This is probably the most common question that clients ask us when they come to Kushner Carlson for help with their HOAs. And we generally give them all the same answer—in most cases, yes.
In fact, as is discussed below, not only are homeowners entitled to their attorneys’ fees and costs once they win a lawsuit filed against (or by) their HOAs, but a good HOA attorney can often ensure that homeowners are paid their attorneys’ fees even before a lawsuit is ever filed (i.e., during pre-litigation mediation), as well as during the pendency of a lawsuit if the case settles (which the vast majority do).
Homeowners Associations (“HOAs”) in California are governed by the Davis-Stirling Act, a series of statutes located in the Civil Code (although there are sections of other laws, such as those found in the Corporations Code, that also apply to HOAs).
There are multiple sections of the Davis-Stirling Act that entitle homeowners to recover their attorneys’ fees after winning lawsuits involving their HOAs. For example, a homeowner might sue his/her HOA to enforce the HOA’s governing documents. “Enforcing the governing documents,” can, however, mean a lot of things, such as forcing the HOA to maintain the common areas, hold required open meetings, provide proper notice of meetings, or repair damage to a homeowner’s property. Likewise, sometimes “enforcing the governing documents” can mean challenging an unfair decision by the board (e.g., preventing a homeowner from making an improvement to his/her property), stopping the board from treating certain homeowners differently than others, or wrongfully using community funds.
The bottom line is that the Davis-Stirling Act requires a court to award the “prevailing party” its reasonable attorneys’ fees and costs in an action to enforce an HOA’s governing documents. But before discussing what it means to be a “prevailing party,” you first need to understand what an enforcement action is.
Generally speaking, an enforcement action is any civil action or proceeding brought for the purpose of enforcing any or a combination of the following: (i) the provisions of the Davis-Stirling Act; (ii) the portions of the Corporations Code applicable to HOAs; or (iii) an HOA’s governing documents (e.g., CC&Rs, Bylaws, Rules and Regulations, etc.). The thing to remember is that the term “enforcement action” is broad and encompasses almost any issue that may arise due to the conduct (or, more likely, misconduct) of an individual homeowner, an HOA’s board of directors, or an HOA’s property management company.
For example, as was referenced above, many enforcement actions involve scenarios where: (i) an HOA infringes on a homeowner’s right to do something with his/her property; (ii) the board of directors fails to perform one of its material obligations (e.g., maintain the common area or make repairs to an owner’s roof, etc.); (iii) a neighbor does something that is prohibited (e.g., damages another’s property or causes a nuisance); (iv) a member of the board of directors is engaged in something called “self-dealing” (e.g., a director using the HOA’s landscaper to maintain the board member’s personal garden without paying that landscaper separately, etc.); and/or (v) the board treats certain homeowners differently (i.e., better) than others.
Now that you understand what might constitute an “enforcement action,” we can look at what it means to be a “prevailing party.”
To put it simply, a prevailing party is the party that “wins” the lawsuit. You might think that determining such a winner is a simple matter, but you’d be wrong. That’s not to say that there are no easy cases where the prevailing party is easy to identify. It just means that often that determination is not so obvious.
The Davis-Stirling Act neither provides a definition of the term “prevailing party,” nor provides courts with any identifiable rubric to follow. Rather, courts have been left to make that determination themselves, which they’ve done by developing a “test” that seeks to determine which party achieved its main litigation objectives. For example, take a case where the party who brings an enforcement action receives a favorable verdict on all of the litigated claims. That party clearly achieved its main litigation objectives, and thus would be deemed the prevailing party. Or, take the case of a party that dismisses an enforcement action prior to trial (or even during trial, but prior to a verdict being reached). Such a party could not claim to have achieved its main litigation objectives, and thus the defendant in that case (i.e., the party that didn’t sue) would be deemed the prevailing party.
Those are both the easy cases. The harder cases involve situations where, for example, a party files an enforcement action alleging multiple causes of action, and either dismisses some of those causes of action prior to trial, or prevails at trial—but on only some of their claims (or they receive only a portion of the monetary damages they were seeking). In those cases, it is difficult to predict who a judge might determine to be the prevailing party for the purpose of awarding attorneys’ fees.
The only thing close to a bright line rule is that if a homeowner receives a favorable verdict that gives him/her everything (or nearly everything) that he/she initially sought (or was fighting against) in the enforcement action, then the homeowner will almost certainly be deemed the prevailing party.
There are some exceptions to a party’s right to its attorneys’ fees upon prevailing, but all but one of those are beyond the scope of this article. That one exception relates to a provision in the Davis-Stirling Act that requires parties bringing certain types of claims to first engage in something called alternative dispute resolution (“ADR”) before proceeding with a lawsuit. Broadly speaking, ADR normally encompasses any type of dispute resolution that doesn’t involve the court. The two most common types of ADR are mediation and arbitration, with the latter being very similar to going to court (i.e., the parties present witnesses, evidence, and seek a ruling on the facts and law). The most obvious differences between being in court and engaging in arbitration rests with the limitations inherent in the arbitration arena (e.g., no jury, limited appeal rights, and depending upon the applicable arbitration rules, limited “discovery” rights). In the HOA context, however, ADR typically refers to mediation. So, when people talk about “ADR” in the HOA context, they’re really referring to some sort of mediation.
Mediation is just a fancy word to describe formal settlement talks. The idea behind mediation is that the dispute gets heard before a neutral person who tries to get both sides to come to the table and reach some sort of compromise. Although each party submits a confidential mediation brief to the mediator highlighting their respective positions regarding the facts, law, and settlement posture, mediation does not result in any rulings, findings, or decisions. It is strictly an attempt to reach a compromise. Either party can walk out if it looks like no settlement will be possible, and either party can hold fast on what it wants.
You should note that in many cases, before an HOA and a homeowner engage in ADR, they’ve often already participated in an even more informal type of dispute resolution called “internal dispute resolution” (“IDR”). While the Davis-Stirling Act does not explicitly require a homeowner to engage in IDR, many homeowners end up engaging in IDR without even realizing it. For instance, a homeowner may discuss their complaints/concerns at a homeowners’ meeting, plead their case during a hearing before the board, or communicate with the board through emails (or with the HOA’s property manager).
When homeowners are unable to resolve their disputes via IDR, the next step is ADR. And it’s when ADR comes into the picture that people start spending money on their attorneys. Indeed, while IDR usually does not involve attorneys (and in fact an HOA can bar a homeowner from having an attorney present during, say, a disciplinary hearing), when a case proceeds to ADR both parties typically have legal representation.
Attorneys’ Fees and Costs
So, why is ADR an important concept to understand in the HOA context? There are two primary reasons for this.
First, remember that the Davis-Stirling Act requires that before filing certain cases, the party bringing the lawsuit must first attempt to engage in ADR with the other party (and on the flip side, the defendant(s) must agree to participate in such ADR when the plaintiff makes a demand). Well, the consequences for refusing to engage in ADR (or refusing to participate once a demand is made) in such cases is that if the party who refuses to offer/engage in ADR ends up being the prevailing party, unless the court finds that such a party’s refusal was reasonable, that party will not be entitled to its attorneys’ fees despite being the prevailing party.
Second, while it’s true that the Davis-Stirling Act does not entitle any party to its attorneys’ fees in a dispute that never results in the filing of a lawsuit, it so happens that courts in California have decided that once a lawsuit is filed, the prevailing party is entitled not only to the attorneys’ fees incurred litigating the lawsuit, but also that party’s fees incurred during the pre-litigation ADR. In other words, ADR is considered to be the “start” of the litigation process, and thus a homeowner who prevails at trial will be able to add his/her pre-litigation (i.e., ADR) attorneys’ fees and costs to the fees incurred to prosecute his/her lawsuit.
So, the bottom line is homeowners in an HOA are entitled to their attorneys’ fees if they:
• Offer/Agree to participate in ADR (where required by the Davis-Stirling Act);
• Prosecute/Defend an enforcement action; and
• Prevail in the lawsuit, or at the very least, obtain their main litigation objectives.