California’s Civil Code Section 1717 Reciprocity Principles Trumped New Mexico Choice Of Law Clause Where Foreign Residents Only Involved.
Bank of America, N.A. v. Lahave, Case Nos. B253931/B256219 (2d Dist., Div. 1 Mar. 21, 2016) (unpublished) involved a loan made in New Mexico to a New Mexico resident, which was guaranteed by California residents in favor of Bank of America (headquartered in North Carolina). Guarantors defensed B of A’s efforts to collect on the guaranty, with guarantors moving for attorney’s fees under a fees clause in a contract having a New Mexico choice-of-law provision. The trial judge awarded guarantors $389,712.95 as prevailing parties under Civil Code section 1717, which made the pro-Bank, unilateral fees clause reciprocal in nature.
The 2/1 DCA affirmed upon Bank’s appeal.
In doing so, the appellate court determined that section 1717 expressed a fundamental policy of fee reciprocity which trumped New Mexico law to the contrary. (ABF Capital Corp. v. Grove Properties, 126 Cal.App.4th 204, 207 (2005).) Here is the “bottom line” from the panel in a decision authored by Justice Chaney: “Here, the laws of California and New Mexico on attorney fee reciprocity conflict, but New Mexico has no discernable interest in California litigation over a guaranty involving non-New Mexico residents that was entered into and was to be performed in California. Therefore, California law would apply.”
Beyond this, the panel distinguished its own prior decision in ABF Capital Corp. v. Berglass, 130 Cal.App.4th 825, 838 (2005), because there the court did not know where defendant executed the contract or where the parties negotiated the contract such that a foreign choice of law clause properly was honored. In contrast, none of the parties in the guaranty arrangement were from New Mexico such that California’s fundamental policy applied instead.