Penny-Wise and Pound-Foolish Boards: They Aren't Wise and They Get Pounded
Nov. 14, 2013 — Arthur Gussaroff, the late managing partner of our firm, had a good story. He said there were two types of clients — those that call you before they do things and those that call you after they have to do things — and that the latter tended to pay dearly for that mistake.
A good example of this would be two of our residential-cooperative clients that had similar difficulties with their managing agents, but who dealt with them in very different ways. In both co-ops, the boards continued to have ever-increasing difficulties with the site managers and their managing companies.
One board requested a meeting with counsel without management present to discuss the issue, and expressed its concerns. They asked us to review the facts as well as the contractual obligations of the respective parties and to report back to them. Based on this review, it was agreed that a memorandum would be prepared detailing the board's issues and requesting that the managing agent propose solutions. This resulted in a meeting between the managing agent's principal owners and the board, and a full and frank discussion that not only resolved the existing problems but also created a far better relationship.
And Here's How Bad Boards Do It
The other co-op board had serious complaints both with its onsite manager and its management company, but felt that this was an issue of management and not a legal issue and therefore should not include counsel. The board, through various members, complained to the management company about the onsite manager and the overall performance of the firm. These complaints tended to be of a more personal nature and were not presented in a clear or concise format; they did little to resolve issues and inflamed passions on both sides.
In the end, the board elected to hire a new managing company, but it was done without legal review or input until well into the process. There was a difficult and unpleasant transition from the old managing agent to the new one, which resulted not only in serious disruption to the cooperative's operation, but also in litigation between the cooperative and its prior managing agent. It is good to remember the old adage about penny-wise people.
Attorney Dean M. Roberts is a partner at Norris McLaughlin & Marcus.
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