On June 7, 2012, the Third Appellate District Court in California, once again, reaffirmed the notion that where a contract requires pre-litigation mediation as a condition to recouping attorneys’ fees in subsequent litigation, it means what it says.

In Cullen v. Corwin, (Case No. C067861) Plaintiffs Joe and Marienne Cullen purchased a vacation home from Defendants Paul and Geraldine Corwin. They claimed that the Corwins “…acted either negligently or fraudulently in failing to disclose the defective condition of the garage roof when they sold a vacation home to the Cullens.” (Id. at 2.).

Defendants filed a motion for summary judgment alleging that the case had been filed after the expiration of the applicable three year statute of limitations. The trial court granted the motion and so Defendants appealed.

Defendants then moved for an award of their attorneys’ fees and costs (totaling $16,500) pursuant to a provision in the standard form real estate purchase agreement. The trial court granted the motion.

Plaintiffs appealed both rulings against them. The appellate court affirmed the grant of the summary judgment but reversed the award of the attorneys’ fees.

The appellate court first looked to the language in the standard form purchase agreement:

“If, for any dispute. to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after [the making of] a request…, then that party shall not be entitled to recover attorney[] fees…”, (citation omitted) (Id. at 11) (emphasis original)

In opposition to the motion for fees before the trial court, the counsel for plaintiffs had alleged that she had twice requested mediation in accordance with the suggestions of the trial court, after the matter was in litigation, but that defense counsel had rejected both requests.

In his declaration attached to the motion for fees before the trial court, defense counsel asserted that he hesitated to mediate without first obtaining plaintiff’s written discovery responses and deposition and a decision on the summary judgment motion. Without these items, defense counsel believed the mediation would not be “meaningful” but rather a “waste of time.” (Id. at 12). He also pointed out that the defendants had not requested mediation prior to filing suit.

The appellate court reversed the trial court’s order granting fees. The appellate court rejected the finding of the trial court that there “…is insufficient showing of a refusal to mediate.” (Id. at 12.). It noted that in the seminal case of Frei v. Davey (2004) 124 Cal. App. 4th 1506,1508, that appellate court concluded that”[t]he new provision barring recovery of [legal] fees by a prevailing party who refuses a request for mediation means what it says and will be enforced.”(Id. at 13.) (Emphasis original.)

The appellate court then succinctly pointed out:

This leaves the alternate arguments that the Corwins were entitled to demand discovery responses first because they wished to pursue their motion for summary judgment to make mediation more “meaningful”, and because mediation without discovery responses was a “waste of time.” The Corwins are entitled to act on these convictions as a matter of strategy. The Corwins, however, do not explain how the contractual language allows for these as excuses to the requirement of assenting to mediation in order to recover their legal fees. The requirement “is designed to encourage mediation at the earliest possible time.” (Citation omitted); opponents accordingly are not entitled to postpone it until they feel that they have marshaled the strongest possible support for their positions in litigation and mediation. Moreover, there is a strong public policy in the promotion of mediation “as a preferable alternative to judicial proceedings” in a less expensive and more expeditious forum. (Citation omitted.) The costly and time-consuming procedures connected with discovery are thus not a necessary adjunct to mediation proceedings that a party can demand before participating. These excuses are therefore inadequate as a matter of interpretation of the contractual provision in light of the policy it promotes. (Id. at 15.) (Emphases original.)

Accordingly, the appellate court determined that the Corwins were NOT entitled to any attorneys’ fees and so reversed the award to them.

I quoted the appellate court at length because what it says about mediation is instructive; it is designed to be an alternative to litigation and a means to reducing the cost and expense of litigation, particularly discovery. It is not designed to be simply an adjunct to litigation or an additional step in that process. Yet, this is how it is often viewed. Too many times, counsel have stated to me that they are not yet prepared to mediate because they must conduct discovery or they would like to continue the mediation so that they can conduct certain discovery and then return. I often wonder, if this is self-defeating to the mediation process? Don’t the parties essentially know the facts at the outset? What must they really “discover”?; they know what the dispute is about! What more is there to know?

For mediation truly to be an alternative to litigation rather than just another step in the process, it should occur early on and before time consuming and expensive discovery takes place..That is what the public policy behind mediation is all about. Unfortunately, this has gotten lost on the litigants and their counsel.

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by Phyllis G. Pollack

Phyllis G. Pollack is a full time neutral in Los Angeles where, as President of PGP Mediation, she focuses on business, real estate, contract and “lemon law” disputes. She may be reached at Phone: 213-630-8810 / phyllis@pgpmediation.com / Website: www.pgpmediation.com