Section 1354 Only Applies in Homeowner-Homeowner Association Disputes.
The scope of Civil Code section 1354, which permits homeowner associations and homeowners to recover attorney’s fees in actions to enforce an HOA’s governing documents, was at issue in the next case out of our local Santa Ana appellate court.
In Chen v. Association Lien Services, Case No. G042959 (4th Dist., Div. 3 Mar. 11, 2011) (unpublished), homeowner sued his HOA along with several third party entities for wrongful foreclosure, rescission/restitution, breach of fiduciary duty, willful misconduct, accounting, and various unfair business practice claims under both state and federal statutes. Homeowner lost his bid for class certification, but eventually settled with the HOA for $175,000. Chen and one third-party lien service proceeded to trial, which concluded with a hung jury. After the settlement, homeowner dismissed his action without prejudice. Third party lien service moved to recover from homeowner $1,076,227.14 in attorney’s fees under section 1354, a request denied by the trial court.
Third party appealed, but our local appellate court, in a 3-0 panel decision by Justice Moore, found nothing in section 1354 authorized a fee award to a third party in a homeowner dispute–with the statute governing only homeowner-HOA disputes. “As a matter of public policy, it makes perfect sense for associations, which are non-profit, mutual benefit corporations, to be protected against the costs of lawsuits brought without standing by permitting the recovery of attorney fees under section 1354. We find no reason, however, for extending this rationale to third parties or to cases where standing is not an issue. If a third party which chooses to enter into a contract to perform services for an association is concerned that it might not be able to recoup its attorney fees if it is sued by a homeowner, it has the option of negotiating an appropriate indemnity clause with the association as part of its service contract. An association sued without standing has no such option, and to pass the cost of defending such a suit onto the members rather than recouping them from the party who brought the lawsuit is fundamentally unjust.” (Slip Opn., p. 6.)
Alternatively, the appellate court found that the suit was not an action to enforce the governing documents under section 1354, but was really a quite different controversy about allegedly unfair, unlawful foreclosure procedures as a “tool of oppression and extortion.” Such a dispute was not within the section 1354 ambit.