Would you like fees with that ADR?
By: James R. McCormick, Jr. Esq. Peters & Freedman, L. L. P.
Have you ever participated in Alternative Dispute
Resolution(“ ADR”)? In most instances, before a lawsuit can be filed by or against an association, the parties must“ endeavor to submit their dispute to ADR.”( Civil Code Section 1369.520( a)).
For years many people claimed that attorney’ s fees and costs incurred in mediation could not be recovered. The reasons cited in support were Civil Code Section 1369.540( c) which provides that the costs of alternative dispute resolution“ shall be borne by the parties” and Civil Code Section 1354 which provides that“ in an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’ s fees and costs.”
Until early 2013, the question on everyone’ s mind was“ what is an action to enforce the governing documents?” Based on the language cited above, most believed that the“ action” was only a lawsuit filed in court and not ADR. In the case of Grossman v. Park Fort Washington Association, however, the Court, on appeal, held otherwise.
The Grossmans built a cabana and fireplace at their home without obtaining prior approval from the Park Fort Washington Association(“ Association”). The Association claimed that the governing documents prohibited the improvements, denied the request for a variance and imposed a fine of $ 10 per day until the items were removed.
The parties attended ADR( mediation) but the dispute was not resolved. A lawsuit followed.
The trial court interpreted the governing documents as allowing the cabana and requiring the fireplace to be at least 10 feet from the property line. The court required the fireplace to be modified, concluded a variance was not required for the cabana and did away with the continuing fine. The trial court also awarded attorney’ s fees to the Grossmans as they prevailed and included in that award attorney time
and costs spent on pre-litigation mediation. The Association appealed.
The original appellate court decision was not published. In January 2013, however, the court of appeal certified for publication those portions of the opinion that addressed an award of attorney’ s fees for pre-litigation expenses. This makes their analysis and conclusion on this issue legal precedent that can be cited in future cases.
The fee award to the Grossmans was $ 112,665. Of this amount 38.1 hours was incurred in pre-litigation mediation along with $ 875 paid as one-half of the mediation costs. The court’ s analysis centered on a review of several sections of the Davis-
Stirling Common Interest Development Act(“ Act”) including Civil Code Sections 1369.520( a), 1354 and 1369.580.
Civil Code Section 1354 provides that“ in an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’ s fees and costs.” The court analyzed this language and concluded that it specified only two conditions that had to exist before the award of reasonable attorney’ s fees and costs are mandatory:( 1) an action to enforce the governing documents, and( 2) a prevailing party.
Under the language of section( c) of 1354, the Court stated that the critical wording in deciding whether attorney’ s fees and costs incurred in ADR are recoverable is whether those fees and costs are reasonable. The court found that ADR costs are reasonable for three reasons.
First, Civil Code Section 1369.520( a) effectively makes ADR mandatory and therefore precludes a finding that time and effort spent pursuing ADR is unreasonable per se.
Second, Civil Code Section 1369.680 provides that a party’ s refusal to participate in ADR can affect the amount of attorney’ s fees awarded which strongly implies that the fees incurred by a prevailing party on fees spent trying to convince a party to submit the dispute to ADR could be recovered if reasonable.
Third, there are no policy reasons for excluding fees and costs by a party who has pursued ADR and subsequently prevailed in a lawsuit involving the same dispute. In fact, the court cited recent case law supporting the strong public policy of promoting the resolution of disputes through mediation and arbitration.
The court held that“ when attorney fees and costs expended in pre-litigation ADR satisfy the other criteria of reasonableness, those fees and costs may be recovered in an action to enforce the governing documents of a common interest development.”
How many times has your association been forced to spend countless hours and dollars chasing down a homeowner who demanded mediation and then won’ t return a call or letter when attempting to schedule the mediation? Or attempted mediation with an owner who simply refuses to negotiate in good faith? Or been forced to eat attorney’ s fees incurred as a result and then been forced to file a lawsuit anyway?
Based on the Grossman case, your association may now have an opportunity to recover prelitigation attorney’ s fees incurred if it prevails in a later lawsuit on the same matter. HOA
James R. McCormick, Jr., is the managing partner at the Law Firm of Peters & Freedman, L. L. P., and helps associations throughout Southern California with any issue they might face. James can be reached at
JMCCORMICK @ HOALAW. COM
( 760) 436-3441
PETERS
ATTORNEYS AT LAW
&
FREEDMAN, L. L. P.
A full service lAw firm Experience you can rely on People you can trust
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10 | The HOA Board Quarterly | Issue # 6 | Summer 2013 Summer 2013 | Issue # 6 | The HOA Board Quarterly | 11