Recently, in an unpublished per curiam opinion in USA Flea Market v. EVMC Real Estate Consultants, et al., 2007 WL 2615887 (11th Cir., Sept. 12, 2007), a three-member panel of the Eleventh Circuit reversed summary judgment for a party seeking to enforce a contractual obligation to mediate as a condition precedent to litigation. Like so many cases involving disputes over the enforcement of mediation and other ADR clauses, USA Flea Market serves as a reminder to lawyers, law students and law professors regarding the importance of thoughtful drafting and the principles of basic contract law.
Briefly, USA Flea Market and EVMC entered into a written contract, in which USA Flea Market agreed to sell EVMC real property for a purchase price of more than $12 million. EVMC failed to appear for the closing and failed to respond as requested to USA Flea Market’s notice of default. USA Flea Market then served EVMC (and the title company) with a demand for payment of the $500,000 earnest money deposit. When the money was not forthcoming, USA Flea Market sued in U.S. District Court for the Middle District of Florida.
After some other procedural wrangling, defendant EVMC moved for dismissal or summary judgment based on USA Flea Market’s failure to comply with the following contract provision regarding mediation:
13. RESOLUTION OF DISPUTES. All claims, disputes or controversies arising out of, or in connection with, or in relation to this Contract, shall initially be submitted to mediation in
So far, so good. But it turns out there was another provision in the same contract—Paragraph 27.1:
B. Buyer shall have ten (10) days from receipt of Seller’s notice of default within which to cure the specified default. If Buyer does not cure such default within said ten (10) day period or if such default is not waived in writing by Seller, then the Earnest Money Deposit shall be paid over to Seller[,] this Agreement shall automatically terminate[,] and Seller and Buyer shall have no further rights, duties or obligations hereunder except as expressly survive the termination thereof. . .
Paragraph 27.3 further provided that “[t]he provisions of this Section 27 shall survive the termination of this Agreement.”
The District Court granted summary judgment for EVMC based on the mediation clause. The Eleventh Circuit panel, however, observed that “[t]he contract does not state that the mediation provision survives termination of the contract” and concluded, “If the allegations of USA Flea Market, that EVMC defaulted, received notice of the default, and failed to cure the default, are true, the mediation provision abated upon the termination of the contract.” Summary judgment was reversed, with a genuine issue of material fact remaining regarding whether or not EVMC was in default.
Besides serving as a cautionary tale regarding the importance of careful drafting and basic contract law—e.g., was there a meeting of the minds here regarding the use of mediation?–this case also got me thinking about the separability of arbitral clauses from the main contracts in which they are found. In a case similar to this one, would an arbitration clause still be enforced? I suspect that it would be, despite language like that contained in Section 27 and a party’s demonstrated aversion to the process. Why not treat a mediation clause similarly, even though one process is consensual and the other is adjudicative?