A Case Study In HOA Litigation

By Stephen G. Davis, Attorney at Law

On June 15, 2021, the Missouri Supreme Court issued its opinion in the case of Arrowhead Lake Estates, a homeowners association in Boone County. The case arises out of a dispute in 2017 between the Association and a homeowner. The homeowner submitted plans to the Association for approval of a swimming pool, hot tub, and other exterior features. The Association approved and stated that additional approval would be needed for any changes. In August 2017, the Association learned that the homeowner was constructing a swimming pool building that was not part of the originally submitted and approved plans. The Association sent a cease and desist letter, demanding that the homeowner stop construction and remove the building. The homeowner refused.

As a result, the Association filed a lawsuit against the homeowner for removal of the unapproved building and attorney’s fees and costs incurred in the litigation. After a bench trial, and further post-trial motions, the trial court entered its judgment in the Association’s favor, ordered the homeowner to remove the unapproved building, and determined that each party should pay their own attorney’s fees. The Association had asked the trial court to award it almost $84,000 in attorney’s fees incurred. The Association appealed the judgment.

On appeal, the Association pointed to two provisions in its Declaration that it claimed allowed it to recover its attorney’s fee as the prevailing party. The Court cited two prior Supreme Court cases, including its 2019 Clayton Terrace decision, to explain that “contract law principles apply when interpreting the Declaration” and “[t]o ascertain the parties’ intent, contract language is given its plain, ordinary and usual meaning.”

The first provision cited by the Association states: “[I]f the Claim is litigation . . . the prevailing party shall be entitled to receive an aware [sic] of attorney’s fees and court costs as deemed appropriate by a court of competent jurisdiction.” The Court determined that the plain language of this provision “qualifies the prevailing party to receive attorney’s fees.” The Court focused on the “as deemed appropriate” clause, which it said indicates that the Declaration provided the “court the authority to award attorney’s fees and costs to the prevailing party, but left to the circuit court the discretion to determine the amount of that award.” The Court reasoned that the lower court had reviewed the issue and had determined in its discretion that each party should bear its own attorney’s fees. Absent the “as deemed appropriate” clause, it stands to reason the Court would have found that the Association was “entitled to receive” attorney’s fees as the prevailing party.

The second provision cited by the Association states: “The Association may enforce the rights and obligations and conditions of this Declaration against any Lot Owner through the courts of the state of Missouri. . . If any Lot Owner brings suit to enforce the terms of this Declaration against any other Lot Owner, then the prevailing party in such litigation shall be entitled to recover said prevailing party’s attorney’s fees . . .” The Court referred to this section as “umbrella language” which “granted the Association authority to pursue a remedy against the homeowner in this case.” However, the Court continued, “the recovery of attorney’s fees is specifically limited by the language of the provision to a “lot owner.” The plain language of the section cited clearly refers to litigation between lot owners and not involving the Association as a prevailing party. As such, only a prevailing party lot owner, under this clause, may receive an award of attorney’s fees.

There are many important lessons for board members and community managers to take away from this new Missouri Supreme Court opinion. Our top takeaways are:

  1. Prior to engaging in litigation, be sure you are aware whether the Association has the right to recover its attorney’s fees, costs, and other litigation expenses. Talk with your Association’s attorney so you clearly understand your rights and potential expenses.
  2. When drafting amendments to your governing documents, it is wise to consider whether changes are needed to your attorney’s fee provisions to better ensure the Association’s ability as a prevailing party to recover its attorney’s fees incurred. Ask your Association’s attorney if changes may be beneficial as a result of the Arrowhead Lake Estates case.
  3. As always, read your governing documents! When you read through them, it is important to read the provisions carefully. Courts will interpret each word and phrase to have its plain, ordinary and usual meaning. If there’s a section you’re unsure of, consult your Association’s attorney.

Stephen G. Davis is a litigator at Carmody MacDonald in Clayton. He focuses his practice on homeowner and condominium association law and represents over 200 associations throughout the St. Louis metropolitan area. Contact Stephen at [email protected] or 314-854-8600.

This column is for informational purposes only. Nothing herein should be considered legal advice or as creating an attorney-client relationship. The choice of a lawyer is an important decision and should not be based solely on advertisements. Read our full Legal Disclaimer.