Summary Judgement for Failure to Mediate
| Publication year | 2008 |
| Pages | 22 |
| Citation | Vol. 77 No. 6 Pg. 22 |
By Stanley A. Leasure
I. Introduction
Crandall v. Grbic was decided in July 2006 by the Kansas Court of Appeals.[1] In an opinion written by Chief Judge Gary Rulon, the court held that summary judgment was appropriate because plaintiffs, who had entered into a mediation agreement with the defendant, elected to file suit without first attempting to mediate.[2] The portion of the opinion addressing the mediation issue was written in a summary fashion, without citation and with little discussion or analysis, leaving the impression that the entitlement of the defendant to a summary judgment was self-evident. In fact, the resolution of this issue called into question not only fundamental issues of contract interpretation, but also the interplay between the various processes of alternative dispute resolution and entitlement of access to the courts. Unfortunately, the court did not address these issues, giving no guidance with respect to several fundamental legal principles, including two of first impression in Kansas.[3] This case has attracted attention in the alternative dispute resolution (ADR) literature as standing for the facially simple proposition that failure to mediate is grounds for summary judgment.[4] It is anticipated that it will be relied upon for this proposition in cases litigated in state and federal courts around the country.[5]
II. Crandall v. Grbic
In this case, the homebuyers sued their real estate agent under several theories, including breach of fiduciary duty, fraud, misrepresentation, and violation of the Kansas Consumer Protection Act.[6] The agent filed a motion for summary judgment on a number of grounds, one of them being that the failure of the plaintiffs to attempt mediation before filing suit as required in the contract precluded their claims.[7] The trial court granted the defendant's request for summary judgment.[8]
On appeal, the court affirmed, agreeing that there were no genuine issues of material fact on the substantive issues.[9] Also, at the end of its lengthy opinion, having already affirmed the summary judgment in favor of the defendant on all substantive claims, the court devoted a scant five paragraphs to its conclusion that the agent was also entitled to summary judgment because the homeowners failed to mediate their claims against him.[10] The Kansas Court of Appeals held that the language of the mediation clause in question was subject to reasonable interpretation under the law and, a reasonable interpretation of the mediation clause required the plaintiffs to attempt mediation prior to the time the defendant had devoted time and money defending their lawsuit.[11] The court also rejected the plaintiffs' argument that although they filed suit without first seeking mediation, they did attempt to mediate after the defendant had filed his motion for summary judgment.[12]
With no citation of authority and little discussion, the court decided that the mediation clause required the homeowners to pursue mediation at some point before they did. In the same fell swoop, the court, without discussion or analysis, also impliedly decided that such mediation agreements are enforceable in Kansas and that the remedy for breach is dismissal of an action filed prior to the mediation, two issues of first impression in Kansas. As will be discussed in the subsequent sections of this article, these determinations involve significant legal issues, which the court did not discuss.
III. Interpretation
Mediation clauses in contracts are nothing more than that; contractual clauses to be construed and interpreted as such. Unfortunately, other than the court's reference to the fact that "the law favors reasonable interpretations of contracts," the Crandall opinion shed no light on the basis for the court's determination in this regard. An examination of the issue of interpretation must begin with an analysis of the common law of Kansas regarding the interpretation of contracts in general, and to the extent available, ADR provisions.
The initial determination the court must make is whether an ambiguity is present. A clear, unambiguous contract is to be enforced according to the terms chosen by the parties.[13]If the contractual terms are clear, there is no room for construction.[14] They are interpreted through the judicial function without extraneous evidence.[15] The Kansas courts have consistently ruled that parties will be held to understand their contracts and intend what their terms suggest.[16] Likewise, the courts eschew the notion that it is within their prerogative to redraft contracts in an effort to reach some perception of an equitable result.[17] Sometimes the terms are not so clear. An ambiguity exists when the provisions are susceptible to construction yielding two or more meanings.[18] Once the court determines that a contract is ambiguous, the intent of the parties at the time the contract was executed is determinative[19]and evidence of intent is admissible.[20]
In Kansas, the primary rule of construction is to determine intent by looking at the language as a whole, taking into consideration all circumstances and conditions that confronted the parties when they made the contract.[21] As mentioned by the Crandall court, the law favors reasonable rather than unreasonable interpretations and interpretations,[22] which reduce the terms of a written contract to an absurdity or which vitiate the purpose of the agreement are avoided.[23]
City of Lenexa v. C.L. Fairley Construction Co., involved a dispute over the interpretation of ADR provisions in which the Kansas Supreme Court resorted to the typical rules of contract interpretation.[24] An arbitral award had been entered in favor of the contractor who filed a motion to confirm it.[25] The city opposed the motion and sought to vacate the arbitral award, claiming that the contract was ambiguous and that the ambiguity created a presumption against binding arbitration.[26] The city argued that the parties never agreed to be bound by the arbitrator's decision and that the remedies provision, which provided that other remedies were not precluded, created an ambiguity regarding the binding nature of the proceeding.[27]The city also claimed that failure to demand arbitration within a certain time frame resulted in the finality of the engineer's decision.[28] The trial court found that during negotiations the parties had deleted a provision making the award binding;[29]that the arbitration provision was ambiguous as to whether the parties intended the arbitration to be binding; and, accordingly, allowed introduction of evidence of intent.[30] It concluded that the provision did not call for binding arbitration. The Supreme Court disagreed, holding that arbitration agreements are construed using the usual rules and canons of contract interpretation[31] and that the affirmation of arbitration agreements is a desirable result, even if the provisions of the contract are somewhat uncertain and indefinite.[32]
IV. Enforceability-Waiver
A surprising number of cases dealing with the issue of waiver of the right to insist on enforcement of ADR clause have been the subject of litigation at both the trial and appellate levels, including several in Kansas. Waiver of rights under a contract is not favored,[33] and such issues in arbitral settings are decided in the shadow of the very strong federal policy favoring enforcement of such agreements.[34] Accordingly, the burden of establishing waiver has been described as "heavy," particularly when a defendant has raised the issue in its answer.[35] It has also been held that to establish waiver it must be shown that the party seeking to enforce an arbitration provision engaged actions inconsistent with intent to arbitrate[36] and that the party claiming waiver was prejudiced.[37]
In D.M. Ward Construction Co. Inc. v. Electric Corp. of Kansas City, the court comprehensively reviewed the issue of waiver of rights under an arbitration provision. This case involved a suit by a subcontractor against its general contractor for a balance owed.[38] The subcontract contained an arbitration clause that "all claims, disputes, and other matters in question arising out of, or relating to, this subcontract ... shall be decided by arbitration."[39] The defendant did not raise the issue of arbitration in its answer.[40] Finally, about nine months later, after discovery and more than one trial setting, the defendant moved to compel arbitration and stay the court proceedings under the Kansas Uniform Arbitration Act.[41] The court denied the motion.[42] A bench trial ensued, and the court entered judgment in favor of the plaintiff.[43] On appeal, the defendant general contractor asserted that the trial court erred in refusing to compel arbitration.[44] The plaintiff countered that the defendant's delay in raising the arbitration issue constituted waiver.[45]
The court noted that waiver is the product of "an intentional renunciation of a claim or right and exists only where there has been some absolute action or inaction inconsistent with that claim or right."[46] While recognizing the absolute right of a party to an arbitration contract to insist upon the enforcement of that right, the court noted that such a right could be waived.[47] The court quoted the Kansas Supreme Court's explanation that the right to arbitration can be waived "by [a party] being unjustifiably slow in seeking arbitration."[48] The court reviewed a number of other federal and state decisions on this issue to the effect that waiver can be found as a result of "participation in a lawsuit without reserving the right to arbitrate, by raising it in the answer or reasonably soon thereafter";[49] "filing answers and motions, moving for extensions of pretrial deadlines...
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