HOA Lawsuits: Why Defamation Lawsuits are (Mostly) a Bad Idea
What would you do if an owner made the following comments about your board?
"Wannabe dictators." "Almost totally corrupt." "Colorado's poster child for corrupt homeowners associations." "Ranch psychopaths." "Sycophants." "Ranch BoD is getting a little nervous about somebody catching them with their fingers in the cash register?" "The President of our HOA ... appears to be the most inept, incompetent 'mouthpiece' that any cabal in existence has probably ever experienced."
Those rants were posted online by a Colorado homeowner, Jan Jackson, against her association, The B Lazy M Ranch. Jackson also accused the board of numerous civil and criminal violations and even asserted that one board member had a serious and dangerous mental and emotional disorder.
The association's board of directors did nothing while Jackson made venomous remark after venomous remark against them. But when Jackson sued the association claiming that a special assessment violated the association's covenants and that the covenants had also been improperly amended, the association sprung to life and counterclaimed against Jackson, asserting that her continuous, derogatory rants amounted to libel.
Smackdown at the Ranch
In 2007, a Colorado judge found that the B Lazy M Ranch's special assessment and covenants were proper, and he smacked Jackson for her behavior. The judge held that Jackson's comments were false and libelous and ordered her to pay the association $10,000 in damages, along with the bulk of its attorneys' fees. He also prohibited Jackson from publishing further statements that mentioned the B Lazy M Ranch and ordered her to contact all the Web sites on which she had posted statements about the association to request that those comments be removed.
A Colorado appellate court struck down the trial judge's injunction prohibiting Jackson from publishing new comments about the association but upheld the rest of the trial judge's findings. On June 22, 2009, the Colorado Supreme Court declined to hear Jackson's final appeal. That means the $10,000-plus judgment against Jackson stands, but she is again free to criticize B Lazy M Ranch. The association is also free to bring another lawsuit against her if she again crosses the line from opinion into libel.
How Would You Respond?
What would you do if your board faced comments like Jackson's? What if an angry homeowner made a broad but vague claim your board was incompetent and unfair? What if the claim were more specific, say, that board members were unethically assigning association work to friends and getting referral fees?
The answer to those questions, say attorneys who represent associations, are judgment calls. Defamation involves a false statement about a person that causes harm. When a defamatory comment is oral, it's called slander. When it's written, it's called libel.
Proving defamation in either form is difficult because Americans are entitled to speak their minds. "I've certainly been in discussions with boards in which they've talked about filing defamation claims," says Duane McPherson, division president at RealManage, a San Rafael, Calif., association management firm that oversees properties in Arizona, California, Colorado, Florida, Louisiana, Nevada, and Texas. "But as a general rule, free speech allows people to say pretty much what they want."
There's also often debate about exactly when an opinion veers into an untrue statement that causes harm. "A lot of comments are opinions," says Amy H. Bray, a partner at Andersen, Tate & Carr PC in Lawrenceville, Ga., who represents condo and homeowners associations. "Comments like, 'So-and-so is horrible, and I don't want to see him on the board anymore' are difficult to prove are defamatory. But when it gets down to, 'Board director X lied about something or hid an opinion or a letter,' we've got something more meaty to deal with."
Moreover, public figures have a harder time winning defamation claims because they're required to prove that the defamatory statements were made with actual malice, or the intent to harm. The possibility that a court in your state would hold that association board members are public figures is a factor to consider in evaluating whether to go forward. "That would be something I'd raise if I were defending someone in a defamation claim brought by a board," says Bray. "If people are saying bad things about board members, I'd argue that those board members have held themselves out in their community and made themselves something like elected officials. They've stepped into a position where there's going to be debate about what they've done."
The Downside of Fighting
Because defamation is hard to prove, litigating such cases can be very costly. "One thing that causes boards to pause when considering whether to file a defamation claim is the expense," says Bray. "Nobody really wants to pursue it because they think about the money it costs. Nobody has the money right now, and that becomes a big block to doing anything."
More important, litigation keeps disputes going. "Litigation just keeps the issue in the forefront," says Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops. "I had a situation where I represented a condo developer who wanted to sue a unit owner, and I discouraged him from doing it. There's a cost, and it just keeps the controversy in the public eye. Court proceedings are public, and litigation may damage the plaintiff's reputation even more than the original defamatory comments."
Lawsuits can also cause lenders and buyers to shy away from your association. "Lawsuits can certainly discourage lenders," says Galvin. "At a minimum, they'll want to know the facts. It may be that once the case is explained, they may feel comfortable going forward, but they'll at least want to know what's going on."
Potential buyers may also decide they don't want to be owners in an association that appears dysfunctional and is spending owners' precious assessments on litigation against its own owners.
Handling Comments Without Litigation
If your association has angry homeowners whom you think cross the line into defamatory comments, you have options other than litigation.
"My advice to a condo or homeowners association would be not to file litigation," says Galvin. "If you get to the stage where you're contemplating a defamation claim against a unit owner, that means there's a very troubled relationship and bad communication between the board and unit owners."
Working to improve communication is more effective than litigation. "If the association is being transparent—it should have monthly meetings at which unit owners are invited to observe the meeting and participate in an open comment period at the end—and there are open lines of communication, these sorts of difficulties aren't likely to happen," says Galvin. "A board can go into executive session if it has to, but other than in that instance, meetings should be open, and there should be free-flowing communication. If you really try to have open communication, these issues should not come up."
If owners still make outrageous comments, address them directly and openly. "In a well-managed association," says Galvin, "the board will address the comments in a way that explains why it made a certain decision so that people will realize the unit owners' criticism isn't appropriate."
McPherson agrees. "Usually, if you call people on their comments and say in a calm demeanor, 'Please observe proper decorum,' they'll explain their issues, and you can deal with them," he explains. "In one instance in which an association had a budget in the $3-$4 million range, an owner accused board members of taking kickbacks and paying themselves under the table, which wasn't happening. It was unfortunate those accusations got thrown out, but the board dealt with them reasonably. Board members said, 'You're entitled to look at the books, and we encourage you to do that.' In some cases, owners have come back and said, 'Guess what? We didn't find a thing.'"
McPherson has even been the target of venom himself. "Years ago, I was conducting a meeting, and we were talking about raising assessments," McPherson explains. "It wasn't a big raise—about $5 a month—and it was geared toward road improvements. One owner's question to me was, 'What do you make, and what perks do you have?' I just answered. I'll never forget it because the next day there was a picture of me in the local newspaper with the woman's finger pointing at me. The headline was about the fact that I'd disclosed my wages and perks."
The lesson? "Let comments roll off you, and respond in a clear, even tone to questions that are appropriate," says McPherson. "When questions or comments aren't appropriate, ask to discuss them after the meeting or at another time. The key is to remain calm and not elevate the situation by getting angry yourself."