This is by far the most common question that clients ask me when they’ve simply had it and are considering whether to take legal action against their HOAs. And I generally give them all the same answer—in most cases, yes.
In fact, not only are homeowners frequently entitled to their attorneys’ fees and costs once they win a lawsuit against involving their HOAs, but an experienced HOA attorney can often ensure that homeowners are reimbursed for 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 before going to trail (which, statistically speaking, most do).
The “American Rule”
Before getting into the specifics, however, it’s important to understand how our legal system works when it comes to reimbursing prevailing parties for their attorneys’ fees and costs. While many countries operate under a “loser pays” system (mandating that the party who loses a lawsuit must pay the winning side’s attorneys’ fees), most of the United States, including California, operate under what’s called the “American Rule.” The American Rule basically holds that a prevailing party will only be entitled to reimbursement of its attorneys’ fees if a particular statute or contract between the parties specifically provides for such reimbursement. In all other cases, each party must bear their own attorneys’ fees and costs no matter who wins.
With that in mind, it’s fortunate that when it comes to HOA lawsuits, both of the above-referenced bases for an award of attorneys’ fees are typically present.
CC&Rs Are Contracts
For the most part, each HOA in California is governed by a document typically referred to as the CC&Rs, and as a matter of law, each HOA’s CC&Rs is considered a binding and enforceable contract between the HOA and the homeowners who own property in the association. And, as it so happens, most CC&Rs contain a provision awarding attorneys’ fees to the prevailing party in a lawsuit involving the CC&Rs.
You’ll recall that under the American Rule, one of the two bases that entitle a winning party to a lawsuit to seek reimbursement for its attorneys’ fees is via a contract. Well, since CC&Rs are considered binding contracts between HOAs and their homeowners, and since most CC&Rs contain attorneys’ fees provisions, it’s very likely that your HOA’s CC&Rs contain such a provision. And as long as the lawsuit in question relates to the CC&Rs (which, as is touched on below, is actually the case most of the time), there’s a good chance that upon prevailing, a homeowner will be entitled to his/her attorneys’ fees.
Attorneys’ Fees Must Be Awarded to the Prevailing Party in any Enforcement Action
Under the Davis-Stirling Act, the set of laws located in the Civil Code that govern the creation, operation, and dissolution of most HOAs in California, the court must award reasonable attorneys’ fees to the prevailing party in an enforcement action. Generally speaking an enforcement action is one involving the enforcement of an HOA’s governing documents (e.g., CC&Rs, Rules, etc.). For example, a lawsuit aimed at forcing your HOA to maintain the common areas, hold required open meetings, provide proper notice of meetings, or repair damage to your property (where the CC&Rs hold the HOA responsible for such repairs) would all certainly be deemed actions to enforce your HOA’s governing documents. Likewise, “enforcing the governing documents” might also include challenging an unfair decision by the board (e.g., where your HOA prevents you from making an improvement to your property), stopping the board from treating you differently from other homeowners, forcing your HOA to stop another homeowner from being a nuisance, stopping a board member from misusing HOA assets/resources, or otherwise wrongfully using community funds.
The thing to remember is that the term “enforcement action” is broad and therefore often 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.
Possible Exception to a Prevailing Party’s Right to Attorneys’ Fees
While there are some exceptions to a party’s right to its attorneys’ fees upon prevailing, only one of those falls within 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. Precisely what types of claims must be submitted to ADR is also beyond the scope of this article, but suffice it to say that in some cases, a party may not bring a lawsuit regarding an enforcement action without first engaging in ADR (or, at least attempting to).
Before discussing the nature of this possible exception, you need to understand what ADR is (at least in the context of most HOA disputes). Generally speaking, ADR 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 whenever they want to if it looks like no settlement will be possible, and either party can hold fast on what it wants. In other words, although you’re supposed to mediate in good faith, there is no penalty for holding fast regarding what you want.
Regardless, in a case requiring ADR, 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 such a demand). 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.
Attorneys’ Fees Incurred Prior to the Lawsuit (e.g., during ADR)
While it’s true that the Davis-Stirling Act does not legally entitle any party to its attorneys’ fees in a dispute that never results in the filing of a lawsuit (although experienced HOA attorneys can often obtain that result for clients), 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.