For numerous reasons, litigation can be one of the most stressful experiences in a homeowners association (HOA) board member’s tenure. One stressor is that, inevitably, HOA members will expect answers and updates from the board regarding the litigation. This curiosity is certainly understandable, as it is often the members’ assessment payments that are either funding the litigation or imperiled by the same. However, while the Board surely wants to be transparent with the membership (and perhaps vent about what the Board has had to deal with), there are many pitfalls which an HOA board must consider when discussing pending litigation with homeowners. This blog aims to raise awareness of just some of these pitfalls. That being said, it is ultimately of utmost importance that an HOA board consult with its counsel regarding how to talk to its members about any pending litigation.
First, the Board must be careful to protect its attorney-client privilege.
Sharing privileged information with a third party outside of the attorney-client relationship, such as a member who is not on the board, waives the attorney-client privilege as to the specific communication as well as all communications between the attorney and client on the same subject.[1] While the membership may be supportive of the board’s position in the litigation, the fact remains that non-board members are not part of the attorney-client privilege circle, and therefore privileged information should not be shared with them, as tempting as it may be. For more information regarding attorney-client privilege for HOAs, feel free to refer to our prior article about that specific topic.
Boards should also be cognizant that sometimes even seemingly innocuous statements regarding litigation may constitute accidental admissions which could be used against them in the litigation.
Boards are often unaware that the imprecise phrasing of a statement or summary of an underlying fact of the case could be seized upon by the opposing party’s counsel to attack the HOA’s case or strengthen the HOA opponent’s case. There may also be obscure legal reasons why the HOA’s counsel may or may not want the HOA to emphasize a certain fact, or explain a fact in a certain way, which underscores the importance of consulting with HOA counsel regarding how to talk to members about your HOA’s specific case.
On a practical note, an HOA board must also consider optics when discussing litigation with members. Notwithstanding the other considerations we’ve mentioned, it is important that, if or when an HOA board does discuss litigation, it does so in a professional manner. Particularly if the opposing party is a resident of the community, that opposing party should rightfully expect that their HOA board is not going to unprofessionally publicize all the details of their dispute to all the membership. It is often safest to take the position that it would be inappropriate for the Board to publicly go into the specific details of an enforcement matter or other legal matter between a homeowner and the HOA. Not only is such discretion a professional course of action, but it also hopefully avoids giving rise to claims of defamation arising from the Board’s statements to membership about the legal matter.
These pitfalls do not necessarily mean that an HOA board can or should resist disclosing any information regarding litigation.
In fact, as most South Carolina HOAs are nonprofit corporations, it is important to note that the South Carolina Nonprofit Corporation Act (the “Act”) generally provides for members’ right to inspect certain records of the corporation, to include accounting records, which could relate to litigation.[2] The HOA’s specific governing documents may also provide for broader inspection rights. Needless to say, such requirements can lead to a complicated analysis for boards determining the appropriate extent of production of certain information when it pertains to litigation. Therefore, echoing the foremost advice from the beginning of this article, it is important for the HOA board to confer with the HOA counsel to ensure they effectively protect the HOA’s rights pertaining to the litigation while also upholding their duties under their governing documents and/or statutory law.
This article is not intended to be an exhaustive discussion of considerations when discussing pending litigation with homeowners, nor any guarantee regarding the outcome of any litigation regarding the same. Our attorneys at McCabe, Trotter & Beverly, P.C. are experienced and well-equipped to answer questions you may have regarding this topic. Please contact us at (803) – 724 – 5000 for further information.
Stephanie Kellahan
McCabe, Trotter & Beverly, P.C. blogs and other content are for educational and informational purposes only. This is not legal advice and does not create an attorney/client relationship between McCabe, Trotter & Beverly, P.C. and readers. Readers should consult an attorney to understand how this information relates to their personal situation and circumstances. You should not use McCabe, Trotter & Beverly, P.C. blogs or content as a substitute for legal advice from a licensed attorney.
[1] Marshall v. Marshall, 282 S.C. 534, 320 S.E.2d 44 (Ct. App. 1984).
[2] See S.C. Code §§ 33-31-1601; -1602.