Issue by: Laura Flynn
Berkeley Cement, Inc. v. Regents of the University of California
Court of Appeal, Fifth District (January 7, 2019)

The right to recover costs in a civil action is determined by statute. Generally, the prevailing party is entitled as a matter of right to recover its costs. Cal. Code Civ. Proc. § 1032(b). In this case, the Appellate Court discussed whether mediation fees could be recovered as costs when mediation was voluntary, not court-ordered.

A concrete contractor filed an action against the University of California regarding a dispute over the construction of a building on the Merced Campus. The contractor alleged breach of contract, breach of implied covenant of good fair and fair dealing, and breach of implied covenant of correctness of the plans and specifications, seeking to recover for extra work it performed outside of the contract. University filed a cross-complaint for breach of contract. After a lengthy trial, the jury found in favor of University and awarded costs.

The trial court’s award of costs to University included $15,950 for fees University paid to mediators. The contractor challenged the award contending mediation was voluntary, not court-ordered, and therefore the fees for mediation were not mandatory or necessary to the litigation.

The Appellate Court noted that mediation costs are not listed among the costs that are expressly allowable or expressly not allowable. Cal. Code Civ. Proc. § 1033.5(a)(b). An item not specifically allowable under subdivision (a) nor prohibited by (b) may nevertheless be recoverable in the discretion of the court if “reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation.” Mediation costs fall within the category of costs that may be awarded in the trial court’s discretion. The Appellate Court refused to adopt the blanket rule that fees incurred for mediation that is not court-ordered are categorically not “reasonably necessary to the conduct of the litigation,” and therefore not allowable as costs as a matter of law.

The Court stated that, like the related arbitration scheme, mediation is fundamental to the conduct of litigation because it encourages the parties to settle their disputes before trial and exposes parties who fail to agree to a reasonable settlement proposal to the risk of a discretionary court determination that they should pay their opponent’s share of the failed mediation. Citing Gibson v. Bobroff (1996) 49 Cal. App.4th 1202, the Court agreed 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, and that the award of mediation fees is no less reasonably necessary to the conduct of litigation than the award of arbitrator’s fees, which costs are statutorily authorized. The Court concluded that the question whether mediation fees should be awarded as costs in a particular matter must be determined based on the facts and circumstances of the particular action.

COMMENT

Mediation fees can be a significant percentage of the costs incurred by parties involved in litigation. Based on the Appellate Court’s decision, mediation fees should always be included on any Memorandum of Costs filed by a prevailing party because the trial court may determine they are recoverable.

For a copy of the complete decision, see: Berkeley Cement, Inc. v. Regents of the Univ. of Cal.

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