In the recent case of AvalonBay Communities, Inc. v. Vardenski, the Massachusetts Appeals Court addressed whether attorneys’ fee awards obtained by opposing parties in a landlord-tenant dispute may be offset against each other. Reversing the Housing Court, the Appeals Court held that the combination of M.G.L. c. 235, § 27 (Fifth) and G.L. c. 221, § 50 prevents such awards from being offset against each other. As a result, the Court remanded the case to the Housing Court with instructions that separate fee awards be entered on the docket.
In the Housing Court, the landlord brought suit alleging that the tenant owed unpaid rent, while the tenant asserted counterclaims for breach of the implied warranty of habitability and unfair and deceptive business practices under G.L. c. 93A. The Housing Court ruled in favor of the landlord on its rent claim, and in favor of the tenant on her counterclaims. Both parties were awarded damages and attorney’s fees.
The problem arose when, in entering separate judgments for each party, the trial judge reduced the higher awards by the lower awards, resulting in a net damages award for the landlord ($7,359.26), and a net attorneys’ fee award for the tenant ($13,129.90). On appeal, the tenant argued that offsetting the attorneys’ fees awards violated M.G.L. c. 235, § 27 (Fifth), which bars setoffs “[a]s to the portion of either execution upon which the attorney has a lien under [M.G.L. c. 221, § 50.]” The latter statute provides three separate bases for the attachment of an attorney’s lien: “(1) upon [the] client’s cause of action, counterclaim or claim, (2) upon the judgment, decree or other order in [the] client’s favor entered or made in such proceedings, and (3) upon the proceeds derived therefrom.” Subsection (2) applied to the case at hand.
The Appeals Court agreed with the tenant, reasoning that the attorneys’ fee portion of the tenant’s judgment was subject to a lien by the tenant’s attorney and, therefore, could not be reduced by the amount of the attorneys’ fees awarded to the landlord. The Appeals Court emphasized the purpose of the attorneys’ lien statute, which is to facilitate the retention of an attorney by those who may have financial difficulty retaining one. Permitting attorneys’ fee offsets, which can reduce or eliminate such awards, could effectively require a prevailing party’s attorney to absorb the cost of litigation, frustrating the statute’s purpose and inhibiting access to legal services.
Notably, the tenant in the case had filed for bankruptcy, suggesting that the landlord would not be able to recover his end of the Housing Court judgments, while the tenant would be able to recover her end of the judgments. The Court intimated (and seemed content) that this could be the outcome in many situations because the average tenant is less likely to be able to satisfy a judgment than the average landlord.
For landlords, tenants, and legal practitioners, AvalonBay serves as an important reminder that attorneys’ fee awards are not subject to the same offsets that apply to other types of awards. This is a “collectability” issue that generally favors tenants and, in any event, should be an important consideration to any party or lawyer involved in decisions about whether to become involved in, prosecute, defend, or settle a landlord-tenant case.
For any questions about this decision, please contact Michael Sullivan or any member of Prince Lobel’s Real Estate group.
With many thanks to summer law clerk Michaela Zelandi for her assistance with this piece.