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From the Editor 63: Lawsuits
Ever read Bleak House? It’s a sprawling novel by Victorian novelist Charles Dickens, featuring a variety of plots and subplots. I read it years ago, and the one subplot that sticks with me is the case of Jarndyce v. Jarndyce. The lawsuit revolves around the heirs fighting for a large inheritance. As the novel begins, the case has already been dragging on for many generations and when the legalities are finally resolved near the end of the story (spoiler alert), legal costs have eaten up the whole estate. Dickens was attacking the chancery court system, saying at one point: “Suffer any wrong that can be done you rather than come here!”
I thought about Jarndyce v. Jarndyce the other day when I heard about a small co-op that is currently involved in a seemingly endless lawsuit. It seems that there are two commercial spaces that were sold by the co-op’s sponsor to a slightly shady real estate developer. He took on the sponsor’s 99-year sweetheart lease, which gave the co-op very little say over who could rent out the space or what restrictions the board could put on him – he just had to obey the law and he would be okay.
The co-op and the commercial space shareholder (let’s call him CSS) lived in an uneasy truce, until CSS flaunted the law – he did major construction work in one of the spaces without getting the Department of Buildings (DOB) to sign off on it. The board protested but to no avail. It sent cease-and-desist letters in vain attempts to stop the dusty, illegal work. It got the DOB – after numerous calls – to visit. Ironically, since the co-op was the landlord, it got a violation from the DOB, not for the illegal work but for not allowing the agency access!
Pushed into a corner, the board sued. And now, like Jarndyce v. Jarndyce, the case seems to go on, with a life of its own. One week, the lawyers seem near settlement; the following week, they are miles apart. Blame for the delays is assigned to the CSS, to the CSS attorney, to the two different attorneys the co-op has employed, to the DOB. Meanwhile, expenses are mounting.
I asked attorney Steve Wagner, a partner in Wagner Berkow, what the board should have done? How could the matter be kept from turning into another Jarndyce?
Wagner was very clear: “Once you start, the key is [knowing] what you [are] going for and what you [are] going to gain. You should litigate in two situations: (1) where you are going to make a lot of money, and (2) where you have no choice (if the co-op gets sued, you can’t decide not to litigate anymore; unless you are willing to pay the other side, you may not have a choice).
“If, for example, you have commercial space that’s worth $150,000 a year, but you are getting $36,000 a year, and there are six years left, you can figure out the benefit of going after that,” Wagner explains.
“And the other thing,” he said, “is that when you bring a lawsuit, the one thing that you need to do at the beginning is to get from your attorney an analysis of the case, examining the issues and predicting the likelihood of success.”
As part of that analysis, your attorney should provide you with a budget you can use to compare your case with the predictions discussed above, so you can have an idea of how you are doing. “You should understand the process [of] what is anticipated in the lawsuit, and you can basically follow along using those initial documents as a roadmap,” observes Wagner.
But, above all, don’t take a principled stand. “When you have a choice,” he advises, “you don’t litigate over principles, unless the principle is somebody is thumbing their nose at you, saying, ‘I am subletting even though it’s not allowed and I didn’t get permission.’ Well, if you are going to have a sublet policy, you have got to enforce the rule.”
Even a supposedly slam-dunk situation like that can be expensive, however. Wagner recalls one co-op spending $150,000 on litigation over an illegal sublet case. That litigation went on for seven years. No Jarndyce v. Jarndyce, but a pain nonetheless.