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Law firm's 'rule of three' smells fishy

August 17, 2003|Stephen Glassman and Donie Vanitzian | Special to The Times

Question: I am one angry president of our association board.

For the last four years I have relied on a management company for referrals and recommendations. I have accepted their recommendations without checking any further. Still worse, I convinced the other board members that this was the way to go.

One of the recommendations that management made was to hire an attorney. They recommended theirs, and I have blindly been relying on this attorney without getting second or third opinions. Our association pays a hefty retainer every year to keep the law firm on call.

Unrelated to association business and purely by chance, I met an ex-employee of one of the association's attorneys. The ex-employee exposed what I believe is a scam. He says his firm calls it "the rule of three."

No matter which lawyer in the firm gets the call from the board or what the topic is, the rule of three is the same: The lawyer does not write or bill for only one document because it is not cost effective. The lawyer makes sure the call is parlayed into at least three billable documents.

If the board writes, faxes, telephones or e-mails the firm, the lawyers make sure they write, fax, call or e-mail at least two additional pieces of "whatever" back to the board. In those communications the attorney requests that the board provide the firm with information on anything remotely related to the topic.

Then the attorney writes a letter back to the board reiterating their conversations and understandings but adding a tidbit to give the semblance of advice. Even if that advice is obvious or is something a layman would offer, it is documented just the same.

If it can justify it, the firm writes a letter to a third party on behalf of the board and invoices us all the way to the bank. The attorney then bills for several letters, phone calls, faxes, e-mails and anything else in one fell swoop.

I was told that e-mails are considered a bonus because boards and homeowners are hotheaded and keep firing off e-mails to everyone, thinking they are documenting facts to support their side of a problem.

The law firm encouraged our board to have the management company "liaise" with them. I've noticed that the invoices between the management company (billing for talking to the law firm) and the law firm (billing for talking to the management company) are costing our association a fortune.

The ex-employee explained that the real money is not in correspondence to the errant homeowner but in correspondence to and from the board, the management company and the law firm. There is another formula for phone calls.

I feel deceived. Is this a scam, and what can I do about it?

Answer: Since the association's contract with the management company probably appoints it as the association's agent, it should not be surprising to find the association paying for conversations between the management company and the attorneys.

The management company acts at the direction of the board and should be instructed in writing that it must request in advance permission to communicate with the attorneys. Tell the company to submit reasons for all proposed communications and what it expects to achieve with them.

The content and outcome of all communication must be reported to the board in writing.

Return all non-approved communication billings to the management company for payment. Don't allow your association to become a deep pocket for lawyers to pick.

Associations do not need to sign retainer agreements to hire attorneys but can simply hire a firm to provide advice as needed or legal services as the board or association determines necessary. Limit communication with the law firm to a specified board member, and terminate your existing retainer agreement with the lawyers.

Advise the association's lawyers that unless it is instructed otherwise, only approved communication with the board will be paid for. Make it clear to the law firm that the association will not pay for unapproved services, including "liaising" with management personnel.

Consider establishing your own rule of three: Try at least three times and three different ways to resolve all disputes with homeowners. Contact an attorney only if the issue absolutely cannot be resolved.

Please send questions to: P.O. Box 451278, Los Angeles, CA 90045 or e-mail your queries to: NoExit@mindspring.com.

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