Trial Winner Denied Attorney Fees for Refusing to Mediate (Web)

Frei v. Davey:  California appellate court enforces contract provision requiring acceptance of mediation as condition for award of attorney fees.
 
Trial Winner Denied Attorney Fees for Refusing to Mediate
 
            On December 17th, 2004 the Fourth District of the California Court of Appeals reversed a lower court ruling that home sellers were entitled to $130,500 in attorney fees from buyers.  Judge Fybel, writing for the Appellate Court, held that since sellers did not attempt to mediate the dispute, and since a provision in the purchase agreement provided for an award of attorney fees only upon acceptance of mediation, sellers were not entitled to attorney fees even though buyers filed the suit and sellers prevailed in the underlying litigation.
 
            This case represents the first published opinion interpreting the mediation clause in California’s new standard form residential purchase agreement.  The Court distinguished Frei from prior decisions interpreting the old clause based on the changed wording.  Under the new form: “Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action…If…any party…refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney’s fees, even if they would otherwise be available to that party…”  The old form’s mediation provision applied only to the party initiating the litigation.
 
            In this case, buyers requested mediation both before and after they filed their lawsuit.  Sellers’ attorney told Buyers’ counsel that “the [Sellers] are not interested in mediating the dispute.”  Sellers also declared that “mediation would be fruitless given [Buyers’] intransigence.”   Based on these assertions, Judge Fybel found a refusal to mediate.
 
            Sellers made several arguments to excuse their refusal to mediate, but the Appellate Court disagreed with each of them.  First, the Court found the requests effective even though they were contained in argumentative letters.  Next, the Court clarified that negotiations between the parties were not the same as mediation.  Later, Judge Fybel rejected Sellers’ arguments that the mediation was excused because it was unlikely to succeed.  Citing the narrow negotiation range and the vast sums spent on attorney fees, the Court found that Sellers could not be excused for failing to mediate. 
 
            Before disposing of the case, the Appellate Court additionally held that although the agreement expressed no time limit on accepting mediation, Sellers failed to respond within a reasonable time.  Finally, the Court found that although Buyers’ filed the lawsuit, the filing did not negate the mediation provision under the new form mediation clause.
 
            This decision can be found at: Frei et al. v. Davey, et al., 22 Cal.Rptr.3d 429 (Cal.App. 4 Dist. 2004).  It is also available at:
http://fsnews.findlaw.com/cases/ca/caapp4th/slip/2004/g033682.html