A Real Estate Sales Agreement That Conditions Recovery Of Attorney’s Fees On Participation In A Mediation Means What It Says

Cullen v. Corwin
(Cal. Ct. of App., 3d Dist.), filed June 7, 2012

KEY FACTS

Joe and Marieanne Cullen bought a house from Paul and Geraldine Corwin. They used a standard form purchase agreement that provided for the prevailing party in any dispute to recover legal fees. However, it also provided that this right is subject to a condition precedent that reads, “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 . . . .”

The Cullens subsequently discovered problems with the roof and sued the Corwins. The Cullens asked that the dispute be submitted to mediation. However, the Corwins replied that mediation was premature and would be a waste of time until certain discovery was undertaken. They felt that the discovery would enable them to move for summary judgment based on the statute of limitations and that once such a motion was on file, they would be in a position to mediate meaningfully.

The trial court found that the Cullens’ action was time barred and dismissed the action. It then awarded the Corwins attorney’s fees.

HOLDING & REASONING

The Court of Appeal affirmed the dismissal, but reversed the fee award.

In the unpublished part of the opinion, the court found that the Cullens knew of the problems with the roof more than three years before filing suit and that, as a result, their action was untimely.

In the published part of the opinion, the court found that the Corwins failed to engage in mediation after being asked to do so and that their reason for declining, namely that the Cullens had not responded to discovery, was not a valid excuse for not doing so. As a result, they were not entitled to a fee award.

The court noted that the Corwins were entitled, for strategic reasons, to defer mediation until they had undertaken discovery and had filed a motion for summary judgment. However, that did not excuse them from participating in a mediation, as that was what was required under the contract if they wanted an opportunity to recover attorney’s fees. The court noted: “The requirement ‘is designed to encourage mediation at the earliest possible time.’”

ANALYSIS

An increasingly popular contract term is to tie the prevailing party’s right to recover attorney’s fees to an earlier attempt to mediate. By strictly enforcing the mediation requirement, courts may be able to drive more cases toward early settlement.