CALIFORNIA ATTORNEY'S FEES

Mediation/Costs: Failure To Mediate Under Non-CAR Contract Justified Fee Denial

However, Routine Costs Denial Was Reversed.

     The next case we survey teaches two lessons: (1) pay attention to mediation condition precedent clauses very closely, and (2) routine costs may be available to a prevailing party even if fee entitlement is foreclosed.

     In Horton v. Hamel, Case No. A128024 (1st Dist., Div. 2 Apr. 19, 2011) (unpublished), a party appealed from an attorney’s fees and costs denial. The essential background is that the parties entered into a non-CAR Tenants in Common Agreement requiring mediation and binding arbitration in order to obtain entitlement to fee recovery. The trial and appellate courts found that appealing party did not satisfy this condition, which is fatal to recovery in many instances. However, different matter as to routine costs. The prevailing party on costs can indeed be entitled to recovery although a fee claimant is foreclosed. That was the case here, so remanded to determine costs entitlement to the appealing party.

Mediation: Third District Decides That "Mediation Condition Precedent" Clause In Real Estate Contract Only Applies To Party Commencing An Action

It Does Not Apply to Someone Simply Defending An Action.

     In our category "Mediation," we have explored many decisions entertaining the issue of when attorney's fees are properly awarded under California real estate purchase agreements with attorney's fees clauses mandating mediation as a condition precedent to fee recovery. Here is another decision on the topic, with the "bottom line" message being that you need to pay attention to the wording of the clause (contractual interpretation 101) and then see what version of the CAR contract that is at issue for purposes of resolving a dispute (contractual interpretation advanced class—given that the CAR contract forms have changed over the years).

     Yelinek v. Lane, Case No. C061919 (3d Dist. Oct. 5, 2010) (unpublished) involved a defense verdict in favor of a residential house seller in a fraud/negligent misrepresentation action involving a CAR real estate agreement with a fees clause subject to a mediation condition precedent. The trial judge ultimately awarded defendant seller $49,575 in attorney's fees and $3,808.20 in costs after seller refused to mediate with buyers.

     Buyer's appeal, arguing that seller's failure to mediate prevented an award of attorney's fees, was unsuccessful.

     The mediation condition precedent clause prevented a fee award with respect "to any party commenc[ing] an action based on a dispute or claim to which this paragraph applies …."

     The Court of Appeal determined the fee award was proper, because defendant seller never commenced any action such that he did not have to agree to mediation before being entitled to fee recovery. (Accord, Johnson v. Siegel, 84 Cal.App.4^th 1087, 1101 (2000).) The Third District distinguished the leading case of Frei v. Davey, 124 Cal.App.4^th 1506 (2004) on the ground that the defendants barred from fee recovery there were also cross-complainants such that they needed to satisfy the mediation requirement. In contrast, the defendant in Yelinek was only defending so that he did not need to agree to mediation for fee recovery qualification purposes.

     BLOG OBSERVATION—In this area, litigants also need to be attuned to the fact that the mediation condition precedent in the CAR contract has evolved over the years. We believe that it also now applies to a defendant who refuses to accede to mediation after a plaintiff offers to do so before commencing an action. So, keep focused on the wording of the fee clause and its qualifications in order to determine if fee recovery is in "the ballpark" (aptly stated given that we are now in the midst of the Major League playoffs).     Below:  Babe Ruth.

Mediation And 998: Sixth District Gives Us All Pointers On Compliance With Mediation Condition Precedent Contract Clauses And Formatting Of 998 Offers

$42,064 Fee Award and $3,583 Expert Witness Award Gets Reversed.

     The nice thing about posting on unpublished decisions (and we find an overwhelming number to be well reasoned) is that they always have pointers for litigators on what and what not to do. The next lessons involve satisfying mediation condition precedent clauses for fee recovery and properly formatting 998 offers. (For more cases in these areas, go to the left hand side of our Home Page and click on “Mediation” and “Section 998.”)

     Vasquez v. Togami, Case No. H035082 (6^th Dist. Sept. 9, 2010) (unpublished) involved a situation where plaintiff buyer and defendant seller got embroiled in a real estate purchase dispute under a CAR form contract with a standard clause indicating that a party who commences an action without first attempting to resolve the matter through mediation or a party who refuses to mediate after a request had been made is disqualified from obtaining attorney’s fees recovery under the contract fees clause. Before commencing litigation to rescind the transaction, plaintiff sent a demand letter requesting rescission and offering to mediate the matter unless was there was an agreement to rescind. Defendant never responded to the request. Litigation ensued. Defendant served a 998 offer, offering to waive costs and fees in exchange for a dismissal of the case by plaintiff. After a three-day bench trial, the court entered judgment for defendant.

     Defendant moved to recoup $42,064.67 in attorney’s fees and $5,083 in expert witness fees under the contractual fees clause and based on the 998 offer. The trial court awarded defendant the full fee request and $3,583 in expert witness costs. Plaintiff appealed.

     Plaintiff got a reversal on both the fees clause and 998 offer issues in an opinion authored by Justice Elia on behalf of a 3-0 Sixth District panel.

     With respect to the fee clause issue, the appellate court found that the undisputed evidence showed—confirmed by an express finding by the lower court--that defendant did refuse to mediate by refusing to respond to the request in plaintiff’s letter. The CAR form was clear, and the window for mediation closes suddenly if mediation is not agreed to before litigation begins. (Frei v. Davey, 124 Cal.App.4^th 1506, 1517 (2004).) As the Court of Appeal succinctly put it, “Plaintiff was not legally obligated to renew his request for mediation before filing suit.” (Slip Opn., p. 7.)

     So, what’s up on the 998 issue?

What's Up Doc?

     Here is what is up: Plaintiff failed to include a provision for defendant to accept the offer by signing a statement that the offer was accepted. This is a mandatory requirement under 998. Although no magic language is required, there must be some language for acceptance, and that was missing here. “The section 998 offer need not use any particular words to allow the offeree to indicate acceptance, but it must include some language explaining that the offeree may accept by signing a statement to that effect.” (Slip Opn., p. 10.)

Insurance: In Which the Court of Appeal Rules Insurer “Must Lie In the Bed It Made”

Fifth District agrees the Case is “screwed up.”

     The story arc of this opinion begins at a low point, and plummets.  “What the heck?I?,” begins the Court of Appeal opinion.  “At one point, the trial court commented, ‘This is one of the most screwed up cases I’ve ever seen.’  We heartily agree.”  Essex Insurance Company v. Richard Heck, M.D., Case No. F058139 (Fifth Dist. July 29, 2010) (certified for publication).  Essex Insurance Company provided a defense in a personal injury action to a defendant who was not its named insured, but did not discover its mistake till after judgment was entered following a jury verdict in favor of one Mr. John Dompeling against one “Robert Abraham.”

     Mr. Dompeling, a diabetic, hired to move refrigeration units in a restaurant that was being refurbished, stepped on a nail, and sought treatment from his physician, the eponymously named Dr. Heck.  After a hospital discharge, the wound worsened, Mr. Dompeling was readmitted to the hospital, and an orthopedic surgeon amputated his leg below the knee.  Four months later, a second amputation was required, because an infection had developed on his stump.  In January 2004, a jury rendered a verdict in favor of Mr. Dompeling in the amount of $826,762.50, plus costs, against “Robert Abraham.”  “Abraham” and the restaurant were alleged to have hired Mr. Dompeling to remove a refrigerator on the premises. 

     Later in 2004 and 2005, Essex concluded that Robert Lincoln Abraham was the defendant in the personal injury action, but not the insured under its policy.  Instead, the insured was Robert Lee Abraham, against whom a default had been entered.  Oops.  Essex filed a declaratory relief action asserting it had no duty to indemnify Robert Lee Abraham or anyone else in connection with the personal injury action.

     After Essex refused to pay the judgment in the personal injury action, Mr. Dompeling sued Essex for bad faith, and the bad faith action was consolidated with the declaratory relief action.  Mr. Dompeling then amended his complaint to add a cause of action for fraud and misrepresentation against Essex and its law firm, essentially alleging that they knew the law firm was representing the wrong “Robert Abraham” in order to sandbag Mr. Dompeling, deny coverage, and avoid payment.

     In exchange for $700,000 from Essex, Mr. Dompeling released Essex, Robert Lee Abraham and Robert Lincoln Abraham.  Three separate lawsuits settled – a personal injury action, a declaratory relief action, and a bad faith action.

     In 2007, Essex pursued a subrogation claim against Dr. Heck, claiming that it stood in the shoes of that certain “Robert Abraham.” 

     Unfortunately for Essex, it settled three lawsuits for $700,000, without allocation.  Essex released its named insured, Robert Lee Abraham, but also the other Abraham.  “'[T]he settlement agreement did not specify which portion of the $700,000 was paid to settle which claim, what part constituted economic or non-economic damages, who the personal injury judgment was rendered against (either Robert Lee Abraham or Robert Lincoln Abraham), or whether that individual was an insured under the policy.  Without such specifications, the agreement left unsettled into whose shoes Essex was stepping, i.e. Robert Lee Abraham or Robert Lincoln Abraham, and what was being paid to compensate each claim.”  Not surprisingly, on a summary judgment motion brought by Dr. Heck, Essex lost its subrogation claim against Dr. Heck.

     Essex contended on appeal that it could have sorted out this mess by resort to extrinsic evidence of its intent in entering into the settlement agreement.  However, Dr. Heck would not have been able to present his own evidence of intent in entering into the settlement agreement, because that would have improperly required disclosing communications that occurred during mediation.  And unexpressed subjective intent with respect to the interpretation of a contract is irrelevant.  Foiled again.

     While acknowledging the absence of case law directly on point, the Court of Appeal also applied the “doctrine of implied waiver”:  “Essex’s act of entering into a settlement of the three lawsuits without identifying its insured or apportioning the payment is so inconsistent with an intent to enforce its right to subrogation so as to induce a reasonable belief it had relinquished that right.”

     Finally, Essex argued that Dr. Heck made a nominal settlement offer that was not “in good faith”, which Essex obviously did not accept.  But Dr. Heck had offered to waive expert fees, Essex did prevail on the summary judgment motion, and it was the burden of Essex to prove an abuse of discretion – which it did not do. 

       While the Court of Appeal may have agreed with the trial judge’s assessment that, “[t]his is one of the most screwed up cases I’ve ever seen,”  the case was not totally FUBARed.  Said the Court, “We agree with the trial court that Essex must lie in the bed it made and affirm.”

     Justice Gomes authored the 3-0 opinion.

Mediation: Defendants Refusing To Mediate Under CAR Purchase Agreement Disqualified From Fee Recovery

Second District, Division 1 Adheres to Literal Terms of Contract.

     Under the category “Mediation,” we have examined numerous cases involving CAR form real estate purchase contracts that interpret mediation condition precedents in literal fashion. The next case is no exception.

     In Yaghobyan v. Tran, Case No. B212365 (2d Dist., Div. 1 Mar. 29, 2010) (unpublished), defendants won a mold infestation real estate case, where a CAR form contract contained an attorney’s fees clause. The defense did not win attorney’s fees, because the trial court ruled that defendants refused plaintiff’s request that they mediate their dispute.

     Decision, affirmed on appeal.

     The defense primarily argued that the court erred in denying their fee request because only the party initiating the action is required to attempt mediation as a condition precedent to obtaining attorney’s fees. Wrong . . . wrong . . . . wrong. “This argument ignores the plain language of the contract which requires either party to mediate if requested to do so by the other party or forfeit its entitlement to attorney fees.” (Slip Opn., p. 8.) This unpublished decision tracks the overwhelming authority in this area.

Gama, Domicio DA, AMB. E. & P. From Brazil; Naon, Romulo S., E.E. and M.P. from the Argentine A.B.C. [Argentina, Brazil, Chile] Mediators.  1914.  Library of Congress.  Harris & Ewing Collection.

Mediation Clause: Fee Recovery Affirmed For Seller Where She Produced Evidence Of Not Receiving Mediation Requests

Evidence Code Section 641 Mailing Presumption Can Be Rebutted.

     In our category “Mediation,” we have seen that courts routinely enforce mediation clauses in real estate purchase contracts where the clauses are condition precedents to fee recovery. However, certain provisions are only triggered where the nonsuing party refuses mediation—which may require proof that the mediation request was actually received.

     That burden was not met in Kempton v. Clark, Case No. B213386 (2d Dist., Div. 1 Feb. 2, 2010) (unpublished).

     There, defendant seller prevailed in a real estate purchase agreement dispute and was awarded attorney’s fees under a standard attorney’s fees clause, but one requiring that the suing party first attempt mediation and one requiring the nonsuing party to accede to presuit mediation requests as conditions to fee recovery. Aggrieved purchasers appealed.

     Purchasers first argued that seller waived the right to fees because seller did not request mediation before filing her winning demurrer. Wrong, because the parties who initiated the action (the purchasers) are the ones required to request mediation, not the nonsuing seller. (Van Slyke v. Gibson, 146 Cal.App.4^th 1296, 1299 (2007).)

     Purchasers then claimed that seller forfeited fee recovery because she failed to respond to purchasers’ mediation request. The problem here was that, in spite of the Evidence Code section 641 presumption that a letter correctly addressed and properly mailed is received, the presumption was rebutted by seller’s testimony that she never received any mediation requests. (Craig v. Brown & Root, Inc., 84 Cal.App.4^th 416, 421 (2000).) Because the trial court credited seller’s testimony, seller could not have been deemed to refuse mediation when she never received any mediation request. Fee award affirmed.

Real Estate Mediation Clauses: Fee Award To Winning Sellers Affirmed Because Sellers Did Show A Willingness To Mediate

 

Buyers' Failure to Respond to Sellers' Mediation Efforts Meant Mediation Clause Was Complied With.

     We have surveyed many cases in the past that have strictly enforced CAR form mediation clauses, those provisions requiring that the parties attempt to engage in mediation before going to court in order to be qualified for an attorney's fees award as the prevailing side. You will find them under our website category "Mediation."

     In Hovanesian v. Couveau, Case No. B209445 (2d Dist., Div. 7 Sept. 28, 2009) (unpublished), sellers prevailed over buyers (actually, assignees of earlier putative purchasers) in a real estate purchase dispute. There was a fees clause in the CAR form purchase agreement, but fees were conditioned on the parties mediating any disputes before proceeding to arbitration or court action. (CAR Form Agreement, paragraphs 17A and 22.) The lower court awarded sellers unspecified fees under these clauses.

     Buyers appealed, arguing that sellers refused buyers' invitations to mediate.

Mediation: Defendants Beware—Cooperate In Mediation Efforts Or Be Refused Attorney’s Fees Even if You Prevail Under Real Estate CAR Form Fee Clauses

 

Second District, Division 5 Reiterates Bitter Lesson for Defendants Losing Opportunity to Recoup Fees as the Prevailing Parties.

     Under our category “Mediation,” we have surveyed both published and unpublished decisions that hold contracting parties must strictly comply with the terms of CAR-form real estate purchase agreement fees clauses, which require a suing party to commence pre-litigation mediation and a sued party to cooperate in mediation efforts as condition precedents to obtaining recovery of attorney’s fees should either side prevail in an action or arbitration. Two of the leading cases on the mediation requirements are Frei v. Davey, 124 Cal.App.4^th 1506 (2004) and Lange v. Schilling, 163 Cal.App.4^th 1412 (2008). Below, we examine a recent unpublished decision on the subject, which buttresses our advice that you strictly comply with the mediation requirement when confronted with these types of fees clauses.

    In Byoun v. Padilla, Case No. B204850 (2d Dist., Div. 5 July 15, 2009) (unpublished), defendants eventually prevailed as a matter of law in a real estate dispute with plaintiffs where there was a purchase agreement with a mediation requirement in the attorney’s fees clause. Acting Presiding Justice Armstrong, on behalf of a 3-0 panel of the Second District, Division 5, affirmed a trial court’s refusal to award fees to defendants. The reason? The record showed that defendants did not cooperate in plaintiffs’ efforts to mediate the case—“although defendants agreed [to mediate], they did not take the steps necessary to ensure that the mediation actually took place. That is a refusal to mediate.” (Slip Opn., at p. 12.)

     Again, strictly comply with this provision or suffer the consequences!

Civil Code Section 1717 And Mediation Clause: Real Estate Buyer Losing Fraud Case Suffers $122,100 Adverse Fee Award

Second District, Division 6 Also Interprets Mediation Requirement in CAR Form Contract.

     Buyers sometimes get confused over their obligations under CAR real estate form contracts, especially the ones involving an award of attorney’s fees (which clauses have been held to reach fraud/nondisclosure claims). One of the most frequent causes of confusion is the mediation requirement. Buyer’s failure to satisfy her end of the mediation requirement, coupled with a loss of her suit based on the statute of limitations, was deadly as far as fee exposure was concerned.

     In Carradine v. Cowell, Case No. B210910 (2d Dist., Div. 6 July 13, 2009) (unpublished), residential real estate sellers prevailed after a court trial, with the judge determining that buyer’s fraud/nondisclosure suit was time barred. The trial court awarded sellers all of their attorney’s fees of $121,100 under a CAR fees clause with a mediation requirement. The award was affirmed by the Second District, Division 6, in a 3-0 opinion authored by Acting Presiding Justice Yegan.

     Buyer argued that sellers were ineligible for fee recovery under the CAR fees clause because they refused to mediate. However, buyer misread the clause—it required her to pursue mediation before resorting to court action, something she did not do. Buyer thereby waived enforcement of this provision. Beyond that, the award was hardly an abuse of discretion; after all, sellers incurred fees because buyer waited too long to file her lawsuit—“There is nothing arbitrary, capricious or irrational about requiring appellant to pay the full cost of her intransigence.”

Purchase Agreement Mediation Clause: Even Nonsignatories Need To Satisfy Fee Qualification Requirement Or Risk Nonrecovery of Fees

Fourth District, Division 2 Extends Mediation Penalty to Nonsignatories in Unpublished Opinion.

     In our category “Cases: Mediation,” we have surveyed decisions warning all participants in a real estate transaction to satisfy a mediation requirement if it is called for as a requisite of obtaining an award of attorney’s fees under a fees clause. (Two of the leading cases are Frei and Lange.) Now, the Fourth District, Division Two, albeit in an unpublished decision, extends the necessity for satisfaction of this requirement to contract nonsignatories.

Mike and Marc's “Top Ten List” Of 2008 Attorney’s Fees Decisions

 

Who Says David Letterman Has The Only Good “Top Ten List”?

Part 1 of 2: Five of the Top Ten Decisions

     We may not have the panache of David Lettermen, but we do offer our “Top Ten List” of 2008 attorney’s fees decisions although we have no guest star to count them off! Here we go—and we thank all of you readers for following us and wish you a Happy 2009 as well. (The numbering is not intended to reflect order of importance, and we have only canvassed published decisions because they can be cited.)

     Part II with the next five, and an honorable mention, will follow soon.

10. Profit Concepts Mgt., Inc. v. Griffith, 162 Cal.App.4^th 950 (2008): Civil Code Section 1717 Fee Award Allowed For Successfully Bringing a Motion to Quash Service.

     An award of attorney’s fees was allowed under Civil Code section 1717 to a defendant who successfully moved to quash service for lack of personal jurisdiction; the resulting order to quash had finality for purposesof resolving the case brought in California.

     [Discussed in our May 11, 2008 inaugural post—Fourth District, Division 3; author: Justice Fybel]

9. Glencoe v. Neue Sentimental Film AG, 168 Cal.App.4^th 874 (2008): Litigant Fearing Loss on Potentially Dispositive Ruling Can Avoid Civil Code Section 1717 Fee Exposure By Dismissing Action With Prejudice Prior to Actual Ruling.

     A litigant facing contractual fee exposure under Civil Code section 1717 can dismiss action with prejudice, avoiding section 1717 fee exposure in the process, if the dismissal is made prior to a potentially dispositive motion ruling where the proceeding has not “ripened to the point of inevitability.”

     [Discussed in our November 26, 2008 post—Second District, Division 4; author: Presiding Justice Epstein]

8. Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858 (2008): Judicial Estoppel Under Civil Code Section 1717 Not Justified Solely Because Opponent Prayed For Fee Recovery in Operative Pleadings.

     Civil Code section 1717 fees are only awardable where the opposing party actually is entitled to recover fees under a contractual fees clause; judicial estoppel cannot be based merely on the loser’s prayer for fee recovery in operative pleadings, following Leach v. Home Savings & Loan Assn.,185 Cal.App.3d 1295, 1307 (1986).

     [Discussed in our May 18, 2008 post—Sixth District; author: Presiding Justice Rushing]

7. Melbostad v. Fisher, 165 Cal.App.4^th 987 (2008): Anti-SLAPP Fee Order Entered After Entire Dismissal Is Immediately Appealable.

     Subsequent fee order in anti-SLAPP case is immediately appealable where there is an earlier judgment dismissing the entire action.

     [Discussed in our July 25, 2008 post—First District, Division 4; author: Justice Sepulveda]

6. Lange v. Schilling, 163 Cal.App.4^th 1412 (2008): Plaintiff Must Attempt to Mediate In Order to be Qualified to Recover Fees Under a CAR-Form Residential Purchase Agreement.

     Failure to attempt mediation before filing suit will disqualify a subsequent prevailing plaintiff’s fee petition based on a contractual fees/mediation clause in a California Association of Realtors’ form residential purchase agreement, tracking the reasoning of Frei v. Davey, 124 Cal.App.4^th 1506 (2004).

     [Discussed in our May 30, 2008 post—Third District; author: Justice Hull]

Part II—an upcoming post—will have the rest of our 2008 “Top Ten” and an honorable mention.

Trial Court Correctly Awarded Attorney's Fees To Winning Litigant In Arbitration Even Though Mediation Was Not First Attempted

 

Second District, Division Three Affirms Fee Award Because Contractual Fee Provision Did Not Absolutely Bar Recovery For a Failure to Mediate.

     In past posts of May 30, 2008 on Lange v. Schilling and June 13, 2008 on Casillas v. Westhaven, LLC, we discussed California Association of Realtors (CAR) real estate purchase agreement forms that have a provision conditioning an award of attorney's fees on attempting to mediate before going to court or invoking arbitration rights. The appellate courts construe these clauses strictly, with Justice Fybel's decision in Frei v. Davey, 124 Cal.App.4^th 1506, 1520 (2004) being one of the most cited decisions for enforcing the mediation condition precedent provisions. However, as with many disputes, "the devil is in the details"—the wording of the contractual fee clause can make all the difference in the world, as the next case illustrates.

     Dewey v. Higgins, Case No. B200661 (2d Dist., Div. 3 Nov. 21, 2008) (unpublished) involved two in pro per litigants, a real estate agent and the affiliate real estate broker. Both parties agreed to arbitrate two lawsuits brought by broker against agent arising from unrelated disputes involving a commission agreement and trust deed. Agent eventually won the arbitration, with the award being confirmed as a judgment and broker ordered by the superior court to pay agent $24,584 in attorney's fees and $4,127 in costs. Broker challenged the fee award, arguing the failure to initiate mediation disqualified agent from recovering fees.

     Not so, ruled the Court of Appeal,

     The contractual fees clause was different from the CAR form, providing that fee entitlement was in jeopardy for not attempting mediation first "in the discretion of the arbitrator(s) or judge." The key discretionary language was what allowed the lower court to award fees even though mediation was not initiated. The fee award against broker was affirmed based on this crucial difference.

Attorney’s Fees Are Not Recoverable Under Contract Which Has Been Held Inadmissible Under Mediation Confidentiality Statutory Provisions

Second District So Holds in Published Decision Relating to an Inadmissible Settlement Agreement: Civil Code section 1717 Does Not Trump the Mediation Privilege.

            As framed by the Second District, Division Four, the attorney’s fees portion of the case involved a question of first impression—whether attorney’s fees are recoverable under Civil Code section 1717 where the contract providing for such fees had been excluded as inadmissible under division 9, chapter 2 of the Evidence Code, section 1115 et seq.  Hope we have you hooked, because the answer will be provided shortly (although our titles unfortunately give the end result away).

            The pertinent factual scenario pans out this way.  Widow brought a breach of contract action against the executor of her deceased husband’s estate, premised on the theory that a binding written settlement agreement had been reached at a mediation to resolve a prior conservatorship matter while her husband was still alive.  The fly in the ointment was that while husband, wife (widow to be), and two of husband’s three children by a prior marriage did sign a settlement agreement at one of the mediation sessions, husband’s son (the third child) never did.  (Under the settlement agreement, wife was to get one-third of husband’s assets—over $2.1 million--rather than specific requests contained in a preexisting will and living trust.) Prior to the purported settlement agreement, husband executed updated estate planning documents, by which wife was left husband’s liquor store business, the right to operate the business rent free for two years, and up to $100,000 to pay off the mortgage on her personal residence.  However, husband left the remainder of his estate to the children, split equally on a one third basis.  No wonder wife was miffed and pursued her breach of contract action.

            The contract action went to a bench trial, with the trial court finding that no settlement agreement had been reached at the mediation in the absence of assent from the recalcitrant son.  The trial judge rejected (by this time) widow’s testimony that husband had agreed to be separately bound unless everyone consented to the settlement.  The lower court concluded there was no binding agreement, the term of the document waiving mediation confidentiality never took effect, and the document was inadmissible in evidence.  Winning executor was awarded costs, but denied attorney’s fees.  He appealed the fee denial—and lost.

            In Rael v. Davis, Case Nos. B197971 & 200217 (2d Dist., Div. 4 Sept. 24, 2008) (certified for publication), Justice Manella—writing for a 3-0 panel of the Second District, Division Four—resolved the first impression issue against executor, affirming the fee denial decision by the lower court.

            Executor’s main contention was that because widow would have been entitled to attorney’s fees under her mediation agreement had she prevailed, executor had to be afforded reciprocal rights under Civil Code section 1717’s mutuality principle. 

            Wrong, said the appellate panel, under these circumstances.  In this situation, the mediation agreement was not simply unenforceable—it was inadmissible (a liminal consideration to enforceability) because recalcitrant son never signed it or waived the confidentiality dictate so that it could become admissible.  As elegantly put by Justice Manella, “[Evidence Code] section 1123 contains no admissibility exception to permit the application of Civil Code section 1717.”  (Slip Opn., at p. 17.)  Even if the result seems unfair under mutuality principles, the Legislature is the one to shape those exceptions.  (See Foxgate Homeowners’ Assn. v. Bramalea California, Inc., 26 Cal.4^th 1, 17 n. 13 (2001).)  Executor lost his bid to obtain an award of fees against widow, and the appellate panel provided an interesting decision pitting Civil Code section 1717 against mediation confidentiality provisions.   Section 1717 lost this round of the confrontation. 

            

            

LATE BREAKING NEWS—Lange v. Schilling, a Mediation Condition Precedent Case On Fee Recovery, Is Published by the Third District.

Unpublished Decision in Our May 30, 2008 Post is Now Published.

            In our May 30, 2008 post, we reported on Lange v. Schilling, Case No. C055471 (3d Dist. May 28, 2008), which strictly construed the CAR purchase agreement mediation clause.  Lange closely tracked the reasoning of Justice Fybel in Frei v. Davey, 124 Cal.App.4^th 1506 (2004), a Fourth District, Division Three decision.

            On June 16, 2008, the Third District ordered that the Lange decision be published.  This means it is citable and adds to the jurisprudence that indicates mediation clauses “mean what they say” and must be rigorously followed as a condition to obtaining fee recovery under certain real estate purchase disputes. 

REDUX ON MEDIATION, PREVAILING PARTY, AND FEE SUBSTANTIATION PRINCIPLES IN RECENT UNPUBLISHED DECISION

Second District Affirms Fee Award and Review Principles We Have Previously Surveyed.

        Once in a while, we all need refresher courses. That all holds true in the fee award area. The next case is just that—reviewing principles we have earlier discussed on mediation clauses, prevailing party status, and trial court review of fee substantiation evidence submitted in support of fee motions.

        In Casillas v. Westhaven, LLC, Case No. B200553 (2d Dist., Div. 7 June 11, 2008) (unpublished), plaintiff initially sued everyone but the seller for defects in his purchased house. Plaintiff settled with several parties, before finally adding defendant seller in through a “Doe 1” amendment. Even though there were mediation/arbitration clauses in the purchase agreement, plaintiff resisted arbitration. He failed diligently to engage in arbitration while the trial judge stayed the underlying case and set status conferences at which he monitored the “nonprogress.” Eventually, enough being enough, the trial judge (a real veteran, Hon. Ernest M. Hiroshige) dismissed the lawsuit with prejudice, under his inherent authority, for plaintiff’s failure to comply with his orders to arbitrate the matter to completion. This determination was affirmed on appeal to the Second District.

        Following a motion based upon an attorney’s fees clause in the purchase agreement, defendant seller also was awarded $17,310.60 in attorney’s fees and $355.26 in costs, although originally asking for $23,684 in fees and $3,040.99 in costs. Justice Zelon, writing for a 3-0 Second District, Division Seven panel, rejected a multi-pronged challenge by plaintiff on appeal. In doing so, she reinforced many principles that we have reviewed in past posts.

        First, because the CAR purchase agreement had a mediation clause, the appellate court addressed the argument that defendant was disqualified from seeking fees because it refused to mediate. Wrong, the reviewing court said. Citing Frei v. Davey, 124 Cal.App.4th 1506, 1520 (2004) (one of the leading opinions on mediation clauses authored by Justice Fybel of our local Fourth District, Division Three), the Second District panel found that plaintiff could never have received fees because, although the parties did unsuccessfully try to mediate later on, he “Doed” defendant into the lawsuit before initiating mediation—a “no no” because the mediation clause “means what is says.” Defendant did participate in the belated mediation sought by plaintiff, and that was enough to fulfill its obligations under the mediation clause. (RETROSPECTIVE—See our May 30, 2008 post on Lange v. Schilling.)

        Second, plaintiff claimed there was no “prevailing party” under Civil Code section 1717 because plaintiff achieved his financial remuneration through prior settlements with other parties such that the dismissal of defendant was inconsequential. Wrong again. Defendant, who obtained the dismissal, is properly considered a prevailing party under Code of Civil Procedure section 1032(a)(4). Also, the Court of Appeal pragmatically noted that plaintiff obtained no benefit from adding defendant to the lawsuit, such that the one obtaining the greater relief was certainly defendant. (RETROSPECTIVE—See our June 12, 2008 post on Benson v. Little.)

        Third, the fee reasonableness arguments were found unpersuasive. Even though the moving party submitted an attorney declaration attesting to hourly rate ranges based “on information and belief,” Justice Zelon dismissed the argument because “[plaintiff ] cites no authority for the proposition an asserted hourly rate for an attorney when requesting an attorney fee award must be based on personal knowledge, rather than on information and belief.” (Slip Opn., at p. 15.) There also was no bite to plaintiff’s general challenge to the reasonableness of the fee award, given that the record showed the trial judge did an item-by-item review and eliminated amounts for duplicative work, inflated work hours, and ineligible cost items—reducing the requested fee component by about 25% and the cost component by 90%. (RETROSPECTIVE—See our June 2, 2008 post on Premier Medical Mgt. Sys., Inc. v. Cal. Ins. Guar. Assn.)

        (FINAL RETROSPECTIVE—Although the gist of plaintiff’s lawsuit was for fraud or concealment, there is solid case law indicating that the fee clause in the CAR purchase agreement is a sufficient predicate for fee recovery. See our May 22, 2008 post on “Post-Trial Arbitration Proceeding” for a listing of those authorities.)

THIRD DISTRICT COURT OF APPEAL WARNS PARTIES TO APPELLATE MEDIATIONS—NOTIFY INSURERS TO ATTEND AND ATTEND YOURSELF OR RISK PAYING THE ATTENDING PARTY’S WASTED ATTORNEY’S FEES

Court of Appeal Construes Its Power to Sanction and Award Fees For Noncompliance with Local Mediation Program Dictates.

            Many appellate courts, including the Third District Court of Appeal (Sacramento), have appellate mediation programs by which parties to an appeal can try to informally resolve the case either before or after briefing is complete.  The Third District’s program has been very successful, with over 50% of the matters ordered to mediation settling before record preparation, briefing, or oral argument.  The Third District’s Local Rule 1 provides that all parties and their counsel of record, as well as germane insurance carrier representatives, must attend the mediation sessions in person. 

            In Campagnone v. Enjoyable Pools & Spas Service & Repairs, Inc., Case No. C055050 (3d Dist. May 30, 2008), a homeowner obtained a jury verdict of almost $2.5 million when he was injured after a home swimming pool filter exploded.  Defendants appealed, and disclosed a parent company’s excess insurance carrier as an interested party.  This carrier should have attended a mediation, but failed to participate.  Homeowner filed an appellate motion to recover $14,200 in fees (for his attorneys participating in an unproductive mediation) and $4,845.25 in mediation fees. 

            The Third District, in a published opinion, refused to award the requested sanctions but did announce prospective rules of interest.  Specifically, this Court of Appeal held that (1) the insured defendant and its counsel has a duty to notify the carrier about the court-ordered mediation, and (2) the carrier must send a representative to the mediation session.  The appellate court warned that sanctions, including an award of fees to the parties who waste time on a noncompliant mediation, would be issued for future violations.

            PRACTICE POINTER--Because of the nature of the local Third District rule specifically governing court-ordered mediation, it is more problematic that the same result would occur because there is case law indicating that a trial court cannot order parties to complex litigation over $50,000 into mediation where the parties must pay for the process.  (See Jeld-Wen v. Superior Court, 146 Cal.App.4^th 536 (2007).)  Jeld-Wen leaves untouched the trial court’s ability to order a case under $50,000 into mediation if the parties do not have to bear the costs and it is done pro bono through the court system.  (See Cal. Rules of Ct., rule 3.870 et seq.) 

NO ATTORNEY’S FEES WILL BE AWARDED UNLESS REAL ESTATE LITIGANTS STRICTLY COMPLY WITH MEDIATION CONDITION PRECEDENT IN CAR FORM PURCHASE AGREEMENTS

Third District Denies Fees Where No Mediation Was Sought Before Commencement of Suit.

            Call us somewhat psychic.  However, in our May 22, 2008 post, we hinted that there would be future discussion of whether fees will be awarded where real estate sellers or purchasers failed to satisfy the mediation condition precedent in their contracts.  Well, the time is now, because an unpublished Third District decision brings that message crashing home in dreaded fashion for a litigant who forfeited over $80,000 in fees for being noncompliant.

            The case is Lange v. Schilling, Case No. C055471 (3d Dist. May 28, 2008) (unpublished).  Its first paragraph is chilling and summarizes what happened:

            “The standard residential purchase agreement bars attorney fees for a party who commences litigation without first attempting to mediate the dispute.Plaintiff Jay Lange filed his complaint before seeking mediation but, after plaintiff prevailed at trial, the trial court nevertheless awarded him attorney fees.  We agree with other courts that the agreement mean what it says:  plaintiff’s failure to seek mediation precludes an award of attorney fees.  We therefore reverse the order.”  (Slip Opn., at p. 1.)

            Plaintiff buyer bought a lake house, and later sued sellers and sellers’ brokers for alleged nondisclosures.  The California Association of Realtors (CAR)  residential property purchase agreement had the standard clause requiring mediation as a condition precedent to an award of fees to the prevailing party.  Mediation had to be pursued before resorting to arbitration or court action.  Plaintiff sued before attempting mediation.  Plaintiff sued first, hired an investigator to locate seller, and then demanded mediation after suit was commenced (offering to stay the litigation while mediation was pursued).  The matter went to trial.  Plaintiff recovered $13,475, jointly and severally, against sellers and sellers’ brokers.  Plaintiff filed a motion to recover $113,096.03 in attorney’s fees from sellers.  Sellers and plaintiff buyer entered into a settlement by which buyer agreed to look to brokers for satisfaction of any judgment and recovery of fees (with sellers to receive a portion of any fee recovery exceeding $100,000). 

            Brokers resisted the fee request by claiming plaintiff failed to attempt mediation before filing his complaint.  The trial court disagreed and awarded $80,710.26 in fees.  Brokers appealed.

            Brokers won on appeal. 

            The Third District found the mediation condition precedent provision to be clear and unmistakable in meaning, significantly siding with Frei v. Davey, 124 Cal.App.4^th 1506 (2004) (a Fourth District, Division 3 authored by Justice Fybel).  The Court of Appeal found that plaintiff’s inefficiency in spending more than $113,000 in fees to recover a $13,000 judgment might have been avoided had mediation been pursued.

            The Court of Appeal did not buy that plaintiff buyer was excused because he had difficulty locating sellers in order to request mediation.  Rather, buyer did locate sellers.  The appellate court believed that the buyer could have complied with the mediation provision by hiring the investigator, locating sellers, and then mailing an offer to mediate before filing of the complaint.

            The Third District also rejected buyer’s suggestion that he substantially complied by offering to mediate shortly after filing the complaint.  The Court of Appeal stated:  “This provision 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.”  (Slip Opn., at p. 9.)

            Quoting Frei, supra, 124 Cal.App.4^th at 1508, the Third District concluded by observing:  “This provision ‘means what is says and will be enforced.’ [Citation omitted.]  The fee award must be reversed.”  (Slip Opn., at p. 10.)

            Not only did buyer lose his fee award, but the appellate court awarded brokers costs on appeal (which includes any attorney’s fees awardable under the residential purchase agreement fee clause).

            The lesson is not hard to decipher:  mediate before filing suit in order to preserve the ability to recoup fees under the CAR form contract.    Appellate courts have not shown leniency towards interpreting these provisions other than in a very literal manner.