Epsten, APC

By Joe Sammartino, Esq.

Shareholder | Litigation Dept. Co-Chair

When a homeowners’ association ends up in court, it can be a costly process. Sometimes associations go to court to protect their rights and the rights of the community. Examples of these lawsuits are typically to enforce the governing documents or to enforce other contractual rights. Other times, associations are brought into court because they have been sued. Regardless of the merits of the case and regardless of which side of a case the association is on (plaintiff or defendant), fees and costs can add up very quickly.

The Process of Litigation

Litigation refers to the process of taking legal action in court. When an HOA files a lawsuit, it is essentially asking the court to enforce a rule or decision that the homeowner has violated. This can include things like unpaid dues, violations of the CC&Rs (such as illegal modifications to property or nuisances), or failure to follow community guidelines.

Litigation typically starts when the HOA files a complaint in Superior Court, the court that handles major civil cases in California. Before going to court, the HOA usually sends notices or warnings to the homeowner, letting them know that they are violating the rules. If an association (or member) intends to file a lawsuit solely for declaratory or injunctive relief (asking the court to decide the rights and duties of the parties and/or seeking an injunction to compel the defendant to do, or refrain from doing, something) the potential plaintiff must first offer formal Alternative Dispute Resolution (“ADR”) which typically takes the form of mediation.  If the homeowner doesn’t comply (or refuses to participate in ADR), the HOA may move forward with a lawsuit.

Costs Involved in Litigation

There are several categories of costs involved when an association decides to pursue litigation. These can include:

Court Fees: To start a lawsuit in Superior Court, the plaintiff must pay a filing fee. This fee varies depending on the type of case and the amount of money involved, but Superior Court cases are typically around $500 or a little more. Each defendant in the case will owe a similar amount of money to the court as a first appearance fee. After the first appearance, each filing with the court – briefs, case management statements, ex parte applications, by way of a few of the more common examples – will have a filing fee, ranging from $20 to $100 or more.

Attorneys’ Fees: Probably the single biggest cost for an association involved in litigation will be attorneys’ fees. Whether or the plaintiff or defense side of a case, an association will probably need to retain a lawyer to represent it in court; the exceptions are small claims cases (attorneys are not allowed) and cases in which the association is being sued and insurance defense counsel is provided by the association’s insurance company. The lawyers’ job includes preparing documents, attending court hearings, propounding and responding to written discovery, taking depositions, attending mediation, negotiating settlements, and making legal arguments on behalf of the association. Attorneys typically charge by the hour, and hourly rates depend on the lawyer’s experience, the complexity of the case, and the location where the association is located. In California, attorneys typically charge between $400 and $500 per hour or more.

While litigation can be expensive, under the Davis-Stirling Common Interest Development Act, in lawsuits involving the enforcement of governing documents, the winning party may recover its attorneys’ fees. If the association wins a case against an owner to force compliance with a rule, the association can ask the court for its legal fees. On the flip side, if the owner wins, they may be able to recover their legal fees from the association.  Attorney’s fees incurred in Alternative Dispute Resolution can be included in the fees awarded even though it is typically before a lawsuit is formally filed.

In lawsuits that do not involve the enforcement of the governing documents, the general rule is that each side pays its own attorneys’ fees. There are a few exceptions to this rule, including breach of contract lawsuits in which the contract has an attorneys’ fees provision. Another exception are causes of action that have a specific right to attorneys’ fees under California law, such as some employment claims and bad faith lawsuits against insurance companies.

The possibility of recovering – or not recovering – attorneys’ fees under is an important factor for parties to consider. It provides an incentive for owners to follow the rules, as they could end up paying the association’s legal fees. It also gives associations the ability to recover some of their costs if they need to go to court to enforce the rules. Owners should be aware that they could be held responsible for paying legal fees if they are found to be in the wrong. This can be a very significant financial burden, so it is important all parties understand their rights and responsibilities under the law.

Discovery Costs: Discovery is the process whereby both parties investigate the case as completely as possible on their own, and also request and exchange information from each other before trial. This is done by asking written questions that are answered under penalty of perjury, requesting documents, taking depositions (questions asked orally that are answered under oath), and investigating and gathering evidence. Discovery can be a time-consuming and expensive part of litigation, especially if there are a lot of documents to review or witnesses to interview. The HOA may also need to hire experts or investigators to assist with the case, adding to the overall cost.

Other Related Expenses: In addition to filing fees, there likely will be other costs, such as charges for having subpoenas served on third parties, copying costs for records that are produced, and documents served personally on other parties. There also will be court reporter fees both for court hearings and for depositions. These costs quickly add up, especially if the case is lengthy or complicated.

Appeals: If either party is unhappy with the court or jury’s decision, they may appeal. Appeals can be costly because they involve additional legal work, including preparing legal briefs and attending appellate court hearings.

Considerations Before Litigating

Because of the potential costs involved, associations should carefully consider whether litigation is the best option. Pursuing a court action should typically be a last resort after most, if not all, other attempts to resolve the issue have failed, including sending letters, holding hearings, IDR and ADR. If a dispute does go to court, even if the association wins, the process can still be expensive and time-consuming, even if attorneys’ fees are recoverable. Lawsuits can be divisive within associations because the parties live (owners) and work (management) near each other. Additionally, witnesses and others who may become tangentially involved may feel unintended awkwardness or pressures.

It is not feasible to predict with any certainty how much a lawsuit will cost because it depends largely on how the other side prosecutes (or defends) the lawsuit.  Some litigants and their attorneys can be very aggressive and run up costs.

Conclusion

Litigating in Superior Court can be a costly process for associations. Some of that cost may be offset through the possible recovery of attorneys’ fees. To minimize costs, both associations and owners should carefully weigh the costs and benefits of pursuing litigation and explore all options for resolving disputes before going to court. By understanding the costs and fees as well as the process involved, everyone can make more-informed decisions about how to handle disputes in their communities.