Fee Award Of $527,639.99 To Certain LLC Member Defendants Affirmed On Appeal.
We do have a category entitled “Mediation” on our home page, surveying opinions which have discussed prelitigation, mediation contractual provisions requiring mediation before litigation as a qualification for prevailing party fee entitlement. We have another case to add to this category.
In Frealy v. Kanter, Case No. B316413 (2d Dist., Div. 8 Aug. 29, 2023) (unpublished), one group of LLC members got into a dispute with another group of members. The LLC filed for Chapter 7 bankruptcy, with the sale of debtor’s assets resulting in a little over $1.9 million in surplus proceeds and with certain LLC members claiming other members were not entitled to share in the proceeds. One group tried to reach a stipulation with the other group by which the proceeds would be placed in an escrow account (rather than force the Chapter 7 trustee to file an interpleader action) followed by a mediation of the dispute with a designated mediator. The other group refused to sign the stipulation. Chapter 7 trustee then initiated an interpleader action, and one group of LLC members (respondents) prevailed against another group (appellants) such that respondents were awarded 100% of the surplus proceeds. There was a contractual mediation provision requiring potential litigants to mediate first or forfeit their ability to recoup prevailing party attorney’s fees. The lower court, over appellants’ challenges, determined the mediation clause was not violated, awarding respondents $527,639.99 in attorney’s fees.
The 2/8 DCA affirmed. The panel agreed with the lower court that the Chapter 7 trustee, not respondents, commenced the interpleader action so there was no violation of the prelitigation, mediation provision. Further, respondents had attempted to mediate with appellants before the interpleader was filed, but appellants balked at signing the mediation stipulation.