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Many Real Estate Disputes Processed In Small Claims Court

For a variety of reasons, one of the attractive features of small claims court is that no attorneys are allowed. This is a major factor in keeping down the costs of small claims cases, and it is no doubt one of the reasons that so many real-estate related disputes are processed there.

To be sure, small claims actions are not the real estate cases that make the news, but they do encompass a great bulk of disputes over such matters as security deposits, damages to property, encroachment issues, and even commission agreements. In California, claims up to $10,000 will be heard. Some other states have higher limits and many have lower. Often, aggrieved parties will decide it is better to press in small claims for less than they think they actually deserve, simply in order to get the matter over with at a cost that is not prohibitive.

In California’s small claims system, a defendant may appeal the outcome, but not the plaintiff. If there is an appeal, attorneys may provide representation at that level. But, unlike many legal proceedings, attorney involvement in a small claims appeal cannot wind up with attorney fees consuming as much as, or even more than, the award itself. A recent decision from California’s Fourth Appellate District (Dorsey v. Superior Court, October 22, 2015) confirms this.

In October of 2012, Jeffrey and Rebekah Crosier (tenants) entered into a lease agreement for a condominium owned by Michael Dorsey (trustee of the Dorsey Trust). The lease contained a provision that, in the event of a legal action, the prevailing party would be entitled to attorney fees. After the lease terminated, disputes arose between the parties.

In March of 2014 the Crosiers filed a small claims court action against landlord Dorsey. They sought $10,000 for alleged breach of the rental agreement, breach of the implied covenant of quiet enjoyment, wrongful retention of security deposit, retaliation, and constructive eviction. They also asked for an additional $850 as reasonable attorney fees.

Dorsey then filed a “Defendant’s Claim” in the small claims court. He alleged that the Crosiers were liable for holdover rent and other damages. He sought attorney fees of $2,000.

The small claims court entered judgment in favor of the Crosiers for $3,200 on their claim and $1,153 in favor of Dorsey, leaving a net judgment in the tenants’ favor for $2,047. Dorsey appealed, and both sides were represented by counsel on the appeal. On the appeal, the superior court found that Dorsey had breached the lease by not returning $1,560 of the security deposit, and it found that the tenants had not breached the lease at all.

Now we get to the part about attorney fees. The Crosiers were the prevailing party, so, according to the attorney fee provision on the lease, they (or their attorney) were entitled to attorney fees.

Their attorney filed a motion for $11,497.50 in fees.

That didn’t look so good to Dorsey, and he filed a motion in opposition. His opposition was based on Section 116.780(c) of the Code of Civil Procedure. There, it is specified that a cap of $150 applies to all attorney fee awards in small claims court appeals.

At first, the superior court issued a ruling stating that the $150 cap applied; but subsequently it ruled otherwise, stating “There is no indication that section 116.780 overrides the ability to contract for a larger award.” Thus, based on the attorney fee provision in the lease, the superior court awarded the tenants’ attorney fees of $10, 447.50.

Of course, Dorsey appealed.

In their decision, the Fourth District Appellate court engaged in a lengthy discussion of the history and intent of the legislation that created the small claims court system. The court observed “From the outset, the Legislature and courts have acted to make small claims court cost effective for litigants — so litigants may bring these claims to court ‘without spending more money on attorney’s fees and court expenses than the claims were worth'”

Thus, the court wrote “… our task is to interpret section 116.780(c) to give effect to the Legislature’s clearly stated intent to create an expeditious and inexpensive method of resolving disputes and to avoid the complexity and delay of ordinary litigation. This intent can be effectuated only if section 116.780(c) overrides any conflicting contractual attorney fee provision.”

The superior court was ordered to vacate its order granting attorney fees in the amount of $10,373 and to enter a new order granting the Crosiers attorney fees in the amount of $150.

The lesson: Yes, you can be represented by an attorney in an appeal of a small claims ruling. But the most the attorney is going to be awarded is $150. Good luck finding one.

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