New Case Alert: A Must Read For ALL Investors And Anybody Else Entering Contracts

If you’re involved in a dispute, take careful note of the recent California court ruling in Cullen v. Corwin (2012) 206 Cal.App.4th 1074.  The key facts of that case may very well apply to you.  Make sure you don’t make the same mistake the defendant made in that case or you could lose your contractual right to recover your attorney’s fees (which could be a six-figure amount) when you win your next lawsuit.

A seller and buyer entered into a “standard form” real estate purchase contract (but this case applies to ALL contracts, not just real estate contracts).  A dispute arose from that contract.  The contract included a fairly standard attorney’s fees clause, providing that the prevailing party in any dispute is entitled to recover their legal fees.  However, that right was made subject to a common mandatory mediation clause: “If, for any dispute ... to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after [the making of ] a request ..., then that party shall not be entitled to recover attorney[ ] fees....” Different contracts may have different versions of this clause, but the essence of this court’s decision is still relevant.

After filing his Complaint, plaintiff requested mediation twice, but defendant rejected both requests because he first wanted to engage in some discovery and have the court rule upon his motion for summary judgment.  The defendant won his motion for summary judgment, and received a judgment in his favor. 

Unfortunately, when defendant tried to recover his legal fees under the attorney’s fees clause, the court denied his request because defendant failed to mediate when requested by plaintiff.  In so holding, the court issued strong language that every litigant should heed:

“The new provision barring recovery of [legal] fees by a prevailing party who refuses a request for mediation means what it says and will be enforced.”…

The requirement “is designed to encourage mediation at the earliest possible time ”…; opponents accordingly are not entitled to postpone it until they feel that they have marshaled the strongest possible support for their positions in litigation and mediation. Moreover, there is a strong public policy in the promotion of mediation “ ‘as a preferable alternative to judicial proceedings’ ” in a less expensive and more expeditious forum. (citation omitted.) The costly and time-consuming procedures connected with discovery are thus not a necessary adjunct to mediation proceedings that a party can demand before participating. These excuses are therefore inadequate as a matter of interpretation of the contractual provision in light of the policy it promotes. (emphasis added.)

In other words, defendant ended up winning the legal battle but losing the money war. 

DO NOT MAKE THIS MISTAKE IN YOUR NEXT CONTRACT DISPUTE!  Make sure you read your contract carefully with your lawyer as soon as the dispute begins.  You must understand if your contract has a mandatory mediation clause and, if it does, precisely what it requires.  Some require a mediation to take place within a relatively short period of time at the beginning of a dispute.  The current California Association of Realtors Residential Purchase Agreement mandatory mediation provision (in Paragraph 26A) has important differences from the language in the above case.  Not every mandatory mediation clause is the same and you should have a lawyer help you understand the language and requirements of yours.  This important new court decision puts everybody on notice: the courts will strictly enforce these mandatory mediation clauses.  Make sure you use this court ruling to your advantage in your next dispute.

If you’re involved in a dispute, come to our Firm. You’ll get the special attention of me and our dedicated staff. We’ll go the extra mile to see that you receive the result you want and the full justice you deserve. Every one of our clients is like family. They’re close to us. They know what’s going on. We firmly believe that you can’t do any better than having our firm represent you. Let us prove it to you.
 

If you have a dispute you’d like to discuss, please mention this blog post when you contact us and you’ll receive a free consultation (a $100 minimum value). Call 800-553-7626 or e-mail jeff@lermanlaw.com.