Friday, May 30, 2008

Mediate First Prior to Litigation

May 30 2008 by Jim W Hildreth

This is similiar to the Gibson case and under California Association of Realtors, mediation should occur first prior to litigation to collect Attorney Fee's by the prevailing party. Jim Hildreth

The following article and credit goes to

Third District Denies Fees Where No Mediation Was Sought Before Commencement of Suit.
Call us somewhat psychic. However, in our May 22, 2008 post, we hinted that there would be future discussion of whether fees will be awarded where real estate sellers or purchasers failed to satisfy the mediation condition precedent in their contracts. Well, the time is now, because an unpublished Third District decision brings that message crashing home in dreaded fashion for a litigant who forfeited over $80,000 in fees for being noncompliant.
The case is Lange v. Schilling, Case No. C055471 (3d Dist. May 28, 2008) (unpublished). Its first paragraph is chilling and summarizes what happened:
“The standard residential purchase agreement bars attorney fees for a party who commences litigation without first attempting to mediate the dispute.Plaintiff Jay Lange filed his complaint before seeking mediation but, after plaintiff prevailed at trial, the trial court nevertheless awarded him attorney fees. We agree with other courts that the agreement mean what it says: plaintiff’s failure to seek mediation precludes an award of attorney fees. We therefore reverse the order.” (Slip Opn., at p. 1.)
Plaintiff buyer bought a lake house, and later sued sellers and sellers’ brokers for alleged nondisclosures. The California Association of Realtors (CAR) residential property purchase agreement had the standard clause requiring mediation as a condition precedent to an award of fees to the prevailing party. Mediation had to be pursued before resorting to arbitration or court action. Plaintiff sued before attempting mediation. Plaintiff sued first, hired an investigator to locate seller, and then demanded mediation after suit was commenced (offering to stay the litigation while mediation was pursued). The matter went to trial. Plaintiff recovered $13,475, jointly and severally, against sellers and sellers’ brokers. Plaintiff filed a motion to recover $113,096.03 in attorney’s fees from sellers. Sellers and plaintiff buyer entered into a settlement by which buyer agreed to look to brokers for satisfaction of any judgment and recovery of fees (with sellers to receive a portion of any fee recovery exceeding $100,000).
Brokers resisted the fee request by claiming plaintiff failed to attempt mediation before filing his complaint. The trial court disagreed and awarded $80,710.26 in fees. Brokers appealed.
Brokers won on appeal.
The Third District found the mediation condition precedent provision to be clear and unmistakable in meaning, significantly siding with Frei v. Davey, 124 Cal.App.4th 1506 (2004) (a Fourth District, Division 3 authored by Justice Fybel). The Court of Appeal found that plaintiff’s inefficiency in spending more than $113,000 in fees to recover a $13,000 judgment might have been avoided had mediation been pursued.
The Court of Appeal did not buy that plaintiff buyer was excused because he had difficulty locating sellers in order to request mediation. Rather, buyer did locate sellers. The appellate court believed that the buyer could have complied with the mediation provision by hiring the investigator, locating sellers, and then mailing an offer to mediate before filing of the complaint.
The Third District also rejected buyer’s suggestion that he substantially complied by offering to mediate shortly after filing the complaint. The Court of Appeal stated: “This provision would become meaningless if a party were allowed to recover attorney fees by making a request for mediation after litigation has begun and then claiming substantial compliance.” (Slip Opn., at p. 9.)
Quoting Frei, supra, 124 Cal.App.4th at 1508, the Third District concluded by observing: “This provision ‘means what is says and will be enforced.’ [Citation omitted.] The fee award must be reversed.” (Slip Opn., at p. 10.)
Not only did buyer lose his fee award, but the appellate court awarded brokers costs on appeal (which includes any attorney’s fees awardable under the residential purchase agreement fee clause).
The lesson is not hard to decipher: mediate before filing suit in order to preserve the ability to recoup fees under the CAR form contract. Appellate courts have not shown leniency towards interpreting these provisions other than in a very literal manner.

Jim W Hildreth-Mediator