Bed Bugs, Attorneys, and Attorneys’ Fees

By: David Hamerslough
November 17th, 2016

For many people, the connection between bed bugs and attorneys is perhaps obvious. A bed bug is a pest that invades your life and feeds off you. Some would say attorneys do the same. Certainly, both can cause you to incur attorneys’ fees.

For those of you who did not make this connection or are otherwise curious about the link between bed bugs, attorneys, and attorneys’ fees, please continue reading.

The California legislature has passed Assembly Bill 551, which addresses the duties of landlords and tenants with regard to the treatment and control of bedbugs. The law will require a landlord to provide a prospective tenant, on and after July 1, 2017, and to all other tenants by January 1, 2018, written notice providing general information about bed bug identification, behavior and biology, the importance of cooperation for prevention and treatment, and the importance of and for prompt written reporting by the tenant to the landlord of suspected infestations. The law would prevent a landlord from showing, renting, or leasing a vacant dwelling unit that the landlord knows has a bed bug infestation as that term is defined in the statute. The law will also require that the landlord provide notice to any tenant of a unit inspected by a pest control operator of that operator’s findings within two business days. This is an extension of the existing law that requires a landlord of a residential dwelling unit to provide each new tenant who occupies the unit with a copy of the notice provided by a registered structural pest control company if a contract for period pest control service has been executed.

The legislature has determined that controlling bed bugs is an issue that impacts the habitability of residential dwelling units. While the new law does not impose a duty on a landlord to inspect a dwelling unit or the common areas of the property for bed bugs if the landlord has no notice of a suspected or actual bed bug infestation, the landlord shall be considered to have notice if a bed bug infestation is evident on a visual inspection or the landlord is made aware of it by a complaint made by a tenant or after receiving notice from a government agency that has been put on notice of the issue by a tenant. As long as the tenant is not in default as to the payment of rent, the law precludes a landlord from retaliating against the tenant because of the exercise by the tenant of any rights under the new law and further prevents the landlord from filing an unlawful detainer action, causing the tenant to quit the premises involuntarily, increasing the rent, or decreasing any services if such actions are taken within 180 days of a tenant who provides notice of a suspected infestation in good faith, has made an oral complaint to the landlord regarding tenantable, or has made a complaint to an appropriate government agency for the purpose of addressing this issue.

There are other conditions and limitations in this law, and the foregoing is only a general summary of it. Any landlord or property manager who violates this new section shall be liable for actual damages sustained by the tenant and potentially liable for punitive damages, plus reasonable attorneys’ fees if either party requests attorneys’ fees upon the initiation action, as well as any other remedies provided by the law.

While this law does not go into effect until July 1, 2017, the connection between bed bugs and attorneys’ fees took on new meaning as a result of a recent appellate decision, Hjelm v. Prometheus Real Estate Group, Inc. Hjelm leased an apartment from Prometheus in San Mateo County. The apartment became infested with bed bugs, which, along with an ongoing raw sewage problem, forced Hjelm to move out. Hjelm sued Prometheus alleging, among other things, breach of the warranty of habitability and sought damages and attorneys’ fees pursuant to the lease. A jury found in favor of Hjelm and awarded economic damages in the amount of $11,652.00 and non-economic damages in the amount of $60,000.00.

The kicker was that the lease contained several attorneys’ fees clauses, and the trial court awarded Hjelm attorneys’ fees in the amount of $326,475.00. Prometheus appealed, but the Court of Appeal affirmed the judgment, including the award of attorneys’ fees. Hjelm is now also entitled to her attorneys’ fees incurred on the appeal, which will be determined by the same trial judge who already determined that the $326,475.00 were reasonable attorneys’ fees for the litigation and trial of the underlying case.

Hjelm is an interesting decision for several reasons. One of them is the disproportionate amount of attorneys’ fees that were first incurred and then awarded in relationship to the damages recovered by Hjelm.

I do not know whether Hjelm, Prometheus, or their attorneys were the bed bugs in this case because I do not know whether the case was tried because Hjelm was demanding much more money than she actually received, whether Prometheus refused to make a settlement offer, or whether the parties were forced to try the case because they could not settle their dispute due to significant attorneys’ fees on both sides. In any of these circumstance, this case demonstrates how attorneys’ fees can drive litigation and that parties to a lawsuit, either on their own or in conjunction with their attorneys, often make decisions that are very costly in the long run based upon their principles, morals, values, sense of justice, entitlement, etc., as opposed to making such decisions based on sound business judgment, pragmatism, rational grounds, reality, etc.

It is unknown to what degree, if at all, the principles, morals, etc. of the parties and their attorneys impacted the amount of attorneys’ fees that were incurred in the Hjelm case, but it is an example of a truth that anyone involved in litigation should remember – i.e., that spending a disproportionate amount of attorneys’ fees in relationship to the amount of damages is a risky proposition. In this instance, the risk was ultimately borne by Prometheus. Under other circumstances, a court could have determined that attorneys’ fees in the sum of $326,475.00 were neither reasonable nor justified. If that had occurred, the risk would have been allocated differently. The risk could also have been allocated in a different way if a Code of Civil Procedure § 998 offer been made. The appellate decision is silent on whether such an offer was made. A C.C.P. § 998 offer changes the definition of “prevailing party” and enables a party who correctly evaluates the exposure they have to shift any exposure for attorneys’ fees and, in some instances, costs where the other party fails to accept that settlement offer and then does not obtain a more favorable result at trial.

The Hjelm decision is also significant due to what it says about the interpretation of attorneys’ fees clauses in contracts. While Hjelm involved the interpretation of several clauses in a lease, the principles cited by the court apply to any contract. Several principles were relied upon by the appellate court. First, the recovery of attorneys’ fees for an action “on a contract” is governed by Civil Code § 1717. The court in Hjelm emphasized that the term “on a contract” is to be liberally construed as it is used within this Code section. As long as the action “involves a contract,” it is “on a contract” within the meaning of this section.

Second, the same act may be both a breach of contract and a tort. An example of tort liability is a claim based on negligence or breach of fiduciary duty. Where a party negligently fails to adequately perform a contractual obligation or undertaking, such an action is one to enforce the provisions of the contract and is therefore an action “on a contract” within the meaning of § 1717. This rule of interpretation will apply as long as the party has not elected a distinctive remedy in tort.

Third, where a contract provides for attorneys’ fees to enforce the contract, that contractual provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract and the fact of that representation is specified in the contract.

In Hjelm, the attorneys’ fees clauses were broadly worded and attempted to impose liability on the tenant for attorneys’ fees incurred by the landlord as a result of conduct by the tenant only. The language of these clauses was unilateral in that it benefited only the landlord.

Prometheus argued that these clauses did not apply to the claims made by the tenant and were to be narrowly interpreted as applying to only the specific conduct set forth in the attorneys’ fees clause. The Court of Appeal disagreed; it held that the attorneys’ fees clauses were broadly worded and because these clauses had given Prometheus the right to collect attorneys’ fees in pursuing its rights, those clauses applied equally to give Hjelm the right to recover her attorneys’ fees, including any claim arising out of performance or nonperformance under the entire contract.

As noted above, the principles applicable to the interpretation of an attorneys’ fees clause apply to any contract. The current C.A.R. listing contract contains an attorneys’ fees clause that is limited to a claim “regarding the obligation to pay compensation” under the listing. In contrast, the current PRDS listing contract indicates that each party shall bear its own attorneys’ fees and costs in the event of any dispute arising out of the listing. The only exception to this provision in the PRDS listing contract is the right to recover attorneys’ fees as a result of the enforcement of the indemnification provisions in that contract. In view of the court’s ruling in Hjelm, these clauses may not have as narrow a scope as their language suggests.

The foregoing discussion is general in nature and is not intended to address each and every factual or legal issue raised by the Hjelm decision or relating to the application and interpretation of attorneys’ fees clauses in any contract. Anyone concerned with the scope and application of an attorneys’ fees clause in a contract should review that matter with a qualified real estate attorney.