Virginia Court Decision Demonstrates the Importance of HOA Boards and Homeowners Making Prudent Decisions Relative to Litigation

The Virginia Supreme Appellate Court decision in Lambert v. Sea Oats Condo. Ass’n, Inc. that we reported on April 21, 2017 is a prime example of how important it is for those who are contemplating becoming involved in litigation to know what they are getting involved in and the high financial and non-financial costs of becoming embroiled in litigation that never has a certain end result.

The Lambert Decision

The Lambert case started out with a dispute between a homeowner and her homeowners association over who was responsible for the payment of $500, for the cost of repairing the entry door to the homeowner’s condominium unit. When the parties could not resolve the $500 dispute, they turned to the court system— a decision that had to have been motivated by emotion and not good sense. The case then went to trial in the general district court where the association prevailed. The unhappy homeowner then appealed to the circuit court which reversed the trial court’s decision, but did not award the homeowner her attorney’s fees as requested. The homeowner, upset with not having been awarded over $9,000 in attorney fees that she had incurred in pursuing the $500 dispute, then appealed to the Virginia Supreme Court of Appeals. The appellate court ruled that the lower court’s decision on the amount of attorney fees that should have been awarded was incorrect but, rather than award a specific amount for the attorney fees, sent the case back to the original trial court for a determination of the correct amount of attorney fees to be awarded to the homeowner based on factors that had been outlined by the reviewing court. Thus, after each side had incurred thousands of dollars in legal fees, the $500 battle between the homeowner and the association had still not been fully resolved at the time that the decision by the Supreme Court of Appeals had been reported.

Understanding the Costs of Litigation

Disputes between homeowners associations and their members are commonplace and are to be expected as a natural consequence of living in condominiums and other common interest communities that are governed by a homeowners association that is controlled by a board of directors. Recognizing that there are always going to be disputes concerning a multitude of different possible issues that are involved in community living, it is critical that the people who are involved in those disputes have an understanding of how the dispute resolution process works and the high costs of litigating claims—including the obvious financial costs and the less obvious, financial and non-financial costs.

The obvious financial costs that are incurred in litigating claims include expenses for attorney fees and court filing fees, but there are also a myriad of other less obvious expenses that are commonly incurred by litigants such as: (i) the fees and expenses of consultants and expert witnesses; (ii) the expenses incurred for process servers; (iii) attorney costs for copies, fax, travel, mileage and other expenses incurred in connection with the case. Most parties contemplating becoming involved in litigation take legal fees into consideration (to some degree), but don’t appreciate how the additional expenses impact the overall cost of pursuing the case. Just the fees and expenses of expert witness that are frequently required can be many thousands of dollars. Furthermore, because there are so many different variables that impact the time and expenses that will be required to litigate a case, it is virtually impossible to know at the outset of a case how much time and expense is going to be required to litigate the case to its conclusion. Thus, the litigants must be prepared to invest thousands of dollars for their attorney fees and other expenses to pursue litigation of their claims.

Separate and apart from the direct financial costs that are associated with supporting the expenses of the case, becoming embroiled in litigation also has indirect financial costs such as the cost associated with loss of all the time is spent in dealing with the case, and the impact of the loss of use of the funds that go into the case. Clearly, funds that are used to support litigation are not available for use somewhere else, and non-payment of other expenses in order support litigation creates new problems that must be addressed. In addition and perhaps more detrimental, becoming involved in litigation creates divisiveness and negatively impacts relationships between individuals that have differing views on how the conflict should be treated. In the context of disputes between homeowners and their homeowners association, relationships that are impacted by the litigation include: (i) board members; (ii) spouses; (iii) management personnel; and (iv) other association members.

Understanding the Uncertainties of Litigation

Potential litigants also need to understand that, no matter how strongly they believe in their position, there is no guaranty on the outcome of a litigated case—anything can happen. Furthermore, even if a litigant is certain they are going to prevail in a case, and recover their expenses because a state statute or a homeowners association’s governing documents provide that the prevailing party “shall” be awarded attorney fees, the amount that they recover is not necessarily going to be all that they have invested to litigate the case. Frequently, the amount that is awarded for “reasonable” attorney fees turns out to be far less than the amount that was actually incurred. Additionally, potential litigants need to understand that obtaining a judgment for damages and/or attorney fees does not put money in the bank. In the real world of litigation, a litigant frequently gains the short term satisfaction of obtaining a favorable judgment that confirms they were right, only to then learn that satisfying the judgment (collecting the money) can turn out to be more difficult than the original case—and the overall costs and expenses get compounded by the additional investment in trying to enforce the judgment.

Litigants should also understand that even after going through all of the proceedings and expenses that were required to get a final judgment, there is a risk that the judgment debtor will file a bankruptcy to either avoid having to pay anything on the judgment, or to limit the amount and the ability of the judgment creditor to enforce the judgment against the judgment debtor’s assets. To add insult to injury, the judgment creditor then has to incur a new round of legal fees and expenses to defend or assert its rights in the bankruptcy court.

A prudent decision to become involved in litigation should make economic sense and should never be based on emotion or a desire to “prove a point”– regardless of what it costs. Furthermore, potential litigants should never proceed with a lawsuit based on a belief that they will ultimately get a judgment that will award them all of their damages and expenses, and they should understand all of the real financial and non-financial costs that will be incurred before going into the case, and that prevailing in the case does not necessarily mean that they will ever collect all, or any of what the court proceedings determined they were entitled to.

Don’t Blindly Get Involved in Litigation

Frequently, improper decisions about proceeding with litigation are made by people who have not had much prior experience with litigating cases. They tend to be more idealistic about the outcome and believe “justice will prevail” in the end and they will be happy and recover all that they believe they are entitled to. People who have more experience with litigation know this is generally not the case and tend to be more receptive to decisions not to proceed, or to compromise a dispute. It follows that the directors of a homeowners association who are vested with the responsibility of making the decisions about pending or potential litigation must be informed about the financial and non-financial costs to the association and its members and should have a basic understanding of how the litigation process works. Similarly, association members that have disputes with their homeowners association must also understand what’s involved in connection with litigating those disputes in the court system and make wise decisions about becoming embroiled in costly litigation. Sound business judgment includes having an open mind, being objective about issues, receptive to input from more experienced people, and a willingness to comprise and settle disputes in order to avoid getting embroiled in unnecessary costly litigation.

Utilize Mediation to Resolve Disputes and Avoid Litigation

Recognizing that disputes are an inevitable part of homeowners association living and that it is frequently difficult for those who are personally involved in a dispute to reach a fair resolution without the assistance of unemotional and objective third-parties, the parties should also be informed about and understand the benefits of participating in mediation in an effort to settle the dispute without having to become involved in the litigation process. Mediation is a popular form of alternative dispute resolution that utilizes the assistance of a trained mediator who is well versed in the subject matter and who is a true “neutral” person that has no loyalty or allegiance to any of the parties to the dispute. The goal of a mediator is to bring the parties together and to assist them in reaching a settlement of their dispute. While good mediators can perform wonders in terms of bringing people together, in the end it is up to the parties to agree on a settlement that is facilitated by the mediator. To successfully achieve such a result, the parties should enter into the process with knowledge of the real costs of litigation if the dispute is not resolved, and a frame-of-mind that is receptive to settling the dispute and moving forward with more positive things. Those who are contemplating becoming involved in litigating their disputes through the court system should do so with knowledge of the adage, which many litigants learn the hard way, “a bad settlement is better than a good lawsuit.”