Home MLS & Associations Oh Lordy. Chicago (Association) Blows Up.

Oh Lordy. Chicago (Association) Blows Up.

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Image: Xaxor.com

 

I was going to just keep posting my series on REThinkFuture, but this development simply demands attention:

The Chicago Association of Realtors (CAR) is suing Andrea Geller, a CAR member and agent for Coldwell Banker, for defamation for public statements she made on Chicago Agent magazine’s story on the impeachment of former CAR President Bob Floss.

The lawsuit, which seeks damages in excess $50,000 from Geller, according to a Chicago Tribune story on the lawsuit, is believed to be the first such lawsuit in the association’s 129-year history.

Oh. My. God.

I wrote a couple of months ago about the unfolding drama in GLVAR, in which three members of the Association are suing the Association, its past CEO, and possibly members of its Board of Directors, and said that was a story that Association leaders simply could not ignore. I could not imagine for a second that a mere two months later, a major Association would actually take the step of initiating legal action against one of its own members. For defamation.

I don’t know the specific facts behind this lawsuit, and I suspect we’ll find out over time, but… I have to ask the Board of the Chicago Association of REALTORS something: Y’all didn’t read my post on GLVAR, did you?

There are some vital takeaways in this story for other Associations.

The CAR Lawsuit, In Brief

In brief, the CAR brought this lawsuit for defamation against Andrea Geller, a REALTOR with Coldwell Banker, roughly two weeks after this story broke in the industry press. The original article was a barely-nothing story, of the inside-baseball, politics of the Association variety that interests precious few people. Apart from the diehard members — if you will, the truly committed members of the Association — I’m guessing that most readers of Chicago Agent skipped over it.

But Andrea Geller, who serves or served on the Finance Committee of the CAR, started writing comments on that story. She backed up Mr. Floss’s claim that he had been pushed out as President because he demanded financial audits, then added a few comments of her own about the opaque financials, in her view, of CAR:

Over the time I sat as a member of the finance committee it became clear to me that there were irregularities which when asked about would be responded to in a round about way or direct responses from the CEO such as she does not answer to the committee, only to her board of directors. It is financials. Numbers are numbers not a short story or novel long explanation.

I assume that CAR also took umbrage at her comments about lack of background checks on the CEO, about compensation of the CEO and CFO, and many other negative thoughts. A number of VIP’s within CAR, including Ginger Downs, the CEO, went on that story and commented. People come out of the woodworks left and right, either in defense of CAR, or criticizing it.

So far, all is normal. It wouldn’t shock anybody to learn that there is a wee bit of politics in the Association world.

Then… CAR drops a lawsuit.

Why I’m Freaked Out

I have no vested interest in this case, one way or the other. I’ve met Ginger Downs a couple of times, and was impressed by her graciousness, leadership, and smarts both times. I know Andrea through various online forums, and have spoken to her on the phone once because she called me about my GLVAR post. But I’m not a member of CAR, not a REALTOR, etc.

What I am is a very, very concerned hanger-on to the real estate industry, who is watching this unfold with increasing alarm.

Consider: my biggest fear in the GLVAR story is that plaintiff’s attorneys would catch wind of the possible pot o’ gold at Associations:

Many of the class action plaintiff’s attorneys take on these kinds of cases on contingency basis, because they can reap significant financial rewards if the case settles or if there is a favorable judgment. Contingency fees can be as high as 40% of the total recovery. There is even a phenomenon of investors backing these kinds of high-risk, high-reward lawsuits, because of the potential for outsized money judgments.

My fear was and remains that a successful lawsuit, or a large settlement by GLVAR, would whet the appetites of the plaintiff’s bar who would then descend upon the Associations local, state, and even NAR, and start bringing lawsuit after lawsuit in search of a payoff.

My second fear, however, was that in the GLVAR lawsuit, Callister & Associates would bring a full-blown discovery request — as these firms typically do:

One of the most important strategies for plaintiff’s lawyers is to sue, and then get into discovery to see what else they might be able to dig up. If they find anything problematic while digging through the records of the defendant, emails, board minutes, depositions of witnesses, and so on, they can always amend the complaint to claim additional wrongdoing and more damages.

A key sentence in the article above for me from this standpoint is this: “GLVAR has denied the plaintiffs’ requests to see financial records and audits.”

Well, now that there’s a lawsuit in place, I’m fairly certain that the plaintiffs will seek to have the court issue a subpoena for those records, as well as all emails, communications, minutes of board meetings, etc. etc.

Where things get awfully funky here is that if the plaintiffs and their very savvy class-action lawyers find evidence of board inaction or board malfeasance, each and every board member who has ever served on the GLVAR board for the last ten years is facing the possibility ofpersonal liability.

I believed then, and I believe now, that such a development would more or less destroy the REALTOR Association as we know it on all levels. Think about it: if you have ever served on an Association Board, you might find yourself party to a lawsuit claiming violation of fiduciary duties, and your personal liability could reach millions of dollars. Who the hell would ever serve on an Association Board after that, even if there were an Association still left solvent after the lawyers get through with it?

In Light of These Fears…

Consider the fact that at a time when every single Association should be doing everything possible to avoid legal action with the attendant discovery, CAR chose to bring a lawsuit. Against a member. And not just any member, but someone who sat on the Finance Committee. In a situation where the previous President is pissed off, and claims he was pushed out/impeached because he demanded an audit.

Maybe it just had to be done, but… the risks strike me as very significant.

I have no idea what Andrea Geller intends to do. But if she decides to defend the lawsuit, any attorney even fresh out of law school would immediately countersue. And then, said attorney would probably expand it to become a class action lawsuit on behalf of each of the 12,500 members of CAR… and if the attorney is truly savvy, he’d expand it to include every single person who has ever been a member of CAR over the past X years. At its height, CAR boasted 18,000+ members.

And of course, in order to defend Geller from a charge of defamation, the lawyer would have to do one of a few things. One of the most important defenses against defamation is to prove that the statement in question was true. Truth is a complete defense, as we law-types say.

In order to establish whether what Geller wrote was or was not true, her attorney would absolutely want discovery into every single nook and cranny of CAR, from the financial statements to emails to board minutes so that he can prove that her statements were not defamatory.

Geller’s been demanding a third-party audit in her comments. Looks to me like she’s going to get it, even if she has to pay for it herself. No one outside, including me, knows what such an audit would show. But no company likes having an accountant hired by a lawyer going through its books. And God forbid that they find anything improper at all….

George Schultz, the President-Elect, says in a comment on this post that says that the deliberations of the Board of Directors leading to Mr. Floss being forced out is confidential, because of HR issues:

The Board’s deliberations on this decision involved highly sensitive personnel matters and the Board accordingly and appropriately conducted itself in a confidential, sensitive, and respectful manner to all parties involved. It would be entirely inappropriate for the Board or I to publicly disclose the specifics of these sensitive personnel matters. That’s just common sense and we are confident that our members appreciate our respectful handling of this decision.

Guess what? Those “highly sensitive personnel matters” and confidential deliberations may become part of a public trial.

On top of it all, none of us have any idea what lengthy discovery might uncover. No company, no Association, no organization anywhere is completely free of various embarrassing things that might go on in private. None of that might be actionable, or lead to any liability, but whatever is revealed may be embarrassing to a whole lot of people.

Sometimes, You Just Have To Sue… But…

Look, I get that sometimes, you just have to sue someone to stop an injustice. If you truly are defamed, you might need to bring legal action to protect your honor and your reputation. Sometimes, you have a dispute that simply cannot be resolved amicably. I get that.

But… to any Association executive or leader reading this… let me say this. Make absolutely damn sure that your records are sparkling clean, and all your i’s are dotted and all your t’s are crossed before you sue a member. It’s different from suing a third party, because a member has certain rights to bring a lawsuit against you.

Let me repeat what I wrote in my GLVAR post, because it’s so important:

The American Bar Association has published this document on liability issues for directors of nonprofits. It’s old, but I’m sure your Association’s legal counsel has up to date information on the circumstances under which a director can be held personally liable. You might check outthis easy-to-read guide on duties of nonprofit directors.

A couple of paragraphs from that guide:

Keeping informed (and making reasonable inquiries when appropriate) is a key to meeting a director’s duty of care. It may be prudent to consider the following activities
as essential in that endeavor:

  • Regularly attend board meetings.
  • Assure that the directors receive adequate information before taking appropriate board action (e.g., by requesting materials and asking questions).
  • Review the materials provided in connection with board meetings, particularly those used in reference to any contemplated board action.
  • Be familiar with the organization, its legal structure, governing documents (e.g., articles of incorporation, bylaws), exempt purposes (as represented in its governing documents, exemption applications and marketing materials), activities, and key stakeholders (including, but not limited to, staff).
  • Be familiar with general laws applicable to the organization (including those covered in the following Section B).

Exercising independent judgment is another key to meeting a director’s duty of care. Voting with the majority without independent judgment about whether such action is in the corporation’s best interest may be a breach of the duty. Caution must also be given to simply voting with a director who has purported expertise in an area relevant to the decision. While it may be prudent to give such expert’s viewpoint strong weight, a director should consider other views before making an independent decision regarding the board action.

If Callister & Associates can show to the court examples of conflicts of interest (and I’d be worried when board members are often brokers and agents whose dues pay for the Association) or breach of the fiduciary duty of care (the minutes had better show lively discussion by board members), then there is a non-trivial possibility that the court would allow for suits against the individual board members, at least to find out if any of them behaved improperly.

I really, really hope that CAR has its ducks in a row. Because what starts as a defamation action could very easily become an extinction horizon event for the Association.

Looking On the Bright Side

Is there any silver lining in this? Well… maybe.

We have no idea who is right in this dispute. Well, a court case would settle that question. If Andrea Geller really has been making knowingly false statements that besmirch the character of innocent people, and harm the reputation of CAR, then she does deserve to be sanctioned under the law. You can’t just go around defaming people and organizations.

On the other hand, if Andrea Geller is not telling baldfaced lies, if there’s truth to what she’s alleging… then clearly, CAR needs a real top-to-bottom cleansing. If the financial records really are a mess, then the members deserve to know what’s really going on, and hold people accountable.

So maybe the fact that one way or the other, the REALTORS of Chicago will be able to either trust their Association and their leaders without reservation, or replace them with better people is a silver lining?

Takeaways

In a way, the drama in Chicago is none of our business. It’s a dispute between the Association, its leaders, staff, and one of its members. I have no dog in that fight, at all. Unless you’re a member of CAR, I doubt you do either.

But I do think Associations and their leaders should take this as yet another opportunity to examine their own records, own decision-making processes, and own documentation of proper deliberation, proper behavior, and proper judgment. Do the right thing, and keep good records of doing the right thing, and you have nothing to fear.

If you’ve been sloppy with your meeting minutes, have sensitive things in your emails you would rather not have become public, and so on… think twice, then think again, and then ask for a second opinion, before you decide to sue a member.

-rsh

 

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