Are fees for voluntary mediation recoverable costs?

May the fees paid for a voluntary (and unsuccessful) mediation be awarded to the prevailing party after trial, even though mediation fees are not listed as allowable costs in the Code of Civil Procedure? According to a recent case, one of first impression, it depends.

The Berkeley Cement Case

The case, Berkeley Cement, Inc. v. Regents of the University of California, 2019 DJDAR 163 (Cal. Ct. App. Jan. 7, 2019), arose from a construction dispute between a contractor and the University of California involving a new building at the Merced campus. Berkeley Cement provided structural concrete work and sought fees for additional work done beyond the contract. After the university denied the claim, Berkeley sued. The case did not settle at mediation, went to trial, and the university won. The trial court awarded the university $15,950 in mediation fees and Berkeley Cement appealed.

Generally, a prevailing party is entitled to recover allowable costs as a matter of right. Code of Civil Procedure Section 1033.5 sets forth the costs that are allowable and those that are not. Items that are not mentioned one way or the other, like mediation fees, are up to the sole discretion of the trial court. In order to be awarded, such costs must be "reasonable in amount," and "reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation." The burden is on the party claiming the costs to show the expense was reasonable and necessary.

An earlier case, Gibson v. Bobroff, 49 Cal. App. 4th 1202 (1996), held that fees incurred in a court-ordered mediation were reasonably necessary and properly awarded. Gibson did not address the issue before the Berkeley Cement court -- are fees paid for voluntary mediation reasonably necessary to the conduct of the litigation?

Berkeley Cement argued that the university's fees for a voluntary mediation were not reasonably necessary to the litigation and, therefore, not assessable as costs. Rather, those fees were merely convenient or beneficial to the litigation. As such, they were not allowable, and trial court abused its discretion in awarding them to the University.

Is Mediation Now a Necessary Part of the Litigation Process?

After a thorough review of the court-ordered mediation scheme (Code Civ. Proc., Sections 1775-1775.15), the Berkeley Cement court declined to adopt the blanket-rule Berkeley Cement advocated: Only fees incurred in court-ordered mediations are reasonably necessary and recoverable. Such an arbitrary rule would limit the recovery of mediation fees to matters amenable to court-ordered mediations in which the amount in controversy in less than $50,000.

Instead, the court addressed the broader question -- should mediation, whether court-ordered or voluntary -- be recognized as a reasonably necessary part of the litigation process. Observing that mediation is now "fundamental" to the litigation process, the court noted that public policy supports an award of mediation fees. Mediation encourages parties to resolve their disputes before trial. And the award of mediation fees to the prevailing party fosters settlement. Those who fail to agree to reasonable settlement opportunities in mediation face the risk of paying the other party's mediation fees along with other allowable costs.

Quoting with approval from the Gibson opinion, the Berkeley Cement court held that '"encouraging the parties to resolve lawsuits at the earliest time and before a costly and time-consuming trial, is a necessary part of litigation as conducted in this state. The award of mediation fees is no less reasonably necessary to the conduct of litigation, than the award of arbitrator's fees ..., which are also statutorily authorized."'

Thus, the court concluded that fees incurred in a voluntary mediation are not disallowed as "not reasonably necessary to the conduct of litigation." To the contrary, whether such costs should be awarded to the prevailing party must be determined by the trial court in the exercise of its sound discretion based upon the facts and circumstances of the particular case before the court. Since Berkeley Cement failed to show that the trial court abused its discretion in awarding the university its fees incurred in voluntary mediation, the appellate court affirmed that portion of the judgment.

Conclusion

Most cases settle, the question is when, and the vast majority of those cases are resolved through the mediation process. It is no longer an "alternative dispute resolution process," but the primary method of case resolution in civil matters. As such, mediation is an integral part of the litigation process, and now recognized as reasonably necessary to the conduct of litigation.

Consequently, mediation fees are recoverable costs, whether in private or court-annexed matters, and may be awarded to the prevailing party after trial, providing they are reasonable. Of course, the party opposing the award of mediation fees will be hard-pressed to claim they were unreasonable in light of the custom and practice that parties evenly share mediation costs. In most cases, the party opposing the award of mediation costs will have paid their equal share and can hardly say, with any credibility, the fees were unreasonable.

In affirming the award of costs for a voluntary mediation, the Berkeley Cement opinion acknowledged the importance of mediation, and that it is reasonably necessary to the litigation process. Indeed, mediation fees paid to an effective mediator for a successful mediation may be the best costs invested by the parties in litigation of any case.