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Fourth District, Division 2 Extends Mediation Penalty to Nonsignatories in Unpublished Opinion.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 Now, the Fourth District, Division Two, albeit in an unpublished decision, extends the necessity for satisfaction of this requirement to contract nonsignatories.

     Davis v. Rosenson, Case No. E043328 (4^th Dist., Div. 2 Jan. 26, 2009) (unpublished) affirmed a denial of attorney’s fees to defendant nonsignatories because they refused to participate in mediation before suit was filed by the losing plaintiff. Based on Reynolds Metals Co. v. Alperson, 25 Cal.3d 124, 130 (1979), the appellate panel determined that “the right to attorney fees held by the defendants who were not parties to the contracts in Reynolds was no greater than the right they would have had if they were parties to the contracts.” The defendants refused to mediate, such that the nonsignatories were disqualified from fee recovery by their failure to satisfy the crucial contractual condition precedent. (Slip Opn., at p. 28.)

     Defendants also argued that plaintiff did not beat an earlier Code of Civil Procedure section 998 offer. The Court of Appeal rejected this argument based on the mediation requirement, finding the 998 offer was only operative to the extent the costs were otherwise available under the contract (and they were not).

     The financial upshot: defendants lost the chance to recover claimed attorney’s fees in the amount of $1,018,854.04 under the purchase agreement or, alternatively, fees of $675,780.04 incurred after service of their 998 offer. Wow!

     BLOG UNDERVIEW—This case also contains a good discussion of the proof necessary for a purchaser to show he is a “ready, willing, and able” buyer, especially whether a purchaser must demonstrate a legally binding loan commitment from financially able lenders in order to establish the “RWA” element. (See Behniwal v. Mix, 133 Cal.App.4^th 1027, 1045 (2005); 02 Development, LLC v. 607 South Park, LLC, 159 Cal.App.4^th 609, 613 (2008).)