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Ignorance Isn’t Bliss

The Low-Down

The board of a large cooperative wanted me to bring a lawsuit against the sponsor on a claim for which the statute of limitations had expired and which also had little merit.

The Weigh-In

I explained that the case would be quickly dismissed on procedural grounds and added that, because the claim had no basis in law, it would antagonize the court. If they insisted, I would bring the action but warned them that, based on precedents, they would certainly lose. The board members decided that I was not being aggressive enough. They dismissed me and hired another attorney.

The Outcome

Ten months later – and one week before this co-op’s annual meeting – the board president called me with a request. Would I return to run their annual meeting? The current board, which had fired me, was not running for re-election. During that call, I learned that the case that had gotten me sacked was brought by a lawyer who had told the members that they had a strong case, that they would probably be successful, and that the cost of bringing the case would be far less than the amount they would probably win.

Unfortunately, they lost and the co-op had to pay its attorney over $100,000 in legal fees and was also required to pay the sponsor’s attorney’s fees. The board, expecting a windfall, had signed contracts to redecorate the lobby and had advised the shareholders that there would not be any assessments for the lawsuit or the lobby because the proceeds from the lawsuit would pay for both. Although several shareholders had strongly urged the board to wait until the case was over before it started spending the proceeds, the board members were so certain of victory that they became reckless. I agreed to return for what, I knew, was going to be a very angry and hostile meeting. However, I came prepared with a bylaw amendment precluding future boards from bringing lawsuits – other than to enforce the proprietary lease and bylaws – without a two-thirds vote of the shareholders.

The meeting was as angry as I expected, but it was difficult for the shareholders to blame me because I had warned the board of the riskiness of its position, and I’d been replaced. The shareholders were pleased that the board was bowing out, and they were encouraged by the bylaw amendment I had brought, which would stop future boards from repeating the mistake. The bylaw amendment was enacted by written consent over the next few weeks.

The Take-Away

If advice sounds too good to be true, then it probably is. Every professional is retained to give his or her best advice and not to just do what the board wants. Sometimes that means disagreeing with the client. Boards are busy with their own lives and careers and cannot be experts in every area, so they have to rely on their professional advisers, who cannot just go with the loudest voice on the board. Sometimes the loudest person is wrong. Although I felt bad when I was replaced, I knew that I had acted properly. I am not the lawyer for the board; I have always seen myself as the lawyer for the corporation or the condominium association who happens to be advising the board. My job is to be fair and, above all else, to protect the property.

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