Wednesday, December 14, 2011

Licensure for Common Interest Community Association Managers in Colorado: Should Construction Professionals and Their Insurers Support the Effort?

On November 4, 2011, the Colorado Legislative Action Committee (“CLAC”) Licensing Task Force of the Community Association Institute (“CAI”) submitted a Sunrise Review Application for Licensure of Common Interest Community Association Managers.  You can view a copy of the application here.



This blog entry will briefly describe the application, and then discuss why Colorado construction professionals and their insurers may want to support this application, with some revisions. 



The Application



To me, the most interesting parts of the application are the following:



5.         Describe the functions performed by members of this occupational group. Note which functions are unsupervised or supervised and by whom. In addition, indicate functions which are similar to those performed by other groups and identify those groups. How do the functions performed by this group vary from the other groups’ functions?



Background

Common Interest Community Associations are created under Colorado law to govern and operate common interest communities (commonly referred to as “Community Association” and “Homeowners’ Association”). The vast majority of Common Interest Communities are created as nonprofit corporations under Colorado law and are comprised of the owners of units located in these communities who are the members of these nonprofit corporations.



Volunteer Board Members are members of their Community Associations by virtue of owning a home in that Association. Election to these volunteer Boards of Directors generally requires no experience or knowledge; just an interest in serving on the volunteer Board of Directors. The natural legal and business structures of Community Associations place these institutions, and the people who serve them, in control of hundreds of thousands to millions of dollars of assets; often without consistent education or expertise. Directors serving on these volunteer Boards have a fiduciary duty to protect and preserve the common property in these communities and the property values of their fellow individual homeowners within the association. Directors often rely upon the expertise of their Community Managers for advice and assistance in carrying out their fiduciary duty, making decisions of significance, managing the finances of the Association and implementing policies and decisions of the Board.

*          *          *


Detailed tasks are outlined below, but in general the Manager is frequently responsible for . . . providing guidance and expertise to the Board to assist the Directors in fulfilling their fiduciary duty to the Association.
The Community Manager typically provides advice to the volunteer Board on when to seek legal counsel or the guidance from other experts.


*          *          *



What is unique about this occupation is that the volunteer Board Members who hire, supervise and are responsible for the actions of Community Association Managers are often inexperienced and lacking knowledge regarding the governance and operations of Community Associations and the applicable laws in Colorado.



Application, pgs. 5-6.



8.                                      Does the applicant propose licensure, certification, registration, or another type of regulation? Why? (Under licensure, it is illegal for anyone to engage in an occupation without a license, and only persons who possess certain qualifications are licensed. Certification protects specific occupational titles of persons who have met certain educational and experiential standards. Only persons certified in that occupation may use the protected title, although anyone may practice the occupation. Under registration, any person may engage in an occupation, but he or she is required to submit information concerning the location, nature, and operation of the practice.)



It is in the best interest of the citizens of this state, of Common Interest Communities located in this state and the individuals who reside and/or own property in them, to provide for the licensure of Managers of Common Interest Communities to insure that persons who hold themselves out as possessing professional qualifications as Managers of Common Interest Communities, also commonly known as Community Associations, are, in fact, qualified to render management services of a professional nature. Licensure will ensure such individuals provide for the maintenance of high standards of professional conduct by those licensed as Managers of Common Interest Communities.


We seek licensure of Community Managers because:
 
·                     . . . Without licensure; there are no assurances that the Community Managers have the specialized knowledge necessary to provide this assistance and advice to the Boards and communities they serve. In addition, without licensure, there is no mandatory system of checks and balances and no standards with which a Community Association Manager is required to comply. . .
·                     This occupational group is hired by volunteer Boards of Directors who are not required to have any prior knowledge of the industry, any experience, any education or any business knowledge.

Application, pgs. 9-10.


16.       Describe the minimum competencies necessary to enter this occupation.

Proposed minimum competencies would be:
·                             Must be at least 18 years old;

·                             Hold at least a High School diploma;
·                             Shall not have been convicted of a felony within the past 10 years; Shall have demonstrated knowledge of the fundamentals of Common Interest Community (CIC) management as evidenced by passage of the CMCA exam;
·                             Shall have demonstrated knowledge of the laws of Colorado that govern CIC’s specifically: CCIOA and the Nonprofit Act as evidenced by passage of an exam;
·                             Shall agree in writing to abide by a standard of professional conduct; and,
·                             Shall not have failed to cooperate with any law enforcement or regulatory agency in any investigation of any law enforcement or regulatory investigation.
 

Application, pg. 18 (emphasis added).

 The National Board of Certification for Community Association Managers (NBC-CAM) develops and enforces the CMCA Standards of Professional Conduct.
CMCA Standards of Professional Conduct: A Certified Manager of Community Associations (CMCA®) shall:

Be knowledgeable, act, and encourage clients to act in accordance with any and all federal, state, and local laws applicable to community association management and operations.

Be knowledgeable, comply and encourage clients to comply with the applicable governing documents, policies and procedures of the Client Association(s) to the extent permitted by that Client.

Not knowingly misrepresent materials facts, make inaccurate statements or act in any fraudulent manner while representing Client Association(s) or acting as a CMCA.

Not provide legal advice to Client Association(s) or any of its members, or otherwise engage in the unlicensed practice of law.

Promptly disclose to Client Association(s) any actual or potential conflicts of interest that may involve the manager.

Refuse to accept any form of gratuity or other remuneration from individuals or companies that could be viewed as an improper inducement to influence the manager.

Participate in continuing professional education and satisfy all requirements to maintain the CMCA.

Act in a manner consistent with his/her fiduciary duty.

Conduct themselves in a professional manner at all times when acting in the scope of their employment in accordance with the terms and conditions of their contractual agreement and in accordance with local, state and federal laws.

Recognize the original records, files and books held by the manager are the property of the Client Associations to be returned to the Client at the end of the manager’s engagement and maintain the duty of confidentiality to all current and former clients.

Application, pg. 30.

Why Colorado Construction Professionals and Their Insurers May Want to Support This Application

It is undeniable that Colorado’s plaintiffs’ construction defect attorneys are extremely entrenched in the Community Associations Institute - Rocky Mountain Chapter - Colorado.  By looking at its website, one can see that all of the major plaintiffs’ construction defect attorneys sponsor the CAI and at least one member of such a firm sits on the CAI’s 2011 Board of Directors.  It is my belief that the plaintiffs’ construction defect attorneys are so closely associated with the CAI because they naturally derive some benefit from the association. In other words, involvement in the association results in referrals and recommendations from property managers, which results in new retentions and new construction defect lawsuits. 

To read about extreme examples of how the alliance between property managers and plaintiffs’ attorneys can be abused, one needs look no further than Nevada.  In Las Vegas, the FBI has recently investigated a scheme employed by property management companies and plaintiffs’ construction defect attorneys to take control of homeowners association boards with members who pushed for construction defect lawsuits against builders.  If you have not yet heard or read about this story, you can follow it here.

Even though there is no reason to believe that similar schemes are in the works in Colorado, it would not hurt to shed some light onto the role of property managers in evaluating the need for a homeowners association to retain a lawyer to investigate alleged construction defects, in recommending certain plaintiffs’ construction defect attorneys, or in recommending certain courses of action with respect to pursuing construction defect actions.

This is certainly true in light of the fact that the CAI has acknowledged in its application that members of homeowners associations boards of directors may have no experience, knowledge, education, or expertise in managing the affairs of a homeowners association and that they “often rely upon the expertise of their Community Managers for advice and assistance in carrying out their fiduciary duty, making decisions of significance, managing the finances of the Association and implementing policies and decisions of the Board.”

I wrote an article for Mountain Builder Magazine, Aspen and Vail Edition on the topic of construction defect lawsuits and why they are not always in the homeowners’ best interest.  You can read that article here.  In that construction defects lawsuits are often avoidable and should be a decision of last resort, perhaps the Colorado Department of Regulatory Agencies should include requirements or guidelines for property managers who recommend this course of action.

I do not yet know what those requirements or guidelines would look like, but if this sunrise review process gets legs, it might be something to look into.  If nothing else, making it crystal clear that property managers cannot accept any form of gratuity or other remuneration from individuals or companies that could be viewed as an improper inducement to influence the manager, or to recommend a certain course of action to a homeowners association board of directors, would be a good start.  Stay tuned and we will see where this goes.

-- David M. McLain


Saturday, December 10, 2011

Telephone scammers purportedly calling from the "Hopkins Law Firm" in Denver.

For months, our firm has been receiving telephone calls and e-mail inquiries about an extortion scam related to the collection efforts of outstanding payday loans.  The callers are receiving threatening calls from individuals claiming to be with the “Hopkins Law Firm” in Denver.  They are demanding repayment of a past due payday loan, yet are unable to provide the necessary information to support the claim of outstanding debt.  Frighteningly enough, these scammers are armed with personal information about the individuals they are contacting.  This fact alone has scared some into heeding their demands and actually sending them money to prevent them future threats to their employers, family members, and friends.

In an effort to clear any confusion about our law firm, we want to create awareness that we are not the source of these harassing phone calls.  Our firm has done research into this scam and learned of many people who have been affected and what needs to be done to deter ongoing harassment.   The Federal Bureau of Investigation has posted information related to this matter on its website, which can be found here.  This press release identifies the problem and how to file a complaint with the appropriate authorities.  The direct link to file a complaint is here.   Locally, the Colorado Department of Law issued at press release with similar information related to these scams and how to file a complaint both with the state Attorney General’s Office and with the Federal Trade Commission here.  That press release can be found here.

We have taken action by filing reports with these agencies to protect our firm and our reputation.  We ask that you protect yourself by following the steps necessary to file complaints about these scamming activities and do what you can to secure your own personal information.

-- Kelli Sanders, Firm Administrator

Wednesday, December 7, 2011

In Colorado, Primary Insurers are Necessary Parties in Declaratory Judgment Actions.

The United States District Court for the District of Colorado recently ruled that primary insurers are necessary parties, under Fed. R. Civ. P. 19, in a declaratory judgment action being pursued by an excess carrier. See Insurance Co. of State of Pennsylvania v. LNC Communities II, LLC, 2011 WL 5548955 (D. Colo. 2011). Federal Rule of Civil Procedure 19 is almost identical to Colorado Rule of Civil Procedure 19 and pertains to the joinder of persons needed for “just adjudication.” The Insurance Co. of the State of Pennsylvania (“ICSOP”) sought a declaratory judgment that it did not have a duty to defend or indemnify the defendants (collectively referred to as “Lennar Companies”) with regard to the underlying lawsuit brought by The Falls at Legend Trail Owners Association, Inc. (the “HOA”). Id. at *2. In its lawsuit, the HOA alleged Lennar Companies were liable for construction defects at The Falls at Legend Trail residential development.

Lennar Companies held two primary insurance policies, one issued by OneBeacon Insurance Company f/k/a General Accident Insurance Company (“General Accident”) and the other issued by American Safety Risk Retention Group, Inc. (“American Safety”). Lennar Companies also carried excess policies issued by ICSOP and Ohio Casualty Insurance Company (“Ohio Casualty”). In its analysis, the U.S. District Court for the District of Colorado pointed out that excess policies, such as the policy issued by ICSOP, typically provide coverage only for that portion of the damages that are in excess of the total applicable limits of the underlying or primary policies. Id. at *1.

Although Lennar Companies notified their insurers of the HOA’s lawsuit, none of the insurers meaningfully participated in their defense or agreed to provide reasonable settlement authority. Faced with the threat of multi-million dollar liability at trial, Lennar Companies settled the HOA’s lawsuit without ICSOP’s approval. Apparently, American Safety and Ohio Casualty promised to fund a small part of the settlement, but ICSOP did not. In its complaint, ICSOP alleged it had no duty to defend or indemnify for a number of reasons, and included policy exclusions, not being the named insured, and the failure to exhaust the limits of all underlying insurance. Id. at *2.

About a month after ICSOP filed its declaratory judgment action, Lennar Companies filed suit against all of their insurers in Denver County District Court for breach of contract, bad faith breach of contract, and a declaratory judgment that the insurers were and are obligated to defend and indemnify for liability and defenses costs arising out of the HOA’s lawsuit. The same day, Lennar Companies filed a motion to dismiss ICSOP’s declaratory judgment action for, primarily, a failure to join required and indispensable parties under Fed. R. Civ. P. 19. Under Rule 19(a)(1), a person is required to be joined if:

(A) In that person’s absence, the court cannot accord complete relief among existing parties; or
(B) That person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:
(i) As a practical matter impair or impede the person’s ability to protect the interest; or
(ii) Leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
If feasible, a required person must be joined.

See Insurance Co. of State of Pennsylvania, 2011 WL 5548955 at *3. If the required person cannot be joined as such action would destroy the court’s jurisdiction, the U.S. District Court for the District of Colorado indicated that the court must turn to Rule 19(b). “Under Rule 19(b), if a required person ‘cannot be joined, the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.’” Id.

Rule 19(b) provides the factors a court should consider when deciding whether to proceed without the required person, including the extent of prejudice to that person or existing parties from judgment, extent to which any prejudice could be lessened or avoided by protective measures in the judgment or shaping of the relief. Additionally, Rule 19(b) proscribes consideration of whether judgment rendered in the person’s absence would be adequate, and whether the plaintiff would have an adequate remedy if the case was dismissed for non-joinder.

In their motion to dismiss, Lennar Companies argued that, under Rule 19(a), the court could not provide complete relief among the existing two parties as determination of Lennar Companies’ primary insurers’ obligations was a necessary prerequisite to determining ICSOP’s obligations under its policy. Id. at *4; see also City of Littleton v. Commercial Union Assurance Companies, 133 F.R.D. 159 (D. Colo. 1990). The court agreed, acknowledging that the ICSOP policy explicitly indicated that it was in excess of the primary policies, and therefore dependent upon a determination of whether the primary policies provide coverage. The court further acknowledged that, although it could construe General Accident’s policy, it would not be binding on the parties. As such, the court recognized the shortfall with regard to finality of judgment, which would be contingent upon a necessary lawsuit involving the parties and Lennar Companies’ primary insurers. Pursuant to the City of Littleton case, supra, the court found General Accident to be a required party under Fed. R. Civ. P. 19(a)(1)(A). See Insurance Co. of State of Pennsylvania, 2011 WL 5548955 at *5.

Lennar Companies argued that General Accident was a required party as it has an interest relating to the subject matter of ICSOP’s lawsuit “in that the primary layer of insurance it issued to [The Lennar Companies] is beneath the umbrella policy issued by ICSOP” and its ability to protect its interest will be impaired or impeded under Rule 19(a)(1)(B)(i). Id. at *6. Even though absent insurers would not be bound by the court’s judgment, the U.S. District Court of the District of Colorado noted that their absence could deny them the opportunity to present their individual defenses at a meaningful time. In order to adjudicate ICSOP’s claim that it has no duty to defend or indemnify, the court will necessarily have to determine Lennar Companies’ primary insurers’ liability. Accordingly, the court found General Accident a required party under Fed. R. Civ. P. 19(a)(1)(B)(i).

Lennar Companies also argued that proceeding in the absence of their primary insurers could subject ICSOP to multiple or inconsistent obligations. Id. at *8. The court agreed, acknowledging that its conclusions concerning the happening of an occurrence, property damage, and exhaustion of the primary policies could conceivably conflict with another court’s conclusions on these matters. As such, the court concluded that General Accident is a required party under Rule 19(a)(1)(B)(ii).

The court then turned to Rule 19(b) to determine whether it should dismiss ICSOP’s lawsuit rather than proceed. Id. at *10. In its analysis under Rule 19(b)(1), the court reiterated its findings of potential prejudice to General Accident, and ICSOP. Additionally, the court found that Lennar Companies could be prejudiced if the case went forward in the absence of General Accident. The court explained that the possibility of inconsistent outcomes in ICSOP’s declaratory action and Lennar Companies’ lawsuit could be “highly prejudicial” to Lennar Companies given the possibility of a gap in coverage.

The court then unsuccessfully explored the possibility of lessening or avoiding the potential prejudice by the inclusion of protective measures in the judgment, shaping the relief, or any other measures pursuant to Rule 19(b)(2). Withholding judgment until the primary insurers’ coverage and defense liability are determined in the other action filed would not promote judicial efficiency, economy, or the courts’ or parties’ convenience “and would invite complexity, delay, and a needless increase of litigation costs.” Id. at *11 (quoting City of Littleton, 133 F.R.D. at 165). The court also acknowledged that the possibility of shaping the relief by expressly holding that its determination of the primary insurers’ obligations not binding would effectively render judgment in this case meaningless. As such, the court found no reasonable alternative to lessen or avoid the inherent prejudice the case presented.

In consideration of whether judgment rendered in General Accident’s absence would be adequate under Rule 19(b)(3), the court reiterated its conclusion that complete relief was not available unless General Accident was joined. The court found that this conclusion “weighs in favor of dismissing the case.” Id. at *11. Finally, the court addressed whether ICSOP would have an adequate remedy if its action were dismissed for nonjoinder. The court acknowledged that not only was an alternative forum available, the other lawsuit was pending in the same forum ICSOP chose to file its declaratory action. Accordingly, the court found that equity and good conscience, as well as all of the Rule 19(b) factors dictated dismissal rather than proceeding in General Accident’s absence and found the case properly dismissed under Fed. R. Civ. P. 12(b)(7).

-- Heather M. Anderson

Disclaimer

The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.