Report and Recommendations of the Association Legal Counsel Work Group (June 2011)
The Legal Counsel Work Group was formed as a result of comments from attorneys who attended the 2010 Chicago Legal Seminar that they needed additional guidance on the role of association counsel during ethics and arbitration hearings. Local practices of associations vary widely, ranging from counsel assuming the role of prosecutor (asking questions of witnesses and conducting cross-examination) to speaking only when a specific question is directed to counsel by the hearing panel chair. While neither of these extremes is optimal, the National Association’s Code of Ethics and Arbitration Manual (Manual) offers limited guidance to associations, their leadership, or their counsel as to counsel’s appropriate role. A work group of association attorneys with experience in supporting ethics and arbitration hearings was created to provide additional guidance and resources to associations and their staff and counsel. Several of the Work Group’s recommendations would require action by the National Association’s Professional Standards Committee.
The discussion of the role of counsel in ethics and arbitration hearings included pre-hearing concerns, post-hearing remedies (appeals and procedural reviews), training/counseling boards of directors on their role/responsibilities in Code enforcement and dispute resolution, training and supporting grievance committees and hearing panels, best practices, resources the National Association might make available, and areas of the Manual which might be amended. The Work Group also developed a suggested “job description” for association counsel that goes beyond counsel’s role in professional standards matters.
The Work Group’s suggestions are intended to assist association counsel more effectively and efficiently represent their associations and avoid potential liability. Counsel should review these recommendations with the Association Executive to determine whether to modify any current practices.
Association Counsel’s Involvement with the Grievance Committee
- Remind members of the grievance committee of their role and that all matters are strictly confidential.
- Remind grievance committee members they should look closely at the information submitted and that they should not engage in conjecture.
- Ensure minutes are appropriately written; motions to add or delete Articles and/or respondents should be clear, concise, and understandable.
- Assist the grievance committee in determining timely filed issues, whether a matter is arbitrable, and/or whether an arbitrable issue is too legally complex for a panel to resolve in a meaningful way.
- Assist the grievance committee in determining whether an ethics complaint should be held in abeyance if the same matter addressed in the ethics complaint is the subject of civil litigation or is pending before any regulatory or administrative agency.
Association Counsel’s Involvement Before and During the Hearing
- Meet separately with each party and their respective counsel prior to the hearing to ensure parties and counsel understand the process. For example, counsel can inform attorneys representing parties that the rules of evidence and procedures do not apply in the association’s forum.
- Meet prior to the hearing with the panel to focus them on their role. If there are questions concerning whether a matter was timely filed, is arbitrable, or is too legally complex, counsel can provide guidance. Remind inexperienced chairs that rushing through the script does a disservice to the parties.
- Ensure the procedures are followed. Where appropriate, review the hearing procedures with the chair prior to the hearing.
- Assist the chair in “managing” counsel representing parties.
- Assist with questions about admissibility of evidence, not only with respect to last minute documents parties want to submit but also with respect to unexpected witnesses. Counsel may pass a note to the chair or ask the chair to take a short recess to assist the panel chair in ruling prudently.
- Make recommendations about how exhibits are numbered.
Association Counsel’s Involvement During Executive Session
- Remind the panel of the standard of proof and the burden of proof.
- Review and be prepared to refer the panel to applicable Standards of Practice, case interpretations, policies, laws, etc.
- Refrain from answering substantive questions on the merits of the case. Offer an opinion only on legal or procedural issues.
- Refocus the panel if questions of proper application of the Code of Ethics arise. Remind the panel that association counsel will answer questions of law and procedure, but that the panel must determine proper application of the Code and/or entitlement to compensation.
- Remind panelists inclined to split an award, if even allowed by state law, that split awards are the exception rather than the norm.
- Review ethics decisions to ensure they include findings of fact and correctly apply the Code to those facts. Findings of fact should be based on the evidence submitted to the panel.
- Assist arbitration hearing panels by ensuring the award is written properly (e.g., a broker principal’s company should not be named in the award if the principal is the only named party).
- Remind arbitration panels that attorney’s fees, punitive damages, and interest are generally not part of any arbitration award unless expressly provided for in the agreement giving rise to the dispute.
- Remind ethics hearing panels about the importance and value of progressive discipline.
- Ask the panel about the seriousness of the violation (i.e., whether the punishment “fits the crime”).
- Assist arbitration hearing panels work through the arbitration worksheet and arbitration guidelines and properly apply the procuring cause factors.
- Be mindful of potential antitrust concerns.
- Keep the panel focused. Ensure that conversations between panel members and/or staff do not devolve into personal issues or discussions of business models.
- Focus the panel on the evidence and the need for the panel to make its decision based only on the evidence and testimony.
Association Counsel’s Involvement During Appeals and Procedural Reviews
- Ensure the tribunal knows its role and scope of authority.
- Remind the directors of the need for confidentiality.
- Review requests for appeal/procedural review and, when the association decides it is appropriate, help prepare the hearing panel chair.
- Identify potential liability issues.
Association Counsel’s Involvement Absent an Appeal when the
Board of Directors Reviews Ethics Decisions
- Assist in determining if the sanctions are appropriate.
- Assist in determining if the Code of Ethics was properly applied.
- Remind the directors of policy limitations when the directors want to “increase” discipline.
Use of Association Counsel in Professional Standards Training
- Involve association counsel in setting the agenda for the training. Rely on counsel’s experience and involve counsel in training the grievance committee, hearing panels, and board of directors. Counsel can be a wealth of knowledge in providing guidance in drafting findings of fact, ensuring fairness, following procedures, and assisting tribunals appear neutral (i.e., no “doodling” during hearing, watching body language and tone of voice [no eye rolling or accusatory tone], no lecturing parties, etc.). See Appendix 1 (PDF: 102.97 KB) for an example of an outline used for a training program.
- Develop mock hearings and other interesting formats for adult learners. See Appendix 2 (PDF: 669.20 KB) for mock hearing documents and sample narratives.
- Remind attendees about conflicts of interests and circumstances under which they should disqualify themselves.
- Discuss the confidentiality provisions in the Manual.
- Explain to tribunal members that just because a similar incident happened to them, they should not seek justice for that incident in the case at hand.
- Inform attendees of state laws and governance structures. For example, arbitration hearing panels should know if they can proceed without a respondent present depending on state law (and the option chosen by the association—see Section 48 of the Manual).
- Consider offering hearing panel chair training.
- Develop exercises directed at proper application of the Code.
- Remind attendees they cannot “blame” a party for the actions of his or her counsel.
Best Practices for Associations and Counsel
- Allow alternates to observe several hearings before serving as a voting member of a panel.
- Hearing panel chairs should have served as a voting member of a previous hearing panel or an alternate who has viewed several previous hearings.
- Association counsel must be neutral. Counsel does not ask questions during hearings or make decisions on the merits of a case.
- Staff should call counsel when it appears a problem is developing. Develop a checklist of when to call association counsel.
- Adapt the Manual to be adopted by the local association to conform to local policy and state law. Make decisions on those areas of the Manual where there are options. See Appendix 3 (XLS: 42.5 KB; compliments of Peggy Lynch of the Richmond Area Association of Realtors) for a policy and procedure matrix.
Consider having counsel present at a hearing (and possibly in executive session) when:
- one or more of the parties is represented by counsel
- staff believes it prudent due to difficult or complex issues
- one or more or the parties is challenging or contentious
- one of the parties is an association director
- a party brings a court reporter
- the respondent has previously been found in violation of the Code of Ethics
- the amount in dispute is large
- staff and/or the hearing panel chair is inexperienced
- a party has “history” with the association or is litigious
- If counsel cannot be present, consider requesting that counsel be available by telephone should an issue arise immediately prior to the hearing, during the hearing, or during executive session.
- Association counsel should review all decisions of ethics hearing panels, regardless of whether counsel attended the hearing. If, in counsel’s opinion, the findings of fact do not support the conclusions, counsel should work with the hearing panel to redraft the decision so the findings of fact clearly support the conclusion of a violation (or no violation) for each Article charged. Counsel can start those discussions by asking, “What evidence in the hearing supports the conclusion?” Panels may also use the information included in Appendix 4 (DOC: 83.5 KB), Appendix 5 (DOC: 36 KB), and Appendix 6 (DOC: 60 KB) to assist in deciding what facts support a panel’s conclusion concerning each Article and what discipline is appropriate.
- Counsel should review the Summary of Professional Standards Changes made available online at Realtor.org in January of each year.
- The National Association should develop and make available frequently asked questions (with answers) for association counsel.
Assist the association in developing an ethics form letter or ethics fact sheet (see Appendix 7 (PDF: 467.16 KB) and Appendix 8 (PDF: 31.56 KB), respectively) and an arbitration form letter or arbitration fact sheet (see Appendix 9 (PDF: 493 KB) and Appendix 10 (PDF: 33.71 KB), respectively) to be sent to parties and their respective counsel prior to the hearing. Information included in the sample letters/fact sheets could address the following:
- document submittal
- challenges for cause
- how a party can compel a witness to attend a hearing or evidence to be submitted
- subpoenas (if state law will allows)
- missed deadlines
- a shortened version of the Manual and a statement to the effect that trial binders are unnecessary. See Appendix 11 (DOC: 362 KB).
- If civil litigation or a matter before the real estate licensing authority or any other regulatory or administrative agency is pending in a matter arising out the same facts and circumstances giving rise to an ethics complaint, the ethics complaint should be held in abeyance pending the conclusion of the civil litigation or proceeding.
- Don’t discourage the filing of an ethics complaint or an arbitration request. Allow the grievance committee to fulfill its role. Staff or counsel should not tell a complainant, for example, that a matter is not timely filed or is not arbitrable.
- Encourage mediation and use of ombudsmen.
- Assist in creating a professional standards record retention policy, including committee minutes, case files, recordings, etc.
- Adopt a policy authorizing a copy charge per page for documents brought into the hearing that need to be copied.
- Review minutes to ensure that they include only necessary information.
- Record only the hearing. Recorder should be turned off during any recess and immediately after the hearing ends (or the court reporter is advised by the chair “this is off the record”).
- Assist associations in making choices to ensure the Manual reflects local association policy and procedures.
- Be alert to antitrust issues and how they might affect the association.
- Provide guidance on issuing subpoenas (if applicable).
- Do not represent clients before the association in a professional standards matter if you are the association’s counsel.
- Develop an ethics advocate program where well-informed, respected REALTORS® assist parties in preparing their cases. See Appendix 12 (DOC: 87 KB), Appendix 13 (DOC: 78.5 KB), Appendix 14 (DOC: 47 KB), Appendix 15 (DOC: 51 KB), and Appendix 16 (DOC: 33.5 KB).
Common Questions, Procedural Issues, and Proper Application of the Code of Ethics
- Is the matter timely filed?
- What should an association do if one of the parties cannot attend a scheduled hearing?
- What should an association do if a witness will not (or cannot) attend a scheduled hearing?
- How are postponement requests handled?
- When should a hearing panel chair call a recess?
- When should remote testimony be allowed? See Appendix 17 (PDF: 26.26 KB) for a sample policy related to remote testimony.
- How should an association handle last minute documents and/or witnesses?
Possible Changes/enhancements to the Code of Ethics and Arbitration Manual
(Which Could be Considered by NAR’s Professional Standards Committee)
- Allow for prehearing meetings when a panel must determine if a matter is arbitrable, timely filed, or too legally complex.
- Allow associations to charge continuance fees in both ethics and arbitration hearings that would be in addition to the maximum permissible for arbitration filing deposits. Alternatively, raise the maximum filing deposit for arbitration.
- Allow associations to charge a copy fee per page when a party brings documents to the hearing without providing sufficient copies for the panel and the other side. This would be in addition to the maximum permissible for arbitration filing deposits.
- Require parties to submit all of their documents to the association and to the other party(ies) 15 days prior to the hearing. Chair could still admit new documentation at the hearing for good cause.
- Enhance the procedural scripts by adding another question by the hearing panel chair asking whether any party has any other comments prior to making closing statements.
- Clarify in the procedural scripts that opening statements are intended to provide parties with an opportunity to share a general overview of their position with the panel. Opening statements are not a party’s case-in-chief; they should last only a minute or two.
- Adjust Section 23 (a) which provides that “within twenty (20) days after the Hearing Panel’s final decision has been rendered if no petition for rehearing has been filed, or within twenty (20) days after the Hearing Panel’s final decision subsequent to the rehearing, or within ten (10) days after denial of a petition for hearing, the complainant or the respondent may file an appeal with the President” in light of the language in the administrative time frames for ethics proceedings that provides that an appeal must be filed within 20 days after the decision is mailed (or within ten days after the rehearing request is denied). A hearing panel’s decision is considered final once signed by a majority of the hearing panel but the panel has 10 days to file that decision with the association. This could result in confusion about when the 20 days begins to run (from the date the decision is signed, from the date the decision is filed with the association, or from the date it is mailed).
At the National Association’s Attorney Seminar
- Consider asking attendees to share their concerns and issues relative to professional standards. Those issues and concerns could then be shared with the appropriate committee.
- Consider offering a program the afternoon prior to the Attorney Seminar for attorneys to delve into challenging professional standards issues. Material from the National Association’s Professional Standards Education Seminar, typically held in August, could be shared with association counsel so they are informed about what challenging issues and questions have been addressed by the National Association the preceding year. Additionally, any of the topics listed immediately below under the section titled “Role of counsel (general issues—‘job description’)” might also be covered during this time.
Role of Counsel (General Issues—“Job Description”)
- Counsel should set staff and leadership expectations, making it clear that the association is the client, not staff or leaders.
- Be vigilant about not setting policy for the association. Counsel’s role is to advise on legal issues.
- Ensure minutes are properly written, including clear, concise motions.
- Train the members of the board of directors in their duties under corporate law.
- Remind directors that they need to review and understand the association’s financial statements.
- Review election procedures in the association bylaws to ensure they are consistent with state law.
- Assist the association in following association governing documents/procedures/policies.
- Review and guide the association relative to the National Associations Master Errors and Omissions Insurance Policy. Assist the association in making determinations about what additional coverage the association should acquire.
- Review the National Association’s annual summary of professional standards and multiple listing policy changes at Realtor.org.
- Ensure that the optional professional standards provisions chosen by the association are consistent with state law.
- Ensure that required annual reports are filed and that counsel provides a legal audit letter.
- Develop a document retention policy and encourage staff and leadership to follow that policy relative to committee meetings, contracts and leases, corporate and subsidiary governing documents and filings, employee records, legal opinion letters, general correspondence, etc.
- Aid the association in establishing a conflict of interest policy for directors.
- Review the association’s employee manual and update it as needed. On an as needed basis, assist the association with applying association policies when issues arise.
- Assist in developing severance packages.
- Review contracts/leases the association enters into.
- Inform the association of member-specific legal issues and provide education as necessary.
- Remain current concerning licensing laws and regularly review the licensing authority’s minutes.
- Advise on intellectual property issues (patents, trademark issues, copyright, and music licensing).
- Advise on REALTOR® trademark issues.
- Assist with legislative and lobbying initiatives.
- Review the client’s lockbox policies and rules and assist the association with enforcement.
- Provide guidance on membership issues.
- Provide guidance on multiple listing issues.
- Assist with the development and amendment of governing documents and standard forms.
- Assist with changing the structure of the association and multiple listing service as determined desirable by the directors—dissolution, merger, regionalization, etc.
- Sensitize members to issues related to mortgage fraud.
- Be aware of relevant emerging real estate and corporate law issues.
- Attend board of directors meetings.
- Counsel the directors and the association executive about the proper use of e-mail.
- Advise on social media, texting, and e-mail issues affecting members’ business dealings.
- Remind the association executive of staff’s appropriate role, including conflict of interest issues, as needed. Assist the association executive and directors in navigating issues related to potential conflicts of interest.
- Advise on financial issues when requested.
- Assist with association and MLS strategic planning.
- Be involved in training professional standards tribunals.
- Attend the National Association’s Attorney Seminar and/or the Advanced Professional Standards Seminar.
- Refrain from representing parties in professional standards matters coming before the association.
- Recommend use of outside counsel as necessary.
Members of the Association Legal Counsel Work Group
Joseph Babb, Austin, Texas
James Bowditch, Missoula, Montana
John Giardinelli, Canyon Lake, California
Jerald Jones, Shreveport, Louisiana
Kevin King, Madison, Wisconsin
John Kraft, New Albany, Indiana
Sarah Petcher, Fairfax, Virginia
Steven Ross, Hackensack, New Jersey
Steven Simons, Ft. Lauderdale, Florida
Andrew Taylor, Wilmington, Delaware
Staff that attended work group