Community Association Managers (“CAM”) are very busy working with their boards of directors caring for the common areas, handling the association’s financial affairs, collecting assessments, and ensuring that the community’s rules and regulations are enforced. Unfortunately, to cut costs, CAMs are frequently asked to prepare forms and provide advice that should properly be dealt with by an attorney. In this regard, both the CAM and boards must exercise caution to avoid having the CAM participate in the unlicensed practice of law.Community Association Managers (“CAM”) are very busy working with their boards of directors caring for the common areas, handling the association’s financial affairs, collecting assessments, and ensuring that the community’s rules and regulations are enforced. Unfortunately, to cut costs, CAMs are frequently asked to prepare forms and provide advice that should properly be dealt with by an attorney. In this regard, both the CAM and boards must exercise caution to avoid having the CAM participate in the unlicensed practice of law.
Each state defines and governs the practice of law to protect its citizens from the damage and wrongs committed by unlicensed practitioners. California Business and Professions Code section 6125 codifies California’s interest: “No person shall practice law in California unless the person is an active member of the State Bar.” Moreover, California defines the "practice of law" broadly:
[A]s the term is generally understood, the practice of law is the doing and performing services in a court of justice in any manner depending therein throughout it various stages and in conformity with the adopted rules of procedure. But in a larger sense it includes legal advice and counsel and the preparation of legal instruments and contracts by which legal rights are secured although such matter may or may not be depending in court.1
California’s Office of the Attorney General deems the unlicensed practice of law as a form of fraud, and those engaged in it can be criminally prosecuted. Business and Professions Code §6126(a) provides: “Any person . . . practicing law who is not an active member of the State Bar . . . is guilty of a misdemeanor punishable by up to one year in a county jail or by a fine of up to one thousand dollars ($1,000), or by both that fine and imprisonment.” Almost all states have similar penalties.
While California has not specifically addressed the unauthorized practice of law by CAMs, other states have. In 1996, the Florida Supreme Court issued an advisory opinion on whether several aspects of a CAM’s work constitutes the unauthorized practice of law. The Florida Supreme Court made the following determinations:
Functions That Do Not Constitute the Practice of Law:
- Completing State forms
- Drafting certificates of assessments
- Preparing election forms including notices and ballots
- Preparing Notices of meetings and meeting agendas
- Preparing affidavits of mailing.
Functions That Do Constitute the Practice of Law:
- Preparing lien forms
- Determining the timing, method and form of notice required for association action
- Determining voting rights and the necessity for voting to take association action
- Responding to questions concerning the application of law to specific matters being considered or giving advice regarding the legality of an action
- Drafting proxies
- Giving advice regarding the exercise of a right of approval or first refusal
- Interpreting or making changes to the Declaration of Covenants, Conditions and Restrictions and/or the Bylaws
Remember, the unauthorized practice of law is a crime. There are two very important consequences that may result from a board asking its CAM to perform legal services in an effort to save the cost of hiring a lawyer. First, if things go awry, the board will likely lose the protection of the business judgment rule. By statute, board members are protected from personal liability for errors in judgment so long as the members’ decisions were made in good faith: a manner which the directors believe to be in the best interests of the association, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.2 Second, it is probable that both the CAM’s and the association’s insurers will refuse to provide a defense and indemnity to either the CAM or the association for such activity.3 Therefore, the CAM and/or the association will be personally liable for any damages that result from the illegal activity.
Members of the board of directors and the CAM must always be cognizant of the limits of the CAM’s abilities and powers. Neither the board nor the CAM should put themselves at risk by having the CAM perform legal services to save the expense of hiring an attorney. Do not be penny-wise and pound-foolish.
1 People v. Landlords Professional Services (1989) 215 Cal.App.3d 1599, 1604-1605; see also, Mickel v. Murphy (1957) 147 Cal.App.2d 718, 721.
2 Ca.Corp.Code §7231(c); see also, Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249, 253.
3 20th Century Ins. Co. v. Stewart (1998) 63 Cal.App.4th 1333, 1338-1340 (no coverage for criminal acts).