Update: Attorney Jim Acho Nominated to Run for Executive Director of NFL Players Association

For those of you following Jim Acho’s run for the NFL Players Association Executive Director position, here are a few recent articles to update you.

Detroit Free Press: Michigan Attorney: Feedback Positive for NFLPA Role

NBC Sports: DeMaurice Smith has Four Challengers for NFLPA Position

Boston Globe: NFL Offseason is Off to a Bad Start

Bleacher Report: DeMaurice Smith to Run Against Multiple Candidates for NFLPA

CBS Sports: DeMaurice Smith has Another Challenger in Race for NFLPA Position

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On Saturday January 3, 2015 Jim Acho, a senior attorney in our Livonia office, received a letter signed by numerous retired NFL players, including Hall of Famers, informing him that he was their nominee to challenge DeMaurice Smith for the NFL Players Association Executive Director position. A conference call followed and, with time of the essence, Acho accepted within 24 hours and declared his candidacy to the Executive Committee of Player Representatives.

Acho explained, “I am honored that the retired players think enough of me to ask me to run, and, as a result, I accepted.” He added, “I will do the very best I can to push the main agenda, which is long-term health care for the players. Hopefully the players will consider it enough of a pressing issue to vote for me. My promise to them is that I will get it done.”

Acho was recently a guest on WJR’s Frank Beckmann Show where he discussed his decision to run for the Executive Director position. Listen to Podcast here: http://www.wjr.com/page.php?page_id=821

The Detroit Free Press recently ran an article on Acho running for the NFLPA positon.  The article can be viewed here: http://www.freep.com/story/sports/nfl/lions/2015/01/07/nflpa-jim-acho/21403193/

The Ft. Wayne News-Sentinel recently ran an article on Acho.  The article “St. Francis Grad. Aims to be Next NFLPA Chief” can be viewed here:  http://www.news-sentinel.com/apps/pbcs.dll/article?AID=/20150114/SPORTS/150119880/1002

Attorneys Conduct Open Meetings Act and Freedom of Information Act Training

On February 12, 2015, attorneys Andrew Brege and Jeff Clark conducted a training seminar for municipal clients in Lenawee County.  The seminar  covered the Open Meetings Act and Freedom of Information Act, and included updated information concerning the recent amendments to FOIA.  The training seminar was attended by more than 70 county and other municipal officials and employees.

For additional information on the recent amendments to FOIA, please click here.

If your municipality is interested in a similar presentation, please contact Mr. Brege at (616) 975-7470 or abrege@cmda-law.com.

Recent Changes to the Freedom of Information Act may Impact Local Communities

On December 19, 2014, the state legislature passed HB 4001, a bill significantly amending the Freedom of Information Act’s (FOIA) charging requirements and penalty provisions. The new rules are set to take effect on July 1, 2015. These new statutory rules will require most public bodies to revisit their FOIA policies and guidelines. The following is a brief summary of these statutory changes.

Changes to FOIA Charging Policies

FOIA has always provided a means for the public bodies to recoup some of the costs involved in responding to FOIA requests. The recent amendments alter the way those fees may be recouped, and, in some instances, caps the amounts that may be charged.

MCL 15.234(1)(d) provides that a public body may charge the actual costs of making paper copies, but the cost per sheet may not exceed $0.10/page, if the copies are made on standard 8 ½” by 11” or 8 ½” by 14” paper. Under MCL 15.234(1)(c), if the requestor asks for the records to be provided in non-paper format, such as on CD-rom or other digital format, and the public body has the capabilities, it may charge the actual cost of reproduction, so long as those costs are reasonably economical.

A public body may charge for certain labor costs incurred in responding to FOIA requests. MCL 15.234(1)(e) allows the public body to charge for labor incurred to make copies or create other digital media. MCL 15.234(1)(a) allows the public body to charge the cost of labor incurred to search for and locate public records in order to respond to a FOIA request. MCL 15.234(1)(b) allows the public body to charge for labor incurred to separate and delete exempt from non-exempt materials. Under this section, a public body that does not have an employee capable of making those deletions and/or separations may contract those services to an outside individual or firm (such as outside legal counsel), and pass of those labor costs. Charges for labor costs for the outside individual or firm may not exceed 6 times the state minimum wage. Currently, the minimum wage is $8.15, meaning the most a public body may charge for its outside legal counsel to separate and delete exempt from non-exempt materials is $48.90. Labor costs associated with searching, separating and deleting must be calculated in 15 minute increments, and must be rounded down. Labor costs for making copies, however, may be calculated in whatever increment the public body chooses. Just as under the previous version of FOIA, the public body must show that a failure to charge for labor associated with searching, examination, separation and deletion would result in unreasonably high costs to the public body before it may charge for those costs. The public body may charge for labor costs associated with making copies without such a showing.

Under MCL 15.234(4), the public body must establish procedures and guidelines to implement its charging policies. A public body may not charge for responding to a FOIA request unless it has already established and published these guidelines. Further, the public body must include a copy of its charging procedure and guidelines whenever it responds to a FOIA request. If the public body has posted its procedures to its website, it may simply provide a link to that website in its FOIA response. All charges must be identified on a detailed itemization. The public body is required to either create its own standard itemization form as part of its policies and guidelines, or use a standard form created by the Michigan Department of Technology, Management and Budget.

For every day that a public body is late in responding to a FOIA request, the total amount of labor it is able to charge must be reduced by 5%, up to a 50% total reduction. A public body may require a 50% deposit if the estimated costs exceed $50.00. If the requestor fails to pay after a request has been made, and the total fees did not exceed 105% of the original estimate, the public body may require a 100% deposit from that particular requestor for its next FOIA request.

Electronic Requests

The new amendments take into consideration the fact that many FOIA requests are sent by e-mail. A public body is not considered to have received a FOIA request send by e-mail or other electronic means until the next business day. Further, if the request is filtered into the public body’s junk or spam folder, it will not be considered received until one day after the public body actually becomes aware of the request.

Appeals, Civil Actions and Penalties

A requestor that is not satisfied with a FOIA response may either file an appeal to the head of the public body, or file a suit in circuit court. The new amendments increase the potential civil fine for a public body that acted arbitrarily and capriciously from $500 to $1,000, which is paid directly to the state treasury. The public body must also pay $1,000 punitive damages award to the successful litigant.

The new amendments also provide for procedures to challenge the fees a public body charges. MCL 15.240a provides that the requesting person must first file an appeal to the head of the public body identifying how the requested fee exceeds the amount allowed under the statute. If the public body denies the appeal, does not respond to the appeal, or its procedures do not allow for fee appeals, the requester may file a civil action challenging the fee. The civil action must be filed within 45 days of receipt of the appeal decision, or if no appeal procedure is available, receipt of the itemized statement. If the requesting person prevails in the action by receiving a reduction of 50% or more of the fee, the court may award attorney fees. If a public body is found to have acted arbitrarily and capriciously, it shall be ordered to pay a fine of $500 to the state treasury. The court may also award $500 in punitive damages to the individual.

MCL 15.240b provides for further penalties if a court, in any FOIA action, determines that the public body willfully and intentionally failed to comply with the statute, or otherwise acted in bad faith. In such a case, the public body shall be ordered to pay a civil fine of between $2,500 and $7,500 for each occurrence, which shall be deposited into the state treasury.

One of the only amendments that appears favorable to public bodies, at least on its face, is the venue provision for civil actions. Under the prior version, a requester had the option of filing suit in either the circuit court where he or she resided, or where the public body was located. Under the amendment, all FOIA suits must be brought in the jurisdiction where the public body resides.

Conclusion

With these new amendments scheduled to take effect on July 1, 2015, it is important that public bodies familiarize themselves with the changes, as well as prepare and implement new FOIA fee charging policies and guidelines. Without new policies and guidelines in place, public bodies may not charge for responding to FOIA requests. Further, without policies and guideline. Mmmkkkmms in place that strictly comply with the statutory requirements, a public body risks increased civil fines and penalties.

Andrew Brege is a partner in our Grand Rapids office.  He may be reached at (616) 975-7470 or abrege@cmda-law.com.

February’s “50th a Month Donation” Recipient

CMDA is honored and appreciative for the trust our clients have placed in our Firm since 1965.  As a way to give back to the community as we celebrate our 50th anniversary, every month throughout 2015 the Firm will be donating 50 items to a local charity.

In February, we will be donating prepackaged and individual boxes of snacks (granola bars, pretzels, fruit snacks, juice boxes, etc.) to The Guidance Center’s Kids Talk Program, which helps abused children throughout our community seek assistance.

If you are interested in donating, please stop by our Livonia office with your contribution.  Thank you for your support!

 

Property Managers and the Attorney-Client Privilege: Does your Community Association’s Management Agreement cover Communications with the Association’s Counsel?

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A successful community association is often dependent upon a cooperative working relationship between the association’s attorney, the board of directors and the property manager.  Many condominium and homeowner association boards are dependent on the property management company to run the day to day affairs of the association.  Accordingly, property managers are typically integral to the decision making process that is undertaken by boards in legal matters.  The board of directors will frequently want to include the property manager in communications with the association’s legal counsel.  However, including the property manager in communications with the association’s attorney can potentially waive the attorney-client privilege if the appropriate precautions are not taken.  The author of this article is aware of at least two federal court cases, one in Colorado and one in Michigan, in which courts have held that the attorney-client privilege was waived by including the property manager in communications with the association’s legal counsel as appropriate steps were not taken to maintain the privilege.  Accordingly, this article will discuss the proper way to preserve the attorney-client privilege when including the property manager in discussions with the community association’s legal counsel.

What is the attorney-client privilege?

Unless modified by statute in a particular jurisdiction, the common law attorney-client privilege keeps communications made by a client to the attorney acting as a legal adviser and made for the purpose of obtaining legal advice confidential, unless waived by the client.  See e.g. Taylor v Blue Cross/Blue Shield of Michigan, 205 Mich App 644, 654, 517 NW2d 864, 870 (1994).  The client is the holder of the privilege and has the authority to waive the attorney-client privilege.  The voluntary disclosure of confidential communications between an attorney and client to a third party would waive the attorney-client privilege.

In the context of a nonprofit corporation, such as a community association, complex issues often arise as to who constitutes a “third party” for the purposes of waiving the attorney client privilege.  Some states still subscribe to the “control group” test.  Under the control group test, the attorney client privilege only attaches to communications between the community association’s counsel and the “control group”, which is arguably only composed of the association’s directors and officers.  See Fassihi v Sommers, Schwartz, 107 Mich App 509, 518; 309 NW2d 645 (1981).  However, many jurisdictions have abandoned the “control group” test and adopted an “agency test” in holding that the privilege extends beyond the “control group” to communications between legal counsel and all agents or employees of the corporation that are authorized to act or speak for the corporation regarding the subject matter of the communication.  See Hubka v Pennfield Tp, 197 Mich App 117 494 N.W.2d 800, 802 (1992).  With respect to claims involving matters under the jurisdiction of federal courts, federal law controls the manner in which the attorney-client privilege can be waived. Federal Courts have held that a community association must make a detailed factual showing that the property manager is the functional equivalent of an employee and that the information sought from the manager would be subject to the attorney-client privilege if the property manager was an employee, before the attorney-client privilege will be extended to non-employees, such as a property manager. Horton v US, 204 FRD 670, 672 (D.Colo.,2002).

How can the attorney-client privilege be preserved?

In Horton v US, 204 FRD 670, 672 (D.Colo.,2002) and in Benkovich v Washington Park Village Condominium Association, Case No. 09-11767 (Eastern District of Michigan Opinion, 12/9/10), the court held that a property manager was a third party to communications and that the inclusion of the property manager in communications that were subject to the attorney-client privilege waived the privilege.  In both cases, the court analyzed the management agreement in determining whether the property manager was the “functional equivalent” of an employee.  Both district courts concluded that nothing in the management agreement provided authority to the management company to manage or participate in litigation on behalf of the association.  Accordingly, the lesson to be learned is that the association’s management agreement should delineate whether the property manager can be included in privileged communications and participate in the association’s legal matters.  Specifically, the management agreement should address the following issues:

  • Identifying whether the property manager is part of the association’s control group. This is especially important in states that still use the “control group” test.
  • Identifying the common types of legal matters that the management company is allowed to participate in, the extent of the management company’s participation in legal matters and whether the management company has any authority to speak or act on behalf of the association in legal matters.
  • A provision indicating that the management company must maintain the attorney-client privilege unless the association provides authority to waive the privilege or a court orders disclosure.

While it is possible that state courts using the “control group” or “agency test” may not rely solely on the management agreement in determining whether the management company can be included in privileged discussions, it is clear that in federal court the contents of the management agreement will likely strongly influence a court’s decision as to whether or not a management company can be included in privileged communications between a community association and its attorney.  Accordingly, a well drafted management contract is the best way to ensure that the attorney-client privilege is maintained if the association desires to include the management company in communications with counsel.

Kevin Hirzel is a partner at Cummings, McClorey, Davis & Acho, PLC. He frequently represents Builders, Community Associations, Condominium Associations, Cooperatives, Co-Owners, Developers, Homeowner Associations, Property Owners and Property Managers throughout the State of Michigan. Mr. Hirzel can be contacted at (734) 261-2400 orkhirzel@cmda-law.com. Please view The Michigan Community Association Law Blog at http://www.micondolaw.com for additional resources on Michigan Community Association Law.

Transitioning from Developer Control to Nondeveloper Co-Owner Control: Five Practical Steps Every Condominium Should Take

Every community association in Michigan undergoes a transition or “turnover” phase whereby the control of the community association changes from developer control to owner control. In Michigan, the transition process for condominiums is governed by the Condominium Act, MCL 559.110, et al. Unfortunately, homeowner associations are not included in the Condominium Act and are solely governed by the terms in the homeowner’s association documents. Therefore, this article focuses on the transition from developer control to nondeveloper co-owner control within a condominium project and practical steps each new Board of Directors should take before, during and after the transition. While the transition process may, at times, be somewhat complicated, the successful transition from developer control to owner control is crucial to the future success of a community association in Michigan.

Era of Developer Control

When a condominium is initially constructed, the developer commits significant resources and capital to construct the project, amenities and infrastructure. During the initial construction phase of the condominium, the developer and its appointees serve as members of the Board of Directors. MCL 559.152(1). The Board must act as fiduciaries to the community association by acting “in good faith and with the degree of diligence, care, and skill that an ordinarily prudent person would exercise under similar circumstances in a like position.”  MCL 450.2541.

Unfortunately, there is an inherent conflict of interest when certain decisions may benefit the entire community association, but those decisions have a negative impact on the developer’s bottom line. The developer is primarily concerned with building and selling units as quickly as possible in order to maximize its profits. Due to the recent economic downturn, many developers have further problems with tighter budgets, less liquidity, reduced access to commercial markets, reduced workforces, and related problems that also may impact the quality of the construction work. Given this inherent conflict of interest, the transitioning to nondeveloper co-owner control has a heightened importance for co-owners.

Era of Nondeveloper Co-Owner Control

In a perfect world, the transition away from the developer takes place gradually and smoothly and any issues are resolved cooperatively and efficiently. Pursuant to MCL 559.110(7), the transitional control date means the “date on which a board of directors for an association of co-owners takes office pursuant to an election in which the votes that may be cast by eligible co-owners unaffiliated with the developer exceed the votes which may be cast by the developer.” MCL 559.152(2) outlines the specific timing requirements for how the transition must take place including specific milestones at 25%, 50%, 75% and 90% of the units conveyed to nondeveloper co-owners. MCL 559.152(2) states:

Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 25% of the units that may be created, at least 1 director and not less than 25% of the board of directors of the association of co-owners shall be elected by nondeveloper co-owners. Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 50% of the units that may be created, not less than 33-1/3% of the board of directors shall be elected by nondeveloper co-owners. Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 75% of the units that may be created, and before conveyance of 90% of such units, the nondeveloper co-owners shall elect all directors on the board, except that the developer shall have the right to designate at least 1 director as long as the developer owns and offers for sale at least 10% of the units in the project or as long as 10% of the units remain that may be created.

While the statute provides for various other requirements, the basic premise is as the project progresses, more and more control is given to the nondeveloper co-owners. In the real world, a gradual and smooth transition is not always possible and problems during this crucial phase can reverberate throughout the community association for years to come.

The co-owners should take control of the Board of Directors as quickly as possible so that the association can focus on the co-owners’ interests instead of the developer’s interests. Below are five essential steps each Board of Directors should immediately take upon transition of control:

  1. Perform an Initial Audit of the Documents Provided By the Developer. The Board should have all association books and records including, but not limited to, the following: 1) any original, recorded documents such as the Master Deed and Bylaws; 2) any declarations or disclosure statements; 3) the Articles of Incorporation and any amendments; 4) a complete set of the Board’s Meeting Minutes; 5) any and all Rules and Regulations; 6) all accounting information including any audits performed by the developer; 7) any and all escrow accounts or funds; 8) a current operating budget and all previous operating budgets; 9) any and all banking accounts and safety deposit boxes; 10) all state and federal tax returns; 11) any and all insurance policies; 12) any and all contracts entered into by the developer; 13) a complete list of all current owners with addresses and any other contact information; 14) any and all site plans including any as-built drawings; 15) a list of all contractors, manufacturers, subcontractors, suppliers involved with the project and any and all warranty information pertaining to same; 16) any documents by the local municipality pertaining to compliance with state statutes and local ordinances; 17) any and all documents related to any past or pending claims and 18) the tax identification number. If the Board of Directors does not have this information, it should work cooperatively with the developer to obtain all of the above documents/information. If the developer is not cooperative or is slow to respond, it may be a sign of additional underlying problems.
  2. Retain a Competent Certified Public Accountant. Critically important to a successful condominium association is an initial review of the condominium financials by a certified public accountant or an independent auditor competent in auditing community associations. First, the Board should analyze all income and expenses during the developer’s control. Typically, assessments are kept artificially low and do not adequately fund the condominium for the long term. Second, MCL 559.205 and Administrative Rule 511 require a condominium association to maintain a minimum reserve fund that is equivalent to 10% of the association’s current annual budget on a noncumulative basis. Every condominium should make sure this line item is included and often 10% is inadequate to fund capital improvements. Third, consideration should be given as to whether the developer permitted co-owners to become significantly delinquent in paying association dues including the developer itself, if applicable. The Board of Directors should immediately establish a comprehensive collection policy and uniformly enforce the policy to avoid a claim for selective enforcement.
  3. Hire a Professional Property Management Company. The newly elected Board of Directors should review whether the existing property management company—hired by the developer—is appropriate for the Association. Pursuant to MCL 559.155, the Board may void the management contract with the developer or affiliates of the developer within 90 days of the transitional control date or with 30 days’ notice at any time thereafter for cause. Typically, the management company remains the same after the transition and there are benefits for continuing to utilize the same property management company, however this should be reviewed on a case-by-case basis.
  4. Hire a Professional Engineer. The Board of Directors should hire a professional, licensed civil engineer or other qualified professional to analyze and inspect all of the common elements of the project including readily apparent construction defects, but also hidden defects such as 1) collapsing retaining walls resulting from improper installation; 2) cracking in the foundation or drywall caused by concealed foundation issues; 3) electrical wiring that is not properly installed within common element walls; 4) flooding caused by improper installation of the underground storm water drainage system; 5) heaving or cracking of concrete porches, driveways or sidewalks due to poor drainage; 6) leaks, mold and other water issues caused by improperly installed roofing, siding, flashing and/or windows; 7) noise related to insufficient insulation and poor sound protection; 8) pipe bursts that result from a failure to insulate common element pipes; 9) premature road failure resulting from failing to test and/or account for soil conditions, improper use of base course materials or drainage issues and 10) missing or improperly installed trusses, which compromise the structural integrity of the roofing and/or building.

The engineer will prepare a report outlining any construction defects, the cause of the defects, a proposed fix, whether any problems are covered by warranty and the estimated cost to fix the problems. The engineering report will assist the Board and the condominium association’s attorney in evaluating the scope of the problems and determining the best course of action. As part of the engineer’s report, the engineer should perform a reserve study which identifies the current status of the association’s financial health and the project’s physical condition. The reserve study informs the property manager, the Board, the Association at large and prospective purchasers of anticipated major expenses in the future. Based on the information from the reserve study, the Board can create a budget to reflect these anticipated costs thereby helping the association plan for the long term. A condominium association should have a reserve study performed every three to five years to ensure that major problems do not arise. In addition, given that the common elements will eventually need to be repaired and/or replaced, frequent reserve studies also ensure that the association’s contractors have not caused construction defects.

  1. Retain a Community Association Attorney. Typically, the Board of Directors will consult with a community association attorney prior to the transitional control date. Once the transitional control date takes place, the Board of Directors then hires the attorney on behalf of the Association. MCL 559.276 provides an association with three years from the transitional control date or two years from the date that a claim accrues to pursue a construction defect claim arising out of the development or construction of a condominium. A claim for breach of contract against a contractor for a defect that arises from the repair or replacement of a construction defect, typically has a six year statute of limitations. While the statute of limitations could be extended through various theories, such as fraudulent concealment, among others, an association’s odds of success are greatly increased by vigilance of the Board of Directors. In addition, a developer or contractor often defends a construction defect claim by arguing that the defect was caused by natural wear and tear or improper maintenance by the association. Accordingly, the sooner the association takes action, the better the chance of success.

In addition, the attorney will analyze any additional issues with the developer; determine whether the Master Deeds, Bylaws and Rules and Regulations need to be revised; review the collection policy and determine whether collection actions are necessary against delinquent co-owners; review contracts with vendors and address other transitional control issues which may arise. As a practical matter, the first set of governing documents for the new condominium project were created by the developer, for the developer. Thus, reviewing and revising the condominium documents is an important first step for any new Board.

Conclusion

With the appropriate professional team in place, transitioning from developer control to nondeveloper co-owner control can be a seamless process, even when problems arise. Having an educated Board of Directors with qualified professionals assisting in the transition process, a condominium has a greater likelihood for a smooth transition which is crucial to the future success of the condominium.

Joe Wloszek is an in our Livonia office where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, large contractual disputes, and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. He can be reached at (734) 261-2400 or jwloszek@cmda-law.com.