"All too often attorney fees become the tail that wags the dog in litigation."
Deane Gardenhome Assn. v. Dentkas (1993) 13 Cal.App.4th 1394, 1399.
American Rule. “With regard to an award of attorney fees in litigation, California generally follows what is commonly referred to as the ‘American Rule,’ which provides that each party to a lawsuit must ordinarily pay his or her own attorney fees. The American Rule is codified in Code of Civil Procedure section 1021, which states in relevant part: ‘Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties....’” (Tract 19051 Homeowners Assn. v. Kemp (2015) 60 Cal.4th 1135, 1142.) California law requires express authorization, by statute or contract, for an attorney fees award to the prevailing party. (Code Civ. Proc., § 1021; see R. Rossi, Attorney’s Fees (3d ed. 2021) §6.7 [“In view of the well-established ‘American Rule’ generally denying the allowance of attorneys’ fees in the absence of contract or statute, courts have often stated that statutory attorneys’ fees may be awarded only when ‘expressly,’ ‘explicitly,’ or ‘specifically’ authorized by statute and that statutes allowing an award of fees will be strictly construed”].)
Pre-Litigation Legal Fees. Neither owners nor associations are entitled to legal fees incurred in a dispute that does not lead to litigation. For example, each side hires a lawyer and exchanges a series of letters with demands and counter-demands. If the matter is resolved or dies away, neither side is entitled to their attorney's fees. Civil Code § 5975 only authorizes a prevailing owner to recover their reasonable attorneys’ fees and costs following the conclusion of a successful action. If the dispute turns into litigation, the prevailing party is entitled to reasonable attorney's fees as determined by the court and depending on the nature of the dispute. The starting point for calculating attorney's fees begins with pre-litigation ADR. Because the amount of the award is discretionary with the court, the prevailing party could incur $50,000 in legal fees but be awarded only $20,000 or less by the court. Parties should never enter into litigation believing they will recover their legal fees. Recovery is always uncertain.
Directors Are Protected. Too often, plaintiff's attorneys name individual directors when filing an action for enforcement of the governing documents. Civil Code § 5975 only authorizes a fees award against the association not against its individual volunteer directors. Subsection (c) provides that in an action against a homeowners’ association “to enforce the governing documents the prevailing party shall be awarded reasonable attorney’s fees and costs.” Subsections (a) and (b) define the proper parties to such an action, which include only the association and property owners—not volunteer directors:
(a) The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of separate interests in the development. Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both.
(b) A governing document other than the declaration may be enforced by the association against an owner of a separate interest or by an owner of a separate interest against the association.
By statute, volunteer officers and directors are protected against personal liability for mistakes they make while carrying out their duties. Only the association, not its individual directors, is granted standing to defend an enforcement action. (Civ. Code, § 5980.) Furthermore, the imposition of personal liability for attorney fees on volunteer directors contravenes public policy.
The Legislature finds and declares that the services of directors and officers of nonprofit corporations who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California. The willingness of volunteers to offer their services has been deterred by a perception that their personal assets are at risk for these activities. ...It is the public policy of this state to provide incentive and protection to the individuals who perform these important functions. (Corp. Code § 5047.5(a).)
For additional information, see Protections Against Volunteer Liability.
STATUTES: The following statutes provide for attorneys' fees and/or costs:
Champir LLC v. Fairbanks Ranch Association (2021). The decision makes clear that once a party has achieved its litigation objective of enforcing the CC&Rs and litigation is no longer necessary, they can dismiss the action and obtain judgment for their attorneys' fees. Previously, courts struggled with jurisdictional issues of granting judgment for fees after a case was dismissed.
Marina Pacifica v. S.C. Fin. Corp. (2018). A party's failure to obtain its litigation objective does not automatically make the other party the prevailing party.
Artus v. Gramercy Towers (2018). Neither the language of the Davis-Stirling Act, nor the legislative history of the fee provision Artus invokes, evidences any intent on the part of the Legislature to depart from well-established principles that fees and costs are ordinarily not granted for interim success, and that the prevailing party is determined, and fees and costs awarded, at the conclusion of the litigation.
Retzloff v. Moulton Parkway Assn (2017). Former board members sued their association alleging the board was conducting business outside of meetings and failing to maintain and provide certain corporate records. Plaintiffs failed to attempt ADR as required by Civil Code § 5950. The association demurred and the court sustained without leave to amend. As prevailing party, the association moved for attorneys' fees. The Court of Appeal reversed the lower court's award of attorneys' fees concluding that Civil Code § 5235 does not authorize a court discretion to award fees to a prevailing association. A plain reading of “any costs” as used in section 5235(c) does not support the inclusion of attorney fees as costs. Section 5235(c) entitles a prevailing association to costs, not attorney fees and costs.
Almanor Lakeside Villas Owners Association v. Carson (2016). Even though the court struck down 90% of the fines levied by the association against and owner for a rental violation, the court decided the key issue was the association's right to enforce rules and impose fines for violations, thereby making it the prevailing party.
The Davis-Stirling Act does not define “prevailing party” or provide a rubric for that determination. In the absence of statutory guidance, California courts have analyzed analogous fee provisions and concluded that the test for prevailing party is a pragmatic one, namely whether a party prevailed on a practical level by achieving its main litigation objectives. (Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568, 1574 (Heather Farms); Salehi, supra, at pp. 1153–1154.) The California Supreme Court implicitly has confirmed this test. In Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 94, the court affirmed the award of attorney’s fees in an action to enforce a restrictive covenant under the Davis-Stirling Act, stating: “We conclude the trial court did not abuse its discretion in determining that the Association was the prevailing party … . On a ‘practical level’ 13 [citation], the Association ‘achieved its main litigation objective.’ ” (Ibid. [quoting Heather Farms, at p. 1574 and Rancho Santa Fe Assn. v. Dolan-King (2004) 115 Cal.App.4th 28, 46].)
Nellie Gail Ranch OA v. McMullin (2016). Failure to appeal a fee ruling deprives an appellate court of jurisdiction to decide the fee challenge.
Rancho Mirage Country Club HOA v. Hazelbaker (2016). An association's lawsuit to enforce a settlement agreement entered into during ADR is deemed an action to enforce the governing documents under the Davis-Stirling Act, which entitles the association to recover reasonable attorneys' fees. Also, a trial court has no discretion to deny attorney fees to a prevailing HOA. Only the amount of the award is committed to the sound discretion of the trial court.
Tract 19051 Homeowners Assn v. Kemp (2015). Prevailing owner can recover attorney fees under Civil Code section 5975(c) in a case brought by association against owner to enforce governing documents even though the court found the association didn’t exist. The Supreme Court held the plain reading of 5975(c) supports that the award of attorney fees is reciprocal in an action where the association brings the claim to enforce the governing documents regardless of whether the association exists. The recovery is based solely on the association’s claim to enforce the governing documents and not based on determining whether the association is a common interest development.
Grossman v. Park Fort Washington Assn. (2012). Normally, any attorneys' fees incurred prior to the filing of the complaint are not awarded. Here, the court concluded that the pre-litigation ADR process mandated by the Davis-Stirling Act is the actual start of litigation. Accordingly, it awarded attorneys' fees expended by the homeowner expended in pre-litigation ADR.
Salehi v Surfside III (2011). Susan Salehi sued her association alleging 10 causes of action. Three days before trial, she dismissed eight of her ten claims against the association. The association spent approximately $250,000 defending against her claims. Three days before trial, Salehi dismissed eight of her ten claims. The association subsequently sought recovery of the legal fees it incurred defending against Salehi's dismissed causes of action. The trial court denied the association’s request but the court of appeal reversed. The appellate court found that the association was entitled to recover attorneys fees from Salehi, reasoning that a party suing to enforce the CC&Rs must get their “ducks in a row” both procedurally and substantively before filing suit. Salehi had done neither.
That v. Alders Maintenance Assn (2012). That brought a frivolous election challenge. As the prevailing party, the association sought attorney's fees under the Davis Stirling Act. The award of attorneys' fees is allowable only when authorized by contract, statute or law. If a statute refers to the award of "costs and attorney's fees," attorney's fees are an item and component of the costs to be awarded and are allowable as costs. The court reviewed the statute (now Civ. Code § 5145(b)) and concluded the statute did not authorize associations to recover attorney's fees.
Bear Creek Planning Committee v. Ferwerda (2011). If empowering language is provided for in the CC&Rs, architectural committees may adopt standards beyond those set forth in the CC&Rs, i.e., it can adopt new design standards related to the improvement or development of lots. However, a committee may not unilaterally establish an attorneys’ fees provision for itself. Attorneys’ fees must be reciprocal and contractual--the committee's fee provisions did not seek to clarify existing language in the CC&Rs. Rather, it was an inappropriate attempt by the committee to insert a new provision that bound homeowners without their approval. Nothing in the CC&Rs gave the committee the power to insert into their architectural standards an attorney fee provision that was never in the CC&Rs.
Parrott v. Mooring Townhomes Assn. (2003). Plaintiff sought a preliminary injunction against his association. When he failed to receive one, he dismissed his complaint. The court awarded the association attorneys' fees. A prevailing party is one who prevailed on a practical level.
Mount Olympus POA v. Shpirt (1997). An owner does not have the right to recover attorneys' fees under the Davis-Stirling Act if his HOA is a voluntary association of homeowners having no power to charge or collect assessments. Such associations do not fit the definition of a common interest developments under the Act.
Heather Farms HOA v. Robinson (1994). The court declined to adopt a rigid interpretation of the term "prevailing party" and, instead, analyzed which party had prevailed on a practical level. The court concluded that a a voluntary mutual dismissals as part of a global settlement does not create a prevailing party.
Additional Resources: See "California Attorney's Fees" blog for additional cases.
Legal Invoices. See "Disclosure of Legal Invoices."
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