5 minute read
"You'll Never Guess What I Just Heard!"
When board members’ communications with owners become inappropriate.
By Nicole J. Soria, Esq.
In the typical southern California community, where board members reside alongside homeowners, it is easy for board communications to slip into some of the friendly neighborhood chit-chat or otherwise find their way into the unintended ear.
Community managers are highly aware of the confidentiality surrounding board of director communications both in and out of executive session board meetings; however, board members may not realize the significance of this protection when they have breached it or the extent of the consequences the board could potentially face as a result of a breach.
Believe it or not, just a slight slip of the tongue in neighborly passing can have a significant impact on the community when board members speak to owners regarding confidential matters.
The Attorney-Client Privilege
When a board seeks out, interviews, or hires legal representation, an attorney-client relationship is established, and certain protections are automatically implemented. The attorneyclient privilege protects information and communications exchanged between the lawyer and the lawyer’s client, including prospective clients (Cal. Rules of Pro. Conduct, r. 1.18 (State Bar of Cal. 2018).)
According to the U.S. Supreme Court, the purpose of the privilege “is to encourage full and frank communication between attorneys and their clients and thereby promote broader interests in the observance of law and administration of justice.” (Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).) The most prevalent protection is that of communications between the board and the attorney.
The attorney-client privilege survives the contract between the lawyer and the client. This means that even in situations where a board has ended a contractual relationship with an attorney, the protection surrounding their communications remains in place.
The attorney, even if fired by the board, is strictly prohibited from disclosing information regarding the property, homeowners, board concerns, contracts, or any other issues raised in the context of seeking legal advice (Cal. Rules Of Pro. Conduct, r. 1.6(a)-(d), (identifying several exceptions to this rule).)
Who is the Client?
In most attorney-client relationships involving an HOA board of directors, the client is the association. The board is the fiduciary of the association and, as such, has a fiduciary duty to represent the best interests of the association and the homeowners. However, property managers serve a critical role in the relationship between the board and counsel.
As representatives of the board, managers are included under the attorney-client privilege. In this capacity, managers are extremely valuable to the facilitation of information amongst the parties. They assist in maintaining successful and productive relationships between the attorney, board, and themselves, which is vital to the success of the board.
The privilege is waived if the client makes a public statement regarding the protected issue. Once the privilege is waived, any statement or document, directly related to the issue, could potentially become available to opposing counsel in a legal dispute. An example of this would be a board in executive session, with counsel present, discussing a potential discrimination suit against the board.
If even one board member shares details of the conversation to an owner or member of the public, they put the protection of the privilege in jeopardy. What is becoming more prevalent is people mistakenly discussing these issues on various social media platforms.
An individual may think they are simply venting to their friends about something happening at work, but in doing so, they unknowingly waive the privilege and forfeit its protections.
When can a discussion outside of a board meeting place the association’s D&O coverage at risk?
Public policy recognizes the importance of community members volunteering for these uncompensated positions and by including them in D&O policies and shielding them from personal liability, essentially, eliminating a deterrent for potential members (See Corp. Code § 5047.5(a).)
D&O insurance protects volunteer board members from being held personally liable for decisions they make in the performance of their duties. In short, if a board member, while acting as a board member, causes a loss to the association by either doing or refraining from doing something that would be considered reasonable for a board member, they will be protected by the policy and cannot be forced to personally pay for the loss (See generally Civ. Code § 5800(a).)
Additionally, minimum coverage requirements exist and vary depending on a community’s size. Therefore, a policy that may be appropriate for one community, may not be sufficient to cover another. Failure to obtain the minimum amount could bar coverage of the plan altogether.
When it comes to outside of a board meeting, the issues most likely to jeopardize coverage are any form of communication that bears a resemblance to discrimination of any kind, favoritism, retaliation, defamation, similarly related issues, or makes an omission of a wrongful act by the board.
It is best practice for board members to immediately consult with their general counsel if they believe these issues have influenced board discussions, decisions, policies, or finances. As much as board members or managers may want to express their feelings on these sensitive topics to other members of the community, such as neighbors or friends, it is highly recommended to refrain from doing so.
Board members must make every effort to protect their association and their communications as they have a fiduciary duty to do so. If ever in doubt, board members and mangers should consult with their association’s general counsel for guidance.
Nicole J. Soria, Esq., is an attorney with McKenzie Ryan & Mena, LLP that specializes in construction defect and has been in the industry for over a year.