A Contract Is A Contract

From the Blog of Phyllis G. Pollack.

       Mediation is very popular. More and more, it is being used as the way to resolve disputes. In California, many statutes and contracts require that parties attempt to mediate prior to filing suit; otherwise, the prevailing party will be barred from recovering attorneys’ fees.

       These points were, once again, confirmed in a recent unpublished case, Lange v. Schilling, Court of Appeal of the State of California, Third Appellate District, Case No. C055471 (5/28/08). At issue was the provision in the standard California residential real estate  purchase agreement barring attorneys’ fees for a party who commences litigation without first attempting to mediate the dispute.

       It seems that in July 2003, plaintiff Lange (a real estate broker representing himself) purchased a lake house from Dwight and Linda St. Peter – the sellers – who were represented by the defendants. Thereafter, plaintiff allegedly discovered various construction problems and misrepresentations. Claiming he was unable to locate the present whereabouts of the sellers, he filed the complaint without first attempting to mediate. He then hired an investigator who located the sellers and provided plaintiff with their current address. Plaintiff then served defendants by mail. Approximately three months later, plaintiff entered the defendants’ default.

       Thereafter, plaintiff’s counsel wrote to defense counsel, offering to stay the litigation so that the parties could mediate. Apparently, there was no response, and so plaintiff (after agreeing to set aside the default) proceeded with the litigation.

       After a trial by jury, plaintiff obtained a mixed verdict and was awarded $13,475. He then filed a motion for his attorneys’ fees in the sum of $113,000 which the trial court granted but reduced to $80,710.26.

       The defendant appealed, contending that since plaintiff failed to attempt mediation prior to litigating pursuant to the contract provision, he was not entitled to his fees.

       The appellate court agreed. Quoting California  Civil Code §1638, the court noted that “ “[t]he language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” ”

       The appellate court noted that this contract provision evinces a strong policy in favor of mediation and is understandable. “ “[T]he public policy of promoting mediation as a preferable alternative to judicial proceedings is served by requiring the party commencing litigation to seek mediation as a condition precedent to the recovery of attorneys’ fees. . . . [H]ad the parties resorted to mediation, their dispute may have been resolved in a much less expensive and time-consuming manner. ” (Citations omitted.) ”  (Id. at 7.)

       The appellate court continued:

      “Here, plaintiff spent more than $113,000 in attorneys’ fees to recover a $13,000 judgment. “The economic inefficiency of this result may have been avoided if, prior to judicial proceedings, a disinterested mediator had explained to [the parties] the costs of litigating the dispute through to a judgment or a final resolution by an appellate court.”(Citation omitted.)” (Id. at 8.)

       The court refused to excuse plaintiff from meeting this pre-condition  simply because he could not locate the sellers to make the request. The facts showed otherwise. Once plaintiff filed suit, he hired an investigator who located them within two weeks. In the court’s view, the plaintiff could have just have easily hired the investigator to locate them and request mediation before filing and serving his lawsuit. The court did not accept plaintiff’s belated efforts – to locate the sellers and then offer mediation only after serving them with the lawsuit – as constituting “substantial compliance” with the contract provision.

       Finally, the court rejected plaintiff’s contention that the sellers waived the mediation provision by not taking plaintiff up on his offer to mediate, but, instead, proceeding with litigation.

       In sum, the court, quoting Frei v. Davey (2004) 124 Cal App. 4th 1506, 1508, stated “This provision “means what it says and will be enforced,” ” (Id. at 10) and reversed the fee award.

      The appellate court spoke with wisdom when it pointed out that a mediator – as a neutral third party – can provide a valuable reality check by pointing out the inefficiency of spending more in attorneys’ fees than the case is worth. It also spoke volumes in noting that mediation can resolve disputes “in a much less expensive and time-consuming manner” (Lange v. Schilling, supra, at 7) than litigation.

       In short, .. . mediation comes in handy and if  required by  a statute or contract, it should be utilized. . . if for no other reason than to  insure the recovery of attorneys’ fees later on. . . .

       . . .Just something to think about.  

                       

Phyllis Pollack

Phyllis Pollack with PGP Mediation uses a facilitative, interest-based approach. Her preferred mediation style is facilitative in the belief that the best and most durable resolutions are those achieved by the parties themselves. The parties generally know the business issues and priorities, personalities and obstacles to a successful resolution as… MORE >