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Grove Properties and Berglass have again resurfaced for discussion in an unpublished decision pitting California and Wisconsin laws on fee recovery against each other.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Jefferson Wells International, Inc. v. American Reprographics Co., Case No. B213777 (2d Dist., Div. 5 Jan. 21, 2010) (unpublished).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).