Monday, December 20, 2004
Under Court of Appeal Ruling:
Eschewing Mediation Costs Party Right to Attorney Fee Award
By KENNETH OFGANG, Staff Writer/Appellate Courts
An Orange Superior Court judge erred in awarding attorney fees to a party that rejected a request for mediation, despite a contract clause requiring it, the Fourth District Court of Appeal ruled Friday.
In the first published opinion involving the mediation clause in the new California standard form residential purchase agreement, Justice Richard Fybel said the trial judge, Richard O. Frazee Sr., was incorrect when he ruled that there had not been a refusal to mediate a dispute over the sale of a home.
The prospective buyers, Michael and Teresa Frei, offered to purchase a house owned by Walter Davey Jr. and his wife, Patricia Ann Davey. The Daveys made a counteroffer, which the Freis accepted, but the Daveys cancelled a month later.
The Freis then sued for specific performance, and the Daveys cross-complained against the Freis and the broker. The Freis won in the trial court, but the Court of Appeal reversed in an unpublished opinion last year and judgment was entered for the Daveys.
$130,500 Fee Award
The Daveys then moved for attorney fees, requesting $38,000 for their work on the appeal and $120,000 for what they did in the trial court. Frazee awarded $130,500, overruling the Freis’ objection under paragraph 17A of the sales agreement, which read:
“MEDIATION: Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action....Mediation fees, if any, shall be divided equally among the parties....If...any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney’s fees, even if they would otherwise be available to that party in any such action....”
Fybel called the case “a textbook example of why agreements for attorney fees conditioned on mediation should be enforced” and “a graphic illustration of a case that should have been mediated at an early stage when the parties were only $18,540 plus expenses apart in their settlement positions.”
The justice cited Walter Davey’s declaration, in which he acknowledged that the Freis’ attorney sought mediation before filing suit, then sent another letter seeking mediation after the complaint was filed, and that he did not mediate because the Freis “intransigence” would render it “fruitless” and because settlement negotiations “had essentially accomplished...what a mediation was intended to do.”
That was a refusal to mediate, and the trial judge’s contrary ruling was not supported by substantial evidence, Fybel concluded.
The jurist rejected the argument that the parties’ settlement negotiations were equivalent to mediation. “In mediation, a neutral third party analyzes the strengths and weaknesses of each party’s case, works through the economics of litigation with the parties, and otherwise assists in attempting to reach a compromise resolution of the dispute,” Fybel explained.
The justice also rejected the Daveys’ argument that mediation would have been fruitless, noting that they originally offered to settle by completing the sale of the property and having the broker give up its $18,540 commission, and that the Freis made a counterproposal. Had the Daveys been willing to mediate at that point, Fybel concluded, the parties could have saved at least part of the $500,000 in attorney fees they ran up on the case, including more than $89,000 the broker incurred.
Fybel also rejected the argument that the Freis ìnegatedî the mediation provision by filing suit in order to record a lis pendens on the property.
The justice noted that a separate provision of the agreement specifies that ìfiling of a court action to enable the recording of a notice of pending action, for order of attachment, receivership, injunction, or other provisional remedies, shall not constitute a violation of the mediation and arbitration provisions.î
He also distinguished prior cases, including one from earlier this year, holding that a refusal to mediate barred recovery of attorney fees by plaintiffs, but not by prevailing defendants. Those cases involved transactions that were subject to an earlier version of the standard purchase agreement, which contained a mediation clause that was worded differently, Fybel explained.
The case is Frei v. Davey, G033682.
Copyright 2004, Metropolitan News Company