An article in the Virginia Gazette featured a story regarding the indictment of a local attorney for the unauthorized practice of law; a criminal charge classified as a class 1 misdemeanor. Although those allegations did not involve a homeowner association, it highlights a recurring issue for volunteer boards of directors for many organizations including homeowner associations and not-for-profit organizations on which attorneys serve. This article focuses on those issues facing boards for homeowner associations (“HOAs”) but the issues are similar for other volunteer boards of directors.
Many HOAs have board members who are also attorneys. Attorney board members can provide valuable input as board members but have to be careful not to provide legal advice. The attorney board member’s experience and training help with identifying legal issues, framing those issues for the board, and presenting the questions with clarity to the HOA’s counsel. The attorney board member’s legal experience likewise aids attorney board members in helping the board understand the import and implications of legal advice received, and in the board’s adoption and implementation of appropriate actions in light of that counsel.
On the other hand, attorney board members who provide legal advice to the board put themselves and the HOA at risk. Common interest communities are rightly concerned with budgeting for legal fees. Attorney board members may feel that they help the HOA save money or other board members may believe this a role that the attorney board member should play. This position raises serious issues for the HOA, because the attorney board member and the HOA can implicitly enter an attorney-client relationship.
If the attorney is not licensed to practice law in Virginia, the attorney board member is at risk for (i) criminal charges for the unauthorized practice of law; (ii) civil lawsuit for a claim of malpractice; and (iii) civil liability as a board member if his actions are not indemnified. Furthermore, the HOA and the other board members are at risk for (i) assisting in the unauthorized practice of law; (ii) damages and claims that may result from decisions made by the board that are based on the attorney board member’s opinions or advice; and (iii) denial of insurance coverage should the HOA get sued.
Even if the attorney board member is licensed to practice in Virginia, there is an inherent conflict of interest in providing legal advice to the HOA. Virginia’s Rules of Professional Conduct provide that ”a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if . . . there is significant risk that the representation of [a client] will be materially limited by . . . a personal interest of the lawyer.” As noted in the Comments to the Rule, “Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.” Offering legal advice on which the board relies initiates an attorney-client relationship. When that advice is provided regarding issues on which the attorney board member will also vote and that will affect the attorney board member personally, a potential conflict-of-interest issue raises questions about the independent legal judgment exercised by the attorney board member.
Additionally, a board member is required to discharge his duties as a director in accordance with his good faith business judgment in the best interests of the HOA. Virginia law provides that a board member is entitled to rely on information, opinions, reports or statements, if prepared or presented by legal counsel, as to matters the director believes, in good faith, are within the person’s professional or expert competence. However, if the advice being relied on is from an attorney board member who is not licensed in Virginia, or is not experienced in community association law, the board member may lose the protection provided by the statute.
An attorney board member can be a great asset for an HOA board, however, that is not an acceptable substitute for independent legal advice from a licensed Virginia attorney who is experienced in community association law. The perils for the HOA and the board members are great. If your board has questions or comments about these guidelines, contact your HOA attorney to provide orientation to the board on proper board policies and procedures.
Tarley Robinson, PLC, Attorneys and Counsellors at Law, Williamsburg, VA
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