Most states, including Wisconsin, follow the American Rule when it comes to attorney fees. In simple terms, it provides that each side in a lawsuit is responsible for their own attorney fees (win or lose) unless:
- A statute or law provides otherwise; or
- A contract provides otherwise.
Because the law recognizes your Association documents as contracts between the Association and it owners or members, a provision allowing attorney fees may be found there. Accordingly, fee shifting provisions in those documents may be enforceable. This can work to an Association’s benefit and/or detriment, depending on the language actually used – so watch out.
In In re Faitalia, 561 B.R. 767 (2017) a Unit Owner filed bankruptcy, and the Association subsequently filed a proof of claim. The Unit Owner was able to successfully remove the proof of claim because the unit had an appraised value of $530,000 and a first mortgage of $613,000 (it was under water and had no equity). Since the Association filed the proof of claim, and the Unit Owner was successful in having it removed, the Unit Owner argued it was the prevailing party and therefore entitled to $27,000 of attorney fees.
Trial Court Decision. The trial court agreed with the Unit Owner and awarded $27,397.89 in attorney’s fees and costs. The Association appealed.
Appellate Decision. The appellate court reversed holding that filing a proof of claim in the amount of a judgment that the Association had previously obtained for unpaid assessments did not permit the award of prevailing party attorney fees in the Unit Owner’s favor.
Lesson. Make sure you know what your documents say, otherwise even small acts to comply with the law might be used against your Association.