Published on: December 18, 2018
By Jennifer Barnett
Condominium board members are often encouraged to be open, honest, and transparent in their communications with the condominium community. However, because of their leadership position, board members often possess confidential information, the disclosure of which may have significant legal and financial implications for the community associations they represent. Confidential information protected by attorney-client privilege is of particular concern.
Contrary to a common misunderstanding, the attorney-client privilege doesn’t belong to the attorney; it belongs to the client – the condominium board, for purposes of this discussion. The privilege is important because it precludes third parties who may have a grievance against the association from compelling the disclosure of information (including documents, reports and written communications), board members share with the association’s attorney.
The attorney-client privilege is the equivalent of a locked door. Third parties can’t demand that the door be opened, but board members may unlock the door or leave it ajar, intentionally or accidentally. Generally speaking, the disclosure of privileged information and communications to third-parties who do not play an essential role in the dispute for which the attorney was retained, will likely result in the loss of the privilege, even where the disclosure is unwitting or unintentional.
There are legal mechanisms through which privileged information disclosed unintentionally may be recovered, but there are no guarantees these “claw-back” efforts will succeed. And even if you do recover the information, you can’t force the individuals who have seen it to ‘un-see’ it.
The accidental or inadvertent disclosure of privileged information happens more frequently than one might think, sometimes due to oversight, but often because board members don’t understand how the privilege is applied. A few all-too-common examples:
- Board members are meeting with the association’s attorney in the board president’s living room to discuss legal strategy in a pending lawsuit and a member of the board president’s family overhears part of the conversation. Unless the family member plays an essential role assisting the attorney in representing the board, the confidential matters discussed at the meeting are likely no longer privileged.
- The minutes of a board meeting (at which only the board members and counsel were present), disclose the attorney’s recommendations about how to proceed with a pending lawsuit as well as unflattering (and possibly defamatory) comments a board member made about the opposing party in that action. Not only are the minutes now probably no longer privileged, they may also compromise the board’s position in the case, and potentially expose the board to further controversy.
- A board member responding to a series of e-mails between the board and counsel discussing a contract dispute inadvertently hits ‘forward,’ sending the message to everyone in the community, thereby likely waiving any privilege that might otherwise be claimed.
The obvious advice to board members: Be very careful about what you say (or write) and to whom you say and write it, and where possible direct that all privileged (or even potentially privileged) communications be routed through your attorney. This includes communications to and from people who are, or might be, expert witnesses in a law suit.
Right to Know vs. Need to Protect
How do you reconcile the board’s need to protect privileged information with its obligation to keep owners informed of important association matters (and litigation would certainly qualify as an important matter)? Maintaining this balance between ‘need to protect’ and ‘right to know’ isn’t easy, but it is important.
Anything that is a matter of public record, such as pleadings or rulings in an ongoing case, may be discussed with owners and shared with them. However, board members should avoid the disclosure of documents reflecting discussions of litigation strategy between the board and association counsel, and information related to settlement negotiations.
While boards may confirm that the association is engaged in active litigation, the association’s attorney should be charged with responsibility for commenting on pending (or threatened litigation), in order to control the information that is shared. To that end, boards should ask counsel to prepare any periodic updates the board wants to send to owners, or to review updates prepared by the board. Boards may also want to ask their attorney to attend owner meetings at which the litigation is going to be discussed, so the attorney can manage and control the discussion.
Mortgage lenders often require condominium buyers to disclose any pending or anticipated litigation involving the association as a condition of approving a loan. When responding to these information requests, (particularly in the case of a sale), it is a good practice to ask the owner and prospective buyer to execute a release and indemnification agreement in favor of the board and its agents before any information is disclosed. The release is aimed at shielding board members and their agents from liability for any negative consequences resulting from the disclosure of the requested information. Additionally, boards should limit these disclosures to information that is already in the public domain and should avoid disclosure of any settlement-related information.
Because it is often difficult to predict precisely what information will ultimately become important in a lawsuit, or even which disputes will eventually be litigated, you should get the association’s attorney involved as early as possible – if the board is contemplating litigation or thinks the association might be sued.
Protecting Transition Studies
The transition from developer to owner control of an association can be overwhelming for new board members, who may not know how to manage any known or potential claims against the developer. To get the professional advice they need, boards should engage a property manager first and then an attorney to help guide them through the transition process. After the attorney is in place, boards should retain an engineer (or other expert) to prepare a reserve study and a conditions study. These reports should be separate from each other, because the assumptions in a reserve study (which is primarily a financial planning document) may be inconsistent with the findings contained in the conditions study, which may form the basis for a board to pursue a lawsuit arising out of construction defects and deficiencies. And these inconsistencies may be used to attack the credibility of the conditions report.
Because the conditions report would play a critical role in a suit brought to recover damages for construction defects and deficiencies, boards should be mindful that when report is prepared in anticipation of litigation, it should remain confidential. If possible, the expert preparing the report should send preliminary drafts and the final report to the attorney, who can then send them, in the form of an attorney-client memorandum, to the board. The board should send any comments or questions about the reports in a privileged communication to counsel, who can relay them to the expert. The attorney should also be present or involved in any discussions between the expert who prepares the transition reports and the board. While these precautions won’t guarantee that all communications will be privileged, they are designed to create an added layer of protection.
In order to preserve any and all privileges that may be claimed with respect to the conditions report (including but not limited to attorney-client privilege), board members should not share it with any third parties, with the exception of association counsel and other board members. Additionally, if the reserve study is prepared in anticipation of litigation, or if an adverse party might contend that it was, boards should preserve its confidentiality, and avoid disclosing it to third parties, as well.
Distributing either or both reports to owners or sharing them on request would likely destroy any privilege the board might otherwise claim to prevent their disclosure to an adverse party in a law suit. Developers could then use the reports (which are often preliminary in nature), to attack the credibility of the association’s experts, if they identify problems that weren’t cited in the preliminary reports the experts submitted. Developers might also use these reports to challenge a board’s right to recover for any construction defects or deficiencies, by arguing that the board had notice of potential claims and did not act on them within the applicable time frames under the statute of limitations and/or the statute of repose.
Additionally, if the conditions report is freely circulated, a party pursuing a negligence claim against the board might very well use the report as evidence that the board was aware of the common area defects that caused that party’s injury and acted negligently in failing to correct the problems.
When it comes to protecting attorney-client privilege, mindfulness is the best strategy and common sense is an effective guide. A few specific suggestions for boards:
- Don’t include information related to litigation or potential litigation in the minutes of board meetings.
- Discuss all matters involving the association’s attorney, including but not limited to pending or threatened litigation, in executive session. Do not take minutes of meetings held in executive session, because disseminating a written record of the session would defeat the purposes of the meeting.
- Don’t include in e-mail communications anything you wouldn’t or shouldn’t discuss publicly. This applies generally to all board communications, but it applies specifically ─ in spades and capital letters ─ to information to which attorney-client privilege applies.
- When producing financial records requested by owners or others, remove legal bills or redact them to exclude references to attorney work products or other information protected by attorney-client privilege. Sharing unredacted legal bills with third parties could waive the attorney-client privilege for any communications or information to which the bills refer.
- Don’t guess. If you aren’t sure whether information should be shared, ask the association’s attorney.
- Pick up the telephone. We have become so reliant on e-mail that we forget it is also possible – and may be more prudent – to communicate by phone. An e-mail communication intended for one party might be shared accidentally with others; a telephone conversation could not be. There are no ‘forward’ or ‘reply all’ buttons on a phone.
MARCUS, ERRICO, EMMER & BROOKS SPECIALIZES IN CONDO LAW, REPRESENTING CLIENTS IN MASSACHUSETTS, RHODE ISLAND AND NEW HAMPSHIRE