A CONTRACTUAL MEDIATION PRECONDITION REQUIREMENT AND AN AWARD OF ATTORNEY’S FEES
Lange v. Schilling (2008) 163 Cal.App.4th 1412 holds that a party to a contract which provides that to receive attorney’s fees and costs a prevailing party must first attempt to mediate the matter before commencing arbitration or a court action may not receive such fees for failing to comply with that condition precedent.
The parties in Lange v. Schilling used a standard California residential property purchase agreement for the sale and purchase of a house. The agreement contains language that a prevailing party shall be entitled to reasonable attorney’s fees and costs but “shall not be entitled to recover (those) fees” if that party “commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made.”
The buyer sued the sellers and their broker for various construction problems and misrepresentations. He filed the case before attempting mediation because he claimed he was unable to locate the sellers. The trial court, in awarding attorney’s fees to the prevailing buyer, found he was reasonably justified for not complying with the mediation condition. The trial court also found that the buyer had substantially complied with the mediation pre-condition by offering it after the filing. “The [sellers] did not respond to plaintiff’s offer. The court cannot say they suffered any prejudice due to the tardy offer to mediate in that, at the time plaintiff offered to mediate, the [sellers] had not filed any responsive pleading.”
The appellate court reversed the trial court’s order, finding holes in the plaintiff’s assertion that he was only able to find the defendants after filing the case. “Plaintiff could have readily complied with the requirements of (the mediation) paragraph … simply by hiring the investigator, learning sellers’ whereabouts, and mailing an offer of mediation to them before filing his complaint. Instead, plaintiff filed his complaint first, then located sellers, and then, months later, offered mediation. As defendants note, ‘If the [sellers] could be found and served with a lawsuit by mail, they could have been sent a mediation demand by mail.’” (Id. at p. 1418.)
The appellate court also rejected the substantial compliance rationale because the mediation condition precedent “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.” (Ibid.)
Lange v. Schilling should apply to any contract or arbitration agreement that requires a prevailing party, to obtain an award of reasonable attorney’s fees and costs, to first attempt to mediate the matter before filing the case or seeking arbitration. One exception, derived from the facts of the case, to this seemingly absolute precondition appears to be that parties may commence a court action or arbitration before attempting to mediate, and still recover their fees and costs, if they can conclusively establish that they were unable, under any reasonable circumstances, to locate the opposing party prior to legally moving forward.
Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
Copyright Michael D. Marcus, December 2008