Opinion
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. 110462
ELIA, J.Erick Vasquez appeals from a postjudgment order awarding attorney fees and costs to defendant Rose Togami, who had successfully defended plaintiff's action for rescission of a contract to purchase land from defendant. On appeal, plaintiff contends that (1) attorney fees were unavailable to defendant under a contract provision that precluded such fees if a party refused another party's mediation request, and (2) costs were unavailable under Code of Civil Procedure section 998 because defendant had made a settlement offer that did not comply with the requirements of the statute. We find merit in both arguments and therefore reverse the order.
Background
The parties have not disputed the trial court's account of the facts underlying the transaction. On December 15, 2004 plaintiff Vasquez bought 2.34 acres of an 11.02-acre parcel from plaintiff Togami for $400,000. In marketing the property, defendant's listing agent represented the property as "a beautiful flat rich land in a convenient location great for a large home or home with a business consistent with the zoning...." Defendant was herself a retired real estate broker; plaintiff was a licensed general contractor who had been buying and selling properties since the late 1990s.
The transaction was effected by a form contract for vacant land published by the California Association of Realtors. Among the standard terms was a provision for dispute resolution by mediation and arbitration. Paragraph 22 provided: "A. MEDIATION: 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.... If, for any dispute or claim to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in any such action. THIS MEDIATION PROVISION APPLIES WHETHER OR NOT THE ARBITRATION PROVISION IS INITIALED."
Both parties initialed the arbitration provision.
The attorney fees to which paragraph 22 referred was addressed in paragraph 27: "ATTORNEY FEES: In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 22A."
Escrow closed in February 2005. In April 2005, however, having applied for a permit to develop the property, plaintiff learned that the County Planning Office did not have any record of defendant's original 11.02 acres having been legally subdivided. In June 2005 plaintiff had his agent list the property for sale under the category of "buildable lots, " but he withdrew it from the market within a week.
On January 18, 2007, plaintiff's attorney wrote to defendant, stating that plaintiff "must rescind the sale." According to the letter, the county had advised defendant that under the county's subdivision ordinance a home could not be built on a lot smaller than five acres. Thus, contrary to the representation in the listing for sale, plaintiff was unable to use the property for the reason he had bought it, to build a large home.
At the end of the letter plaintiff's counsel added, "Erick offers to mediate this whole matter and requests that you do so unless you agree to the rescission. Erick has expended monies for engineering and other work on the property which he would restore to you, along with title, on payment for that engineering work." Counsel then added, "I ask that you respond with [sic] 15 days of the date of this letter, and if you do not, Erick will begin arbitration." Defendant did not respond to the request.
On April 25, 2007, defendant applied for a certificate of compliance with the county building department. Both parties' attorneys tried to persuade the county to issue the certificate, but their efforts were unsuccessful. Finally, on April 15, 2008, plaintiff brought this action for rescission and damages, claiming fraud, mutual mistake, and breach of contract. Defendant cross-complained against the county in December 2008 for declaratory relief, seeking a determination that the property was a legally subdivided parcel. On May 12, 2009, the county issued the certificate of compliance in return for a dismissal of the cross-complaint.
After a three-day trial in July 2009, the court found no fraud, mutual mistake, or breach of contract. On September 11, 2009, it entered judgment for defendant.
On September 10, 2009, defendant moved for attorney fees and expert witness fees, citing Code of Civil Procedure sections 998 and 1033.5. Defendant noted that in June 2009, she had offered to settle the case, waiving costs and fees in exchange for plaintiff's dismissal of the case. Defendant claimed $42,064.67 in attorney fees and $5,083 for her three expert witnesses. Plaintiff opposed the motion on three grounds: (1) The parties' contract precluded defendant's recovery of attorney fees because she had refused to mediate after being asked to do so; (2) The settlement offer did not comply with section 998, because it did not include a provision for plaintiff to indicate acceptance; and (3) Defendant had requested expert witness fees that were not reasonably necessary.
All further statutory references are to the Code of Civil Procedure except as otherwise specified.
Defense counsel replied that paragraph 22 was applicable only to the party who initiated a lawsuit. He also protested that plaintiff's mediation request occurred "something like two years before he brought the action, and there was never another mention of it." Finally, counsel asserted that "there was never a refusal to mediate." When plaintiff's attorney pointed out that defendant had not acted on the offer, defense counsel contradicted him: "We-well, yes, we did. I – we – we called Mr. Sturges' [plaintiff's attorney's] office. We discussed the case. We talked about what the procedure would be. [¶] We wrote a joint letter to the County asking them to approve the parcel as the legal parcel. [¶] And after that letter came, there was an initial refusal by the County not to – not to do what we asked them to do. [¶] And then Mr. Sturges went ahead and filed the action. He never said, after all our letters to the County, and after working together, 'Well, let's – now that that was unsuccessful, let's mediate this case.' " Defense counsel added that "it was a surprise when the lawsuit was filed." His first reaction, he said, was to suggest mediation. At that point plaintiff's attorney suggested settlement discussions instead of paying for a mediator. Defense counsel agreed, and for two and a half hours they discussed "options on settlement and where we could go." Thus, according to defense counsel, "refusal to mediate" meant "an active refusal, " so "there certainly was no refusal to mediate here."
Counsel was off by several months; plaintiff had requested mediation 15 months before bringing the lawsuit. During that period the parties jointly attempted to persuade the County to grant the certificate of compliance.
The trial court initially subscribed to the view that paragraph 22 applied only when a party brought a lawsuit after refusing to mediate. In its order, however, it rejected that interpretation. The court acknowledged that defendant's failure to respond to plaintiff's mediation request constituted a refusal. It noted, however, that after receiving the complaint defendant had requested mediation and plaintiff's counsel had suggested settlement instead. "Based on such, " the court ruled, "it is determined that the mediation requirement has been complied with by the Defendant, or waived by the Plaintiff." The court further determined that defendant's settlement offer was valid under section 998. Accordingly, the court awarded plaintiff $42,064 for her attorney fees and $3,583 for her costs.
Discussion
On appeal, plaintiff renews his primary argument, that defendant is not entitled to attorney fees because she refused his request to mediate in January 2007. He further challenges the award of costs on the ground that defendant's section 998 offer was invalid. Plaintiff offers three standards of review: substantial evidence, abuse of discretion, and de novo. Here, he argues, "there was no substantial evidence to support the court's award of attorney's fees and to uphold the 998 offer, and the order should be examined de novo."
As to the attorney fees award, there is no basis for independent review here because there is no dispute about the meaning of the contract provision at issue. The only question before us is whether defendant forfeited her right to attorney fees by refusing plaintiff's mediation request. The trial court found that either she complied with the request or plaintiff waived the condition. We consider the sufficiency of the evidence to support either of those alternative conclusions. The adequacy of the settlement offer compels a different approach. Contrary to defendant's suggestion that the court "was within its discretion" to find that defendant's settlement offer was sufficient under section 998, we determine independently the application of the statute to the undisputed facts before us. (Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 797.)
1. Mediation Request
The trial court found that defendant had "complied with" the "mediation requirement" of the contract, or alternatively, that plaintiff had "waived" it. The provision, as noted earlier, stated that a party would not be entitled to attorney fees if he or she "refuses to mediate after a request has been made." Defendant first concedes that plaintiff's January 2007 letter contained a clear request for mediation. The trial court acknowledged that defendant's failure to respond to this request constituted a refusal. In so finding, the court correctly rejected defendant's insupportable theory that "a mere failure to respond is not sufficient to support a finding that a party has refused mediation." Once defendant refused mediation, she lost her opportunity to recover attorney fees. "[W]hen a contract conditions the recovery of attorney fees on a party's willingness to participate in mediation before the litigation begins, the window for agreeing to mediate does not remain open indefinitely." (Frei v. Davey (2004) 124 Cal.App.4th 1506, 1517.)
We express no opinion regarding any time limit for defendant's response. Neither party appears to assume that defendant's compliance should be measured against the 15-day window set by plaintiff in his request letter. If we ignore this limit and evaluate defendant's response by a reasonableness standard, we still cannot conclude that she agreed to mediation within a reasonable time. It was only after receiving the April 2008 complaint that defendant's attorney proposed mediation, more than 15 months after defendant received the request. We thus disagree with defendant's oblique suggestion that if she had "accepted the invitation of plaintiff to mediate shortly after the complaint was filed, the condition would have been satisfied." (See Frei v. Davey, supra, 124 Cal.App.4th at p. 1517 [refusal to mediate is not cured after one year].)
Defendant offers no coherent response to the inescapable conclusion that her failure to respond to the mediation request constituted a refusal within the meaning of the parties' agreement. She suggests that adopting plaintiff's "position" would have a "chilling effect" on alternative dispute resolution "or discourage mediation after an action is filed." In defendant's view, "If a plaintiff can trick a defendant into not responding to a request for mediation and eliminate the defendant's ability to obtain attorney's fees, the interests of justice are certainly not met." Missing from this assertion is any explanation of how defendant was tricked into not responding. The clear facts are that plaintiff made a request and defendant did not answer.
Equally inexplicable is defendant's complaint that plaintiff surprised her by filing the action after the parties worked unsuccessfully to overcome the impediments to plaintiff's building objectives. Perhaps she is suggesting that a party has no legal recourse if he or she first attempts to solve a problem without litigation. She appears to be complaining that plaintiff should have warned her that he would sue her if their efforts proved unsuccessful. Plaintiff did alert defendant, however, not only to the perceived defects in the transaction, but his legal theory on which he asserted the right to rescind the contract and his intention of commencing arbitration should she be unwilling to proceed with mediation. Plaintiff was not legally obligated to renew his request for mediation before filing suit.
Defendant offers no other factual or legal basis for upholding the attorney fees award. She incorrectly asserts that the court "did not make a finding that defendants [sic] refused mediation." On the contrary, as noted above, the court made an express finding that defendant had refused mediation by failing to respond, and we have already upheld that determination. Defendant's only other argument is a one-sentence assertion that "[t]here is substantial evidence that there is an attorney's fees clause." She does not explain how that obvious fact helps her.
The court's conclusion that defendant "complied" with the mediation request is inconsistent with its clear finding that defendant refused the request. As the Frei court stated, while a reasonable time is allowed for a response, "as a practical matter that time ends when the party rejects the request." (Frei v. Davey, supra, 124 Cal.App.4th at pp. 1516-1517.)
Defendant does not make any attempt to support the trial court's theory that plaintiff waived the mediation clause of the contract. There was nothing to waive; defendant had already failed to comply with the condition precedent to recovery of attorney fees by refusing to mediate before the complaint was filed. Nor is there evidence that plaintiff subsequently excused defendant's noncompliance simply by working with her to resolve the matter without the involvement of an arbitrator, judge, or mediator.
We thus conclude that there is no substantial evidence on which we can uphold the trial court's award of attorney fees to defendant. Once she declined to enter into mediation at plaintiff's request, paragraph 22 of the parties' contract came into play, making attorney fees unavailable to her upon her successful defense of the lawsuit. (Cf. Frei v. Davey, supra, 124 Cal.App.4th at p. 1517 [even though defendants participated in mediation one year after rejecting request, "the fact remains they initially refused to do so"].)
2. Section 998 Costs
Section 998 provides a means of settling a dispute before trial by allowing a party to serve a written offer "to allow judgment to be taken or an award to be entered" under specified terms and conditions. (§ 998, subd. (b).) "The written offer shall include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted." (§ 998, subd. (b), italics added.) "If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant's costs from the time of the offer." (§ 998, subd. (c)(1).) Expert witness services may be included in the award in the court's discretion. (Ibid.)
Plaintiff contends that defendant's June 16, 2009 settlement offer did not meet the statutory requirements because it did not contain a provision for him to accept the offer by signing a statement that the offer was accepted. We agree.
Defendant's written offer stated in its entirety: "Under the provisions of CCP Section 998, Rose Togami offers to settle this matter on the following terms: [¶] Plaintiff dismisses his case with prejudice; [¶] Defendant waives any claims for attorney's fees and costs associated with this case and in obtaining a certificate of complinace [sic] for plaintiff's property. [¶] Please call if you have any questions."
Clearly this letter contained no "provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted." (§ 998, subd. (b).) The statute makes inclusion of this provision mandatory. Defendant's only response is that "[t]here is no magic language for an offer under Section 998." This cursory assertion is derived from Berg v. Darden (2004) 120 Cal.App.4th 721, 731-732. In Berg, however, the issue was whether the language of the offer was clear enough to show that its acceptance would result in a final disposition of the underlying lawsuit. Berg's offer letter referred to section 998 and specified a settlement amount of $225,000. It then warned the defendant that if he did not accept the offer within 30 days and the plaintiff obtained a more favorable judgment, she would "seek the full panoply of 998 awards." (Id. at p. 725.) The letter did not, however, specifically describe the method by which the plaintiff intended to dispose of the case in the event that the defendant rejected her offer. Although the jury later awarded Berg a significantly higher amount in damages, the trial judge denied the plaintiff her costs, finding the settlement offer ineffective.
The appellate court reversed. The court explained that settlement offers must be clear, precise, and specific. Indeed, "[i]t is in the best interests of the parties and the court that section 998 offers be as clear, straightforward and thorough as possible." (Id. at p. 728.) In Berg's case, however, the failure to describe in detail her intended disposition of the case was not fatal. By referring to the statute and proposing settlement, the offer, if accepted, would have resulted in entry of judgment against the defendant. Thus, "[a]n otherwise clear section 998 offer is not rendered invalid simply because it does not track precisely the language of the statute." (Id. at p. 728.)
Here, the issue is not whether the required elements of the offer were stated clearly enough, but whether the offer was effective if one of those elements was completely absent. We cannot ignore the words "shall include" in answering this question. The section 998 offer need not use any particular words to allow the offeree to indicate acceptance, but it must include some language explaining that the offeree may accept by signing a statement to that effect. Defendant's offer to compromise fell short.
Disposition
The October15, 2009 order awarding defendant costs and attorney fees is reversed. Plaintiff is entitled to his costs on appeal.
WE CONCUR: PREMO, Acting P. J., McADAMS, J.