This case involved a dispute between a homeowners association (Association), its property manager (Manager), and a third-party contractor recommended by Manager who installed a fire alarm system in a condominium building belonging to Association. Association, being dissatisfied with the system that was installed by Contractor, filed a lawsuit against both Manager and Contractor. Associations lawsuit then triggered cross-complaints by Manager and Contractor against each other and against Association.

The contract between Association and Manager contained an arbitration clause which stated that controversies or claims arising out of, or relating to the management agreement would be settled by binding arbitration in accordance with the rules of the American Arbitration Association. However, neither Association nor Manager exercised their right to compel arbitration in accordance with the terms of the management agreement, and instead, litigated the entire case in the Superior Court. An important additional provision in the management agreement was that, the Arbitrator shall have authority to award reasonable attorney fees to the prevailing party in the arbitration. Believing that the provision that allowed for an award of attorney fees to the prevailing party in arbitration would apply equally to the prevailing party in litigation that took place in the courthouse, both sides requested an award of attorneys fees.

After a jury trial, Manager was found liable to Association for breach of contract and Association was awarded damages in the amount of $88,500. The trial court further awarded Association attorneys fees in the amount of $628,587.50, which were to be paid by Manager, based on the provision in the arbitration clause contained in the management agreement. The trial court found that, the parties waiver of their right to arbitrate the dispute did not defeat their intent to allow the prevailing party to recover reasonable attorneys fees. Manager then appealed the trial courts judgment contending that the amount awarded was unreasonable, and that the award of fees was improper because the management agreement unambiguously provided for an award of attorneys fees by an arbitrator following arbitration, and not by a judge following a jury trial.

The appellate court said that a contract must be interpreted so as to give effect to the mutual intentions of the parties at the time of contracting. Thus, the appellate court said, where the contract language is clear and explicit and does involve an absurdity, the specific language of the contract is to govern its interpretation. Applying this rule to the facts of the case, the appellate court found that the language concerning an award of attorneys fees in the management agreement clearly stated that, an arbitrator could award attorney fees to a party who prevailed in an arbitration conducted in Orange County, by the rules of the American Arbitration Association.

Thus, the court concluded that, because the clause was patently unambiguous in stating that attorney fees were to be awarded only by an arbitrator following an arbitration, and not by a judge following a jury trial, there was no basis for finding that the arbitration clause contained in the management agreement authorized an award of attorneys fees by a court without there having been an arbitration proceeding. Accordingly, the appellate court reversed the trial courts award of the attorneys fees to Association, and also awarded Manager the costs that it incurred in the appeal.

UNPUBLISHED California Appellate Court decision (July 11, 2019).

See case decision: Club_Acacia_Cmty._Ass’n_v._Prof’l_Cmty._Mgmt.