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					      PROPERTY MANAGER
    LIABILITY: LESSONS FROM
     AND COMPARISONS TO
      OTHER PROFESSIONAL
          MALPRACTICE




                              HindmanSanchez           P.C. Attorneys at Law • Denver & Fort Collins
5610 Ward Road., Suite 300, Arvada, Colorado 80002-1310 Tel 303.432.9999 Free 800.809.5242 Fax 303.432.0999 www.hindmansanchez.com

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INTRODUCTION

         In our society of increasing litigation, its comes as no surprise that suits against property managers
are on the rise. The incidence of lawsuits for professional negligence in various fields has increased greatly
in the last ten years, and the property management field has not been immune to this trend. While no
course of action can completely eliminate the risk of professional malpractice claims, consistent
communication and good rapport between the parties can assist in preventing many possible claims. As
one court has observed, “[w]e do not suggest that either side is without sin in this matter; if there had been
a greater degree of communication between the parties, this matter may never have resulted in litigation.”
Many lessons of general professional liability can be drawn from an examination of legal malpractice claims
and the steps which may have prevented them.

CAUSES OF INCREASED LITIGATION

         There are many difference reasons for professional liability claims as there are practitioners in a
given field. However, in addition to distinct factual bases, there are a number of societal trends which have
been credited with increasing the number of lawsuits filed generally. These factors include increased
publicity, heightened consumer expectations, a sense of victimization held by some consumers,
deteriorating client relations, and service providers who have failed to keep pace with changes in industry
standards.

          1.        Publicity. In recent months and years, the media has been quick to publicize cases of
                    professional negligence. In addition, the media has crafted numerous lead stories detailing
                    huge damage figures awarded by juries and judges for malpractice and other injury claims.

          2.        Consumer Expectations. The public has become more informed about the range of services
                    available to it, and has increased its expectations of service in many areas. In addition,
                    many people are aware of the existence of malpractice actions and some feel that a
                    malpractice claim is appropriate where the services that they have received have not met
                    their expectations.

          3.        Perception of Victimization. Numerous sociologists and academics have written recently
                    about the increased polarization and sense of victimization that appears to be affecting
                    American society. One result of these trends is the increased impulse for individuals to
                    view themselves as victims and to assign responsibility and blame for any difficulty to
                    others. A person with such a mind set often will expect compensation in the event of a
                    misunderstanding or problem and will feel morally justified in exacting payment from
                    others.

          4.        Deteriorating Client Relations. One unfortunate side effect of professionals’ efforts to
                    manage potential liabilities is an early breakdown in communication between parties. Too
                    often, at the first sign of trouble, a potential conflict is passed to insurance representatives
                    and attorneys, where the goodwill and cooperation of the parties may be far more effective
                    in resolving the issues. It is critical in the disposition of any service problem to recall that
                    the management industry is a service profession and that litigation is a poor and expensive
                    substitute for good client relations.




                              HindmanSanchez           P.C. Attorneys at Law • Denver & Fort Collins
5610 Ward Road., Suite 300, Arvada, Colorado 80002-1310 Tel 303.432.9999 Free 800.809.5242 Fax 303.432.0999 www.hindmansanchez.com

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                  5.         Obsolescence of Service Providers. The field of property management is one which has
                             experienced tremendous growth in service expectations and heightened industry standards
                             in recent years. Consequently, there are certain service providers who have been left
                             behind due to the rapid advancement of the industry. Such a provider is at great risk to fall
                             afoul of a professional malpractice claim. While there is clearly still a role for small and
                             mid-sized property managers (who often have clear advantages in terms of customer
                             relations), it is critical that each management organization keep abreast of developments in
                             the industry and that providers maintain the training and education of their employees.

                             Finally, perhaps the most common and most easily remedied cause of malpractice claims is
                             simple carelessness. A survey by the American Bar Association revealed that over one-third
                             of the client respondents surveyed believed that attorneys failed to discover and respond to
                             their clients’ true concerns. Even where legal matters had been competently and speedily
                             handled, poor communication left the consumer with the impression that he had not been
                             serviced well. Much of this problem can be avoided by common sense and good company
                             organization. There should be policies and procedures in place at every management
                             company to ensure promptly returned phone calls and answers to letters, to ensure the
                             maintenance of a schedule of each association’s requirement (computerized “tickler files”
                             are especially useful if managing more than one association) and to ensure that no
                             manager or employee acts outside of his authority.

         ELEMENTS OF CAUSES OF ACTION FOR PROFESSIONAL NEGLIGENCE

                    Of course, even the best client relations will not eliminate all risk of a malpractice claim against a
         management company. Under some circumstances, no amount of client communication and rapport will
         overcome the errors and omissions (whether actual or perceived) of a service provider. When such a claim
         is filed, it becomes incumbent on the plaintiff in the suit to prove each of the elements of his claim. While
         various states have refined their local causes of action, the typical elements of causes of action for
         professional negligence are: (i) duty, (ii) breach of that duty, (iii) causation between the breach and any
         damage or injury, and (iv) actual loss or damage to the plaintiff.

         Duty

                  A professional is required to treat his clients with such skill, care and diligence as is required by the
                  standard
         which members of his profession commonly possess and exercise. The standard of the professional
         community has been the subject of countless court rulings. One such case, a legal malpractice opinion,
         states as follows:

                  The general rule with respect to liability of an attorney for failure to properly perform his duties to
         his client is that the attorney, by accepting employment to give legal advice or to render other legal services,
         impliedly agrees to use such skill, prudence and diligence as lawyers of ordinary skill and capacity
         commonly possess and exercise in the performance of tasks which they undertake.

                  The opinion goes on to state that:

                             The attorney is not liable for every mistake he makes or may make in his practice. He is
                             not, in the absence of an express agreement, an insurer of the soundness of his opinions or
                             of the validity of an instrument that he is engaged to draft.

                  Another case ruling on professional liability states that:

                             An attorney is obliged to exercise at least that degree of care, skill and diligence which is
                             exercised by prudent practicing attorneys in his locality. He is not required to exercise
                             perfect judgment in every instance. However, the attorney’s license to practice and his



                                       HindmanSanchez          P.C. Attorneys at Law • Denver & Fort Collins
           5610 Ward Road., Suite 300, Arvada, Colorado 80002-1310 Tel 303.432.9999 Free 800.809.5242 Fax 303.432.0999 www.hindmansanchez.com

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                             contract of employment hold out to the client that he possesses certain minimal skills,
                             knowledge and abilities.

                  The general rule that emerges from the cases on professional liability is that any person holding
         himself out to be a professional will be held to the following standard: he must exercise that degree of
         reasonable care and competence which is commensurate with the ordinary knowledge and skill common to
         members of his profession. A professional will not be held to a standard of extraordinary skills and
         attention, but will be accountable for reasonable ability and care. A community manager need not and
         should not guarantee results or outcome. Rather, the community manager merely undertakes to use his
         best skill and judgement. A result that the association finds unsatisfactory hardly justifies a lawsuit charging
         the manager with negligence, not should it result in a verdict against the community manager.

         Breach of Duty

                  Once a plaintiff has established that it is owed a duty by the defendant in its malpractice claim, the
         plaintiff must further show breach of duty. The plaintiff in this case must show that the manager failed to
         exercise the reasonable care, skill and diligence that was owed to the association due to the relationship of
         the parties.

                  Courts have generally required that such a proof be supported by testimony or other evidence from
         experts. As stated in a legal malpractice case:

                             Expert testimony should be generally required to establish the standard of care applicable
                             to an attorney whose conduct is alleged to have been negligent and further to establish that
                             his conduct deviated from that standard. That general rule should be subject to the
                             exception that such expert testimony is not necessary in cases where the conduct
                             complained of can be evaluated adequately by a jury in the absence of expert testimony.

                  Fraud and misrepresentations are occasionally encountered in claims of management malpractice.
         A manager’s advice, if offered when it is known to be false or incorrect, may constitute fraud. This is true
         whether the advice is offered verbally or by conduct, and intentional failure to make a reasonable inquiry
         into the soundness of the advice will not offer any protection to a claim of malpractice. Fraud is, in essence,
         simple dishonesty, and bears no more relation to the rendition of management services than it does to any
         other profession. If may be avoided with simple unyielding adherence to the most basic precepts of
         honesty and business integrity.

                  A manager has, therefore, an affirmative duty to represent an association using the skill, prudence
         and diligence that is common in his community, and the manager may be liable for negligence if that duty
         is breached. In all likelihood, whether or not the association will in fact pursue litigation depends upon the
         goodwill which has been built up during the manager’s relationship with the current board and the
         association more generally.

         Proximate Cause

                   Once the plaintiff has established both the existence of the manager’s duty to the association and its
         breach, the plaintiff must further show that the breach was the proximate (or legal) cause of injury or
         damage to the association. Proximate cause is a term about which there is little general agreement in the
         legal field, and a single definition of its meaning is not truly helpful to an analysis of risk management. In
         essence, proximate cause is a factor used to limit the scope of a defendant’s liability to plaintiffs who are
         reasonably foreseeable or cases where the breach of duty was a “substantial factor” in the harm incurred.

                  Once, the court has indicated specifically that “negligent conduct is the proximate cause of harm to
         the plaintiff if the conduct is a substantial factor in bringing about the harm. Another court has held that:




                                       HindmanSanchez          P.C. Attorneys at Law • Denver & Fort Collins
           5610 Ward Road., Suite 300, Arvada, Colorado 80002-1310 Tel 303.432.9999 Free 800.809.5242 Fax 303.432.0999 www.hindmansanchez.com

         {05237670.DOC;1}
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                             The proximate cause of an injury is that cause which in a continuous, natural sequence,
                             unbroken by an efficient intervening cause, produces the injury as a natural and probable
                             consequence of the wrongful act.”

                  Proximate cause is usually treated by the courts as a matter for jury consideration, and many courts
         consider the likelihood that the defendant could have foreseen the injuries to be a factor in proximate cause
         analysis. Proximate cause (or lack thereof) has been the grounds for a number of successful defenses in
         negligence claims. Typically in these cases, the professional has prevailed because the plaintiff could not or
         did not show that the negligence which was alleged substantially contributed to the plaintiff’s loses. Rather,
         it was found that the losses were the result of such other things as the acts of third parties, the specific
         business decisions implemented by the plaintiff, or the general manner in which the plaintiff did business.

         Damages

                  Damages are a key part of any professional negligence claim, as they will determine the potential
         recovery of the plaintiffs. Just as the burden is on the plaintiff to prove negligence in his case, it is up to the
         plaintiff to prove the existence and extent of its damages. Details vary widely from one area to another, but
         many matters must be proved or pleaded specially in order to recover from them in a lawsuit. Obviously, if
         the management company and the association are at a state of litigation where damages are at issue, the
         community manager is well advised to have legal counsel to assist it in the calculation and limitation of
         potential damages.

         CONCLUSION

                 Although there are not presently many reported professional malpractice cases involving
         community management firms, it is likely that the number of cases will increase over the coming years. The
         advancing standards of the industry, and the simple increase in numbers of associations and management,
         companies is likely to lead to increased litigation in the fairly near future. While the increased
         professionalism and activity of the community management industry is to be lauded, the medical
         profession is an example that increasing capabilities alone will not necessarily limit professional liability.
         The prevention of negligence claims can be aided by zealous dedication to the provision of competent and
         professional assistance to associations, free from greed, fraud and misrepresentation. It is impossible to
         overstate the importance of goodwill between the association and its community manager as an effective
         risk management too. No amount of formal risk management can eliminate the need for continuous,
         courteous and effective communication between a community manager and his or her clients.




                                       HindmanSanchez          P.C. Attorneys at Law • Denver & Fort Collins
           5610 Ward Road., Suite 300, Arvada, Colorado 80002-1310 Tel 303.432.9999 Free 800.809.5242 Fax 303.432.0999 www.hindmansanchez.com

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