On July 16, 2020, Alek Orloff and ACG 11519 Pecan Creek entered into a contract for the purchase and sale of real property. ACG agreed to sell and Alek agreed to purchase commercial property for $3.1 million. Alek deposited $31k as earnest money and closing was scheduled for August 10, 2020.
Before closing, ACG determined that the prepay penalties in its mortgage were not in accordance with what ACG anticipated. ACG calculated a prepayment penalty of $80k. Arbor Agency Lending determined that the penalty was $630k.
ACG attributed the difference to
Arbor’s unilateral mistake. Unfortunately, Arbor sold the Note package to third
parties, and as a consequence, the Note could not be corrected (reformed) by
In anticipation of closing, Alek
tendered closing funds and executed documents. In response, ACG’s broker sent a
message to the effect that ACG would not be closing due to the miscalculated
When ACG refused to perform, Alek
asserted a lawsuit for breach of contract and specific performance. On December
16, 2020, the trial court entered an Order finding that ACG breached the
So ACG appealed.
In its appeal, ACG asserts only one issue.
The contract obligates both parties to mediate all disputes, before resorting
to litigation. Since there was no mediation before Alek filed the lawsuit, ACG
claims that Alek breached the contract.
And that Alek’s breach of the
contract excuses ACG’s refusal to close.
The Appellate Court reviewed the
contract and determined that pre-lawsuit mediation is mandatory. Since Alek
offered no evidence that he complied with the mediation requirement, the order
of the trial court is reversed and the matter is remanded for further proceedings.
ACG wins this round; Alek Orloff
loses, at least until mediation is concluded and the case is re-tried. See ACG
11510 Pecan Creek v. Orloff; Texas 7th District Court of
Appeals; Cause Number 07-21-00096-CV; May 25, 2022: https://cases.justia.com/texas/seventh-court-of-appeals/2022-07-21-00096-cv.pdf?ts=1653568803.
Lessons / Questions / Observations:
1. Lesson. The Texas Association of REALTORS® had a purpose when they inserted a mandatory mediation clause in their contract forms. At least this one appellate court is willing to respect that purpose.
2. Observation. It is the state-legislated policy of the State of Texas to encourage the “peaceable resolutions of disputes . . . through mediation.” See Chapter 154 of the Texas Civil Practice and Remedies Code: https://statutes.capitol.texas.gov/Docs/CP/htm/CP.154.htm.
3. Questions. Texas courts may require mediation of their own volition; no formal motion is required to be filed by the litigants. Why did this trial court not require it, particularly after reviewing the contract and pleadings? Even if the court required mediation but no resolution was forged, would that have been enough to satisfy this Appellate Court since the mediation would have occurred after the lawsuit was asserted?
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.