fair but a sure loser in court if the owner gets even a half­way de­cent at­tor­ney. If we sue any­one, shouldn’t it be the lower unit owner, even though the board is re­luc­tant to sue one of its own mem­bers? Per­haps we should just make a claim to our in­surer for all the doc­u­mented dam­ages, and sim­ply write off the funds spent on the up­grade? anal­y­sis for ev­ery pro­posed ac­tion the as­so­ci­a­tion plans to take.

In this sit­u­a­tion, the as­so­ci­a­tion’s own at­tor­ney ad­vises su­ing the board di­rec­tor for re­im­burse­ment to the as­so­ci­a­tion. In­stead, and with­out any le­gal ba­sis, the ma­jor­ity di­rec­tors are con­sid­er­ing a law­suit against the up­stairs ti­tle­holder! If ex­perts for two in­sur­ance com­pa­nies all de­ter­mined that the up­per unit owner is not at fault for the dam­ages, then the ma­jor­ity on the board are clearly fail­ing to act rea­son­ably in con­sid­er­ing ini­ti­at­ing that law­suit.

If the as­so­ci­a­tion pur­sues the up­per unit owner through lit­i­ga­tion, that owner may de­cide not only to vig­or­ously de­fend him­self, but also to file a cross com­plaint against the as­so­ci­a­tion and the board for im­prop­erly spend­ing money to ben­e­fit a board di­rec­tor.

The board should have been ad­vised that the po­ten­tial for li­a­bil­ity to the as­so­ci­a­tion and the ti­tle­hold­ers is in­creased be­cause of the fee-shift­ing na­ture of HOA lit­i­ga­tion. If the as­so­ci­a­tion sues the up­per unit owner and loses, which is quite pos­si­ble, then the as­so­ci­a­tion will be forced to re­im­burse the pre­vail­ing owner for his or her le­gal fees and costs. Such fees might need to be passed on to all the own­ers, and they may pre­dictably ques­tion why they are be­ing spe­cially as­sessed to pros­e­cute a case against an­other owner — es­pe­cially one with seem­ingly no le­gal jus­ti­fi­ca­tion.

Rather than start­ing the dis­cus­sion with po­ten­tially base­less lit­i­ga­tion, you and the rest of the board should look into re­im­burse­ment from the as­so­ci­a­tion’s in­sur­ance car­rier even if it might re­sult in higher pre­mi­ums. Any amount not cov­ered be­cause it was ex­tra­ne­ous and es­sen­tially a gift to the lower unit owner should be re­im­bursed by that board di­rec­tor as an im­proper ap­pro­pri­a­tion of as­so­ci­a­tion funds. If that di­rec­tor will not sub­mit to a re­im­burse­ment then lit­i­ga­tion may be nec­es­sary to re­cover those funds. But don’t for­get, even that lit­i­ga­tion could re­sult in spe­cial as­sess­ments levied against all ti­tle­hold­ers if the case doesn’t go as planned.

Prior to mak­ing the de­ci­sion to lit­i­gate, it is the board’s duty to con­sult with ex­perts re­gard­ing the prob­lems and pros and cons of en­ter­ing into that type of lit­i­ga­tion and then to present its find­ings to the home­own­ers for their in­put. In the end, though, it is not the ti­tle­hold­ers who make the de­ci­sion to lit­i­gate, it is the duly elected board.

UIG via Getty Images

WHEN A PLUMB­ING LEAK leads the HOA board to con­sider a law­suit it is un­likely to win, an in­sur­ance claim may be the best move.

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