CALIFORNIA ATTORNEY'S FEES

Landlord/Tenant, Mediation, Reasonableness Of Fees, Section 1717: Most Of $363,696.70 Contractual Fee Award Affirmed In Landlord/Tenant Dispute

However, N.Y. Attorneys’ Time After California Counsel Retained Must Be Stricken Because He Was Not Licensed In California.

               In Thaunhaeuser v. TKH Zum, LLC, Case No. B321283 (2d Dist., Div. 8 Oct. 11, 2024) (unpublished), the lower court entered a $114,000 compensatory judgment against landlord and in favor of tenant under a property condition/security deposit lawsuit.  Later, based on a contractual fees clause under the lease, the lower court awarded $363,696.70 to prevailing tenant, including some services which were performed by a New York attorney not licensed in California before California counsel was retained by tenant.  The 2/8 DCA rejected most of landlord’s arguments on appeal, except for one which required a modification to the fee award.

               Landlord argued tenant did not satisfy the mediation condition precedent provision of the lease, but the record belied this argument:  tenant did send a letter asking for mediation dates as well as made a settlement offer which landlord rejected.  The presence of the alternative settlement offer did not override tenant’s attempts to engage in mediation.

               However, the fees of the New York attorney were ordered stricken for work postdating the retention of California counsel.  New York counsel was actively advising tenant such that he needed to be licensed and failed to seek pro hac vice admission, with the appellate panel expressing doubt that California Supreme Court’s Birbrower, 17 Cal.4^th 119 opinion allowed a non-licensed attorney in a firm with a California attorney to avoid the problem and also indicating doubt that a non-licensed attorney could avoid problems by associating in with a California attorney in a lawsuit.  A remand was required to modify the judgment to exclude the non-compensable time.

               The size of the award was no abuse of discretion:  375 hours for four years of litigation was reasonable, with $750 per hour being acceptable for the California retained counsel who had many years of litigation experience in the landlord/tenant area.

Mediation: Prevailing Parties Properly Were Awarded Contractual Attorney’s Fees Because They Did Not Violate the Prelitigation, Mediation Provision

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.

Fee Clause Interpretation, Mediation: Fee Clause Allowing Only Prevailing Party Attorney’s Fees For Mediation Or Arbitration Proceedings Enforced As Written

Fees Clause Did Not Allow For Recovery Of Fees In Litigation.

            In Glass v. Whills, LLC, Case Nos. B304806 et al. (2d Dist., Div. 4 Aug. 10, 2022) (unpublished), both the trial and appellate court were dealing with a civil litigant’s claim for prevailing party attorney’s fees recovery under a fees clause providing that any disputes must be submitted first to mediation and, if unresolved, to binding arbitration, and that “[t]he non-prevailing party in any such mediation or arbitration, as determined by the mediator or arbitrator, shall pay the prevailing party’s court cost and attorneys’ fees.”  The lower court denied the litigant’s motion for fees, finding that the mediations in which the parties participated failed to result in a prevailing party resolution or determination, and the parties did not thereafter pursue arbitration.

            The appellate court affirmed that conclusion.  It found that the clause was unambiguous; the binding mediator had the ability to determine the prevailing party such that the absence of language indicating a court could award prevailing party fees sealed the deal.

Arbitration, Mediation: $38,000 Fee/Costs Award By Arbitrator To Prevailing Seller Was No Abuse Of Discretion

Arbitrator’s Ruling That Seller Did Not Unreasonably Refuse Mediation Was Upheld.

            Unless an arbitration agreement has language indicating that the arbitrator’s award is subject to review under a heightened standard for legal error, it will be close to impossible to reverse an arbitrator’s legal, much less factual, determinations.  Faro v. Garnero, Case No. C093870 (3d Dist. Mar. 21, 2022) (unpublished) demonstrates that in a fees/costs award context.

            There, seller in a real estate disclosure dispute prevailed, later awarded $38,000 in fees and costs after the arbitrator decided that seller did not unreasonably refuse to mediate (“it was open to interpretation”) under a contract which required mediation as a condition precedent to arbitration.  Buyer’s appeal did not change the result.  The main problem was that the arbitration agreement did not call for anything other than a deferential review of the arbitrator’s legal and factual determinations, which can be based on “justice and equity.”  There was no heightened requirement that the arbitrator’s decision could be reviewed for legal errors.  So, the arbitrator’s call that Seller did not refuse mediation was the “end game” call. 

Mediation: Lis Pendens Mediation Exception Applied Such That Buyer’s Specific Performance Filing Did Not Disqualify Buyer From Prevailing Party Attorney’s Fees

Buyer’s Substantial Fee Award Affirmed On Appeal.

            In a decision worth reading on buyer’s broker’s duties, rescission, and specific performance (with a majority and concurring/dissenting opinions), the 4/2 DCA also confronted a $776,757.88 contractual attorney’s fees award to the prevailing buyer in a real estate purchase.  Seller in Greif v. Sanin, Case Nos. E070283 et al. (4^th Dist., Div. 2 Jan. 26, 2022) (published) appealed the fee award on the grounds that buyer failed to pursue mediation as required by a clause in the Purchase Agreement before filing a specific performance action.  The appellate court rejected this argument because there was an exception from mediation for filing a court action to enable the recording of a lis pendens.  It was inconsequential that the specific performance action was filed first, followed several months later by the filing/recording of the lis pendens.  Beyond that, the record showed that buyer neither discouraged nor refused to engage in a mediation, with the parties engaging in two mediations and several settlement conferences without success.

            BLOG HAT TIP—One of the attorneys representing buyer at trial and on appeal is Proud Usahacharoenporn, a partner at Rutan & Tucker (a local Orange County firm).  Co-contributor Mike has had the chance to co-counsel with her on some matters, and she is a true professional and delight to work with.  Congratulations, Proud!

Mediation: Nonprevailing Party’s Failure To Abide By Contractual Mediation Deadline Rightfully Allowed Prevailing Party To Obtain Fees Under Contractual Fee Clause

Prevailing Party Did Try To Mediate Within The Deadline, But Nonprevailing Party Didn’t Comply.

            Seller prevailed in a lawsuit against Buyer which was subject to a contractual attorney’s fees clause.  The contract between the two sides had a mediation clause requiring good faith efforts to mediate within a 45-day period.  Seller provided six options for mediation, but they were rebuffed by Buyer based on multiple reasons.  Seller recovered $119,261 in attorney’s fees.  Buyer, in His Passion, Inc. v. Adhvaryu, Case Nos. G059483 et al. (4^th Dist., Div. 3 Jan. 12, 2022) (unpublished), argued that the lower court erred in concluding that Seller fulfilled in good faith the mediation obligation by sticking to the 45-day deadline (even though two dates were offered even after the deadline).

            The 4/3 DCA, in an opinion authored by Justice Goethals, affirmed.  Good faith, for purposes of the mediation clause, was a factual question.  The record demonstrated that Seller tried to schedule the mediation, with there being no problem that he essentially enforced the contractual deadline agreed to by both parties.   Instead, based on some of the Buyers filing a Los Angeles lawsuit without mediation, the inference from this course of conduct was that the Buyer never was interested in participating in the mediation process. 

Homeowner Associations, Mediation: $318,426 Fee Award To HOA Prevailing On Encroachment Issue Was No Abuse Of Discretion

Parties’ Inability To Mediate Was A Discretionary Factor To Weigh In The Fee Calculus.

            HOA, in Country Glen Oak Park Homeowners Assn. v. Garrett, Case No. B303220 (2d Dist., Div. 6 July 6, 2021) (unpublished), won a case to require removal of a pool equipment encroachment by homeowners as well as $820 in compensatory damages.  The trial court then awarded HOA $318,426 out of a requested $323,579 in attorney’s fees under the Davis-Stirling Act fee shifting provision (Civil Code section 5975(c)).  That award was affirmed on appeal.  HOA’s failure to mediate was only a discretionary factor to weigh in a fee assessment, Civil Code section 5960, with the record showing both sides could not come to terms on how to approach a mediation.  With respect to the award itself, HOA did prevail on the overriding encroachment issue so to enforce CC&Rs, and the record showed the lower court did look closely at the amount being requested as far as fashioning an award.  This case goes to show you how HOA disputes can be costly and earth-shattering with regard to fee award allocations.

BLOG COMMENT—It is with sadness that we announce that Hon. Edward J. Wallin (Ret.) recently passed away in late May of this year.  He was a long-time former sitting justice of the 4/3 DCA and a JAMS neutral, who co-contributor Mike appeared in front of, from time to time, during his tenures as an appellate justice and neutral.  He also is the author of our Mission Statement quote--"All too often attorney fees become the tail that wags the dog in litigation,"  Deane Gardenhome Assn. v. Dentkas, 13 Cal.App.4th 1394, 1399 (1993), which has been quoted often by both California and out-of-state decisions. 

Mediation: Voluntary Settlement Discussions Before Judge Intermediary Qualify As A Mediation For Purposes Of Satisfying Contractual Fees Clause Condition Precedent Requirement

Non-Judge, Too, Does The Trick, But VSCs – Different From MSCs – Meet The Criteria Also.

            Lateef v. Dutt, Case No. A150824 et al. (1^st Dist., Div. 2 December 31, 2019) (unpublished) involved a trial court denial of attorney’s fees to a landlord under a lease clause requiring that the parties attempt mediation before suing for damages in court.  The record showed that the parties attended various voluntary settlement conferences before judge intermediaries, but they could not resolve the matter.  A bench trial largely resulted in a “win” for landlord, to the tune of $211,795.80 in various damages or other relief.  Landlord moved for $225,000 in fees, including unlawful detainer expenses, a request denied in entirety by the lower court.  The 1/2 DCA reversed because it found that attending VSCs did satisfy the mediation requirement, even though a mandatory settlement conference would not.  In reaching this conclusion, it found that dictionary definitions showed a mediation could be done via a VSC or by a mediation before a non-judge.  However, it found that $42,920 in requested fees were not proper, because they were reached in a UD action which was voluntarily dismissed (Santisas precluding fees) and which in any event was filed too late after the apt 60-day deadline. 

Mediation: Less Than Compulsory Mediation Clause Was Satisfied Even Though Cross-Complaint Filed Without Additional Mediation By Prevailing Party Actually Participating In Mediation On The Complaint

Fee Award Of $375,813 In Capital Call Dispute Affirmed In Favor Of Prevailing Party.

            Ocean Tomo, LLc v. PatentRatings, LLC, Case Nos. G055429/G056063/G056829 (4^th Dist., Div. 3 June 13, 2019) (unpublished) shows how the wording of a mediation condition precedent clause can be determinative with respect to fee qualification.

            A prevailing party in a capital call dispute won attorney’s fees totaling $375,813 under an LLC Operating Agreement fees clause stating that LLC members “pledge to attempt to resolve any dispute amiably without the necessity of litigation.”  The facts demonstrated that the prevailing party participated in mediation before the plaintiff/minority LLC member filed suit but did not mediate further before the prevailing party filed a cross-complaint.  Losing party argued the mediation provision was not complied with on appeal.  Not so.

            The 4/3 DCA, in an opinion authored by Justice Fybel, affirmed the fee award.  The “pledge to attempt” language was not akin to mandatory mediation language like that in CAR form contracts.  Aside from that, prevailing party did participate in mediation sessions such that his filing of a cross-complaint months later did not fall outside of the spirit of “ADR attempt” resolution language contained in the fees clause. 

Costs, Mediation: Co-Contributor Marc's Article On Cost-Shifting In Mediation Is In The January 29, 2019 Daily Journal

Mike & Marc Have Previously Posted About Berkeley Cement v. Regents Of The University of California.

    Co-contributor Marc's article entitled "Cost-shifting in mediation after Berkeley Cement ruling" appears today, in the January 29, 2019 Daily Journal. If you subscribe to the Daily Journal, then you can access the article on-line. Or you can read a short post dated January 17, 2019, on the California Mediation and Arbitration blog, and a post dated January 8, 2019 on the California Attorney's Fees blog.

Fee Clause Interpretation, Mediation: $331,385 Contractual Fee Award Affirmed Because Absence Of Parol Evidence Did Not Show Fees Clause In One Contract Had A Mediation Condition Precedent

Absence Of Parol Evidence/Reporter’s Transcript Sealed The Result.

            If you are going to argue that a fees clause in one contract also governs another contract between different parties, you better introduce parol evidence to prove it. The loser in a fee battle did not do that in Morales v. Thee Aguila, Inc., Case No. G055224 (4^th Dist., Div. 3 Jan. 25, 2019) (unpublished), much less provide a reporter’s transcript, translating to a loss on appeal.

            Appellant lost an attorney’s fees battle to the extent of a $331,385 exposure based on a two-page handwritten contract with a fees clause. However, appellant claimed that a different contract involving different parties had a mediation condition precedent to fee recovery which was not followed so as to overturn the fees award at issue. The problem here was essentially one of proof: appellant introduced no parol evidence and did not provide a reporter’s transcript of what was offered into evidence below. Given the lack of parol evidence, the objective rule of contractual interpretation applied. There was a provision saying that prior agreements were incorporated into the contract as between the parties; however, given that the fees clause in the second contract involved different parties, there could be no carry-over of the mediation requirement from the second contract. Fee award affirmed.

            Justice Goethals authored the 3-0 decision for the 4/3 DCA.

Costs, Mediation: Fifth District Indicates, Quite Strongly, That Private Mediator Fees Are A Prime Candidate For Routine Costs Recovery In A Voluntary Mediation Situation

Court-Ordered Mediation Alone Should Not Determine If Costs Recoverable; However, Expert Witness Expenses Not Ordered By Lower Court Were Not Recoverable.

            The Fifth District, in Berkeley Cement, Inc. v. Regents of the University of California, Case Nos. F073455/F073586 (5^th Dist. Jan. 7, 2019) (partially published; expert fee costs discussion not published; mediation costs discussion published), confronted defense costs requests after it prevailed in front of a jury in a dispute over construction of a building on the Merced campus of the University of California. The trial judge awarded the defense $6,486.25 in expert witness fees for time spent taking their depositions and $15,590 for fees paid to mediators for a voluntary mediation agreed to by the parties.

            On appeal, the Fifth District deleted the expert witness fees costs, but affirmed the voluntary mediation expenses.

            In an unpublished discussion on the expert witness fees, the reviewing court could find no basis to sustain the costs award because this was not a court-ordered witness. (See, e.g., Ripley v. Pappadopoulos, 23 Cal.App.4^th 1616, 1624-1625 (1994); Baker-Hoey v. Lockheed Martin Corp., 111 Cal.App.4^th 592, 601-602 (2003).)

            The published discussion on the recoverability of voluntary mediation costs is significant, given that prior decisions only really dictated the recovery of court-ordered mediator fees. The Fifth District refused a categorical rejection of recovery of voluntary mediation costs, with expansive language indicating that mediation has become an accepted method of resolving cases in recent times. Otherwise, mediation costs could only be awarded in a case where $50,000 or less was in controversy—unnecessary line drawing in the ADR and modern litigation contexts. “We conclude mediation fees incurred for mediation that was not ordered by the court are not categorically nonrecoverable as ‘not reasonably necessary to the conduct of litigation.’ The question whether mediation fees should be awarded as costs in a particular matter must be determined based on the facts and circumstances of the particular action. [Plaintiff] does not contend the trial court erred in assessing the facts and circumstances of this case, when it made its determination that the mediation fees should be awarded.”

            BLOG OBSERVATION—Co-contributor Mike had the voluntary mediation costs issue pop up in a Stockton case, with the lower court determining that many reasons exist for voluntary mediation and with the mediation privilege making it difficult to determine if the mediation was truly reasonable and necessary. The Fifth District did not discuss this evidentiary complication, but its broad reasoning strongly suggests voluntary mediation costs should be recoverable in the absence of extenuating circumstances—Mike wish he had this case at an earlier point in time! But that demonstrates the importance of evolving jurisprudence.

Homeowner Associations, Mediation, Reasonableness Of Fees: $225,000 Fee Recovery In Favor Of HOA And Against Losing Condo Owner Affirmed On Appeal

Mediation Requirement Did Not Apply To HOA-Owner Dispute, Owner Failed To Specifically Identify Objections Fees, And Lower Court Did Award Substantially Reduced Fees From The HOA’s Requests.

            We have done many posts showing how HOAs or owners can be subject to substantial fee exposure for losing HOA-owner disputes. Seahaus La Jolla Owners Assn. v. Witt, Case No. D071229 (4^th Dist., Div. 1 Nov. 27, 2018) (unpublished) illustrates how this can happen, with the non-prevailing condo owner hit with $225,000 in fees in a losing effort.

            HOA sued condo owner to recapture costs incurred in repairing condo owner’s unit after a water leak, with owner cross-complaining against HOA and certain of its directors. The condo owner lost on both the complaint and the cross-complaint after bench proceedings. The trial judge later awarded HOA $ 150,000 in fees (out of a requested $240,000) on its complaint and $75,000 in fees (out of a requested $160,000) for defending against the cross-complaint.

            These determinations were affirmed on appeal. No prelitigation mediation was required because that only applied to developer-condo owner disputes, not HOA-condo owner controversies. Plaintiff failed to identify what portions of the fee requests were duplicative, excessive, or unreasonable, with the trial judge’s reduction showing good discretion was exercised.

Mediation: Buyer’s Refusal To Engage In Mediation Under CAR Residential Real Estate Contract Did Not Support Adverse Attorney’s Fees Award Against Buyer—Buyer Did Not Refuse To Mediate!

Appellate Court Did Note Differences In CAR Mediation Provisions Leading To A Different Result In Earlier Iterations Of CAR Contract.

            In Dilonell v. Chandler, Case No. B282634 (2d Dist., Div. 2 Oct. 24, 2018) (unpublished), plaintiff/prospective buyer was dinged with an attorney’s fees award of $26,400—a reduced amount—after a lower court denied buyer’s petition to arbitrate. A key to this determination was the trial judge’s finding that no agreement to arbitrate existed between seller and buyer because there was no electronic transmission acceptance “agreement” to a deal, based upon the doctrine of amanuensis. (That doctrine provides that where the signing of a grantor’s name is done with grantor’s express authority, the person signing the grantor’s name is not deemed an agent but is instead regarded as the mere instrument or the grantor—it is the signature of the grantor, although here is a heightened scrutiny to determine whether the signature is truly valid.) Because there was coercion, there was no deal between the parties.

            But the reversal was on the fees award—so how did that happen? Very easy. Buyer did offer to mediate, but seller said there was nothing to mediate based on the absence of an enforceable contract. The lower court determined that a defendant, in seller’s position, did not need to mediate in order to be entitled to attorney’s fees under the CAR mediation clause.

            The appellate court determined this was incorrect reasoning. The applicable CAR clause indicated that mediation disqualification applied to “any party,” which applied to a defendant seller refusing to mediate. In reaching this result, the reviewing court distinguished Van Slyke v. Gibson, 146 Cal.App.4^th 1296, 1299 (2007) and also showed how the CAR form mediation clauses had evolved to reach parties other than just a plaintiff commencing litigation with respect to the mediation condition precedent. In this regard, defendant rejected mediation and was precluded from obtaining fee recovery from the plaintiff buyer—reasoning in Frei v. Davey, 124 Cal.App.4^th 1506, 1520 (2004) reigned supreme in this one.

Mediation: Trial Judge’s Conclusion Party Did Not Receive Letter Offering Mediation, Coupled With Other Circumstances, Means That Prevailing Party In R.E. Water Damage Dispute Satisfied Mediation Condition Precedent Because He Never Refused Mediation

Factual Conclusion Below Was Dispositive.

            In Cohen v. Lavi, Case No. B279597 (2d Dist., Div. 3 Oct. 18, 2018) (unpublished), the parties entered into a real estate sale/purchase agreement with a mediation condition precedent clause, namely, fee recovery was not allowable unless a party attempted to resolve the matter through mediation or if a party refused to mediate after a request was made. The buyers encountered water damage, suing the seller for breach of contract, breach of the implied warranty of fitness, negligence, and fraud. Seller answered, asserting an affirmative defense that buyers failed to comply with the mediation provision. Seller eventually won, seeking contractual fees of $187,171.60. The lower court awarded $173,969.95 in fees under the agreement’s fee provision.

            On appeal, as they did below, buyers argued that seller refused to mediate. They claimed sending a pre-lawsuit letter which asked buyer to mediate. Seller argued that he never received the letter, corroborated by these other facts: (1) he was never verbally asked to mediate; (2) he indicated willingness to participate in mediation and a settlement conference in his case management statement; and (3) he raised mediation non-compliance as an affirmative defense. Even though the letter never came back to buyers, the presumption of delivery through ordinary mail is rebutted by a denial of receipt by the receiving party. (Bear Creek Master Assn. v. Edwards, 130 Cal.App.4^th 1470, 1486 (2005).) Given that the receipt issue was a factual one for the lower court to make, the appellate court could not disturb the result below.

Mediation, Section 1717: $1 Million Fee Recovery to Alter Ego Defendant Affirmed On Appeal

Alter Ego Theory Supported Fee Entitlement, With Alter Ego Individual Defendant Not Having To Satisfy Mediation Condition Precedent Clause In The Purchase Agreement.

            In Pasternack v. McFarland, Case No. D073283 (4^th Dist., Div. 1 Aug. 17, 2018) (unpublished), plaintiff brought both contract and tort claims against various businesses and individuals (including alter ego theories against the individuals). There was a purchase agreement with a fees clause, including a provision that a signatory to the agreement had to mediate as a condition precedent to fee recovery. Plaintiff lost against one individual defendant, who subsequently was awarded about $1 million in attorney’s fees against plaintiff based on losing the alter ego theory of recovery.

            The Fourth District, Division 1 affirmed the fee recovery. Because plaintiff was seeking to hold the winning defendant based on an alter ego theory arising under the signatory’s purchase agreement, individual defendant was entitled to fee recovery. (Brown Bark III, L.P. v. Haver, 219 Cal.App.4^th 809, 823 (2013).) Plaintiff then argued that the alter ego defendant did not satisfy the mediation clause under the purchase agreement, but the appellate court found there was no need for this non-signatory to satisfy an obligation which existed only as to the signatory.

Mediation: Landlord Entitled To Hefty Fee Award Against Tenant Because Record Established Landlord Did Attempt To Satisfy Mediation Condition Precedent Requirement

Landlord Only Had To Reach Out To Mediate, Not Contact A Mediator To Satisfy The Condition Precedent.

            In Silver Horse Equities, LLC v. Ahmad, Case Nos. B270944/B272092 (2d Dist., Div. 3 Feb. 27, 2018) (unpublished), landlord obtained an attorney’s fees award in the sum of $95,197.50 (out of a requested $166,511.22) as the prevailing party after a bench trial for damages under a lease with a fees clause precluding fee recovery where the prevailing party commences an action “without first attempting to resolve the matter through mediation.”

            Tenant appealed, without success.  Tenant’s primary argument was that the landlord had to contact a mediator to satisfy the mediation condition precedent, but that degree of compliance was rejected as not being necessary.  As far as whether landlord did attempt to mediate, there was submission of a detailed email chain showing that landlord did satisfy the required condition precedent to a fee award. 

Mediation: Nonsignatory, Prevailing Seller Not Entitled To Attorney’s Fees For Failure To Satisfy Contractual Mediation Requirement

 

$107,098.25 In Ordered Fees Went POOF!

 

    Hsiao v. Lin, Case Nos. B271296/B272366 (2d Dist., Div. 8 Apr. 4, 2017) (unpublished) may actually be an appeal involving social justice. Seller of a residential property did not sign the contract; her adult signed it in her name, which led to a litigation donnybrook on whether there really was a contract. Seller prevailed on summary judgment based on the statute of frauds and equal dignities rule (brush off the dust on that one, but it can be a good defense). Seller then won $107,098.25 in fees against buyer based on a contractual fees clause. Good for now, but not on appeal—fee award reversed. Seller blew off the mediation condition precedent to fee recovery but argued, aha! I am a non-signatory and not bound. No way, said the appellate court relying heavily on Leamon v. Krajkiewcz, 107 Cal.App.4th 424, 433 (2003), not buying the argument that a non-signatory prevailing on any invalidity ground could refuse to honor the mediation condition precedent.

Mediation: Claimed Prevailing Party Under “Carve Out” Settlement Agreement Trust Dispute Failed To Satisfy Contractual Condition Precedent To Fee Recovery

 

Party Failed To Show He Participated In Upfront Good Faith Settlement Discussions Or Mediation After Entry Into The Settlement Agreement.

 

    In Harris v. Bonander, Case No. F071886 (5^th Dist. Jan. 19, 2017) (unpublished), a settlement agreement was reached between parties to a trust dispute except for one "carve out" claim, which was litigated and lost by one party, who then completely changed the tide by appealing and obtaining a reversal as a matter of law. That party felt he prevailed and moved for attorney's fees under a settlement agreement fees clause, but the trial court denied them based on the perception he did not prevail.

    

    The appellate court affirmed, but on a different basis (in line with the rule that a decision is correct even if grounded in different reasoning).

 

    In the settlement agreement, the fee clause had a contractual condition precedent: no fees unless a prevailing party "makes a satisfactory showing that they first initiated and participated in good faith in informal settlement discussions or mediation." Here, the fee claimant could not show this occurred, despite some creative arguments otherwise. It made no difference if the fee claimant did prevail because litigating the release issue instead without satisfying the ADR condition precedent was not compliant with the fee clause. Fee claimant then argued there were settlement negotiations before entry into the settlement agreement, the appellate court rejected that this satisfied the condition precedent to attempt settlement/mediation efforts after entry into the settlement agreement when a subsequent dispute arose. Finally, even though fee claimant tried to resolve the amount of fees under his fee motion through compromise discussions, this exercise did not satisfy the merits-oriented condition precedent that this should have done much earlier in time when the release issue was being litigated.

Mediation: Cross-Complainant Protectively Filing In A Case Not Initiated By A Co-Defendant Sued By A Stranger To The Dispute Did Not Have To Satisfy Mediation Condition Precedent Under Real Estate Purchase Agreement

 

Unique Procedural Posture Of The Case Drove The End Result.

    Under our heading “Mediation,” we have posted on numerous cases which hold that parties must strictly comply with a mediation condition precedent under a real estate purchase agreement in order to be qualified for an attorney’s fees award in subsequent litigation/arbitration proceedings.  (See, e.g., Frei v. Davey, 124 Cal.App.4th 1506, 1516 (2004).)  However, based on a unique procedural posture of the entire litigation, a cross-complainant still gained fees even though not complying with a mediation condition precedent in Lamar Central Outdoor, LLC v. Hwang, Case No. B266070 (2d Dist., Div. 5 Sept. 9, 2016) (unpublished).

    In this one, a billboard company sued two defendants, landowners where the billboard was located (first defendant being original landowner and second defendant being second landowner by a sale from first defendant), after two billboards were demolished by the second landowner.  Second landowner then cross-complained against first landowner defendant based on breach of contract, unjust enrichment, conversion, and implied equitable indemnity.  Billboard company eventually won, but second landowner won against first landowner/defendant/cross-defendant on the cross-complaint, garnering an attorney’s fees award of $65,535 based on the real estate purchase agreement. 

    On appeal, losing first landowner challenged the fee award to second landowner primarily on the basis that first landowner did not satisfy the mediation condition precedent under the real estate purchase agreement before filing the cross-complaint so that no fees were deserving. 

    The 2/5 DCA disagreed, but based on the unique procedural posture of the matter.  Although acknowledging that courts have strictly construed the mediation condition precedent in numerous cases, it found that this case presented different concerns.  Here, the two landowner defendants did not have a straight dispute between each other, but were dragged into a dispute by “stranger” billboard company.  Because the law actually mandates that a defendant file a compulsory or permissive cross-complaint for judicial efficiency purposes, the purposes of the mediation condition precedent—to have ADR completed between the primary dispute combatants before a commencement of suit/arbitration—was not served.  After all, even if the landowners had participated in mediation on the cross-complaint, one could hardly say that the global dispute with billboard company would have been resolved.  The peculiar circumstances of this case certainly drove the result to affirm the fee award despite noncompliance with the mediation condition precedent.

Mediation/Section 1717: Defendants Improperly Denied Fees For Failing To Satisfy So-Called “Binding Mediation” Condition Precedent In Fee Clause

 

Also, Two Defendants Entitled To Fee Recovery Based On Alter Ego Allegations And Plaintiff’s Failure To Ever Dismiss/Abandon The Theory.

     In Kern Health Systems v. Allied Mgt. Group Special Investigation Unit, Inc., Case No. B258326 (2d Dist., Div. 7 Apr. 25, 2016) (unpublished), plaintiff lost contractual and tort claims after a jury trial against three defendants, but the lower court still awarded $1.38 million on a negligent misrepresentation claim against all defendants based on its perception that the jury intended to award recovery on this claim in its special verdict. The trial judge also denied all three defendants’ requests for an award of attorney’s fees for defeating plaintiff’s contractual claim where a fees clause was involved in an audit engagement agreement. (One defendant requested recovery of $2.385 million in fees, while two other defendants—alleged to be “alter egos” of the first defendant--asked for a total of $1.245 million in fees.)

     Defendants won a clean sweep on appeal, with the compensatory award going away and with a remand to allow them to seek fee recovery again.

     Defendant #1 was denied fees because the lower court did not believe that it satisfied a so-called contractual condition precedent for court fee recovery “if a legally binding mediation does not resolve legal disputes,” although indicating that it would have apportioned some fees and lowered the requested attorney hourly rates but for its ruling on the mediation language. The appellate court did not view this quoted contractual language as a binding condition precedent, because (1) it was not worded strongly enough to be one, (2) construing it as such made no sense given that a binding mediation result is equivalent to an arbitration award such that no litigation would ever be needed giving rise to fees (an oxymoronic result under the circumstances), and (3) plaintiff’s own pre-dispute conduct in praying for fees in the suit tended to bolster that mediation was not a precondition for recovery of court fees.

     As far as the other two defendants were concerned, plaintiff never voluntarily dismissed the alter ego allegations and actually beat back an oral nonsuit motion relating to these allegations. This gave rise to Civil Code section 1717 fee recovery under Reynolds [one of our Leading Cases, see home page on upper left hand side].

     However, in remanding, the reviewing court left it up to the trial judge to decide whether to apportion as it indicated it might do with respect to any of the defendants (especially defendant #1).

Mediation: Because Buyers Did Offer To Mediate Before Filing Suit, Subsequent Refusal To Arbitrate Did Not Lead To Fee Disqualification

 

Mediation Fee Condition Precedent Satisfied in this Case.

     For those following our blog, our category “Mediation” has many cases discussing California Association of Realtors (CAR) form California Residential Purchase Agreements having some conditions precedent to attorney’s fees recovery, with the big one being that the buyer or seller must agree to mediation before resorting to arbitration or court action.

     Buyers in Sharifpour v. Le, Case No. G047481 (4^th Dist., Div. 3 Jan. 10, 2014) (unpublished) won a property nondisclosure award in an arbitration of $933,682.89 against Sellers, consisting of $184,000 in economic damages, $368,000 in punitive damages, and $381,682.89 in attorney’s fees and costs, with the lower court confirming almost all of the arbitration award except for a reduction in the punitive damages component to $147,000.

     Buyers appealed, and they did not get any relief on appeal.

     They challenged Buyers’ compliance with the mediation condition precedent to fee recovery, but the proof showed that a pre-litigation mediation demand was sent, a demand ignored by Sellers. Although Buyers did resist arbitration based on Sellers’ demurring to Buyers’ complaint (a losing argument, because arbitration was ordered), that position did not negate the fact the pre-litigation mediation request had indeed been made. “However, paragraph 17A [of the CAR form, containing the mediation condition precedent] does not say that attorney fees will be unavailable to a prevailing party whose offer to mediate is rejected and who thereafter refuses to accept an offer to arbitrate made only after the litigation has commenced.” (Slip Opn., p. 8.) Fee award sustained on review, in a 3-0 decision authored by Acting Presiding Justice Moore.

Mediation: Party’s Letter For An Accounting Did Not Satisfy Mediation Condition Precedent Under Real Estate Purchase Agreement

 

When there is a mediation condition precedent in a real estate contract, abide by it -- or else!

     Brown v. Modaffari, Case No. G047443 (4th Dist., Div. 3 Nov. 26, 2013) (unpublished), a 3-0 decision authored by Justice Aronson, yet again reinforces this point. A litigant was denied fees under a real estate contract with a mediation condition precedent clause. Among other things, litigant appealed the denial, arguing that a letter requesting an accounting was a substitute for mediation. Wrong, gotta ask for mediation and, if not, risk losing, as the litigant not formally requesting mediation sadly learned on appeal.

Mediation/Section 1717: Side Agreement With Fees Clause Did Allow Prevailing Party To Obtain Fee Recovery Without Having To Pursue Mediation First

 

Unlike Other Situations, Side Agreement Was Not Integrated With Stock Purchase Agreement Requiring Mediation First, Resulting in $162,983.81 Fee Recovery to Prevailing Party Under Side Agreement.

     In many cases we have posted on, Civil Code section 1717 worked to deny a fee recovery because several agreements were part of an integrated transaction, and the prevailing party did not satisfy a mediation first condition in one of the contracts (even though the condition was not in all the related documents).

     However, that was not the situation in San Leandro Land v. Nicholas K. Corp., Case Nos. A131679/A132045 (1st Dist., Div. 2 Mar. 7, 2013) (unpublished).

     There, one document was a stock purchase agreement with a fees clause and the other a side agreement with a fees clause. So far so good. However, importantly as it turned out, the stock purchase agreement had an integration clause as well as a mediation pre-condition precedent clause relating to fee recovery. However, the side agreement did not have a mediation first condition. Equally salient, the two contracts were not between the same two parties.

     Prevailing party under the side agreement recovered $162,983.81 in costs, disbursements and attorney’s fees after recovering $439,569 for breach of the side agreement. Losing party argued that the fee recovery was forbidden because winner did not satisfy the mediation first condition of the stock purchase agreement because it was to be construed in tandem with the side agreement.

     The appellate court said no. Given the unique circumstances relating to the separate agreements and the different parties involved, Civil Code section 1647’s mandate to consider related agreements together did not apply. That meant that prevailing party’s win under the stock purchase agreement (which had a fees clause) entitled it to fee recovery without having to exhaust the mediation first requirement.

Mediation: Plaintiff Improperly Awarded Fees When Not Seeking Mediation First

 

However, Plaintiff Was Entitled to “Defensive Fees” for Prevailing on Defendants’ Cross-Complaint.

     You might say that this was a “split” decision in the area of CAR form contracts containing a mediation condition precedent to any fee recovery.

     In Darton v. Park Vasona Gas, Inc., Case No. H037499 (6th Dist. Feb. 14, 2013) (unpublished), plaintiff gas station seller sued defendant buyers under a business purchase agreement, which was part of an integrated transaction also involving a note, guaranty, and separate covenant not to compete and written lease. Plaintiff won on his complaint for defendants’ failure to pay and defeated defendants’ cross-complaint based on the covenant not to compete and breach of a sublease of automobile repair shop bays. The trial court later awarded winning plaintiff $128,924 in attorney’s fees under the CAR contract (and related documents) over defendants’ objection.

      Defendants won a “split decision” on appeal.

     A reversal was required on the complaint fee recovery because plaintiff filed suit without first pursuing mediation. Plaintiff argued that the mediation requirement could not be exported into the fees clauses in the note and guaranty, but that contention was rejected because those documents were part and parcel of an integrated, indivisible transaction involving the CAR-form purchase agreement.

     Nonetheless, not all was lost for plaintiff. Because the cross-complaint was its own independent action, plaintiff was entitled to recoup “defensive fees” as the prevailing party without satisfying the mediation condition precedent applicable to the complaint. (See Johnson v. Siegel, 84 Cal.App.4th 1087, 1101 (2000).) Defendants tried to argue that there was no fees clause in the covenant not to compete or sublease, but that failed based on the integrated transaction analysis--these documents were incorporated into the CAR purchase agreement having a fees clause. So, the matter went back down for an allocation by the lower court, which will have to decide what amount of “defensive fees” should be awarded to plaintiff seller.

Landlord/Tenant; Mediation: Winning Tenant In Post-U.D. Action’s Fee Recovery Reversed On Appeal

 

$73,125 Fee Award Went POOF!, But Not Because of a Merits Reversal.

     Tenant must have been feeling good at the trial court level, even though the dispute involved of all things a to-do about a $16,990 security deposit. After landlord commenced an unlawful detainer, the parties stipulated to a judgment (without a fees clause) which talked about future handling of the security deposit in line with California requirements for an inspection and substantiation of deposit use. Tenant did move out, but landlord gave tenant an unsatisfactory deposit use itemization. Tenant moved to vacate the unlawful detainer judgment based on the mistaken notion that landlord would comply with the security deposit procedures, but the lower court instructed tenant to file a new action on the issue, which tenant did. Eventually, the trial judge based on jury findings found in favor of tenant in the second action, awarding over $37,000 in damages for not abiding by security deposit dictates. Then, tenant was granted $73,125 in attorney’s fees under a lease fees clause (out of a requested $107,217).

     Landlord appealed both the merits and fee awards in De Carlo v. Kosser, Case No. B237278 (2d Dist., Div. 5 Jan. 7, 2013) (unpublished).

     Landlord lost on the merits, but probably felt much better by obtaining a reversal of the fees award. (And, not surprisingly, the fee award eclipsed the merits award by almost double.)

     Tenant did not justify the fee award for two reasons. First, there was a mediation condition precedent clause in the lease, and tenant never demonstrated it proffered mediation before filing the separate action. However, the trial judge apparently reasoned that the separate security deposit action was a continuation of the unlawful detainer proceeding, which was expressly exempted from the mediation requirement. That brought the appellate court to the second reason for its reversal: the post-U.D. action was indeed a separate lawsuit on the lease subject to the mediation requirement and, furthermore, under the lower court’s logic, no fees should have been awarded in any event because the suit was on the settlement agreement rather than the lease--and the settlement agreement contained no fees clause. Fee award reversed as a matter of law, no matter how you sliced the ham.

Lewis Wiggins cutting off a slice of his homecured  ham in his smokehouse.  La Delta Project, Thomastown, Louisiana.  Marion Post Wolcott, photographer.  June 1940.  Library of Congress.

Arbitration/Mediation: The Debate Goes On ... Are They Cost Effective?

 

You Be The Judge, Recent California Real Property Journal Article Adds More Swill to the Controversy.

     Okay, folks, there always has been a controversy on the added effectiveness (or expense) associated with ADR alternatives, primarily mediation and arbitration. We can report that even more gas has been added to the fire of this controversy based on an article by Victoria Paal, Randall Block, and Steven Roland in the most recent 2012 edition of the California Real Property Journal (published by the Real Property Law Section of the California State Bar).

     After sifting through this article, it seems to suggest that court-sponsored mediations had a positive effect on litigant and attorney satisfaction with court services, reducing the time required for cases to reach disposition. However, there was a rub: not settling at mediation resulted in longer disposition times as compared to cases that did not go to mediation. (Hardly surprising, we would surmise.) Six California court counties reported that estimated litigant costs were from 16% to 60% lower for cases in a court-sponsored mediation program than for cases not within the program. Even the U.S. Department of Justice (DOJ) apparently had to admit that some benefits were achieved in an ADR process (be it in mediation or arbitration), estimating it saved more than $12 million in litigation expense by using ADR in 2011 alone (although we again surmise mediation was the big component of the ADR process).

     Well, arbitration was another matter altogether, as surveyed in the article. For California alone, one study found that the average time to resolve an arbitration is 16.5 months, compared to state court dispositions of 64% within 12 months of filing and federal court dispositions of 9.5 months from filing to civil case disposition (longer if a trial was involved). Beyond that, the article concluded that arbitration can be expensive as far as filing fees, arbitrator fees, and hearing room expenses.

     In an interesting footnote, the article authors cite a survey of 300 corporate counsel showing a marked preference for mediation over arbitration, especially on costs savings. Overall, 60% of the respondents favored mediation and 53% reported costs savings through mediation, contrasted to only 43% favoring arbitration and 41% finding some costs savings from the process while 44% reported no savings whatsoever through arbitration.

     Let the controversy continue!

Mediation/Reasonableness Of Fees: Defendants’ Refusal To Mediate Satisfied CAR Contract Mediation Provision/Wife Held Liable For Fees Incurred To LIft Stay In Husband’s Bankruptcy And In Demurring To His Subsequent State Court Cross-Complaint

Frei v. Davey Controlled.

     Judge Ikola, in a 3-0 opinion in Aaron v. Faraj, Case No. G046457 (4th Dist., Div. 3 Sept. 6, 2012) (unpublished), dealt with a defendant wife’s claims that she was improperly assessed with attorney’s fees because (1) plaintiff did not satisfy the mediation condition precedent to fee recovery contained in the CAR form real property agreement, and (2) fees incurred by plaintiff to lift the stay and demur to a cross-complaint with respect to her husband should not fall on her shoulders. Both contentions were rejected on appeal in favor of a plaintiff purchaser who did obtain a specific performance decree and eventually was awarded fees of $53,116.54.

     The sequence of events showed that plaintiff offered to mediate through a letter, only to be met with responses indicating mediation was inappropriate because husband was going to be filing chapter 7 bankruptcy (and later attempting to coyly argue in letter exchanges this was not an outright refusal). After the complaint was filed and she lost at trial, wife argued that the mediation condition precedent had not been satisfied, disqualifying plaintiff from fee recovery. The appellate court found this argument to lack merit based on Frei v. Davey, 124 Cal.App.4th 1506, 1516-1517 (2004); after all, the refusal to mediate, even ambiguously, was enough to satisfy the condition. (Frei was authored by Justice Fybel of the same court, who was also on the panel hearing this case.)

      As far as the challenge to the demurrer and lift stay fees relating to husband, the demurrer fees were reasonable and equitable circumstances did allow the lift-stay fees to be assessed based on case law establishing that fees in prior actions are allowable if the circumstances are right to do so. (Stokus v. Marsh, 217 Cal.App.3d 647, 665 (1990).) By the way, husband’s appeal was dismissed because he was not impacted enough, apparently based on his discharge in the chapter 7 case.

Mediation: Cross-Complainant Commencing Cross-Complaint Without Attempting Mediation First Disqualified From Seeking Fees Under CAR Form Listing Agreement

 

Cross-Complaint Was A Separate, Simultaneous Action Subject to Mediation Condition Precedent.

     As it now stands, a litigant subject to a CAR form contract often faces an attorney’s fees clause requiring mediation first except for certain situations (lis pendens action, unlawful detainer, and a few others). Obviously, this restriction applies to a litigant commencing a complaint. What about a litigant commencing a cross-complaint?

     Our local appellate court, in a 3-0 opinion authored by Justice Rylaarsdam, answered this question “yes” in Castleton Real Estate & Development, Inc. v. Tai-Fu California Partnership, Case No. G044304 (June 28, 2012) (unpublished).

     A cross-complainant did not attempt to initiate before filing a cross-complaint in a existing suit and was denied a later attorney’s fees request. On appeal, cross-complainant argued that the mediation condition precedent was not at play because the cross-complaint was only part of an existing action.

     Wrong, said the appellate court. A cross-complaint is a separate, simultaneous action so the cross-complainant was subject to the mediation condition precedent because the litigant had indeed “commenced an action.” Also, the fees clause in the listing provision covered both contract and tort claims, so its fee recovery attempt ran out of luck when mediation was not pursued first.

Appealability/Mediation: Because Promissory Note With Fees Clause Had No Contractual Mediation Condition Precedent, So No Mediation Had To Be Held Before Commencement Of Suit

 

Fees Not Based on Listing Agreement With Mediation Clause Affirmed on Appeal.

     Sometimes it all depends on the contractual agreement under which you are awarded attorney’s fees.

     We have done some recent posts on the mediation condition precedent which can disqualify fee recovery depending on whether it is not pursued before commencement of a suit or even during the course of a dispute. A losing party lost a promissory note and listing agreement dispute, with both agreements having a fees clause (but only the listing agreement having the mediation condition precedent). The price of a loss was quite hefty, with loser being hit with attorney’s fees of $219,171.18 and other costs of $19,205.34.

     Loser mainly hinged his appeal on the victor’s failure to allegedly mediate.

     Didn’t work under the facts at issue, said the appellate court in affirming the fee award in Keith v. Shuttleworth, Case No. D058881 (4th Dist., Div. 1 June 14, 2012) (unpublished). The complaint was upon a promissory note, which does not require mediation before commencement of litigation. Although suggesting the note arose from the listing agreement, this theory was never presented below and was not supported by an adequate record. Beyond that, the judgment on the complaint was never appealed, so it could not appeal the award of fees on the complaint.

     Because winner was entitled to fees for winning on appeal, the appellate court deemed it the “better practice” to allow the trial court to fix such fees once the dust settled from the appeal.

Mediation: Defense Claiming Fee Recovery Under CAR Form Contractual Clause Cannot Refuse Mediation Based On Plaintiff’s Initiating Suit Without Previously Requesting Mediation or Based on Plaintiff’s Purported Need For Further Discovery

 

Defense Award of Fees Is Reversed, Because Alternative Phrasing of CAR Form Clause Means Defense Must Attempt to Mediate Or Be Disqualified From Fee Recovery After Plaintiff’s Request for Mediation.

     Okay, folks, in Frei v. Davey, 124 Cal.App.4th 1506 (2004), our local appellate court (authored by Justice Fybel) considered the CAR form contractual provision requiring mediation as a condition precedent to fee recovery in disputes involving sellers and buyers. Prior to Frei and based on the wording of the CAR form provision, a plaintiff ultimately prevailing is disqualified from fee recovery if initiating a suit that is not exempt from exceptions to the mediation requirement. The plaintiffs is Frei were exempt from requesting mediation before filing suit, because their suit for specific performance with a lis pendens in play was within an express exemption. So, the plaintiffs in Frei requested mediation even after suit commencement, but defendant refused. Frei concluded that the defense refusal to mediate was dispositive under the alternative wording of the mediation disqualification penalty--which penalizes a party “refus[ing] to mediate after [the making of] a request [by the opponent].” After all, plaintiffs, albeit exempt from having to make the request before commencing suit, did make a mediation request later, and the defense refused and could not be awarded fees as a prevailing party under the contractual clause. (Keep in mind, had plaintiffs prevailed in Frei, they could gave garnered fees, but their loss ended this dream.)

     Cullen v. Corwin, Case No. C067861 (3d Dist. June 7, 2012) (certified for partial publication; fee discussion published) confronted a different defensive situation not addressed by Frei--does the defense have any obligations to cooperate in mediation even where a plaintiff is disqualified from fee recovery because it went straight to litigation in a real estate nondisclosure case not falling within any contractual mediation exemption?

Homeowner Associations/Mediation/Substantiation Of Fees: Homeowner Hit With Fee Recovery For Failing To Satisfy Mediation Condition Precedent In Settlement Agreement With HOA

 

$58,212 Was the Fee Price Tag for Noncompliance With Mediation Condition Precedent.

     Usually, we see what happened in the next case occurring instead under California Association of Realtor (CAR) sale/purchase form contracts, which have attorney’s fees clauses that are conditioned upon one or both parties attempting to mediate a dispute before resorting to arbitration/litigation. In the next case, a settlement agreement between HOA and homeowner stemming from a mold/water intrusion prior dispute dictated that homeowner pursue mediation first before resorting to the courts. She did not, suffering an adverse fee award in favor of HOA.

     In Adams v. Newport Crest Homeowners Assn., Case No. G044230 (4th Dist., Div. 3 Mar. 13, 2012) (unpublished), homeowner wanted to enforce the settlement agreement but not the part that indicated she should pursue mediation first. That was a big mistake, because the trial court granted the defense motion to enforce the settlement agreement--inclusive of the mediation condition precedent--and awarded it $58,212 (out of a requested $63,380) in attorney’s fees for prevailing on the motion to enforce under the settlement agreement fees clause.

     Justice Moore, writing for a 3-0 panel of our local Santa Ana appellate court, affirmed. The settlement agreement fees clause was broad, applying to “any dispute” concerning an obligation under the settlement agreement lost by homeowner. Entitlement established. Next, this was no interim resolution, but a final resolution of the proceedings at stake in the same litigation, with HOA meeting its objective to prevent homeowner from suing by leapfrogging the mediation process. (Don’t you just love that word, leapfrogging?) The amount of the fee award was adequately documented using very reasonable rates ($170 per hour), with HOA doing something smart off the bat--it only requested $63,380 in fees although documenting over $81,000. That gave HOA increased credibility when it came to having its fee petition reviewed both before the trial and appellate courts.

     BLOG UNDERVIEW--Leapfrog derives from a children’s game dating back to the 1590s--and we know that you get a mental picture of how that game was played!

Children playing “leapfrog” in Harlem circa 1930.  Wikimedia Commons.

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!