Defendants in Real Estate Concealment Case Win at Arbitration and Get Partial Recoupment of Attorneys Fees.
At a month trial in Orange County Superior Court, two individual clients of Mike Hensley suffered an adverse jury award of about $285,000. The clients sold their prior San Juan Capistrano house to plaintiff buyers, who did suffer water intrusion after heavy rains in early 2003—which followed on the heels of several dry years from a precipitation standpoint. Buyers sued sellers (Mike’s clients), sellers’ brokers, and buyers’ retained home inspectors for fraudulent concealment, negligent misrepresentation, breach of fiduciary duty, negligence, and nuisance. The jury absolved all defendants but the sellers.
Sellers brought a new trial motion based on the theory that the evidence showed they had actually made disclosures of prior water intrusion incidents that had been fixed and never recurred. The trial judge granted a new trial unless buyers remitted down to around $85,000. Buyers chose not to do so, with the result that both buyers appealed the new trial ruling and sellers appealed the adverse judgment based on the jury verdict.
While the case was on appeal, buyers suggested a binding JAMS arbitration, as long as all claims were in play (including negligent misrepresentation, fiduciary duty breach, and nuisance claims that had been jettisoned through pretrial motions). Sellers agreed under a written arbitration agreement that chose Justice William A. Masterson (Ret.) as the Arbitrator. Both sides dismissed their appeals and went to arbitration.
In the underlying residential purchase agreement between sellers and buyers, there was an attorney’s fees clause that has been held to give rise to a fee award by the prevailing party even though the thrust of a case happens to involve a nondisclosure situation. See Lerner v. Ward, 13 Cal.App.4th 155 (1993); Palmer v. Shawback, 17 Cal.App.4th 296 (1993). Sellers were willing to arbitrate, but only if they could recoup fees for winning the second time around. The written arbitration agreement reflected that reality, indicating that only costs and fees expended in the pending appeals would be borne by each side.
After a two and ½ day arbitration, Justice Masterson decided in favor of sellers, effectively reversing the prior jury verdict (a verdict he was unaware of based upon an agreement between the parties). Because of the attorney’s fees clause in the residential purchase agreement, and based on the written arbitration agreement that never waived fees except limited appellate costs, Justice Masterson set a schedule for a hearing on sellers’ fee petition.
Buyers previously conceded that they never offered to mediate prior to the trial or arbitration, which means that sellers had no obligation to do so as a condition to fee recovery. (PRACTICE POINTER—Tbe form CAR residential purchase agreements have fee clauses but require mediation as a condition precedent for seeking a fee award. These clauses have been interpreted strictly by their terms. See Frei v. Davey, 124 Cal.App.4th 1506, 1508-1509 (2004).)
Even though sellers’ fees eclipsed $325,000 in total, Mike Hensley was concerned that the Arbitrator might believe awarding this full amount was high given that some of the pretrial motions and actual trial work was not germane to the arbitration. So, although presenting evidence of the higher fee, sellers also apportioned out work directly related to the arbitration (including discovery or trial testimony related to the arbitration witnesses) and asked for an alternative award of $153,000.
The alternative scenario worked. Justice Masterson awarded fees and costs under the $153,000 scenario. In doing so, the Arbitrator expressly found:
*The trial and arbitration consisted of a complex, vigorously litigated controversy that had been pending for over three years;
*The matter was a fact intensive case with many witnesses and numerous exhibits developed during the prior extensive Orange County Superior Court trial;
*Defendants had no alternative but to defend the case vigorously, because buyers were seeking $400-500,000 from sellers in a transaction where sellers only grossed $1,085,000 from the sale of their prior house;
*The fees and costs claimed did not included excluded appellate expenses;
*The defense hourly rates—ranging from $300-410 per hour—were reasonable; and
*The language of the fee clause was broad enough to allow an award of fees and costs for the entirety of the litigation, but the Arbitrator found it reasonable to award fees for work that directly benefited the arbitration, namely, the $153,000 award.
The message here is that litigants, under the right circumstances, can garner post-trial arbitration fee awards of a substantial nature, if they are willing to focus on the Arbitrator’s frame of mind and take a discount to face concerns that would naturally arise from the “retrial” of a prior jury matter.
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