First District, Division Four and Second District, Division Two Uphold Two Fee Awards in Favor of HOAs.
One of the themes that emerges from our review of appellate decisions is how staggering and financially ruinous litigation can be if a litigant is on the short end of the “prevailing party” determination stick. Although sometimes homeowners can be big winners (see our July 24, 2008 post on Ritter & Ritter, Inc. v. The Churchill Condominium Assn. [homeowners awarded $532,159 in fees against HOA], which was a 2-1 decision with a sharp dissent), HOAs similarly can be the victors garnering large awards of attorney’s fees in their favor. The next two cases are illustrative of such a result, much to the chagrin (and possibly financial detriment) of the two losing homeowners.
Jones Ranch Homeowners Assn. v. Degnan
Dr. Degnan lived in Jones Ranch and liked to host large-scale social events, especially early fall or Halloween pajama parties where sexy costumes were encouraged for women and attending gentlemen were expected to bring at least two ladies as guests in order to gain entrance to the pajama party. Sheriffs reported that there were about 500 people at some of these events (with people “in various stages of dress and undress” and many women “just dressed in lingerie”), generating lots of noise, parking issues, littering, loud music, public drinking, and (at one point) a helicopter landing in Dr. Degnan’s yard with guests.
The HOA apparently was not as socially gregarious as Dr. Degnan, eventually passing a CC&R amendment designed to regulate large-scale social events in Jones Ranch (having features that would have put the kibosh on the pajama parties) and also providing for a 500-fold increase in the amount of fines that could be levied against a homeowner for CC&R violations. Dr. Degnan’s attorney sent some correspondence expressing outrage over the amendment and alluded to possible future litigation unless an informal resolution could be reached—something that never occurred. Whether from insecurity or other motivation, HOA commenced a declaratory relief action against Dr. Degnan to seek validation that the CC&R amendment was enforceable.
After a temporary restraining order was issued, Dr. Degnan cancelled one of his pajama parties and the matter proceeded to trial. The lower court upheld all of the CC&R amendment features (notice of large-scale events to the HOA; aircraft and parking restrictions) except for the 500-fold fine increase feature, finding this to be akin to an unenforceable penalty. Because Dr. Degnan threatened litigation, the trial court found that the action was justiciable so as to justify the HOA bringing a declaratory relief action.
The trial court then invited each party to file a motion to determine who was the prevailing party for purposes of awarding attorney’s fees. HOA argued it prevailed and sought $203,728.65 in fees. Conversely, Dr. Degnan said he was the winner and requested a fees award of $177,526.50.
The trial court decided HOA was the prevailing party, awarding it $173,427.32, or 80% of requested fees. The reduction was based on HOA’s loss on the penalty provision issue.
Both sides appealed, with Dr. Degnan challenging both the merits/fees award and with the HOA contending that the 20% fee reduction was erroneous in nature.
Result: Affirmed across the board in a 2-1 decision, with the dissent believing that the dispute was not proper for a declaratory relief action and remanding for a determination of fees owed to Dr. Degnan based on the lack of justiciability. See Jones Ranch Homeowners Assn. v. Degnan, Case Nos. A118584 & A119884 (1st Dist., Div. 4 Nov. 25, 2008) (unpublished). However, the HOA won based on the two majority votes in the opinion.
Initially, the Court of Appeal determined that the proper statutory predicate for fees was Civil Code section 1354(c), which allows for the recovery of reasonable attorney’s fees and costs in an action to enforce CC&Rs in common interest community developments, not Civil Code section 1717. The CC&Rs did have an attorney’s fees clause, but it only applied to actions commenced to enforce payment of assessments, fines, or penalties—with the prospective declaratory relief action relating to the new CC&R amendment not falling within the scope of the fees clause. So, this meant that section 1354(c) was the proper fee entitlement statute.
Dr. Degnan faced an uphill battle in attempting to defeat the trial court’s finding that HOA was the “prevailing party,” which was reviewed under an abuse of discretion review standard. (See Heather Farms Homeowners Assn. v. Robinson, 21 Cal.App.4th 1568, 1574 (1994).) Whether under section 1354(c) or Civil Code section 1717, the court focuses on what party prevailed on a “practical level.” (Id. at 1574.) Because the HOA did obtain its main litigation objective in regulating major aspects of large-scale social events like those hosted by Dr. Degnan, HOA was the winner for purposes of recovering fees under section 1354(c).
This left HOA’s cross-appeal challenge to the 20% reduction made by the trial court. This, too, was reviewed under an abuse of discretion standard. (PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084, 1096 (2000) [one of our Leading Cases].) In fashioning a fee award, a party’s relative success or failure in litigation is an appropriate factor to consider. (Id. at 1096; Sokolow v. County of San Mateo, 213 Cal.App.3d 231, 248 (1989).) The trial court’s cut in fees awarded to HOA for losing the penalty provision issue was quite proper and did not constitute an abuse of discretion. Dr. Degnan had to pay substantial fees to the HOA, although no costs were awarded to either side on appeal.
BLOG UNDERVIEW—The case does have an interesting discussion of declaratory relief justiciability in the context of HOA-homeowner disputes. The majority and dissent had very divergent views on the subject, such that the case is good reading depending on which side of the coin you want to stake your case.
Autry v. Villa Riviera Condominium Assn.
Although the fee award sting was not as hard, the Second District, Division Two hit a member for fees when she lost a protracted battle involving her recall as a director of the HOA. The case is Autry v. Villa Riviera Condominium Assn., Case No. B201699 (2d Dist., Div. 2 Nov. 26, 2008) (unpublished).
There, Ms. Autry sued HOA for her recall as a director, raising some very technical arguments about bylaw and Corporations Code violations. The trial court initially found that some of the multiple notices provided by the HOA were invalid, but set the date for the special meeting at which Ms. Autry’s recall would be considered. Afte
r her removal as a director, the trial court refused Ms. Autry’s injunction request. She dismissed her action a little over one month later.
HOA apparently felt empowered from the win, moving for an award of attorney’s fees and costs under section 1354(c). Ms. Autry’s primary opposition was that her action fell under Civil Code section 1363.09, a provision dealing with statutory nominations and election procedures and specifying that an HOA cannot recover costs unless the action was frivolous in nature. The lower court disagreed with plaintiff, finding that section 1354(c) applied and awarding HOA $34,574.43 in fees and costs. This prompted an appeal by Ms. Autry. (BLOG OBSERVATION—HOA’s primary attorney was compensated at $275 per hour in the lodestar calculation.)
The Court of Appeal also found that section 1363.09(a) did not apply, because Ms. Autry did not allege a violation of election and meeting procedures under article 2 of the Davis-Stirling Act. This meant section 1354(c) did control, with HOA prevailing in its objective to see Ms. Autry was no longer a director. Also, Ms. Autry lost her two major procedural challenges. Unlike Civil Code section 1717, section 1354(c) permits fee exposure even though a litigant like Ms. Autry voluntarily dismisses the action prior to a merits adjudication. (See, e.g., Parrott v. Mooring Townhouses Assn., Inc., 112 Cal.App.4th 873, 877 (2003).)
Ms. Autry also claimed that the fee award was unjustified because the HOA never sought to use alternative dispute resolution to potentially resolve the dispute. (See Stats. 1996, ch. 1101, sec. 1(f); former section 1354(f), which prior to a 2004 amendment, provided that a court may consider a party’s refusal to participate in ADR in determining the amount of the fee award.) Aside from waiving this argument by not making it before the trial court, the argument itself lacked merit because (1) the ADR language was deleted from section 1354 through a 2004 amendment (well before Ms. Autry’s action was filed), and (2) she failed to cite any authority supporting the notion that HOA’s refusal to participate in ADR amounted to an admission that her action did not fall under section 1354 for fee-shifting purposes.
Ms. Autry finally contended that the trial court was required to determine whether she had the ability to pay attorney’s fees, citing Rosenman v. Christenson, 91 Cal.App.4th 859, 864 (2001). The flaw with this contention was that Rosenman happened to be a FEHA case, where written findings have to be made on whether the action was frivolous and whether plaintiff had the ability to pay. The Court of Appeal found that none of Ms. Autry’s authorities “applied the Rosenman standard to section 1354.” (Slip Opn., at p. 11.)
BLOG UNDERVIEW #1—Actually, Ms. Autry should have tried to use the mandated ADR procedure set forth in Civil Code section 1369.510 et seq. first. In fact, the HOA could have likely stayed her action until this process had been completed. However, no one used this statutory procedure, and it was up her to use it. It should be noted that section 1369.580 does have a provision similar to the pre-2004 amended version of section 1354, added in 2004 and allowing the court to consider a party’s refusal to participate in ADR as a factor in determining the amount of the fees award.
BLOG UNDERVIEW #2—Although we have done no rigorous study on the issue, we believe that the HOAs win more of these homeowner disputes than homeowners/directors. After this, we would estimate that no one is found to be the prevailing party. To check it out for yourself, see our category “Cases: Homeowner Associations.”