I like to read and report on appellate court cases that illustrate the benefits of self-determination in the mediation process as opposed to court-imposed adjudication in the civil trial process. It may involve a little “Monday morning quarterbacking,”  but I don’t consider it to be second quessing anybody but more like watching game film to learn from past competitions and prepare for the next contest.

Today I want to report on a new California Court of Appeal case involving a homeowner and a condominium owners’ association.  It addresses the voluntary dismissal of some but not all causes of action, the question of who is the prevailing party for purposes of awarding attorney fees, and the consequences of a fully executed settlement agreement that includes a waiver of known and unknown claims. These are typical issues in every lawsuit but looking at them from a “post-mortem” perspective can increase our capacity for pre-trial solutions.

WHAT HAPPENED

It is never a good sign when an appellate court admonishes one of the parties to get her “ducks in row,” but that is what happened in this condo case. The court stated:

A party contemplating litigation to enforce the covenants, conditions, and restrictions of a condominium project should get the “ducks in a row.” That is to say, such party should be ready to go forward procedurally and prove its case substantively. Failure to do so subjects the losing party to an award of attorney fees. Here, a condominium owner filed against a condominium association. In defending the suit, the Association incurred attorney fees of a quarter million dollars. Based on faulty reasoning, the owner dismissed eight of the ten causes of action on the eve of trial. She prevailed on no level whatsoever, let alone on a “practical level.” But the trial court denied the Association any attorney fees, and the Association appealed. We conclude that the denial was an abuse of discretion as a matter of law. The condo owner did not realize her “litigation objectives” on these causes of action. The Association did realize its “litigation objectives” and was the prevailing party on a “practical level.” It is entitled to attorney fees as mandated by the Legislature.

Dismissal

There are potential consequences when a lawsuit is dismissed either voluntarily, as was the case in the condo case above, or involuntarily due to some court action. Depending on the state statute, the court will determine which side is the prevailing party and award that party the costs of litigation and under certain conditions, attorney fees. In the condo case, the plaintiff may have to pay up to $250,000 in attorney fees to reimburse the condo association, the prevailing party. It should be noted that a trial court can also award litigation costs and attorney fees to the prevailing party after a civil trial.

When conducting a pre-trial risk assessment, I believe it is imperative that all parties to a lawsuit consider the possibility of having to pay not only their own costs and fees but also the costs and fees of the other side. Parties must be realistic about the risks posed by the prevailing party statutes, especially given the discretion courts are given in making the determination of who is the prevailing party.

Attorney Fees

In most states, such as California, attorney fees are awarded to the prevailing party if there is a contractual or statutory basis for such an award. For example, many contracts have attorney fee provisions which provide that in the event there is litigation over the subject matter of the contract, the prevailing party will be awarded its attorney fees. Some states have enacted laws to advance a favored public policy that include attorney fee provisions to the prevailing party. In the condo case, for example, the condo association filed a motion pursuant to California Civil Code section 1354, subdivision (c), which provides: “In an action to enforce the governing documents” of a common interest development, “the prevailing party shall be awarded reasonable attorney’s fees and costs.”

Litigants should be aware of the potential for having to pay the other side’s costs and attorney fees and conversely, that the other side may have to reimburse them if they prevail. Both sides of the issue should be considered when evaluating the risks and benefits of trial. Paying the other side’s attorney fees and costs is a bitter pill to swallow, especially if the issue was not fully evaluated and discussed prior to trial.

Settlement Agreements

Settlement agreements generally contain very broad language to ensure that all claims and causes of action related to the issues in dispute are forever discharged and released. In California, Civil Code section 1542 provides that a person cannot release unknown claims. However, it is a common practice among lawyers to include a waiver of section 1542 so that the settlement and release agreement resolves all known and unknown claims that exists between the parties. This issue came up in the condo case.

The homeowner filed suit against the condo association in 2004 and settled the case in 2005, resulting in a settlement and release agreement that included a provision waiving all rights to known and unknown claims. The homeowner filed a second lawsuit against the condo association in 2008. In response the condo association argued that the homeowner’s claims were barred by the terms of the 2005 settlement agreement. The trial court agreed and so did the California Court of Appeal:

Accordingly, we reject [homeowner’s] argument that the 2005 release did not apply to unknown claims against Association that arose prior to the release. If an argument such as this were given currency, a release could never effectively encompass unknown claims. A releasor would simply argue that release of unknown or unsuspected claims applied only to known or suspected claims, making it ineffective as to unknown or unsuspected claims.

Settlement agreements are contracts. They are subject to the rules of evidence and are interpreted by the courts according to state contract law. They should be carefully drafted and reviewed before they are signed. You must be sure to precisely limit the release language to what is intended by both parties. For example, in the condo case the defendant condo association carved out of the release the homeowner’s obligation to pay monthly homeowner dues and assessments. Sometimes it is simply a point of negotiation, with the defendant wanting the release to be as broad as possible and the plaintiff wanting it to be as narrow as possible. Broad or narrow, both parties must think through the consequences of the release agreement so as to avoid any future surprises.

As a mediator, I am an advocate for clarity, objectivity, reason, finality, and fairness. Cases like the condo case reinforce what I learned over a twenty-five year career as a trial lawyer: the outcome of a trial is never certain. The most effective trial lawyers are also effective problem solvers and counselors at law. They thoroughly consider each aspect of the dispute, they weigh the risks and rewards of trial, and they carefully explain all of the facets of the litigation to their clients. In my experience, well-prepared attorneys and well-informed clients can usually find a way to resolve a lawsuit prior to trial. Being part of the process that includes such preparation and perspective is one of the great privileges of being a mediator.

Resolving disputes through mediation is both challenging and rewarding. However, the certainty and finality of mediation also means there is less drama and truama when compared to a civil court trial. No “hail Mary” passes to win the game; no last second field goals to save the day. Instead the steady and sure process of mediation is more like the “Three Yards and a Cloud of Dust ” reference that was used in the 1960’s and ’70’s to describe the Ohio State Football teams of the legendary coach Woody Hayes, who famously said that when you throw the football three things can happen and two of them are bad(an incomplete pass or an interception). He preferred to run the football even if it meant a gain of only three yards and then a cloud of dust when the runner was tackled. A football team that strings together enough three yard gains (3.4, to be exact), will eventually cross the goal line. And so it is with mediation: parties that stick with the procees and grind it out will usually reach the goal of resolving their dispute, and when that happens, both sides win.

 

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