Reading the papers you've just been served, your heart quickens in fight-or-flight mode. Part of your mind can't believe your eyes. You've just been sued, and you aren't sure what your next step should be.

To people who aren't lawyers or well-versed in the law, considering what to do once you've been sued can be a frightening thing. A small misstep might do more harm than good, or even get you shackled to testimony you didn't realize you were making. Who do you talk to, and what do you say? This legal quandary is even more difficult when the people involved in the dispute are members of the same community. What do you do if you are being sued as a member of the board for something that you know nothing about? Who do you call first?

In co-op and condo communities, a legal issue can pit neighbor against neighbor, and hard feelings will sometimes remain long after the argument has ended. Even in the most cordial of such communities, legal disputes can arise between a resident and the board, between two or more residents, or between a group of residents and the board or management company. Knowing where to step and how to respond after being slapped by a lawsuit can mean the difference between a quick end to the conflict or a protracted legal battle.

Making Your First Moves

After you've received word of the lawsuit, the first thing you should do is call your lawyer, advises David L. Berkey, managing partner of the Manhattan-based law firm of Gallet Dryer & Berkey LLC. "Second, notify your insurance company. It may be the liability carrier that is notified. If it's an individual, they should advise their carrier as well as the co-op's carrier on the suit," he says.

Acting properly after being served in a lawsuit is partly a matter of avoiding doing certain things. A person who has been served as party to a lawsuit would be foolish to ignore it, says attorney Steven Ganfer, a partner in Ganfer & Shore, based in Manhattan. "The lawsuit will not go away," he says. "After you've notified your counsel, follow up to make sure they're on top of [the suit]."

One good thing to bear in mind is to not panic, advises attorney Robert Braverman, managing partner of Braverman & Associates in Manhattan. "Don't reach out to the plaintiff's attorney—especially if you're not an attorney."

Also, remember whose side each player in the lawsuit is on. At first glance, a resident might think that the building's attorney is on his side, but that may not necessarily be so. In the case of a board member being sued, the building's attorney will look at the legal papers and give notice to the board's directors and officers (D&O) insurance carrier. This insurance carrier may provide counsel for the association, or the building attorney may do the defense. The building's attorney always represents the association, not individual residents. In the case of a resident being sued by a board, the building's attorney is that resident's opposing counsel.

If you're a board member who has been sued, contact the managing agent and/or the building's counsel, and ask the other board members if they've been sued as well, Braverman advises. "If you're a board member, you need to see what legal coverage the building will provide. In most cases, board members' legal fees will be covered by insurance carriers."

Generally speaking, a resident who has been sued should not speak to anyone but his lawyer and insurance carrier about the suit. Don't give anybody but those people a statement, says attorney Phyllis Weisberg, a partner with Manhattan-based Kurzman Karelsen & Frank. "And don't destroy any evidence—not even an e-mail."

Defusing the Suit

Sometimes the best efforts of a resident to stop a lawsuit fail, because it is sometimes impossible to get one side to yield or back down. A person's home often goes to the core of who that person is, and when a person feels that his or her home is being violated, tempers can get hot. Emotions can cloud reason, and what may have been a civil discussion could very well result in tomorrow's lawsuit.

"With some of these co-op and condo cases, it's not necessarily about the money," Braverman said. "The shareholder with 20 years of plantings might not want to get rid of them for the new terrace. So often, it's very emotional."

A lawsuit that is determined to have merit can end in a settlement or may end in a trial in which the court gives a judgment on the matter. In extreme cases, a resident who flouts the court's verdict could be slapped with a contempt order that could result in major fines—or even jail time.

Boards sometimes sue residents who violate bylaws or house rules. Typically, the resident has broken house rules regarding noise, odors, unauthorized alterations to an apartment or other regulations. Sometimes, a shareholder sues because he thinks the building has failed in its lease. In either case, the losing party usually will have to pay the legal expenses of both sides in the dispute, which is a good enough reason to end the lawsuit as quickly as possible.

There are a number of alternatives for parties hoping to defuse a lawsuit before it goes nuclear, as it were. Some boards invite the feuding shareholders to air their grievances before the board. Other boards will require arbitration between the parties, and there are also plenty of professional mediators who are trained to help in such instances, says Berkey. "We always counsel people to try to work things out. The worst situation is [when a party] ignores the problem."

The Bar Association of the City of New York recently set up a mediation program for co-ops and condos. Parties can submit their disputes to qualified mediators. Weisberg is on the mediation subcommittee of the co-op/condo committee of the association. She says that certain disputes can be amicably settled through mediation, while there are more serious problems that might require a lawsuit.

"There are complaints that you run into, such as shareholders complaining about noise—that may be better suited for a mediation process," she says.

Avoiding Legal Disputes

Avoiding lawsuits really is a matter of saving money, since lawsuits in co-op and condo communities can be costly undertakings. According to Berkey, a person who sues and is very lucky and quickly negotiates a settlement could pay under $2,000 for the lawsuit. "The other end of the spectrum is a person who is a lawyer, or who has unlimited funds with which to sue. We've seen cases that exceed $1 million in legal fees," he says.

The best way to "win" a dispute in your community is to not have the problem end up in the court system at all. Residents of co-ops and condos can avoid most domicile-related lawsuits by simply following the rules of the community, says Weisberg. "There are people who say, 'I own this, you can't tell me what to do.' But it could cost them," she says. "You are in a type of communal living where you have to live by the rules of the community."

Lawsuit-happy residents who bring frivolous suits against their neighbors, the board or others in the community can find themselves scrutinized by the board and/or the legal system itself. Such was the case of co-op resident David Pullman. Pullman was found to have brought frivolous lawsuits against those in his building, and his story serves as a legal precedent in such situations. These scenarios can result in the resident being booted from his home through an objectionable conduct lease termination—as Pullman was—or they may result in the resident being required to have a lawsuit approved by the court before it can be filed against another party.

In an objectionable conduct lease termination case, the board holds a meeting during which the resident is given reasons for the would-be termination of his lease. The resident and his attorney are able to speak on the resident's behalf. At the end of the meeting the board votes on the proposed lease termination, and if the termination is OK'd, the resident is given a date by which he must leave the building.

People who decide to file a community-related lawsuit might want to reconsider all of their options before doing so. Once the lawsuit has been decided or settled, it will leave a permanent mark in the public record. Because most court cases now are filed electronically, a simple search can uncover whatever lawsuits a resident, or potential resident, has been involved in. Having a history of litigation can also affect a person's credit score, attractiveness to lenders, or desirability to building boards. In other words, that lawsuit could keep you out of the next home you want to buy. So tread carefully, regardless of what side of the paperwork you happen to be on.

A legal battle is a temporary action, but the animosity and discord that results can sometimes last a lifetime. In this lawsuit-prone era, residents don't always fully consider the ramifications of suing their neighbor or their building's board.

"Judges have joked with me and said that divorces and co-op cases are the two hardest cases to settle," says Braverman. "Some judges have told me that co-op cases are harder than divorces, because the parties have to live together when it's over."

Jonathan Barnes is a freelance writer living in Pittsburgh and a frequent contributor to The Cooperator.