A recent legal decision involving a real estate dispute received some attention because the Court denied the prevailing party attorneys’ fees. The Third District Court of Appeal was attempting to send a message when it overturned the Trial Court’s decision awarding the fees. But there was more than one message in the ruling worth noting.

The case, Cullen v. Corwin, was certified for only partial publication, which severely limits the extent to which it may be cited. The key facts were that Corwin, who had purchased a residential property from Cullen, later discovered a serious defect in the garage structure that caused the roof to leak and resulted in several thousand dollars of damage. In the published portion of the decision, the Court notes that although the Sellers (Cullen) successfully argued that the Buyers (Corwin) failed to bring their case before the applicable statutes of limitation had expired, and were therefore the prevailing party, the Sellers failed to comply with the requirement that a party must mediate before they litigate.

While this requirement is most often used by Defendants against Plaintiffs who rush into litigation before going through the procedures required under most standard Purchase and Sale Agreements (including standard CAR forms), the Court noted that the actual language of the provision allowing recovery of legal fees contains a condition precedent that requires any party to first attempt to resolve the dispute through mediation, and not refuse to mediate in light of a request to do so, in order to recover legal fees. The Court noted that the Plaintiff’s attorney had twice requested the Defendant to mediate, and Defendants refused. The Court took note of the fact that the Defendant’s attorney had declared that they wanted the results of discovery first, so that any mediation would be more “meaningful.” The Court saw that tactic for what it was, ruled that the response constituted a refusal to mediate in response to a request, and therefore overturned the award of attorneys’ fees.

The Court went on to note that the mediation requirement is designed to encourage mediation as a preferable alternative to litigation, which can be costly and time-consuming. But in the unpublished section of the case, the Court found plenty of fault with the Plaintiff, who had clearly failed to take reasonable steps to protect their rights in a timely manner when they first discovered the defects in the roof. Moreover, the Court found several errors in Plaintiff’s pleadings, but in the end, the Court found the Defendants’ excuses unconvincing.

The primary message in this case was that in order to recover legal costs and attorneys’ fees as a prevailing party, one must comply with the plain language of the requirement to make a good faith effort to participate in mediation. The secondary message appears to be “don’t overplay your hand.” The Defendants knew they had a very good chance of prevailing on the basis of the failure of the plaintiffs to meet the statute of limitations. Forcing the Plaintiffs to comply with discovery requests before agreeing to mediation would only drive up the Plaintiff’s costs, and not substantially change the outcome. But refusing to mediate was unacceptable, and on the basis of the Court’s interpretation of the contract provisions, sufficient grounds on which to deny recovery of their fees.

No matter how strong or righteous a case someone may think they have, public policy considerations and standard purchase agreement contracts require the parties to at least make a good faith effort to mediate. Arrogantly refusing to do so not only does not do your clients any good, but may end up costing you dearly!