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New Case May be Helpful in Suits Filed to Encourage Compliance

» Posted November 1, 2021News

In Champir, LLC v. Fairbanks Ranch Association, the Plaintiffs owned a home in Fairbanks Ranch, a planned development community in Rancho Santa Fe (“Association”). Fairbanks Ranch had plans to install traffic signals at its entrance gates, one of which would be directly outside Plaintiffs' home.  The Plaintiffs sued the Association and alleged that it failed to request a vote and obtain approval from its members before entering into a contract to install the traffic signals.  The Plaintiffs argued that the CC&Rs required membership approval for any capital expenditure that exceeded five percent of the Association's annual budget for the year.  This is a common requirement found in most association governing documents. The Plaintiffs also argued that assessments that had been approved by the members for a different gate project were improperly being used to fund this project.  Finally, the Association planned to transfer operation and maintenance of the traffic signals after construction to the County of San Diego, which Plaintiffs alleged would be an improper transfer of Association assets to a third party, without a prior vote or majority approval.

The trial court issued a preliminary injunction against the gate light project and essentially required that the Association obtain the required approval by a majority of homeowners before moving forward. The Association then obtained the approval required and the trial court dissolved the injunction at the Association’s request. Having no reason to proceed, the Plaintiffs dismissed their lawsuit.

Plaintiffs and the Association then filed respective motions for attorney fees, each claiming to be the prevailing party under Civil Code section 5975. The Association also requested attorney fees pursuant to the CC&Rs, which provided that the Association would be entitled to reimbursement of its legal expenses if a member sued it and the Association was successful or sustained in its position in such suit.

The substantive issue on appeal was the distinction between the main litigation objective (compliance with CC&Rs) versus the underlying objective of preventing the traffic lights.

The trial court deemed the Plaintiffs the prevailing parties and awarded $112,340 in attorney fees. The appellate court agreed. The appellate court found that the trial court properly characterized Plaintiffs’ main litigation objective in the suit as requiring compliance with the CC&Rs, not their underlying objective of preventing the traffic lights.  Plaintiffs achieved their litigation objective when the issuance of the preliminary injunction induced the association to comply with the CC&Rs.  Since the Plaintiffs achieved their litigation objective, it did not matter that they later dismissed the suit voluntarily.

While this case was certainly painful for the homeowners association involved, it reinforces the “Catalyst” theory of recovery of attorney fees where a homeowners association is compelled to sue a homeowner to garner compliance with the governing documents. Frequently, it is not until the defendant is served with a lawsuit that they take the issue seriously. Owners will quickly comply, hoping to avoid having to pay the attorney’s fees the association incurred to achieve that compliance.