Homeowners Associations And Section 1717: Homeowner Demonstrating Inapplicability of CC&Rs Entitled To Fee Award Under Civil Code Section 1717

Reciprocity Principle Underlying Section 1717 Required Reversal of Fee Denial.

     Here is a decision emphasizing that Civil Code section 1717 reciprocity principles will prevail, even where a successful litigant shows that the contract (in this case, CC&Rs) was inapplicable. The fees clause had to be construed as mutual in nature. The lower court did not do so, but that is why reviewing courts are around—as you readers shall soon see.

     In Discovery Bay Property Owners Assn., Inc. v. DiFate, Sr., Case No. A127505 (1^st Dist., Div. 2 August 4, 2010) (unpublished), homeowner beat a HOA challenge to his installation of multiple curb cuts for additional driveways through the sidewalk area in front of his lot. The CC&Rs had a fees clause pertaining to enforcement of any recorded restrictions. Homeowner then sought to recover $2,057.89 in costs and $46,833.23 in attorney’s fees (under Civil Code section 1717 and Civil Code section 1354). HOA did not oppose the cost request and did not argue that the fee request was unreasonable. However, HOA argued fees were inappropriate because the trial court found the CC&Rs inapplicable in resolving the dispute. The trial court said “no” to the homeowner’s fee request.

     On appeal, the Court of Appeal said “yes” to the homeowner’s fee request.

     Boiled down to its essence, the appellate panel found that the fee denial would make a mockery of section 1717’s overarching reciprocity principle. After all, section 1717 allows recovery of fees in a contract fee dispute with a fees clause where the litigant proves the contract is invalid, inapplicable, unenforceable, or nonexistent. (Santisas v. Goodin, 17 Cal.4^th 599, 611 (1998) [one of our Leading Cases].) Because CC&Rs are the equivalent of contracts, the reciprocity rule is triggered under section 1717 even though the prevailing party obtains no affirmative relief. (14859 Moorpark Homeowner’s Assn. v. VRT Corp., 63 Cal.App.4^th 1396, 1410 (1998); Foothill Properties v. Lyon/Copley Corona Associates, 46 Cal.App.4^th 1542, 1555 (1996).) Because HOA would have been entitled to fees under section 1717 had it won, the same goes for winning homeowner.

     Although a reversal was required to consider fee entitlement on remand, the appellate panel did address the unclean hands argument by HOA—that homeowner’s strident litigation conduct required an outright denial. Not so. Litigation conduct cannot be used to determine who prevailed, but is probative on the issue of the reasonable amount of fees to be awarded. (EnPalm, LLC v. Teitler, 162 Cal.App.4^th 770, 775-778 (2008).)

     End result: remand to determine the reasonable fees to be awarded homeowner.