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
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&
FREEDMAN , L . L . P .
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10 | The HOA Board Quarterly | Issue # 6 | Summer 2013 Summer 2013 | Issue # 6 | The HOA Board Quarterly | 11