Monmouth Meadows HOA, Inc. v. Hamilton; Montpelier HOA, Inc. v. Thomas-Ojo; Constant Friendship HOA, Inc. v. Tillery (Ct. of Appeals)

Filed: July 27, 2010

Opinion by Judge Sally D. Adkins

Held: In calculating attorneys' fees in breach of contract cases between private parties where the award of fees is not based on the terms of the contract, it is improper to use either the lodestar method or to calculate the attorney's fee by applying a flat percentage of the amount claimed. Instead, courts should use the factors set forth in Rule 1.5 of the Maryland Lawyers' Rules of Professional Conduct as a rubric for determining the reasonable attorneys' fees to award.

Facts: This opinion grew out of a number of cases involving claims by howeowners' associations against some of their members for delinquent association fees. As a condition of membership in each of the HOAs, each of the defendants was contractually obligated to pay annual assessments to their respective HOA and interest and late charges were assessed on any past due amounts that were owed for the annual assessments.

In each case, when the Defendant Resident did not pay the annual assessments or late fees when due, their respective HOA directed the law firm of Nagle & Zaller, P.C. to collect the debt. After Nagle & Zaller's attempt to collect the debt by contacting each of the Defendant Residents in writing was unsuccessful, each of the HOAs established and recorded liens on the property of their respective Defendant Resident in accordance with the Contract Lien Act as authorized by Section 14-203 of the Real Property Article of the Maryland Code, notified their respective Defendant Resident of the lien and demanded payment of the debt and the HOA's attorneys' fees in pursuing collection of the debt. When payment was not received, each HOA, through Nagle & Zaller, initiated suits against their respective Defendant Resident seeking payment of the debt and attorneys' fees as calculated by the lodestar method.

In each case, the district court elected to not use the lodestar method to calculate the attorneys' fees that would be awarded to the HOA, but instead awarded attorneys' fees based on a flat percentage of the principal amount sought by the HOA. Each HOA appealed the fee award to the applicable Circuit Court.

Certain cases were first appealed to the Circuit Court for Harford County. That court awarded the fees that each HOA incurred during its trial in the district court and did not award any fees that were incurred in the appeal process.

One case was initially appealed to the Circuit Court for Prince George's County. In that case, the Circuit Court held that it was not appropriate to use the lodestar method to calculate the attorneys' fees that were due to the HOA. It then looked to Rule 1.5 of the Maryland Lawyers' Rules of Professional Conduct as guidance. Concluding that the attorneys' fees requested by the HOA was unreasonably high for the work actually required, the Circuit Court for Prince George's County reduced the fee award to the HOA to $300.00 and did not award any fees that were incurred by the HOA during its appeal.

Analysis: Before addressing the argument by each of the HOAs that the lodestar method is the proper method that should be used in each of their cases for calculating the award of attorneys' fees, the Court of Appeals first explained that a court that uses the lodestar method calculates the fee award by multiplying the number of hours reasonably spent pursuing a legal matter by a reasonable hourly rate for the type of work performed and then adjusts the amount based on its view of the following external factors )set forth, and approved by the US Supreme Court, in Blanchard v. Bergeron, 489 U.S. 87 (1989):

(1) the time and labor required;
(2) the novelty and difficulty of the questions;
(3) the skill requisite to perform the legal service properly;

(4) the preclusion of other employment by the attorney due to acceptance of the case;
(5) the customary fee;
(6) whether the fee is fixed or contingent;
(7) time limitations imposed by the client or the circumstances;
(8) the amount involved and the results obtained;

(9) the experience, reputation, and ability of the attorneys;
(10) the 'undesirability' of the case;
(11) the nature and length of the professional relationship with the client; and
(12) awards in similar cases.

The court noted that the lodestar method could lead to fee awards that are much larger than the principal amount sought. The Court of Appeals then noted that, as established by its precedent in Friolo v. Frankel , the lodestar method is only generally appropriate in the context of fee-shifting statutes where the goals of public policy are advanced, such as in complex civil litigation involving challenges to institutional practices or conditions.

Because the Defendant Residents were obligated to pay the attorneys' fees to the HOAs as a result of the contract that was entered into by each of the Defendant Residents when they became a member of their respective HOA and not as a result of public policy or a fee-shifting statute, the Court of Appeals concluded that the lodestar method was not the appropriate method that should be used to calculate the fee award. Instead, agreeing with the method used by the Circuit Court for Prince George's County, the Court of Appeals held that a trial court should use the factors set forth in Rule 1.5 of the Maryland Lawyers' Rules of Professional Conduct as the foundation of its analysis in determining what constitutes a reasonable fee when the court is awarding attorneys' fees based on a breach of contract case where the award of fees is based on the terms of the contract. The Court also held that it was error to automatically apply a percentage of recovery "without a substantive inquiry into the appropriateness of [such an] award[]."

The full opinion is available in pdf.