Q&A: It’s far better for an HOA to have its own attorney than one with a conflict

QUESTION: I am a board director and was shocked to discover that the association’s attorney and his firm represented our management company in a recent lawsuit. When I asked about this I was told that the management company also has a current retainer with this same attorney and his firm.

The board was never given notice of any of this by our attorney or manager, and when I asked about conflict waivers for representing both parties, our attorney looked at me as if he’d never heard of such a thing.

He said his firm’s representation of our management company has nothing to do with representing our homeowner association, but then added that should our association and the management company have a dispute, he would “withdraw” from representing either party.

He treated me as if I was out of line to even suggest there might be a conflict. Does our association need to sign a waiver for our attorney to represent the management company?

ANSWER: Whether or not your association has to sign a waiver, your attorney and your management company should have disclosed their relationship with you. The attorney also should have made it unequivocally clear who the “client” was for purposes of invoking attorney-client privilege and respecting issues of confidentiality.

A management company’s interests are often diametrically opposed to your homeowners association and its directors’ interests. If those differences are ongoing and significant, then the association cannot enter into a waiver of conflict and the attorney must decide which party to represent.

It is also important to know if representation of the other party was limited to civil litigation or if the attorney continues advising the management company. By signing the waiver, your association risks having its representation limited by their lawyer’s responsibilities to another client.

The importance of disclosure and consent is highlighted by a U.S. 9th Circuit Court of Appeals decision that spells out a lawyer’s ethical obligations to fully disclose representation of multiple clients at the same time. There must be an explanation of the nature of the conflict of interest in such detail that the parties can understand the reasons why it may be desirable for each to have independent counsel that provides them with undivided loyalty. (Unified Sewerage Agency vs. Jelco Inc.)

California Rules of Professional Conduct for attorneys also recognize that clients must not only be informed of the conflict but appreciate the risks and possible adverse outcomes of dual representation. That is why the rules say an attorney also has an obligation to tell each party that they should each obtain independent counsel to review the matter before giving consent.

This obligation is certainly not satisfied when you have to investigate and discover the potential conflict on your own and when your concerns are dismissed without any additional relevant information provided by your attorney.

Even if your association and management are not currently engaged in a dispute, you are still on opposite sides of a contract — a contract that may need to be renegotiated or litigated at some point in the future. It will be extremely difficult, or impossible, for your attorney to give you unbiased counsel on how to deal with your management company or negotiate a new contract while also representing management.

Similarly, if a homeowner or third party ever sues the association or its management, one or both of you may need to sue the other for indemnification or contribution, which would then deprive you both of your long-term legal representative.

With a better understanding of the respective relationships and possible repercussions at issue, your association can now make an informed decision. Because of the possibility of losing representation in the event of withdrawal or termination, consider shopping for a new attorney or management company.

Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com