LITIGATION AND HOW TO AVOID IT

Sometimes you can't, such as when you are sued, though even here there are ways to make it a less desirable alternative for potential plaintiffs. But on your own end, start litigation only when you are trying to collect maintenance, common charges or assessments (and then only when every other recourse has failed), or where the defendant is a resident who is disturbing the neighbors. (One other note: Don't litigate over issues of principal. It's usually not a good idea.)

The problem with starting litigation is that, once begun, it frequently takes on a life of its own. We all remember the famous, albeit fictional, 20-year case Jarndyce v. Jarndyce in Charles Dickens' Bleak House. Moreover, suing a shareholder or unit-owner can and will result in the defendant raising as a defense anything that he or she thinks was done improperly. Therefore, boards should litigate only when no other option is available.

The Arbitration Alternative

For years, I have attempted to have cooperatives and condominiums adopt binding arbitration as a method of alternative dispute resolution. When such a proposal gets defeated, it is usually because the shareholders or unit-owners believe they are being deprived of their right to litigate with the board when, in fact, it provides an inexpensive and expeditious method of resolving disputes. The board, of course, retains its right to litigate nonpayment and quality-of-life issues, but arbitration provides an effective mechanism for dealing with disputes between neighbors.

For many years, the boards I represent were constantly threatened with lawsuits by irate purchasers or residents, or were sued over issues that were entirely within the boards' discretion. However, the fear of litigation and its costs cause some boards to act in a way that might not be in the best interests of the shareholders and unit-owners. Not surprisingly, the plaintiffs in these actions were often lawyers who could bring the action at no cost to themselves but at great cost to the building.

Provide a Proviso

As a solution, I devised the "Liability for Litigation Costs" amendment to the cooperatives' or condominiums' bylaws. The purpose of this provision is to level the playing field by making anyone who brings a frivolous lawsuit against the board pay the board's expenses if it is determined that the action was not brought in good faith. Here is the text of the provision:

"If any Shareholder, subtenant, purchaser or an applicant to purchase or sublease an apartment, institutes any action or proceeding against the Corporation, its officers, directors, agents or employees, relating to the Proprietary Lease, the By-Laws, the House Rules or the affairs of the Corporation and if there is an adverse determination by the court against the Shareholder, subtenant, purchaser or applicant or the action or proceeding is dismissed, then on a determination by the court that such action or proceeding was not brought in good faith, (a) such Shareholder, subtenant, purchaser or applicant shall reimburse the Corporation for the attorneys' fees and disbursements incurred by the Corporation in such action or proceeding or in the enforcement of this provision, and (b) the Corporation shall have the right to collect the same as an assessment against the Shareholder or rent against the subtenant.

"By applying to purchase or sublease an apartment, an applicant agrees to be bound by this provision. The effective date of this provision is the date that it is approved by two-thirds of the Shareholders and all actions and proceedings brought or new causes of action alleged in then existing actions or proceedings subsequent to such date shall be expressly subject to this provision."

This provision can be used with purchasers, tenants, subtenants, shareholders, unit-owners or others who decide to litigate. Without such a provision, there is nothing in the typical set of bylaws or proprietary lease allowing the co-op or condo to be reimbursed for legal fees.