Attorney fields questions on Berkeley co-op lawsuit

The attorney for officials of a Berkeley senior housing cooperative spent an hour on Wednesday answering questions from co-op members about why he should or shouldn’t be permitted to represent the co-op itself, despite conflicts of interest with his clients. A summary, with comments.

Almost 40 residents of Berkeley Town House, a senior cooperative involved in a year-long lawsuit, gathered on 24 July for a pair of meetings focusing on how their co-op would be represented in the suit.

President Almalee Henderson began by turning control of the first meeting over to the co-op’s manager, Christopher Stanley of Bay Area Property Services, saying this was because she was a defendant.

Did that recusal make sense? The whole first meeting was organized by the defendants, and all questions were answered only by the defendants’ attorney. So, since it was essentially a campaign event for the defendants, why shouldn’t one of the defendants chair the meeting?

The residents had been told that the first meeting would be “an opportunity to discuss and ask questions”. One might have fantasized that this would be a long-delayed first attempt to get the warring parties and their affected neighbors into a direct conversation about the legal mess they were mired in. As the meeting began, however, Stanley announced that in fact there would be no discussion unless there was time left over (which there wasn’t). Instead, the sole purpose of the meeting was to let the “disinterested members” of the co-op pose questions (not statements) to the attorney for the defendants in the lawsuit. And, in fact, when one member later tried to make a statement, Stanley, Henderson, and about a dozen attendees did their best to drown her out with jeers.

Stanley announced that no minutes of the meeting would be taken and any recording of the meeting was prohibited.

To the best of my knowledge, this claim of a prohibition on recording was bogus. The alleged rule prohibiting the recording of board and membership meetings had not been properly adopted, and this wasn’t even such a meeting, since, if it had been, California law would have required that minutes be taken.

One co-op member then warned everybody that I might be recording the meeting anyway.

The fact that the defendants’ attorney, Fred M. Feller of Berkeley, was there, and was the crucial participant, was a surprise, and one could wonder whether it was appropriate. The issue being deliberated was whether the corporation and the individual defendants should be represented by the same people. Judge Steven A. Brick of the Alameda County Superior Court had determined that this dual representation created conflicts of interest, because, if the claims raised in the suit were correct, then the defendants had damaged the co-op and owed it monetary compensation and other benefits. Brick had ruled that the board and Feller must stop representing the co-op in the suit unless a “disinterested majority” of the members validly consented to waive the conflicts of interest. He had ordered the corporation’s regular attorney, Stephanie J. Hayes of Walnut Creek, to organize the corporation’s request to the members. Under her direction, the co-op’s manager had sent a form and letter to each eligible member. Why, then, wasn’t Hayes there to advise the members about the advantages and disadvantages of a conflict waiver? Why Feller, who had been found disqualified by conflicts of interest? Could Feller advise the co-op members as to whether it is in their best interest to let his clients control the co-op’s response to the suit? And could he do so with the co-op’s attorney and the plaintiff’s attorney both absent?

These ethical questions should have been raised at the illegal secret board meeting the previous Friday, attended by Hayes, when the decision to invite Feller had been made. But they remained unanswered.

Feller claimed that he was cheaper than Hayes, because he was being paid by the co-op’s insurance company, Travelers, while Hayes, had she been present, would have sent her bill to the co-op.

Feller’s reasoning seemed to be that it’s a better deal to get free advice from an opposing party’s lawyer than to pay for advice from one’s own. I have commented already on this doctrine.

Feller acknowledged his conflicted situation and stated an intent to present “both” sides and be impartial. He said he didn’t expect me to be satisfied, since I claim that everything he says is rubbish.

That is not true. I said that only about Feller’s argument claiming that conflict-free legal counsel for the co-op would cost more money. In fact, Feller often says things that I agree with, and at this meeting I found him more evenhanded, and less vituperative, than he has sometimes been. But he didn’t manage to avoid partisan and false claims entirely.

Asked to explain the conflicts of interest, Feller acknowledged that his dual-representation role inherently involved a potential conflict of interest. Any defendant could, indeed, ask for selfish representation. But he claimed no defendant had done so, and instead every defendant had asked him to do whatever was best for the corporation. Were it otherwise, Feller’s firm would not wait for a challenge but would on its own initiative declare a conflict and exit from its representation of the corporation. Feller admitted, however, that there is debate about what it means to do what is best for the corporation.

Feller also made a stab at explaining what a derivative lawsuit is, and how it would differ if subject to British law. He pointed out that any shareholder could file a suit for the benefit of a corporation, and it would be the court that decided on the merits.

Then Feller introduced an interpretation of the conflict-waiver decision as being all about me, not about the defendants. In Feller’s story, when the members consent to a conflict waiver, they are really expressing the opinion that this suit doesn’t benefit the corporation and that I should not represent the corporation. Replying to a member’s question as to what the members could do to help get the suit settled, Feller admitted that he was not objective or neutral, and then recommended consenting to the conflict waiver as the best answer. That, he said, would show the court that this is not a lawsuit supported by the members, and that was what this waiver was really about.

On its face, the waiver of conflicts is a decision about whether the defendants can represent the corporation. Feller is saying that in reality it’s the exact opposite: about whether the plaintiff can represent the corporation. This is illogical.

Feller was asked to explain the decision to set a deadline of 5 August, far earlier than the court-imposed deadline of 30 September. He pointed out that the court had told him he could ask for an earlier hearing date if the requisite consents were collected earlier. He also stated that he didn’t know why anybody would need till 30 September to make a decision.

I had explained why in a memo distributed at the meeting.

Feller did, however, predict that a majority consent to a waiver would be challenged in court. He made a sharp distinction between the conflict waivers that the individual defendants had already agreed to and those now being sought from the corporate membership. The former, he said, were based on elaborate and lengthy written disclosures to the defendants. But informed consent, he claimed, is hard to reconcile with a vote of the membership, and it is impractical to consult the entire membership about logistics. Moreover, it is normally the board, not the membership, that manages litigation. So, he said, the Board decided, on Stephanie Hayes’s advice, to distribute as much information as possible and then ask the disinterested members (those other than plaintiff or defendants) to consent or withhold consent to a conflict waiver.

This was false. The board did not decide to distribute as much information as possible. Other information could have been distributed, but was not. See my statement about that.

One member claimed that the information given to the members, including what she described as a biased presentation by Feller at this meeting, was no basis for the members’ informed consent.

Questions were also raised about the decision to require signatures on waiver consent forms, instead of using a secret ballot. Some argued that this had been poor judgment.  Stanley claimed that Hayes’s advice, or decision, had been based on the fact that California law doesn’t require a secret vote on this matter, but opponents argued that the option was still there and should have been chosen. Conflicting opinions were then expressed about whether the choice made by each member was going to be made public. No authoritative answer emerged.

Feller’s claim to have met with the board many times drew a doubtful remark from one of the directors, who said that he had never met Feller before.

Some attendees asked about the effects of a majority consent to a waiver, or a failure to obtain such a consent. Manager Stanley demonstrated his distance from the facts (and his willingness to violate his own rules of procedure) by asserting that a nonwaiver would force each defendant to get his or her own attorney. Feller corrected him. Otherwise, however, Feller expressed uncertainty as to the effects. He said that an independent litigation committee might be appointed to manage the corporation’s participation in the suit. As he had before, he expressed doubt that Travelers would agree, or could be required, to pay for a separate corporation attorney. And he expressed confidence that any separate legal representation of the corporation would be expensive, because of the complexity of the case. One resident warned later that the corporation’s expenses would grow enormously once discovery begins.

But what, then, was Feller’s firm doing for the corporation, it was asked? If it was defending the corporation for free, then why was the corporation paying large amounts for legal services? Feller replied that he was not responsible for the corporation’s decisions on retaining additional legal services from Hayes. Moreover, he said, his services didn’t extend to governance issues and Travelers had no obligation to pay for the corporation’s defense on those issues (or anything else, for that matter; Travelers defends corporations as a courtesy when it suits Travelers’s interest to do so). Those governance issues, said one member, were, however, the core issues in the lawsuit. Thus, the financial impact of a failure of a majority to consent to a conflict waiver was left speculative.

Questions arose about the effects of a waiver or nonwaiver on the corporation’s cross-complaint against contractors Garry Secrest and Esteban Cardiel. Feller wasn’t sure what the effects would be, but at one point asserted that the corporation would have to start paying for representation in the cross-complaint, or drop it, if the waiver failed.

He did not mention that in light of court discussions it was not clear that there would be any conflict allegation over Feller’s firm handling the cross-complaint.

He added that a successful settlement of the case would likewise create questions about the cross-complaint, including how it would be paid for. He said, however, that a deal was being discussed with the attorney handling it to keep it going in case the main case were settled. In response to one question, Feller stated that it had been the corporation’s decision to launch the cross-complaint, not something demanded by me. Feller also reassured the members that their co-op wasn’t unusual in suing contractors; in fact, he said, according to a knowledgeable source almost every residential community association has at some time sued a contractor.

A couple of members expressed hostility toward me in their questions to Feller. Grace Feuerverger asked a question for her husband Andrey: What could Mr. Feller could do help the co-op put a stop to this scheming idiot, Jonathan Pool, who has been holding all of us hostage for a very long time? Chrys Chrys said that I am an actor who wants to be on center stage and won’t agree to anything, so why not just go to court? A few sympathizers chimed in at that point. Feller kept his cool and stated that the case could end through a court judgment, a decision by me to drop the suit, or a voluntary settlement. He added that the defendants have been seeking the earliest possible trial date.

One member paraphrased a letter from absent member Mary Dean, stating that she had read all the court documents, had consented to a conflict waiver, and considered it “imperative” for the other members to do so. She described my motion to disqualify the current corporate representatives as probably “tactical” and predicted that, in the end, there will turn out to have been no conflict of interest. She pointed to what she called the member-initiated campaign to recall me from the board of directors as evidence that members did not want me representing the corporation.

Defendant Charles Tuggle advised the members to follow the money. He said that I had spent thousands of dollars of my own money on the case, that the corporation didn’t have that kind of money, and it therefore had no alternative but to accept such free representation as Travelers might offer.

This story omits one fact: Henderson and Stanley, with the tolerance of the board of directors, which includes Tuggle’s wife, have spent by now roughly $100,000 of the corporation’s money on extra legal fees billed by Hayes for the benefit of Tuggle and his co-defendants, in violation of the corporation’s bylaws.

Tuggle predicted that I had so much at stake that I would take this case “to the mat” and stated that I had the right to do so. But his and the members’ wish, said Tuggle, was to get the case settled.

If so, then why have the defendants consistently refused to discuss most of the claims raised by the suit? Doesn’t one settle issues by talking them over?

Feller offered his previously stated interpretation of the history of attempts to settle the case. As he recounted it, the insurance company committed itself to put up an unlimited amount of money to rectify the Secrest work, and then the parties spent months arguing over minor details. During that time the claim worked its way to higher levels in the insurance company, where it was concluded that there was no applicable coverage, so Travelers withdrew the commitment to pay.

Feller has never provided any evidence that Travelers Property Casualty Company of America has ever obligated itself to pay to correct the Secrest work. There was merely an oral statement that an adjuster would recommend such a payment to Travelers. Travelers has not written or signed any such offer. Furthermore, the delay after the tentative oral agreement was not due only to arguments between plaintiff and defendants. It was also due to several months going by when Travelers failed to undertake the estimating job that was necessary if Travelers was ever going to know, and tell the co-op, how much it would cost to correct the work. Thus, it appears that Travelers was stalling, perhaps deliberately, in order to give itself time to re-examine its tentative offer.

Feller described the current settlement situation as one in which Travelers was still willing to pay something, and the parties had only 2 major and 2 minor issues left to settle. One of the issues, he said, was reimbursement of my attorney fees.

Some members offered more pejorative comments about settlement efforts. Stanley and Henderson claimed that I had reneged on what I had agreed to.

I await specifics. Given this allegation, I consider it legitimate to state that in all of the negotiations so far there have been only three major retreats from initial tentative offers: one by Travelers and two by the defendants. Those retreats have vastly interfered with progress in negotiating a settlement, but, even so, they are not violations of any obligations, because their original offers were never binding.

As he prepared to depart, Feller made an offer. He said he was available to answer additional questions from any of the members, including questions that they might have been unwilling to ask in such a public forum. He said he would simply bill Travelers for the time he spent talking with interested members. A member asked him whether he had any trouble getting Travelers to pay his bills, and he replied that so far in this case all his bills had been paid.

Defendant Rita Zwerdling and several other members expressed confidence in the advice offered by Feller.

And what, finally, was not discussed? Most obviously, the substance of the case: What claims had been made in the complaint, what refutations of those claims had been offered by the defendants, what evidence existed for and against the claims, and what compromises or other agreements on these claims would be in the corporation’s interest. This omission was fundamental, because, as Judge Brick said, one decides whether there is a conflict of interest by pretending that the claims are true. Would the claims, if true, pit the corporation against the defendants? This primary question was never asked. Substance, it appeared, was still taboo.

This is a summary. Please let me know if you have a reason to want detailed notes on the discussions.

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