Managers Practicing Law?

QUESTION: Our association has no legal representation and the board relies solely on our management company for legal advice. Is that legal?

ANSWER: Managers are often quite knowledgeable when it comes to the law, which makes them invaluable to associations. Their experience and knowledge gives them the ability to spot problems and sound warnings when boards stray into areas of risk. But, all managers can do is raise red flags. They cannot give legal advice.

Practice of Law Defined. California has a expansive standard for defining the practice of law. It does so to protect citizens from the damage and wrongs committed by unlicensed practitioners. California broadly defines the "practice of law" as dispensing legal advice or service, even if the advice or service does not relate to any matter pending before a court. (Mickel v. Murphy (1957) 147 Cal.App.2d 718, 721.) California's Office of the Attorney General deems the unlicensed practice of law as a form of fraud and those engaged in it can be criminally prosecuted. Business and Professions Code §6126(a) was amended in 2003 to stiffen the penalties for those who dispense legal advice without a license:

Any person . . . practicing law who is not an active member of the State Bar . . . is guilty of a misdemeanor punishable by up to one year in a county jail or by a fine of up to one thousand dollars ($1,000), or by both that fine and imprisonment.

No Insurance Protection. Because the unlicensed practice of law is a crime, insurance will not protect a manager from prosecution for such activity. As provided for in Civil Code §2773, "An agreement to indemnify a person against an act thereafter to be done, is void, if the act be known by such person at the time of doing it to be unlawful." For example, if you intentionally set your house on fire, don't expect your insurance company to pay for it. The same applies to dispensing legal advice. If a manager dispenses legal advice and the association is damaged as a result--an insurance company owes no coverage or defense for acts or damage arising out of any illegal act committed by or at the direction of an insured. (20th Century Ins. Co. v. Stewart (1998) 63 Cal.App.4th 1333.)

No Indemnity Protection. The statute cited above also affects management agreements. An indemnity provision in a management contract will not protect a manager from fines and jail time nor will it protect him from lawsuits by third parties or the association when it comes to the unlicensed practice of law.

Unlicensed Practice of Law. Many managers engage in the practice of law without realizing it. Following are examples of what a court would likely deem the unlicensed practice of law:

1.  Advising boards about rights, duties and liabilities. That includes but is not limited to:

    Proper handling of recall elections,
    Voting rights and requirements in election disputes,
    Borrowing from reserves,
    Emergency assessments,
    Proper collection procedures,
    Interpreting the Davis-Stirling Act,
    ADA compliance issues,
    Interpretation of contract provisions,
    Disputed maintenance and repair issues,
    Disputed water damage and mold issues, and
    Settlement issues.

2.  Preparing documents that alter rights, duties and liabilities. Managers and management companies can prepare documents that are incidental to the regular course of their business. Anything beyond that must be prepared by legal counsel. That includes but is not limited to:

    Amendments to CC&Rs, Bylaws, and Articles of Incorporation,
    Contracts and contract provisions,
    Collection policies,
    Election rules,
    Rules enforcement policies,
    Settlement agreements, and
    Hold harmless and indemnity agreements.

Violation of the BJR. The hourly rates for HOA lawyers typically range from $175 to $350 whereas legal advice from a manager is free. In the current economic climate, it's understandable that boards would try to save money by seeking free legal counsel from their managers. However, doing so exposes directors to significant risk. By statute, directors are protected from personal liability for errors in judgment if they follow the Business Judgment Rule, which requires that decisions by directors be:

In good faith,

In a manner which the director believes to be in the best interests of the corporation, and

With such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. Corp. Code §7231(c).

Directors will have difficulty convincing a jury that seeking legal advice from a manager was prudent.

RECOMMENDATION: Managers often have enough training to recognize when boards wander into areas of legal peril. When that happens, they should alert directors to the danger and advise them to seek legal counsel. Boards should not put themselves and their managers at risk by pressing their managers for legal advice. It's not fair to the manager and potentially costly to the association and its directors. When asked for legal advice, a manager should always recommend that the board seek legal counsel. Doing so protects both the manager and the board.

Read more: Managers Practicing Law http://www.davis-stirling.com/Newsletters/2012Newsletters/ManagersPracticingLaw/tabid/3571/Default.aspx#ixzz1ywQx8Zjb
from Davis-Stirling.com, by Adams Kessler PLC.

Colorado UPL: 

http://www.cobar.org/docs/Nancy%20Cohen%20handout%20in%20pdf%20format.pdf?ID=3042

http://www.coloradosupremecourt.com/pdfs/Regulation/Unauthorized%20Practice%20%28English%29.pdf

Courtesy: Davis-Stirling.com
http://www.davis-stirling.com/Newsletters/2012Newsletters/ManagersPracticingLaw/tabid/3571/Default.aspx#axzz1yf7Lt4dO

This article is not intended to be specific legal advice. It only provides general legal information. You should consult a licensed attorney if you have a legal issue.

Final Order: HOA Management Firm Engaged in Unauthorized Practice of Law

Every state has rules regarding the unauthorized practice of law governing what activities constitute acting like a lawyer.  The certified Legal Document Preparer Board of the Arizona Supreme Court found AAM, LLC, both a CAI and Arizona Association of Community Managers (AACM) member, had engaged in such activities, which are commonly found in many other HOAs and with many other management firms/managers. (In Arizona, it’s Supreme Court Rule 31).

In regard to AAM, many of the State Bar’s Hearing Officer  findings were dismissed and overturned in the Board’s May 24, 2012 Findings of Fact and Conclusions of Law (LDP-NFC –09-L094 and LDP-NFC-10-L026,   not to be found on the State Bar or Supreme Court websites).  The Board found AAM had exceeded its authority as a certified document preparer and violated Rule 31 in that, among other things,

1.  Represented the HOA in violation of Rule 31, including signing and submitting lien documents as such were not incidental to its regular business activities;

2. Submitted documents that it had prepared to third-parties, such as collection letters, and filing court motions and complaints;

3. Represented HOAs in small claims court;

4. Although there existed a contract between AAM and the HOA to act as a representative of the HOA, such a contractual arrangement is subject to Rule 31, which cannot be overridden by private agreements;

5. Offered legal advice when it gave, through newsletter statements, made statements about “possible  legal rights, remedies, defenses, options or strategies;”

6. Through its offers to “coordinate payment plans” debt payment plans, AAM was not giving general information but was offering to negotiate with the HOA on behalf of the homeowner;

7. “Offered to negotiate homeowners” legal rights, remedies, defenses, options or strategies;”

It is interesting to note that former Arizona Supreme Court Chief Justice Zlaket was called as a witness by AAM.  He stated that “the purpose of the certified legal document preparer rules as protection of the public from charlatans who didn’t know what they were doing, from document prepares who were harming customers by preparing the wrong documents.”

 The full, detailed, 55 page Board document can be found at: http://pvtgov.org/pvtgov/downloads/final-order-aam.pdf.

Courtesy:  George K. Staropoli
http://pvtgov.wordpress.com/2012/06/18/final-order-hoa-management-firm-engaged-in-unauthorized-practice-of-law/

This article is not intended to be specific legal advice. It only provides general legal information. You should consult a licensed attorney if you have a legal issue.

HOA Engaging in the Unauthorized Practice of Law?

State Bars take a strong stand against persons who are not lawyers or licensed paralegals providing advice, filing forms, or preparing documents that affect your legal rights. That means, telling you what the law or governing documents say about why they can do what they are doing! It happens every day, everywhere, in all states. The regulation of the practice of law can be found in the statutes and Supreme Court rules of every state. They are complex and detailed, but my summary is correct. (For Arizona see, Supreme Court Rules, VI. UNAUTHORIZED PRACTICE OF LAW, Rule 75 et seq.)

In 2004, the Arizona State Bar Advisory Opinion, UPL 04-02 – Property Management Companies, addressed two important issues that occur quite frequently in many HOAs. They are:

1. May a property management company prepare documents such as late payment notices, demand letters seeking payment of rent or association fees, and eviction notices relating to the property being managed? Yes, if the preparation of such documents is incidental to the regular course of the property management company’s business or if the documents are prepared by a certified document preparer.

2. May a property management company prepare and record liens relating to the property being managed? Yes, if the preparation and recording of such liens is incidental to the regular course of the property management company’s business or if the liens are prepared and recorded by a certified document preparer.

The opinion clarifies (1) above that,

However, preparation of documents such as eviction notices or late payment notices constitutes the practice of law . . . if they are intended to affect a property owner’s legal rights relative to a property owner’s tenant. And therefore, the manager is engaging in the unauthorized practice of law (UPL) when a state law or governing document requires such an act. Otherwise, the notice has no legal effect, according to the Opinion. Also, these notices are not incidental to the HOA property manager’s duties.

In regard to (2) above, filing of liens, the Opinion states;

[A] property management company’s preparation and recording of a lien constitutes the practice of law, because a lien is intended to affect either the property owner’s rights relative to a tenant or a homeowners’ associations’ rights relative to an individual homeowner. Additionally, because a lien is filed with the County Recorder, the preparation and recording of a lien is also the practice of law. Again, if not incidental and performed by a certified paralegal. With respect to a 3rd question on representing the HOA before tribunals, the Opinion said no way. Of course, it may supply information to the HOA.

The delegation, and many times absolute delegation, to HOA managers/companies by the HOA board does not permit the manager to act as an attorney and to violate the law. If you are subject to any of the above UPL violations, file a complaint with your State Bar, giving the details and evidence, and stating the management company name, if any, and any CAI or other managers association membership. Let’s get the facts out. Only you can clean up this mess with HOAs!

Courtesy: George Staropoli.

This article is not intended to be specific legal advice. It only provides general legal information. You should consult a licensed attorney if you have a legal issue.