A California appellate court enforced a contract term that established a condition precedent whereby a party must attempt to mediate a conflict before proceeding to arbitration or litigation in order to recover attorney fees.

In Lange v. Schilling, No. C055471, 2008 WL 2192833 (Cal. Ct. App. May 28, 2008), Lange bought a lake house from real estate broker Schilling, using a standard California residential property purchase agreement. The agreement provided that the parties would mediate any dispute before resorting to arbitration or court action. Under the agreement, if a party commenced an action without first attempting to mediate, that party would not be entitled to recover any attorney fees which would otherwise be available.

Lange sued Schilling for alleged misrepresentations made about the lake home's condition. Lange then sent Schilling a letter stating that he was willing to stay litigation in order to mediate the matter. Lange received no response. Thereafter, the trial court entered a judgment in favor of Lange and finding Schilling liable.

Lange then filed a motion to recover attorney fees from Schilling. In opposing the motion, Schilling argued that Lange was not entitled to attorney fees because he did not attempt to mediate the dispute. The trial court determined that Lange substantially complied by offering to stay litigation in order to mediate. Thus, the trial court awarded Lange attorney fees.

On appeal, Schilling argued that the clear language of the agreement precluded an award of attorney fees if a party did not attempt mediation before commencing litigation. The Court agreed and found that since Lange filed his lawsuit prior to offering mediation, there was no basis to award fees.

The Court noted that while the agreement authorizes attorney fees, that right is contingent on compliance with the mediation provision. Lange filed his lawsuit first and only later offered mediation. His failure to meet the condition precedent precluded any award of fees.

The Court stated that the strong public policy in favor of mediation as an alternative to judicial proceedings is served by requiring the party commencing litigation to seek mediation as a condition precedent. Had the parties resorted to mediation, their dispute may have been resolved in a much less expensive and time-consuming manner.

Lange argued that his failure to seek mediation should be excused because he promptly offered to mediate, thereby complying with the spirit and intent of the language of the contract. The Court rejected this argument and noted that Lange could have sent an offer for mediation before filing his complaint. The Court further determined that the doctrine of substantial compliance was not applicable because the contract imposed a clear and unambiguous condition. Accordingly, the Court reversed the fee award.