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Freedom of Speech / Not My Debit

Can a court bar an owner’s representative who sues a condominium for repeatedly sending letters to the condominium and unit-owners that contained disparaging remarks and address discovery issues, or is this speech protected by state and federal constitutions? That was the issue in Ash v. Board of Managers of The 155 Condominium.

Allan Ash was co-executor of the estate of plaintiff Ruth Mishkin and, upon her death, substituted as plaintiff in an action seeking damages from the condominium, individual board members, and the former managing agent for breach of fiduciary duty and improper use of condominium funds. The action also sought an accounting.

Evidence suggested that from 2003 until October 2006, Ash wrote well over 50 letters and/or publications that were circulated to the board and, in many cases, condominium owners and tenants. Some of the letters included the following: “Yesterday you got another lying letter”; “I have never in my life met such a group of liars and immoral people as I have met in the administration of this Condominium”; “Slime mixes with slime”; “[A board member] is the most polished liar”; “I was fooled when I voted for [a board member]. Within 40 days I learned that [the board member] was a dishonorable creature”; “The Condominium’s money has been spent for self-serving purposes for the benefit of [certain board members] and perhaps their close friends and for cover-up of theft and misappropriation of our funds. I am certain of one thing – [certain board members] are immoral, lack integrity, and have committed acts which no doubt are illegal.”

The letters apparently included discovery demands that were made directly to the defendants and also Ash’s responses about the discovery process. They were circulated to the unit-owners and individual defendants. This led the court to conclude that Ash’s then-counsel had lost control of his client. At a court conference, the judge directed Ash to cease contacting members of the condominium with respect to the litigation and directed that all inquiries be made through counsel.

Thereafter, Ash appeared pro se. The court then stayed discovery to permit Ash to obtain counsel, as the action was derivative in nature. The court also ordered that Ash cease contacting members of the condominium with respect to the litigation, which included a prohibition against sending publications and fliers. Ash was, however, free to contact the members of the condominium with respect to new conditions not related to the litigation.

Ash thereafter retained new counsel and moved to vacate the orders prohibiting him from contacting the condominium unit-owners about the litigation, asserting violations of the New York State and United States Constitutions. The lower court acknowledged that Ash was correct to the extent that orders restraining extrajudicial comments are not generally permitted unless there is a reasonable likelihood of a serious threat to a fair trial.

However, the court noted its inherent power to control its calendar so that the court can regulate proceedings to further the administration of justice. The court did not impose restrictions on Ash as a whim, but rather they were in response to a litigant who had been using the discovery process to delay proceedings and to harass the individual defendants, their families, their neighbors, and their lawyers.

Indeed, Ash wrote one letter to a board member/defendant’s employer alleging that the defendant was “unethical, immoral and perhaps in some cases, criminal.” Further, the letter suggested that the defendant had participated in a felony.

The lower court further justified its orders by noting that Ash had made “countless demands” to see the records of the condominium which, while within his rights to do so, had become detrimental to the discovery process. The letters to defendants or those holding records belonging to the condominium contained comments such as: “I wanted to know what records were available to me, and I wanted you to know that if the only time you would let me come in is between three o’clock and five o’clock, two hours to look at a lot of records, that I would have some trouble. The trouble would be that when I go to the toilet and come out, the two hours would be over. So what do I do? Do I take the records to the bathroom with me [ …] So, your Majesty, please ask Empty Emperor Caesar … how much time will be available to me to see the records or to sit on the toilet and audit the records?”

The lower court explained that Ash could not use the discovery process as a weapon to harass others. Accordingly, on the motion to vacate the prior order, the lower court stated that, while it may have erred in barring Ash from voicing his opinions to board members, it certainly did not err in barring Ash from communicating directly with the defendants or entities that hold the records Ash sought.

The lower court further cautioned Ash that while he was free to speak his mind, words have consequences and may be actionable. Finally, the court sent all discovery issues to a special referee.

Ultimately, the lower court issued an order prohibiting Ash from directly contacting any of the litigants involved in this matter for the duration of the action. “Any communications, questions, assertions of opinion, discovery demands, etc., must be presented to [Ash’s] counsel, who shall then present said communications, questions, assertions of opinion, discovery demands, etc., to counsel for the defendants. Within three days of receipt, counsel for defendants will present said questions, assertions of opinion and discovery demands to the defendants.” Further, the lower court vacated its prior order that restricted Ash’s contact with the members of the board.

Ash appealed and the appellate court reversed the lower court. It explained that a “prior restraint” is “a law, regulation or judicial order that suppresses speech – or provides for its suppression at the discretion of government officials – on the basis of the speech’s content and in advance of its actual expression and it has long been established that such restraints are the most serious and the least tolerable on First Amendment rights.”

“To justify suppression of free speech, there must be reasonable ground to fear that serious evil will result if free speech is practiced.” Thus, prior restraints upon speech and publication “may only be overcome upon a showing of a ‘clear and present danger’ of a serious threat to the administration of justice.”

The appeals court determined “on the record before us” and “at this juncture” that defendants did not meet their heavy burden or that Ash’s “numerous, unnecessary and vexatious ramblings” compromised defendants’ right to a fair trial.

However, the court also directed that the motion court set and enforce an expedited discovery schedule.

Comment: It appears as if the lower court attempted to circumvent the plaintiff’s right to free speech by finding that his actions were detrimental to the discovery process and the administration of the court’s calendar. The appellate court has reminded us, however, that a litigant will not be barred from speaking except under the most egregious circumstances. Interestingly, the issue of whether plaintiff’s communications rose to the level of defamation that may allow the board members to sue was apparently not raised. In any event, freedom of speech prevailed here.


Not My Debit

When a shareholder authorizes his co-op to electronically debit his bank account for the payment of maintenance, can the co-op also debit attorney’s fees that it claimed were owed by the shareholder?

Here, claimant Barry Hodes began a small claims action against defendant The Vermeer Owners Inc. to recover $1,566 from The Vermeer for (a) its “unauthorized removal of monies” in March 2006 from his bank account; and (b) legal fees.

Hodes was a shareholder in The Vermeer. By an Authorization Agreement for Direct Deposits dated March 11, 2004, Hodes authorized The Vermeer to initiate credit entries and to debit his account at a specified financial institution. The purpose of this authorization was to electronically debit Hode’s account to pay The Vermeer his monthly rent or maintenance. Neither party expressly indicated that the authorization would be utilized to debit Hode’s account for payment of any legal fees.

In February 2006, The Vermeer billed Hodes $1,066 for legal fees. By a letter dated February 6, 2006, to The Vermeer’s managing agent, Hodes requested that the legal fees be “removed before the March 1, 2006, billing cycle.” Notwithstanding Hode’s written request, The Vermeer electronically debited the account $1,066 in March 2006 for payment of the previously billed legal fees.

Hode’s bank refused to reverse the transaction and The Vermeer refused to return the money. Hodes instituted the small claims action to recover the “unauthorized removal” of monies from his account.

At trial, the managing agent testified that Hodes was billed $1,066 to reimburse The Vermeer for its reasonable attorney’s fees that it incurred as a result of Hode’s alleged breach of the proprietary lease and house rules that prohibit him from interfering with the “rights, comfort or convenience of the other lessees.” The managing agent testified to the general history of Hode’s alleged verbal abuse and threats to other residents of The Vermeer. By letters dated June 25, 2004, and August 8, 2005, The Vermeer’s counsel wrote to Hodes advising him that The Vermeer received several complaints “that you have been verbally abusive and threatening to residents, in both your tone and demeanor.”

In response, Hodes wrote a letter to The Vermeer board, dated August 10, 2005, asking for the specific details of the alleged complaints. The Vermeer acceded to Hode’s request by obtaining affidavits from three complainants, which specified Hode’s alleged abusive verbal assaults of them while they listened or spoke on their cell phones.

The court explained that the burden of proof in a small claims action is on the claimant to come forward with evidence at trial so as to “do substantial justice between the parties according to the rules of substantive law.” However, the trial may be conducted in an informal and simplified manner and the rules of evidence and pleading requirements are more relaxed than in a plenary Civil Court action (i.e., the court “shall not be bound by statutory provisions or rules of practice, procedure, pleading or evidence”).

The court explained that, in 1978, Congress passed the Federal Consumer Credit Protection Act, which governs the consumer use of debit cards and similar electronic fund transactions. The act defines the term “electronic fund transfer” as “any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. Such terms include, but are not limited to, point-of-sale transfers, automated teller machine transactions, direct deposits or withdrawals of funds, and transfers initiated by telephone.”

The court noted that Hode’s authorization to debit rent or maintenance fell within the purview of the act. No one disputed that the authorization was utilized on a regular monthly basis to pay the rent or maintenance for Hode’s apartment. In other words, the parties utilized the authorization as a “preauthorized electronic fund transfer” because it “authorized [payment] in advance to recur at substantially regular intervals [i.e., on a monthly basis].” Thus, the above statute as a “preauthorized transfer” governed the rights and obligations arising under the authorization.

The act states that the consumer must be given notice of debits that vary in amount before the transfer: “In the case of preauthorized transfers from a consumer’s account to the same person which may vary in amount, the financial institution or designated payee shall, prior to each transfer, provide reasonable advance notice to the consumer, in accordance with regulations of the Board [of Governors of the Federal Reserve System], of the amount to be transferred and the scheduled date of the transfer.”

The board of governors of the Federal Reserve System also promulgated a regulation that provides that either the designated payee or the financial institution must send the consumer notice that a transfer “will vary in amount from the previous transfer under the same authorization or from the preauthorized amount.” The designated payee under the authorization was The Vermeer.

The court found that Hodes credibly testified that the parties contemplated the use of the authorization for the preauthorized payment of rent or maintenance on substantially regular monthly intervals. When The Vermeer unilaterally withdrew $1,066 for payment of alleged legal fees in contravention of Hode’s letter dated February 7, 2006, The Vermeer or Hode’s bank were required to provide Hodes with reasonable advance notice of the amount to be transferred and the scheduled date of the transfer in compliance with the statute.

The apparent purpose of this advance notice is to protect the consumer from unauthorized, fraudulent, or erroneous transfers, for which he or she may stop payment in accordance with the applicable laws and/or procedures established by the financial institution. Other than The Vermeer’s bill for legal fees, which was not submitted into evidence, Hodes did not receive any notice of the amount to be debited or the scheduled date of the transfer. Inasmuch as Hodes was not provided this crucial advance notice, the court found that he did not have sufficient time to stop payment of the unauthorized transfer.

Accordingly, the court found that Hodes was entitled to a refund of $1,066 with interest from March 2006 from The Vermeer as it constituted an unauthorized transfer.

It appeared as if Hodes and The Vermeer sought their respective attorney’s fees. The court noted the long-standing rule that a party may not recover attorney’s fees unless such an award is authorized by agreement (i.e., a lease) between the parties or by statute and that, if such an agreement or statutory authority exists, a party is only entitled to attorney’s fees if he or she prevails with respect to the central relief sought.

In addition, a party may not be entitled to an award of reasonable attorney’s fees unless it obtains a judgment.

Finally, the “prevailing party” must present evidence as to the “reasonable value” of the attorney’s fees so as to prove the precise amount of time spent in the litigation.

The court concluded that neither party presented sufficient evidence as to the reasonable value of their respective claims for attorney’s fees. Under the circumstances, no award of attorney’s fees was warranted to either party, but either party could start an action or proceeding in the appropriate forum to seek an award of attorney’s fees if warranted.

Comment: It is important for boards to confirm the scope of their authority before acting. Here, there was no discussion of whether the cooperative was actually entitled to collect the legal fees it sought. Rather, because the cooperative obtained those fees without sending the proper notice, it was required to return them.

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