CALIFORNIA ATTORNEY'S FEES

Lots Of Fee Decisions On Variant Issues Come Out On June 21, 2011

 

Choice of Law--California Law Applies Across the Board If It Is the Governing Choice of Law on Fee Issues.

     In our prior posts of June 11, 2008 and January 21, 2010, we discussed decisions indicating that Civil Code section 1717’s reciprocity principle is a fundamental California interest trumping unilateral fee clauses governed by other state laws that do not allow for reciprocity in California-venued actions. Aronson v. Advanced Cell Technology, Case No. A129336 (1st Dist., Div. 4 June 21, 2011) (certified for publication) contained another twist in this area: a trial court determined that a Massachusetts contractual fees clause that was unilateral had to be interpreted as reciprocal based on Civil Code section 1717 in a California lawsuit suing on the contract involving the Massachusetts fee provision. However, the lower court also determined that the plaintiff’s pre-trial dismissal prevented an award of fees under Santisas, which denies fees in a case where there is a voluntarily dismissal of a claim giving rise to fees under section 1717. On appeal, defendant tried to get an overturn of the fee denial (which involved a $645,542.40 request), but was rebuffed. Defendant discordantly argued that while California law governed the reciprocity impact of the clause, the pre-trial dismissal prevailing party analysis should be governed by Massachusetts law allowing for recovery despite the dismissal. Nope--the same law applies to the variant fee issues. “[O]nce a court concludes that it will apply a California statute to determine whether to award attorney fees, a determination of whether a party is a prevailing party as defined by that same statute is not a separate issue to be analyzed pursuant to Nedlloyd.”

Family Law--Trial Court’s Failure to Rule On Needs-Based Request Was An Abuse of Discretion Where No Complete Absence of Proof.

     A family law judge’s denial of needs-based fees to ex-wife was reversed as an abuse of discretion in In re Marriage of Kostandy, Case No. B225582 (2d Dist., Div. 1 June 21, 2011) (unpublished). The reason for the reversal is that ex-wife had introduced evidence on some of the needs-based factors, with the lower court erroneously indicating there was a complete absence of proof when there wasn’t. On remand, a decision had to be made on the fee request.

Private Attorney General Statute--Refusal to Grant Fee Award to Plaintiff Prevailing in Height Restriction Ordinance Win Overturned on Appeal.

     Plaintiff, in Save Arden-Oaks v. Sacramento County Bd. of Zoning Appeals, Case No. C059387 (3d Dist. June 21, 2011) (unpublished), successfully enforced local zoning ordinances limiting residential building heights for the Arden Oaks area. However, the trial court denied plaintiff any fees under Code of Civil Procedure section 1021.5. This fee denial was reversed by the Third District, ruling in the process that the lower court misanalyzed the public benefit and financial burden elements of California’s private attorney general statute. In short, the zoning height restriction interpretation from the lower court protected the Arden Oaks neighborhood into the future (impacting the entire neighborhood, both present and future residents)--a clear public benefit. Also, plaintiff’s nonpecuniary motives were irrelevant and it did not have to produce precise evidence about the financial burden incurred--meaning the third element was satisfied in this one.

Reasonableness of Fees--Defense Tenacity in Litigating Justified $106,000 Fee Award In $115,000 Promissory Note Collection Action.

     Finally, the Fifth District in Salwasser v. Salwasser, Case No. F060867 (5th Dist. June 21, 2011) (unpublished) reminded us that litigation tenacity is a factor that can be weighed as far as determining the reasonableness of a fee award under Civil Code section 1717. It affirmed a $106,480 fee award (out of a requested $116,445) in a promissory note collection case involving a principal amount of $115,000. The reason? The defense’s litigation tenaciously, driving up the costs, was a factor properly weighted in awarding fees that were almost as much as the amount at stake in the entire controversy. (Peak-Las Positas Partners v. Bollag, 172 Cal.App.4th 101, 114 (2009).)

Choice of Law: Second District, Division Five Upholds Denial of Attorney’s Fees Under California Law

Appellants Fail to Get Past First Base Because They Did Not Establish Material Difference in the Laws of California and Bermuda.

     Defendants/appellants succeeded in getting the trial court to strike a tardy amended complaint.  Defendants then argued that under Bermuda law, they were entitled to fees of $105,237.30 as the prevailing parties.  Defendants argued that Bermuda law tracked English law, and that under English law, "loser pays.”  The trial court denied the motion for attorney’s fees, and an appeal followed. Kenneth Barton v. Zafar Khan, B214665 (5th Dist., Div. 5 July 20, 2010) (unpublished).

FEHA/RFA Fee Shifting: Trial Court Did Not Abuse Discretion In Denying Defense Fee Request Of $204,723

Standard of Review Was Determinative in This One.

     When statutes give trial court discretionary calls on fee requests, appellate courts review such calls under a very deferential standard of review. This deferential standard—abuse of discretion--was determinative in the next case we review.

     In Ross v. Frank, Case No. B211125 (2d Dist., Div. 1 May 4, 2010) (unpublished), four non-employer defendants prevailed in a FEHA case but were denied their request for an award of attorney’s fees in the total sum of $204,723. Defendants had sought fees under two bases: (1) Government Code section 12965(b) [in FEHA cases, “the court, in its discretion, may award to the prevailing party reasonable attorney’s fees and costs ….”]; and (2) Code of Civil Procedure section 2033.420(a) [failure to admit a proper request for admission gives rise to fees unless the court determines an objection to the request was sustained, a response was waived, the admission was inconsequential, the denying party had a reasonable basis to believe that party would prevail on the matter, or there was other good reason for the denial].

     Defendants appealed.

Choice Of Law: California’s Civil Code Section 1717 “Reciprocity” Policy Trumped Wisconsin Unilateral Fee Clause Choice Of Law To The Contrary

Court of Appeal Also Discusses Grove Properties and Berglass Conflict of Law Decisions.

     Way back in one of our “youngster” posts on June 11, 2008, we discussed two interesting choice of law decisions, ABF Capital Corp. v. Grove Properties Co., 126 Cal.App.4^th 204 (2005) and ABF Capital Corp. v. Berglass, 130 Cal.App.4^th 825 (2005), where appellate courts came to different conclusions on whether California Civil Code section 1717’s “reciprocity” principle trumped contrary results reached under different state laws specified in contractual choice of law clauses in governing agreements. Well,
Grove Properties and Berglass have again resurfaced for discussion in an unpublished decision pitting California and Wisconsin laws on fee recovery against each other.

     That clash occurred in Jefferson Wells International, Inc. v. American Reprographics Co., Case No. B213777 (2d Dist., Div. 5 Jan. 21, 2010) (unpublished).

     There, defendant eventually won a contractually-based collection battle against plaintiff relying on an agreement that specified Wisconsin as the choice of law and that plaintiff was entitled to costs of collection (including reasonable attorney’s fees). The trial court found defendant prevailed based on a contractual one years statute of limitations (a determination affirmed on appeal) and also awarded defendant $71,918.85 in attorney’s fees under Civil Code section 1717 (an award also appealed by plaintiff, and the one we focus on).

     Any wager on the outcome? If you guessed the award was affirmed, you are out of jail and on your way around the Monopoly board.

     After engaging in a choice of law analysis under Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4^th 459 (1992) (a leading decision on choice of law analysis in California), the appellate panel decided that Civil Code section 1717 prevailed over Wisconsin unilateral fee enforcement to the contrary, principally relying on Grove Properties. After all, even though plaintiff was a Delaware corporation with its principal place of business in Wisconsin, defendant was a Delaware corporation with its principal place of business in California, the contract was negotiated and signed in California, plaintiff conduced some business in California, services were provided by plaintiff’s employees in California, the disputed invoices were mailed to California, and plaintiff sued a California resident in California. Under these circumstances, California’s interests were greater than the Badger’s (there you go college football fans) such that section 1717 trumped Wisconsin law on this issue.

Bucky Badger Gets Clobbered

     That brought the appellate panel to consider Berglass, which came to an opposite conclusion in applying New York law over California law in a choice of law fee dispute. The Court of Appeal found Berglass factually distinguishable, given that (1) the facts in Berglass showed New York had a substantial relationship with the parties and contractual subject matter, (2) the parties in Grove Properties negotiated the contract in both California and New York, but entered into the contract in California; (3) unlike Grove Properties, there was no evidence of where the contract was executed or negotiated in Berglass, and (4) the only California contact in Berglass was that the defendant was a California resident. In contrast, California screamed out with the most interest in Jefferson Wells International.

     BLOG UNDERVIEW—In an interesting side issue, the trial court did find that one small invoice should be paid, with the defendant agreeing to settle by paying the disputed amount in whole so that the subsequent judgment demonstrated that it had prevailed in the overall litigation. This payment as part of a settlement agreement without an admission of liability prevented a dismissal that might have divested defendant from prevailing party status. (Chinn v. KMR Property Management, 166 Cal.App.4^th 175, 185-190 (2008).

Choice of Law: English Rule On Fees Likely Applied … But Fees Denied Where Claimant Failed To Provide Proper English Authority To Trial Court

Denial of Fees Affirmed by Second District, Division 4.

     The next case is a grim reminder for fee claimants that, where foreign law governs a fee proceeding, you need to make sure you cite proper foreign authorities to the trial court in support of the fee application. The claimants in the next case didn’t do that, with disastrous results.

     In Zahedi v. Zahedi, Case No. B211758 (2d Dist., Div. 4 Dec. 17, 2009) (unpublished), defendants won a summary judgment motion and moved to recoup $510,843.70 in attorney’s fees as the prevailing parties under English law. [Under the English Rule, fees are generally awarded, as of course, to the prevailing party; just the opposite occurs under the American Rule.] The trial court denied fees, a result affirmed on appeal. The appellate court agreed that the fee claimants had not met their burden of showing that the loser should pay fees; no proper English legal authority was cited, and it was too late to do so on appeal.

Special Fee Shifting Statute and Fee Clause Interpretation: Singapore Law Governs Non-Statutory Issues

 

Ninth Circuit Reverses Denial of Fees Award, Remanding for A New Look in COGSA, Bill of Lading Case.

     So what happens when you have a seemingly statutory choice-of-law clause (that means no attorney’s fees) and a contractual clause (that may mean attorney’s fees) in the same case? Well, if you are the litigant arguing for a fee award—argue that the contractual clause governs. That is what the litigant argued in the next case did and—wonders of wonders—it obtained a reversal of a fee denial on appeal.

     The case is APL Co. Pte. Ltd. v. UK Aerosols Ltd., Case No. 07-16739 (9^th Cir. Sept. 21, 2009) (for publication), which involved a bill of lading governed by Singapore law and the operation of the Carriage of Goods by Sea Act (COGSA). The district judge essentially held that COGSA was the governing choice-of-law provision in a bill of lading that “preempted” a fees clause applying Singapore law (which adopted the English Rule that the prevailing party wins). Federal law generally does not permit the prevailing party in an admiralty case to recovery attorney’s fees. (B.P.N. Am. Trading, Inc. v. Vessel Panamax Nova, 784 F.2d 975, 977 (9^th Cir. 1986).) However, notwithstanding this rule, admiralty courts will generally give effect to a contractual agreement that holds otherwise. (Chan v. Soc’y Expeditions, Inc., 123 F.3d 1287, 1297-97 (9^th Cir. 1997).) Because the contractual bill of lading clause specified Singapore law (winner obtains fees) and Singapore law was the proper choice of law over COGSA, the matter had to be reversed and remanded for a calculation of fees due to the prevailing party.

English Rule: Swiss Law Required Remand So That Prevailing Plaintiff Obtained Fee Recovery

Fourth District, Division 3 Holds that Choice-of-Law Clause Drives Fee Result.

     Who says that our California intermediate appellate courts do not face gnarly issues even in a relatively routine breach-of-contract dispute. Not us. The next one had some wild issues, not to mention a Swiss choice-of-law clause—meaning that the English Rule applied to the dispute. Wait until you see how this panned out.

     In Applera Corp. v. MP Biomedicals, LLC, Case No. G038984 (4^th Dist., Div. 3 Apr. 30, 2009) (certified for publication), a patent licensing dispute erupted into a much more complicated controversy between successor parties who raised jurisdictional and standing issues of a complex nature because patent law was at least on the periphery of the dispute. In the end, plaintiff’s $1.125 million contract judgment was affirmed, in a 3-0 decision by the Fourth District, Division 3 (authored by Justice Ikola).

    

  Swiss Cheese.  Madison, Wisconsin.

Library of Congress

DOES CIVIL CODE 1717’S MUTUALITY POLICY TRUMP CHOICE OF LAW CLAUSES WITH GOVERNING LAW THAT IS MORE RESTRICTIVE FOR PREVAILING PARTY RECOVERY?

Appellate Courts Come to Differing Results on Which State Law Governs, But Do Not Dispute That Civil Code section 1717 Is a Fundamental State Policy.

            “State’s rights” is not just a constitutional issue. It also enters into play when construing fee entitlement in contracts having foreign state choice of law provisions.

Many times, California courts are faced with a situation where a litigant in its system has sued or been sued and won, then seeks to enforce a contractual attorney’s fees clause governed by the law of another state.  However, California has enacted Civil Code section 1717 in the attempt to take out the oppression in one-sided drafted clauses.  For example, fee clauses that are unilateral in nature—stating that only one side is entitled to fees as the winner—are to be construed as being reciprocal, such that the other side also is entitled to a fee award, if it prevails, even though the clause is not worded that way.  (See Trope v. Katz, 11 Cal.4^th 274, 289 (1995) [Civil Code section 1717’s legislative purpose is to ensure evenhanded enforcement of contractual attorney’s fees provisions].)

            So, what happens when section 1717 runs into fee clauses with non-California choice of law provisions more restrictive in scope?  That now brings us to the discussion of the case law on the subject.

            The seminal case, which is not that old, happens to be ABF Capital Corp. v. Grove Properties Co., 126 Cal.App.4^th 204 (2005), rev. den., which pitted a New York choice of law clause and unilateral attorney’s fees clause against Civil Code section 1717’s reciprocity policy.   The operative contract, governed under New York law, only allowed fees to the plaintiff in enforcing the contract.  Defendant won, and the trial judge denied an attorney’s fees motion by refusing to give effect to section 1717’s reciprocity provisions.  On appeal, the Fourth District, Division Two reversed.  Although finding that New York had a substantial relationship to both the parties and the transaction, the Grove Properties court found California has a “fundamental policy” in giving reciprocity to fee provisions—an interest that overrode applying New York law instead. (Id. at 217 [section 1717(a) “represents a basic and fundamental policy choice by the state of California that nonreciprocal attorney’s fees contractual provisions create reciprocal rights to such fees ….”].)

            ABF Capital, the losing party in Grove Properties, did not give us that easily.  Similar contractual provisions came up for review by the Second District, Division One in ABF Capital Corp. v. Berglass, 130 Cal.App.4^th 825 (2005), rev. den.  However, this appellate court determined that New York law applied in any event, notwithstanding that it was the choice of law in the contract between the parties.  This made it unnecessary for the Second District to determine if the New York law contravenes a fundamental public policy of California, even though it did agree that California had “a significant interest in the issue.”Id.at 839.)  The Second District did go further, indicating “[w]e do not agree with the Grove Properties court, however, that California’s interest is materially greater than New York’s” and “[a]t best, New York and California have equal interest in the issue”—California in preventing the use of one-sided fee provisions and New York in enforcing strictly the parties’ intent under the contractual fee clause (even if it is unilateral in nature).  (Ibid.)

            Although one can make fine distinctions, sounds like a difference in opinion.  True, Berglass found New York law applied regardless, based on the circumstances attending negotiation of the contract and its subsequent execution.  Also true, it did not directly decide the “fundamental interest” issue.  However, the reasoning in Berglass seems to be in sharp contrast to that in Grove Properties.

            No published decision has yet to serve as a tiebreaker.  But, there is the tantalizing result and discussion in Kim v. Hayes Lemmerz International, Inc., 2007 WL 1566713 (4^th Dist., Div. 3 May 31, 2007) (unpublished) (authored by Justice Aronson by a 3-0 panel), which provides fertile grounds for further litigation on the issue.

            In Hayes Lemmerz, defendant won a judgment from the court, after it rested, based on plaintiff not proving its breach of contract case.  The underlying contract had a Michigan choice of law clause as well as an attorney’s fees clause which allowed recovery by defendant in the event of a default by plaintiff—which was not the basis of the suit that went to a defense judgment.  The trial court denied a fee motion brought by defendant, determining that they were unavailable under Michigan law.  This determination was reversed on appeal.

            Our local Santa Ana-based court found that section 1717 would have allowed plaintiff to recover had it won, so that the mutuality principle also means defendant could recover under California law.  Even though determining that Michigan had a substantial relationship with the defendant, the appellate court then concluded that enforcement of Michigan law with respect to the fee provision was contrary to a fundamental policy of California, siding with Grove Properties’ analysis on the issue.  (Id.at *5.) 

            Appellant then made the argument that  Berglass “disagreed with Grove Properties that California had a fundamental interest in ensuring reciprocity of attorney fee provisions.”  Not a bad argument based on Berglass dicta and reading in between the lines of that prior decision.  Justice Aronson said “no,” based on a very technical (but correctly technical) reading of Berglass—which refused to reach the fundamental interest issue and found New York law would have applied even if there had been no choice of law clause.

            However, the Hayes Lemmerz panel did decide that the unilateral Michigan fee clause did violate section 1717’s reciprocity principle and that California has a greater interest than Michigan in determining the fee issue.  Justice Aronson reasoned that even though plaintiff was the California resident in the case before it (contrasted with the defendant being the California resident in Grove Properties), this was inconsequential because the reciprocity principle extended past mere residency status as a matter of public policy.  He also made a cogent point that Michigan likely had little interest in enforcing its law on fee clauses in a foreign venue.  (Id. at *6.)

            We believe that this issue will be a fertile area for litigation in the future given how the published decisions are not exactly consonant with each other.  With Hayes Lemmerz considered in the mixture (although not citable), it appears, for now, that California courts have found that Civil Code section 1717 reflects a fundamental public interest that can trump a narrower construction of a fee clause had the restrictive choice of law provision been enforced with respect to the fee issue.