Third District Issues Important Decision in the CC&R Enforcement Area.
The Third District in Ferwerda v. Bordon, Case No. C062389 (3d Dist. Mar. 25, 2011) (certified for partial publication on the fee issue) has decided an important case with respect to enforcing attorney’s fees clauses contained in unrecorded CC&R enforcement documents and manuals. In a word, the Court of Appeal held that unless such fees clauses are approved as an amendment to the CC&Rs, such clauses may not be enforceable.
What happened in this case was that homeowner lost a case against a HOA’s CC&R enforcement committee in which he alleged that it and certain Board members inappropriately blocked construction on his lot and also lost a case against neighbors alleging they violated CC&Rs in building/remodeling their house. Plaintiff appealed attorney’s fees award against him and in favor of committee (to the tune of $194,313.51) and in favor of the neighbors (to the tune of $219,239.06). The fee awards were based on fee clauses in two CC&R enforcement committee manuals, even though the CC&Rs were silent on recovery of fees.
The fee awards were reversed on appeal.
The Third District determined that the two manuals could not be the basis for attorney’s fees authorization because they were unrecorded and not approved by property owners. The appellate court had no difficulty determining that the enforcement committee had power to adopt new design standards, but that power did not extend to adopting fee provisions not contained in the CC&Rs. The proper route was to amend the CC&Rs to include attorney’s fees provisions because the fee clauses sought to be enforced were “an attempt by the committee to insert a new provision that binds homeowners without their approval.” (Slip Opn., p. 17.)
The secondary basis used by the trial court to justify the fee clauses did not hold up either upon review. Because plaintiff asked for fees if he prevailed and lost in the trial court, so the reasoning went, he was liable for the other sides’ fees. Not quite right, said the appellate court. The flaw in this reasoning was that plaintiff cannot be hit with fee exposure unless he actually could have recovered fees under a valid fee clause, with the bare allegation of fee recovery not enough. (Perez Co., Inc. v. Base Camp Condominiums Assn. No. One, 111 Cal.App.4th 456, 467-468 (2003).) The prior conclusion that the manuals did not give rise to enforceable fee recovery sealed the deal against this back-up basis for the fee awards.
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