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Compliance With Mandatory Mediation Provision In Real Estate Contract Is Found Futile

Renick v. Sperau, et al.
Civil No., CCB-12-1627 (D. Md. 2013)
by Kevin M. Cox, Associate
Semmes, Bowen & Semmes (www.semmes.com)

This suit arose from the purchase of a house with alleged lead paint. Plaintiffs Braden and Rebecca Renick (the “Renicks”) purchased the real property from Defendants Daniel and Melissa Sperau (the “Speraus”). Defendant ELTG, LLC is a title company and real property settlement agent that represented the Speraus in the sale of their home. The Renicks filed a complaint in state court against the Speraus alleging violations of the Residential Lead-Based Paint Hazard Reduction Act (“RLPHRA”), 42 U.S.C. § 4852d, intentional misrepresentation, and negligent misrepresentation, and against ELTG alleging negligent misrepresentation. ELTG filed a crossclaim against the Speraus for indemnity and contribution. The Speraus filed an amended third-party complaint against their realtor, Yerman, Whitman, Gaines & Conklin Realty (“YWGC”), and its agent Melissa Coyne (collectively the “Agents”) for indemnity, contribution, and violation of the RLPHRA. Pending before the court was the Speraus’ motion to dismiss or to stay and for contractual costs and fees

In the summer of 2011, the Renicks purchased a home Baltimore, Maryland from the Speraus. The Speraus had owned the home since at least 2005. The contract of sale, dated February 19, 2011, was made by and between the Speraus as sellers and the Renicks as buyers pursuant to a Maryland Association of Realtors Maryland Residential Contract of Sale. Defendant ELTG, acting as the Speraus’ agent, conducted a title search and the settlement for the sale of the property, which occurred on July 15, 2011.

As sellers of the property, the Speraus completed a “Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards Federal and Maryland State Lead Warning Statement” (“Disclosure Statement”) affirming that they had no knowledge of lead-based paint or lead-based paint hazards in the housing and had received no reports or records pertaining to such hazards. The sale contract included a mediation provision stating in part,

Buyer and Seller agree that neither party shall commence any action in any court regarding a dispute or claim arising out of or from this contract or the transaction which is the subject of this contract, without first mediating the dispute or claim, unless the right to pursue such action or the ability to protect an interest or pursue a remedy as provided in this Contract, would be precluded by the delay of the mediation. In the event the right to pursue such action, or the ability to protect an interest or pursue a remedy would be precluded by the delay, Buyer or Seller may commence the action only if the initial pleading or document commencing such action is accompanied by a request to stay the proceeding pending the conclusion of the mediation. If a party initiates or commences an action in violation of this provision, the party agrees to pay all costs and expenses, including reasonable attorneys’ fees, incurred by the other party to enforce the obligation as provided herein. The provisions of this paragraph shall survive closing and shall not be deemed to have been extinguished by merger with the deed.

The Renicks alleged that the Speraus had notice that there were lead hazards on the property and failed to notify them of the lead hazards. On or about August 31, 2011, the Renicks, who had inhabited the house with their children, received a “violation notice and order to remove lead hazard” from the Baltimore City Health Department listing the lead hazards.

The Speraus, however, claimed they never received notice from the Baltimore City Health Department of the lead hazards. They conceded that “Mr. Sperau followed the Agents’ instructions and inadvertently initialed items on the Disclosure Statement indicating the absence of lead based paint in the House” on February 19, 2011. They claimed, however, that they were not aware of any outstanding lead paint violations at that time. They conceded though that they had in fact discovered lead paint in the house when they undertook renovations starting in 2005. They stated that, upon notification, the Baltimore City Health Department opened a file, and an official visited the Speraus with instructions for mitigating lead exposure during renovation. In 2009, after renovation was complete, Karen DiFerinando, an inspector with the Baltimore City Health Department, visited the house and advised the Speraus that her supervisor had instructed her to close the file.

The Speraus claimed that they “provided [Melissa Coyne] with copies of receipts, invoices and other contractor documentation relating to the past renovation of the House with the instruction that such documents be given to the Renicks and their agent who had requested copies.” At least one of these documents “clearly reflected the presence of pre-existing lead paint at the House.” Furthermore, the Speraus alleged that the existence of lead paint in the house built in 1922 “was either known or should be known by any reasonably competent real estate agent listing or selling houses in Baltimore City.” The Agents contended that Melissa Coyne never received documentation of house renovations and lead hazards from the Speraus.

The Renicks claimed they have or will suffer damages in the abatement of the lead hazards, securing substitute housing while the hazards are abated, and emotional distress because of their concern for their health and well-being and that of their children. They filed the instant action in the Circuit Court for Baltimore City, which was removed to the United States District Court for the District of Maryland.

The Speraus claimed in their motion to dismiss or stay the proceedings that the Renicks failed to submit their claims to mandatory mediation, through the Maryland Association of Realtors, prior to initiation of the lawsuit as required by the contract of sale. They argued that the case should have been dismissed because the Renicks failed to satisfy a condition precedent to filing this action. In the alternative, the Speraus argued that the action should have been stayed pending the completion of mediation before the Maryland Association of Realtors.

The Renicks did not dispute the existence or applicability of the mandatory mediation clause in the sale contract. That clause provided that the parties, if they believed that filing an action before mediating was the only way to protect their interest or pursue a remedy, “may commence the action only if the initial pleading or document commencing such action is accompanied by a request to stay the proceeding pending the conclusion of the mediation.” The complaint filed by the Renicks in the state court was not accompanied by such a request or mention of mediation.

When the unambiguous intent expressed in the sale contract is for the parties to submit claims to mediation before bringing suit and they fail to do so, the claims may be subject to dismissal. The provision in this case, however, contemplated mediation while the suit is pending. Although the Renicks violated the mandatory mediation provision of the sale contract by filing this action without requesting a stay pending completion of mediation, the court agreed with the Renicks’ argument that, after the unsuccessful participation of the parties in a settlement conference with a magistrate judge, a stay in the district court proceedings pending further mediation would be futile. The court held that the contractual provision has been complied with in substance, and, accordingly, the court denied the Speraus’ motion to dismiss or stay the proceedings.