Business Conflict Blog by Peter Phillips
A recent decision of the Supreme Court of Nevada addresses the question whether a party’s ignoring a provision in a commercial contract requiring mediation prior to commencing litigation may be grounds for dismissal of the action. In MB America, Inc. v. Alaska Pacific Leasing Company, the court said it was, confirming the award of summary judgment in favor of the defendant.
Alaska Pacific agreed to be a dealer to sell certain rock-crushing machines manufactured by MBA. The contract provided:
Any disputes or questions arising hereunder… shall be submitted to mediation… with the rules of the American Arbitration Association…. If mediation between the parties does not result in a mutual satisfying settlement withing 180 days after submission to mediation, then each party will have the right to enforce the obligations of this Agreement in the court of law of Reno, Nevada with all reasonable attorney fees, court costs and expenses incurred by the prevailing party in such litigation to be paid by the other party.
Upon a dispute’s arising concerning equipment purchases made by Alaska Pacific, MBA filed a suit seeking (a) a declaration that it had not breached the contract and (b) specific performance of the mediation provision of the contract. Alaska Pacific filed a motion for summary judgment on the ground that, in not engaging in mediation prior to filing suit, MBA had failed to perform a condition precedent to litigation. The district court granted Alaska Pacific’s motion, and awarded its attorney’s costs pursuant to the contract.
The coincident request by both parties seeking that mediation take place gives one pause about the facts, but it did not pose a concern to the Nevada Supreme Court. The mediation provision was perfectly clear that a claimant had to file for mediation with the AAA prior to initiating suit; Rule M-2 of the AAA’s Mediation Procedures spelled out perfectly clearly what steps a party must take to initiate a mediation with the AAA; and it was uncontested that MBA did not take them.
MBA protested that it had informally approached Alaska Pacific to mediate and had been rebuffed, not only excusing it from the requirement to mediate but, indeed, informing its request that the court order mediation. Neither the district court nor the Supreme Court was moved, however, notwithstanding that several letters from MBA alluding to mediation were part of the record. “As the prelitigation mediation provision constituted a condition precedent to litigation, and MBA initiated litigation without complying with the prelitigation mediation provision in the Agreement, the district court’s granting summary judgment was proper.”
Interesting though it is, that an agreement to engage in facilitated negotiation prior to litigating is held to be an enforceable condition precedent (inasmuch as it might be difficult to determine whether that condition was indeed fulfilled), more interesting to me is why counsel for MBA didn’t just file for mediation pursuant to M-2, rather than writing letters about it. It’s not a very onerous procedure, and it’s way cheaper than engaging in discovery, defending against a summary judgment motion, and appealing to the Nevada Supreme Court.
I’m perplexed. Then again, I often am.
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