A California appellate court reversed a lower court’s ruling and recognized a California Association of Realtors mediation clause related to attorney fees in a real estate dispute.

The broker who filed the lawsuit, Jay Lange, charged fraud, negligence, failure to disclose and suppression in a property he had purchased for himself. He filed the lawsuit in 2004 against Roxanne Schilling, a real estate agent, and her company, Segerstrom Real Estate Inc. The complaint centered on construction problems with the property and the level of the nearby lake.

A California appellate court reversed a lower court’s ruling and recognized a California Association of Realtors mediation clause related to attorney fees in a real estate dispute.

The broker who filed the lawsuit, Jay Lange, charged fraud, negligence, failure to disclose and suppression over a real estate transaction in which he purchased a property for himself. He filed the lawsuit in 2004 against Roxanne Schilling, a real estate agent, and her company, Segerstrom Real Estate Inc. The complaint centered on construction problems with the property and the level of the nearby lake.

The lower court found that Lange was entitled to $13,475 in the case and $113,096.03 in lawyer fees, according to court documents.

But on appeal, a panel of Third Appellate District Court judges found that a mediation provision in the real estate documents signed by Lange "bars recovery of any attorney fees by a prevailing party who does not first attempt mediation" prior to filing a lawsuit. Lange "filed his complaint first and only later offered mediation," the panel ruled.

The mediation provision is standard in California residential property purchase agreements, and provides that the "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."

Lange’s lawyer had noted, according to court documents, that "prior to filing the complaint, both my client and my staff undertook research to determine the present address of the (sellers) so that a demand for mediation could be made. We were unsuccessful in finding any address other than (a) ‘mail drop’ in Nevada."

The lawyer had noted that Lange was "willing to stay the litigation at this point … in order to mediate the matter should the (sellers) so desire," though this letter was sent months after the complaint had been filed.

Clark Segerstrom, broker for the company named in the lawsuit that operates as Coldwell Banker Segerstrom, said the appellate court’s ruling "was incredibly significant in that had it not been overturned it really would have erased the whole California Association of Realtors stance about mediation.

"The outcome was incredibly important. We all depend on mediation," he said, adding that the latest decision could be subject to more court review.

The Realtors group had filed a court brief in support of Segerstrom to protest the trial court’s award of attorney fees. CAR, Segerstrom said, "took a great interest in this." Legal fees in the case far exceeded the damages awarded, he noted.

Lange and his lawyer in the case were not immediately available for comment.

June Barlow, general counsel for CAR, said of the appellate court’s ruling, "We were pleased to see that result. Before you file anything you’ve got to try to mediate."

Peter Bronson, a lawyer in Sacramento, Calif., wrote in an online article about the case, "In most lawsuits and other legal proceedings, the winning and losing parties are each responsible for paying their own attorney fees," though under California law a contract can provide that the prevailing party "may recover reasonable attorney fees from the losing party" and "such provisions in a contract are normally enforceable."

Language in the standard California residential property purchase agreement does provide that "the prevailing buyer or seller shall be entitled to reasonable attorney fees and costs from the non-prevailing buyer or seller," though this does not apply if mediation is not sought prior to legal action.

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