Nottingdale Homeowners' Ass'n v. Darby

514 N.E.2d 702, 33 Ohio St. 3d 32, 1987 Ohio LEXIS 407

• Court: Ohio Supreme Court
• Decided: October 14, 1987
• Docket: No. 86-1518
• Status: Published

Opinions

Douglas, J.

This is a case of first impression requiring us to determine whether two parties, in a noncommercial transaction, may lawfully contract to require, in a suit between them, the payment by the unsuccessful party of the prevailing party’s attorney fees. We hold that they may do so and, accordingly, reverse the decision of the court of appeals.

A majority of state supreme courts currently recognize and follow the “American Rule” regarding the recovery of attorney fees by the prevailing party in a civil action. This

rule provides “* * * that attorney’s fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor.” (Emphasis added.) Fleischmann Distilling Corp. v. Maier Brewing Co. (1967), 386 U.S. 714, 717. See, also, Alyeska Pipeline Service Co. v. Wilderness Society (1975), 421 U.S. 240, 257, and Comment d to Section 356 of the Restatement of the Law 2d, Contracts (1981) 160, which provides in part:

“Although attorneys’ fees are not generally awarded to the winning party, if the parties provide for the award of such fees the court will award a sum that it considers to be reasonable.”⁴

Contrary to this majority position, appellees argue, and the court of appeals found, that in Ohio attorney fees are not to be awarded to a successful litigant absent statutory authorization or bad faith by the unsuccessful litigant. In support of their contention that “fee-shifting” agreements are unenforceable in this state, appellees cite case law which stands for the proposition that attorney fees are not taxable as costs against an unsuccessful litigant in the absence of statute. In so doing, appellees ask us to ignore the facts of this case and stand the law of contracts on its proverbial head. We decline to do so.

Appellees rely upon the following cases for support: State, ex rel. Kabatek, v. Stackhouse (1983), 6 Ohio St. 3d 55, 6 OBR 73, 451 N.E. 2d 248; State, ex rel. Grosser, v. Boy (1976), 46 Ohio St. 2d 184, 75 O.O. 2d 228, 347 N.E. 2d 539; and Sorin v. Bd. of Edn. (1976), 46 Ohio St. 2d 177, 75 0.0. 2d 224, 347 N.E. 2d 527. None of these cases, however, supports the conclusion that parties may not contract under circumstances like those of this case for the payment of attorney fees.

Neither Kabatek, Grosser nor Sorin involved a contract providing for the payment of attorney fees. In Kabatek, the issue involved back pay and civil service benefits — no contract. Grosser was a mandamus action to obtain copies of high school records — once' again, no contract. Finally, Sorin involved the termination of employment, and appeal therefrom, of a superintendent of a board of education.⁵ Still no contract.

As further support for their position, appellees cite Coe v. Columbus, Piqua & Indiana Ry. Co. (1859), 10 Ohio St. 372; Gates v. Toledo (1897), 57 Ohio St. 105, 48 N.E. 500; and Miller v. Kyle (1911), 85 Ohio St. 186, 97 N.E. 372. We find appellees’ reliance upon these cases equally misplaced.

Neither Coe, supra, nor Gates, supra, involved a contract or stipulation to assume the attorney fees of the other party. In fact, contrary to appellees’ assertion, the court, in Gates, expressly recognized the contract exception to the general rule regarding attorney fees when it stated at 114, 48 N.E. at 502:

“ ‘If counsel fees are to be allowed as part of the damages in a case of this kind [breach of contract], where there has been no contract between the parties which provides therefor, we would not know where to draw the line, or say in what cases they should not be allowed * * *.’ ” (Citation omitted.) (Emphasis added.)

Accordingly, neither Coe nor Gates supports appellees’ position that contracts to allocate attorney fees are unenforceable.

Although Miller, supra, does involve a stipulation to pay attorney fees, the case more specifically deals with a commercial transaction and a promissory note containing an attorney fee stipulation. Thus, Miller is factually a far cry from the case now before us which involves a specific contractual provision that was assented to in a non-commercial setting by competent parties with equal bargaining positions and under neither compulsion nor duress. Therefore, Miller, like Coe, Gates, Kabatek, Grosser and Sorin, provides no support for appellees’ position that contracts providing for the payment of attorney fees in a noncommercial setting are unenforceable.

Appellees, absent any showing of misunderstanding, deception or duress, ask us to disregard the explicit terms of the condominium declaration and condominium by-laws by which they agreed to be bound. As shown above, the law in Ohio does not compel such a result nor are we prompted by appellees’ arguments to institute such a rule.

It has long been recognized that persons have a fundamental right to contract freely with the expectation that the terms of the contract will be enforced. This freedom “is as fundamental to our society as the right to write and to speak without restraint.” Blount v. Smith (1967), 12 Ohio St. 2d 41, 47, 41 O.O. 2d 250, 253, 231 N.E. 2d 301, 305. Government interference with this right must therefore be restricted to those exceptional cases where intrusion is absolutely necessary, such as contracts promoting illegal acts. No such necessity exists in this case.

Appellees, when they purchased a unit in Nottingdale Condominium, freely agreed to be bound by the terms of the condominium declaration. The declaration provides that in any action for foreclosure or to collect delinquent assessments, reasonable attorney fees incurred by the homeowners’ association shall be paid by the defaulting unit owner. The matter which prompted this litigation was appellees’ continued refusal to pay the monthly sum required of each unit owner for necessary services. While refusing each month to pay the amount due, appellees continued to accept the benefit of these services, including snow removal, trash collection, lawn care, exterior painting, water service, and payment of liability insurance. These services were enjoyed by appellees at the expense of their neighbors, fellow unit owners who faithfully contributed their monthly pro-rata share to the fund which makes the services possible. Repeated good-faith efforts by appellant to collect appellees’ unpaid obligations were ignored, necessitating the instant lawsuit. The expenses to prosecute this lawsuit, once again, must come from the fund supported by appellees’ fellow unit owners. No amount of legal wrangling can obscure the fact that appellees knowingly accepted the services and must pay for them. To obtain this inevitable result, appellant has been forced by appellees’ intransigence to incur large amounts in attorney fees to collect the relatively small amount of past due assessments.⁶

By refusing to enforce the provision which would require appellees to pay appellant’s reasonable attorney fees, this court would make it virtually impossible for condominium unit owners’ associations to recoup unpaid assessments from recalcitrant unit owners. The expense of collection would render the effort useless. The result would be that a unit owner, who for any reason does not wish to pay his monthly service assessment, can enjoy the benefits of such services and refuse to pay for them, secure in the knowledge that collection by the association will be prohibitively expensive. Under such circumstances, what incentive would exist for the unscrupulous unit owner to pay his assessments? Obviously, very little.

As can be seen, the fee-shifting agreement in this case protects the fund of the unit owners’ association from potential bankruptcy, and the conscientious contributors thereto from the burden of paying for the delinquency of others. Without such fee-shifting agreements, unit owners’ associations may have to abandon claims against debtors, such as appellees, as too costly to pursue. With such agreements, the debtor will be encouraged to pay to avoid litigation, and if litigation becomes necessary, the association’s resources will be protected if its suit proves meritorious. A more ideal arrangement can scarcely be imagined.

In sum, this court will not interfere with the right of the people of this state to contract freely and without needless limitation. A rule of law which prevents parties from agreeing to pay the other’s attorney fees, absent a statute or prior declaration of this court to the contrary,⁷ is outmoded, unjustified and paternalistic.

Accordingly, we hold that provisions contained within a declaration of condominium ownership and/or condominium by-laws requiring that a defaulting unit owner be responsible for the payment of attorney fees incurred by the unit owners’ association in either a collection action or a foreclosure action against the defaulting unit owner for unpaid common assessments are enforceable and not void as against public policy so long as the fees awarded are fair, just and reasonable as determined by the trial court upon full consideration of all of the circumstances of the case.

We, therefore, reverse the judgment of the court of appeals and reinstate the judgment of the trial court.

Judgment reversed. ■

Moyer, C.J., Sweeney and Holmes, JJ., concur. • Locher, Wright and H. Brown, JJ., dissent.

4 At least twenty-nine state supreme courts and the District of Columbia have recognized the contract exception to the “American Rule” regarding attorney fees: Alabama, Eagerton v. Williams (Ala. 1983), 433 So. 2d 436, 450, appeal affirmed after remand (1984), 460 So. 2d 850; Arizona, DVM Co. v. Stag Tobacconist, Ltd. (1983), 137 Ariz. 466, 468, 671 P. 2d 907, 909; California, Reynolds Metals Co. v. Alperson (1979), 25 Cal. 3d 124, 127, 599 P. 2d 83, 85, 158 Cal. Rptr. 1, 2; Connecticut, Gino’s Pizza of East Hartford, Inc. v. Kaplan (1984), 193 Conn. 135, 140, 475 A. 2d 305, 308; District of Columbia, Wisconsin Ave. Assoc., Inc. v. 2720 Wisconsin Ave. Co-op. Assn. (D.C. 1978), 385 A. 2d 20, 24; Florida, Penthouse North Assn., Inc. v. Lombardi (Fla. 1984), 461 So. 2d 1350, 1353; Hawaii, THC Financial Corp. v. LR & I Development One (1982), 65 Haw. 477, 653 P. 2d 789; Idaho, Hellar v. Cenarrusa (1984), 106 Idaho 571, 578, 682 P. 2d 524, 531; Illinois, Abdul-Karim v. First Federal S. & L. Assn. of Champaign (1984), 101 Ill. 2d 400, 411-412, 78 Ill. Dec. 369, _, 462 N.E. 2d 488, 493; Indiana, Kikkert v. Krumm (Ind. 1985), 474 N.E. 2d 503, 504-505; Iowa, Bethards v. Shivvers, Inc. (Iowa 1984), 355 N.W. 2d 39, 47; Maine, Elliott v. Maine Unemployment Ins. Comm. (Me. 1984), 486 A. 2d 106, 111; Massachusetts, Lincoln St. Realty Co. v. Green (1978), 374 Mass. 630, 631, 373 N.E. 2d 1172, 1173; Mississippi, Grisham v. Hinton (Miss. 1986), 490 So. 2d 1201, 1206; Minnesota, Anderson v. Medtronic, Inc. (Minn. 1986), 382 N.W. 2d 512, 516; Missouri, Mayor, Councilmen & Citizens of Liberty v. Beard (Mo. 1982), 636 S.W. 2d 330, 331; Montana, Carkeek v. Ayer (Mont. 1980), 613 P. 2d 1013, 1015; Nevada, First Interstate Bank of Nevada v. Green (1985), 101 Nev. 113, 116, 694 P. 2d 496, 498; New Hampshire, Pugliese v. Northwood Planning Bd. (1979), 119 N.H. 743, 752, 408 A. 2d 113, 118; North Dakota, Farmers Union Oil Co. of New England v. Maixner (N.D. 1985), 376 N.W. 2d 43, 48; Oklahoma, Webb v. Dayton Tire & Rubber Co. (Okla. 1985), 697 P. 2d 519, 522; Rhode Island, Farrell v. Garden City Builders, Inc. (R.I. 1984), 477 A. 2d 81, 82; South Carolina, Duke Power Co. v. South Carolina Pub. Serv. Comm. (1985), 284 S.C. 81, 100, 326 S.E. 2d 395, 406; South Dakota, Lowe v. Steele Constr. Co. (S.D. 1985), 368 N.W. 2d 610, 614; Tennessee, Pullman Standard, Inc. v. Abex Corp. (Tenn. 1985), 693 S.W. 2d 336, 338; Utah, Golden Key Realty, Inc. v. Mantas (Utah 1985), 699 P. 2d 730, 734; Vermont, Myers v. Ambassador Ins. Co., Inc. (1986), 146 Vt. 552, 558, 508 A. 2d 689, 692; Washington, Clark v. Washington Horse Racing Comm. (1986), 106 Wash. 2d 84, 720 P. 2d 831, 835; Wisconsin, Watkins v. Labor & Industry Review Comm. (1984), 117 Wis. 2d 753, 345 N.W. 2d 482; Wyoming, Bowers Welding & Hotshot, Inc. v. Bromley (Wyo. 1985), 699 P. 2d 299, 307.

5 It is interesting to note that while Sorin makes no express mention of the contract exception to the “American Rule,” the two United States Supreme Court cases relied upon in Sorin for authority regarding the “American Rule,” Alyeska Pipeline Service Co. v. Wilderness Society (1985), 421 U.S. 240, 257, and F.D. Rich Co. v. Industrial Lumber Co. (1974), 417 U.S. 116, 126, both recognize the contract exception to the general rule.

6 The trial court determined the unpaid assessments to be $2,464.82, with additional late charges of $145. The attorney fees incurred by appellant in collecting this amount were $12,268.89, as of the date of the trial court’s decision. The trial court, noting the large amount of these fees, was reluctant to award such an amount “* * * in what should have been a routine and simple case. * * *” However, the court recognized that “* * * the fact that the case did not remain routine and simple is due solely to the activities of the defendant in pursuing what he believed to be the proper course in this matter. The Court can sympathize with the defendant in standing for a principal [sic] in which he believes, but the Court finds, as a matter of law and evidence, that the plaintiff is entitled to recover a reasonable amount for their [sic] fees and expenses of suit. Since the only evidence before the Court is evidence presented by the plaintiff, and since there is nothing to indicate that the amount of fees incurred is not reasonable under all the facts of this case, the Court hereby awards judgment in favor of the plaintiff and against the defendants Darby, in the sum of $12,268.89. * * *”

7 A contract of adhesion, where the party with little or no bargaining power has no realistic choice as to terms, would likewise not be supportable.