Are Contractual Mediation Condition Precedent Provisions Enforceable?

It is important to understand the difference between a contractual provision requiring mediation or arbitration and one that makes mediation a condition precedent to arbitration or the filing of a lawsuit. Here is a typical arbitration clause:

Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.[1]

And here is a typical clause making mediation a condition precedent to arbitration or litigation—that is, “an event … which must exist or occur before there is a right” to arbitrate or file a lawsuit[2]:

If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Construction Industry Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure.[3]

These provisions are not mutually exclusive, and a contract can contain both. But they have very different meanings and implications.

Perhaps most significantly, a party suing on a contract containing an arbitration provision may, in certain circumstances, file a complaint and then successfully move to stay the litigation and compel arbitration;[4] a plaintiff might do this out of concern about the running of a statutory limitation period—for example, the eight-month period established by RCW 60.04.141 for filing a lien foreclosure action.

By contrast, under Washington law, a failure to satisfy a condition precedent typically requires dismissal of claims that hinge on the condition’s satisfaction.[5] Application of this rule to a contractual mediation condition precedent could have serious consequences should the limitation period expire after a complaint is filed but before it is dismissed: The plaintiff could then be precluded from refiling the dismissed claims.

There is some authority outside Washington suggesting that, at least in certain circumstances, a court might have discretion to stay (rather than dismiss) a lawsuit notwithstanding the plaintiff’s failure to satisfy a mediation condition precedent. For example, in N-Tron Corp. v. Rockwell Automation, Inc., a 2010 federal case from Alabama, the court entered a stay in lieu of dismissal to allow mediation to occur, based on an “assess[ment] and balance[ing of] the nature and substantiality of the injustices claimed on either side.”[6]

But this may well not be the rule in Washington. There is no Washington case deciding precisely this issue. But the courts here generally lack the power to rewrite unambiguous contract language,[7] and there does not appear to be any Washington case supporting the existence of judicial discretion to disregard a material contractual condition precedent. Moreover, the recent decision by the Washington Court of Appeals in LSF Structures Ltd. v. Brix Condominium, LLC makes it clear that, outside the insurance context, a party moving for dismissal based on the failure of a condition precedent need not show prejudice.[8]

–Duncan E. Manville