Piedmont & Tidewater Committee Newsletter - Fall 2021
Date: December 7, 2021
What to Do When Your Association Is Sued
In any lawsuit, the defendant starts at a disadvantage. The plaintiff has had all the time needed to formulate his case; the defendant, however, starts from scratch. When your association is sued, therefore, you need to work immediately on a planned response regardless of how you feel about the lawsuit’s merits, or lack thereof. The first steps are fairly obvious: (1) contact the association’s lawyer; and (2) notify the association’s insurer of the lawsuit. That, however, is just the start: in this article, we will discuss the next steps for you to take when your association is the named defendant in a lawsuit.First, a brief overview of the course of litigation in Virginia. Once the complaint is filed and served, and an Answer is filed, the matter is set for Term Day, where a trial date is chosen. All the other deadlines in the case flow from that trial date – thus, plaintiff must designate its experts 90 days before trial, defendant must designate its experts 60 days before trial, etc. Discovery will be used by each party to identify the key witnesses, experts and facts before that. In Virginia, the circuit courts are required, to the extent possible, to bring a case to trial within one year of the filing of the lawsuit.[1] So a lot must be done, sooner rather than later, to be prepared for trial.
Before the trial itself, there are opportunities to file dispositive motions – pleas in bar, or motions for summary judgment – that may eliminate some or all of the claims in the case. Be advised, however, that dispositive motions in general are highly disfavored in Virginia, and require a very solid foundation to be successful. It would be wise not to put too much faith in winning on a dispositive motion, and to assume instead that the case will go to trial -- again, regardless of how you feel about the merits of the case.
The bulk of the time before trial is devoted to the process of discovery, as each side collects information, testimony and documents. The key tools of formal discovery are interrogatories (written questions posed to a party), requests for production of documents, subpoenas to third parties, and depositions (examinations under oath). The court rules place a 21-day deadline on responding to any of these, which is not much time. You should expect that your association’s attorneys will rely heavily on you to identify key sources of information, including those who saw critical facts or possess significant documents or have specialized knowledge that layman probably do not have. You will have far greater knowledge of the history of the case, and a better perspective of the dynamics, than the attorney will. Your input is invaluable in any one of these facets of the case’s development.
Consider, too, that litigation is a bit like a chess game: one evaluates the board, formulates an overall strategy, and determines what defensive or offensive moves are most appropriate. In order to do that, and in order to be able to best respond to the other side’s discovery requests, the legal team has to have as much information as possible about the case – which means that the association’s files must be analyzed in short order. The sooner the work can get started, the better prepared the association will be.
These, therefore, are the steps that the association should take right from the beginning of the lawsuit. They fall into three basic categories: Information, Witnesses, and Documents.
Information: A good idea is to start with a frank and open discussion between the legal team and the key members of the Board and the management company. By the end of that conversation, everyone should know the history of the underlying dispute, what the good and bad facts are for the association, and who has the best personal knowledge of the relevant events. You will probably also have a good sense of what information you don’t have, and need to find. Any further investigation should flow immediately from this meeting. Plan to work in coordination with your association’s attorneys to spearhead this effort.
Witnesses: The association has to move beyond just “who saw what,” and look to who can best speak for the association. Who has the best institutional knowledge? Who possesses the best, detailed information about processes and procedures? Keep in mind that Board members rotate out, property managers leave, and the management company itself might have changed. If the people with the best knowledge are no longer on the Board or on the property, then every effort should be made to find those people and secure their testimony. Better yet, ensure their contact information is up-to-date.
Documents: This may be biggest job of all, which means it has to be started immediately. Those 21 days for discovery responses will fly by. So, the association should pull together all the pertinent documents as soon as possible. Before the proliferation of electronic communication, this was relatively easy: the client would throw a bunch of files into a bankers’ box and send it over to the lawyer, who would spend hours reading and collating the documents. Now, it’s not so simple: there are e-mails, texts, social media posts, BuildingLink submissions – you name it. The management company may need to develop search protocols for its archived e-data. Depending on the turnover in the Board – or how tech-savvy the Board members are – it may take time to collate e-mails from the individual Board members. That, frankly, is why the job needs to be started ASAP: it will take a while, and the association cannot afford to wait until halfway to trial to start compiling documents. Plus a delay in gathering documents hinders an appropriate recommendation on offers of settlement that the association may best to offer or accept.
On a related point: you should also make sure that no documents are lost or destroyed. A party to a lawsuit has the legal responsibility not to lose, discard or erase any piece of evidence that might be relevant and material to the litigation, and there are sanctions that can be imposed for the loss of evidence. The best thing to do is to make sure that nothing is erased or destroyed. Don’t erase e-mails, don’t destroy the pertinent security camera footage, don’t throw away the Board notebooks. Keep everything until the lawsuit is over.
Again, these three categories – Information, Witnesses, and Documents – should be covered right at the beginning. Don’t wait for someone to ask. Go ahead and get started as soon as you are able, so that the legal strategy can be mapped out effectively. Witnesses have to be found, interviewed and ultimately prepared for trial. Documents have to be compiled, reviewed and vetted for privilege and privacy – which, in itself, requires a fair amount of time from the lawyer. Only after all these three categories of tasks have been exhausted can the legal team turn to fully defending the association. Preparation, here, really is key.
[1] Given the backlog of cases caused by the pandemic shutdown, this may not be possible for a while, but we expect that the courts will gradually come back to this standard.
How A Property Owners' Association Might Recover a Debt Against A Virginia Contractor
The approval of expensive work on the common area of a Virginia Property Owners’ Association (“POA”) can be a daunting decision for a Board to make, especially when an Association’s reserves must be used to pay for that work. There is always an element of trust by a Board that the work will be done well by its chosen contractor. But, when that work is not done well by a contractor licensed in Virginia, and far worse, that contractor is also insolvent or simply “gone,” the chances are bleak that a POA will actually recover its money from that contractor. Fortunately, there is a fund administered by the Board of Contractors for Virginia’s Department of Professional and Occupational Regulation for a POA to make a claim. While making a claim may be document intensive, a properly prepared claim may be a POA’s last and best hope for recovery. This article details the use of the Virginia Contractor Transaction Recovery Act, Virginia Code Ann. § 55.1-1118, et seq., by POAs.Step One – File a lawsuit
Recovery from the fund begins with a Court Order or judgment stating, or at least strongly inferring, that a contractor licensed in Virginia has engaged in “improper or dishonest conduct” in the performance of its contract with a POA.[1] “Improper or dishonest conduct” is a broad term that can include theft, fraud, misrepresentation, gross negligence, incompetence or intentional violations of the Uniform Statewide Building Code by a POA’s contractor.[2] But beware: a breach of contract alone by that contractor is not improper or dishonest conduct.[3] So it is critical for a POA to not just obtain a Court Order against the contractor; that Order must say that the POA’s contractor engaged in improper or dishonest conduct. If the POA already has a Court Order that omits these words or words of similar meaning, then it is worth the POA’s time to seek an Order from the Court adding these words to the Court’s Order nunc pro tunc. Once the proper Order is entered, the POA has one (1) year to complete Interrogatories in Aid of Execution of the contractor and file the claim with the Board. These deadlines should be calendared as soon as possible.[4]
Step Two – Conduct Interrogatories
Next, a POA needs to verify that its contractor cannot pay from his or her own pockets any judgment against entered him or her involving improper or dishonest conduct. So the POA will need to conduct, or attempt to conduct, Interrogatories of the contractor.[5] Service of Interrogatories on a contractor can be very tricky, and often unsuccessful, but at least the attempt must be made. The POA’s Summons for Interrogatories can, but does not have to, be supplemented with subpoenas asking for records kept by the contractor and/or by the contractor’s accountant if known and/or from the city or county’s tax office if that tax office requires contractors to file lists of its assets each year for tax purposes. In short, if there is anything to be collected or sold to pay the POA’s judgment against the contractor, discover those assets before making a claim.[6]
Step Three – File a claim with the Board of Contractors
Finally, if the contractor’s Interrogatories disclose nothing of value that can be used to pay the debt owed to the POA, the POA may file a claim with the Board of Contractors.[7] The documentation required for the claim is - to be polite - comprehensive. The claim includes an application,[8] a copy of the contract between the POA and its contractor, all pleadings filed in obtaining the POA’s judgment against a contractor, a copy of the POA’s judgment against the contractor, and a transcript or affidavit of the information about the contractor’s assets disclosed during Interrogatories; all of which must be attested to by a person with authority for a POA, i.e., its President.[9] Fortunately, the careful preparation of the claim can then allow the POA to wait for a decision by the Board of Contractors without further time or cost spent after the claim is filed.
The Board of Contractors will hold a hearing to consider a complete, or “verified,” claim, but will often do so without hearing testimony from the members of a POA. To be sure, the POA will be notified when its claim is to be heard and members of the POA can attend that hearing but their participation in the hearing is unlikely. Often the contractor does not contest a claim so the claim is taken as true.
Ultimately, a successful claim -- as almost any claim that is heard by the Board of Contractors is -- will net a POA the lesser amount of its judgment, court costs and attorneys’ fees awarded by the Court against the contractor, or $20,000.00.[10] There are other nuances of the Virginia Contractor Transaction Recovery Act that are not covered here, but they, as well as any claim to be filed by a POA, are best reviewed by the POA’s attorney in addition to the lawsuit and Interrogatories against the contractor to ensure that the POA recover those amounts it cannot recover from its contractor itself.
And, unfortunately, condominiums cannot not make a claim against the fund. The Virginia Contractor Transaction Recovery Act is not available for condominiums for reasons that we frankly do not know.[11] It is the express desire of this author to work with the Virginia Legislative Action Committee to propose the appropriate legislation to include condominiums in the near future.
[1] See Virginia Code Ann. § 54.1-1120 (B). See also Surprenant v. Board of Contractors, et al., 30 Va.App. 165 (1999); Hill v. Department of Professional and Occupational Regulation, 86 Va. Cir. 54 (Norfolk Circuit 2012).
[2] See Virginia Code Ann. § 54.1-1118.
[3] Id.
[4] See Virginia Code Ann. 54.1-1120 (B)(3).
[5] See Virginia Code Ann. § 54.1-1120 (B)(4).
[6] See Commonwealth of Virginia, Department of Professional and Occupational Regulation, Board of Contractors v. Mathesius, 2012 WL 5866577 (Va. Ct. App. 2012).
[7] See generally Virginia Code Ann. § 54.1-1120 (B).
[8] A link to a sample application can be found at the bottom of the page at this website: www.dpor.virginia.gov/Boards/Contractors_Recovery_Fund
[9] See Virginia Code Ann. § 54.1-1118, -1120 (B) & -1122 (A).
[10] See Virginia Code Ann. § 54.1-1123 (A) – (C). See also Commonwealth of Virginia, Board of Contractors v. Gavigan, 2011 WL 976829 (Va. Ct. App. 2011).
[11] See Virginia Code Ann. § 54.1-1120 (A).
|
