In MB America, Inc. v. Alaska Pac. Leasing, 132 Nev. Adv. Op. 8 (Feb. 4, 2016), the Nevada Supreme Court enforced a contract’s mediation provision as a condition precedent to litigation.
MB America (MBA), the supplier of rock-crushing machines, and Alaska Pacific Leasing Company (Alaska), the distributor of the rock-crushing machines entered into a contract whereby Alaska agreed to become a dealer for MBA’s products. A dispute arose, and MBA filed a complaint seeking specific performance of the contract’s mediation provision. Alaska filed a motion for summary judgment arguing that the case should be dismissed because MBA had failed to comply with the contract’s mediation provision. The lower court granted Alaska’s motion. Id. at 2.
On appeal, the Nevada Supreme Court addressed whether the contract’s mediation provision was a condition precedent to litigation and whether MBA complied with the mediation provision. On both points, the supreme court affirmed the lower court’s grant of summary judgment in favor of Alaska.
The court first addressed MBA’s argument that the mediation provision was not a condition precedent. The relevant provision states that “[t]he parties agree that any disputes or questions arising hereunder. . . shall be submitted to mediation. . . . If mediation between the parties does not result in a mutual satisfying settlement within 180 days after submission to mediation, then each party will have the right to enforce the obligations of this Agreement in the court of law of Reno, Nevada.” Id. at 5.
The court held, as a matter of first impression in Nevada, that the mediation provision of the contract was an enforceable condition precedent to any litigation. In reaching this conclusion, the court relied on DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 336 (7th Cir. 1987)and Tattoo Art, Inc. v. TAT International, LLC, 711 F.Supp.2d 645, 651 (E.D.Va. 2010). Both cases had found that a mediation provision was similarly unambiguous in requiring that parties comply with mediation as a condition precedent to litigation. Id. at 3–5.
Having found that the mediation provision was a condition precedent, the supreme court next addressed whether MBA had complied with the mediation provision by initiating mediation prior to filing its complaint, or whether MBA’s compliance was excused.
The court noted that, to initiate mediation, a party must first request mediation. MBA argued that it was not required to comply with the mediation provision because Alaska had waived mediation by rejecting MBA’s mediation requests. In support of its position, MBA proffered two letters. In the first letter, MBA claimed it “requested mediation.” The court rejected that characterization, pointing out that MBA had not “requested” mediation, but instead merely stated that “[h]opefully [mediation] will not be necessary.” Id. at 8–9.
The second letter MBA put forward was from Alaska. MBA claimed that, in that letter, Alaska rejected mediation when it wrote that the mediation provision did not apply to the parties’ dispute. The court disagreed with MBA’s characterization of Alaska’s letter as a “rejection” of mediation. Rather, the court interpreted the letter as stating Alaska’s belief that mediation did not apply. The court did not regard that statement as a categorical rejection of MBA’s request for mediation. Id. at 9–10.
The lessons from this case are clear. First, a court is likely to enforce as a condition precedent a contract provision that requires mediation to take place before a lawsuit is filed. Second, to comply with such a condition precedent, a party must convey a clear request to mediate and receive the equivalent of a clear response. If the request and response are not clear, a court may be unwilling to find that the party complied with the condition precedent or that the other party “rejected” the mediation request.
Keywords: alternative dispute resolution, adr, litigation, mediation, request to mediate, condition precedent, summary judgment