CALIFORNIA ATTORNEY'S FEES

Choice Of Law: $81,705 Fee Award Based On Settlement Agreement With Hawaii Choice Of Law Reversed On Appeal As A Matter Of Law

The Defense Relied On California Procedural And Substantive Law At The Trial Court Level, Such That Invoking Hawaii Law Was Unfair Given The Settlement Agreement Had No Fee Clause.

            McLaughlin v. Machen, Case No. H045869 (6^th Dist. May 28, 2021) (unpublished) was an interesting choice of law case where plaintiffs lost certain claims against defendant based on California’s statute of limitations, with the defendant awarded $81,705 in attorney’s fees under Hawaii law (which has a statute allowing prevailing party fees for claims like the one raised) even though a prior settlement between the parties, with a Hawaii choice of law clause, had no express contractual fees provision.

            The Sixth District reversed the fee award.  It did so on unfairness grounds:  the defense had relied on California procedural and substantive law, with Hawaii having a longer statute of limitations on the primary claim versus the shorter California limitations period which led the lower court to find the claims were time barred.  This unfairness distinguished the situation from a somewhat similar fact pattern involving a Swiss choice of law clause in Applera Corp. v. MP Biomedicals, LLC, 173 Cal.App.4^th 769 (2009), reinforced by the fact California law would not have allowed a fees award given the existence of no fees clause in the settlement agreement.

            BLOG OBSERVATION AND KUDOS:  As recently announced on the courts.ca.gov website, Justice Ikola—who authored Applera—is retiring from the 4/3 DCA bench effective July 1, 2021 (where he served for 18 ½ years) after a 47-year legal career including a prior seat on the Orange County Superior Court bench.  Co-contributor Mike, who attended an OCBA seminar earlier this year, believes Justice Ikola will be retiring to Michigan.  A little earlier, his colleague Justice Aronson was announced as retiring from the 4/3 DCA bench effective June 15, 2021 (where he served for about 20 years) after a 46-year legal career including a prior seat on the Orange County Superior Court bench, too.  We wish them both well, and thank them for their service on the bench—co-contributor Mike has argued before them often over the years.

Choice Of Law: Federal Courts Do Not Automatically Enforce Foreign Choice Of Law Clauses With Respect To Fee Recovery

It All Depends On Whether The Issue Is Substantive Or Procedural.

            So, you have a commercial transaction in which an agreement has a choice-of-law clause indicating that attorney’s fees will be awarded under the English rule (by which the losing party has to pay reasonable attorney’s fees to the prevailing party).  Does this automatically allow fee recovery at the federal level?  Answer:  Not necessarily, as we indicate in this interesting discussion of some federal cases, mainly from New York.

            If the issue is determined to be substantive in nature, the choice-of-law foreign fee clause seems to be enforced.  See, e.g., RLS Associates v. United Bank of Kuwait, 464 F.Supp.2d 206, 218-219 (S.D.N.Y. 2006); Atchison Casting v. Dofasca, 1995 WL 655183, at *1 (D. Kan. Oct. 24, 1995); El Paso Natural Gas Co. v. Amoco Prod. Co., 1994 WL 72881, at *1, 5 (Del. Ch. Dec. 16, 1994); Katz v. Berisford International, 2000 WL 959721, at *7 (S.D.N.Y. July 10, 2000).

            However, if the fee clause issue is determined to be procedural in nature, some courts have determined that the state law interest in fee recovery, whether allowing for it or not, will take precedence.  (Atomi v. RCA Trademark Management, S.A.S., 2015 WL 143329, at *1 (S.D.N.Y. Mar. 30, 2015); Deutsche Bank Trust Co. v. American General Life Ins. Co., 2016 WL 5719783, at *14 (S.D.N.Y. Sept. 30, 2016), aff’d, No. 16-3657-cv(L) (2d Cir. Dec. 22, 2017).)  In this area, the fee clause sometimes has to be made unmistakable and clear with respect to fee-shifting under a foreign law.

Choice of Law, Estoppel, Intellectual Property: Attorney’s Fees Properly Denied In Entirety To Plaintiff Winning Only 7.89% Of Total Damages, After Apportionment, In Copyright Infringement Suit

Fee Recovery Barred By Judicial Estoppel—Plaintiff Classified Claims In Tort, Not Contract, Such That No Fee Recovery Allowable Under Either California Or Texas Laws.

            This next case does demonstrate the complexity that our state appellate courts have to wade through, even in unpublished opinions, to adjudicate appeals from fee awards where conflicting state laws may be at issue.  Brighton Collectibles, Inc. v. AIF Corp., Case No. B289327 (2d Dist., Div.8 Mar. 18, 2020) (unpublished) is just such a case.

            In this one, plaintiff asserted claims for breach of the warranty of infringement in copyright matters against defendant, winning a $1.267 million verdict which was reduced substantially through an apportionment of fault to multiplier suppliers making prior settlements.  In the end, plaintiff only garnered a positive damages recovery of a little under $100,000, 7.89% of the total recovery.

            Plaintiff moved for attorney’s fees (the amount was not specified in the opinion), but the trial judge denied them in entirety.  This prompted plaintiff to appeal both the merits and fee denial.  Both were unsuccessful.

            The fee denial was affirmed on judicial estoppel principles.  Although there was a conflict of law issue (did California or Texas law govern), it did not matter in the end.  Plaintiff had taken the position that the claims were in tort, not contract, winning a denial of a summary judgment motion on that basis.  Given that tort claims did not give rise to fee recovery under either California or Texas law, that cemented the correctness of the fee denial by the lower court.

Choice Of Law: Prevailing Texas Defendant Sued In California For Dispute Centered In Texas Did Not Meet Its Burden To Show Civil Code Section 1717 Fee Denial Was Incorrect

Defendant Did Not Satisfy Nedlloyd Interest Analysis To Swing The Scales Back To California.

            This next case may have limited utility because its result really hinged on defendant’s failure to meet its burden of proof under the appropriate choice-of-law analysis.

            In River Oaks Self-Storage TIC 4, LP v. River Oaks Storage, LLC, Case No. A155418 (1^st Dist., Div.2 Sept. 12, 2019) (unpublished), defendant—a Texas LLC alleged to have a business presence in California—was sued by three out-of-state entities involving disputes under a Tenant In Common Agreement and LLC Agreement relating to a self-storage property facility in Texas.  Defendant defeated plaintiffs’ TIC Agreement claims on demurrer, and plaintiffs voluntarily dismissed the LLC Agreement claims on the eve of a defense summary judgment motion.  Defendant then moved for $201,003 in fees as the prevailing party under the two written agreements, a request denied in entirety by the lower court.

            The 1/2 DCA affirmed on narrow grounds.

            Defendant first relied on a Texas statute which only unilaterally applies to prevailing plaintiffs, but argued it was reciprocal based on California Civil Code section 1717, and then the TIC Agreement which only applied to tenants in common.  (The trial judge determined that defendant was not a tenant in common, so the TIC Agreement theory did not work.)

            The appellate court determined that defendant had not made enough of a nuanced argument to show whether Texas or California had a greater interest in the dispute so as to justify fees, which means the fee denial order had to be affirmed.  It did discuss the conflicting ABF Capital decisions (see our Choice of Law category for a discussion of these two Second District decisions), but simply determined that defendant did not show why Texas law rather than California reciprocity principles should apply given the competing interests of both states.  That result was likely salted by the fact that the dispute involved Texas property. 

Choice Of Law: Plaintiffs Not Entitled To Attorney’s Fees Under Delaware Corporate Benefit Doctrine Where Causal Link Between Plaintiffs’ Activities And Corporate Benefit Was Rebutted And Shown To Be Nonexistent

 

Causal Link Was Missing Based On The Record.

     Plaintiffs in a putative class action involving the proposed mergers between two advertising billboard companies, Outdoor and InterMedia, moved to recover attorney’s fees when another company (KSE) bought Outdoor for an enhanced purchase price, claiming to have benefitted Outdoor shareholders by an additional $57 million on the beneficial side of the equation. Plaintiffs’ counsel then moved to recoup attorney’s fees (the request was not mentioned), with the tentative in their favor on the entitlement side. However, a later assigned judge denied the fee request in entirety.

     This prompted an appeal by plaintiffs in Crocket v. Outdoor Channel Holdings, Inc., Case No. G050906 (4^th Dist., Div. 3 Sept. 7, 2016) (unpublished). The fee denial was affirmed, in a 3-0 panel decision by Justice Thompson.

     Although there was a big kerfuffle over whether Delaware or California law applied on fee entitlement, the reviewing court decided to apply Delaware law which was more liberal in plaintiffs’ favor. Didn’t help. The Delaware fee entitlement doctrine was known as the corporate benefit doctrine, which is an exception to the American Rule allowing for recovery by a litigant competently demonstrating a true corporate benefit under a three-part test. The third element is the need to show that the plaintiff’s activities and the corporate benefit were causally related, although there is a rebuttable presumption this is so when the other two elements were met as they were here (i.e., suit was meritorious when filed and defendants took actions that produced a corporate benefit before plaintiffs obtained a judicial resolution). The problem was that the evidence of record rebutted the existence of a causal link, especially proof that (1) one of the attorneys in the various deals said additional disclosures had nothing to do with plaintiffs’ demands (but where inspired by SEC requests for information), and (2) KSE owner testified that KSE’s increased price proposal had nothing to do with plaintiffs’ actions.

Choice Of Law: Prevailing Guarantors Sustain $389,712.95 Fee Award On Appeal

 

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.

Choice of Law/Section 1717: Ninth Circuit, In Diversity Case, Affirms Fee Award Under Bank Loan Documents Even Though Georgia Choice-Of-Law Clause Involved

 

California Choice of Law Principles Governed, With Ninth Circuit Believing California Supreme Court Would Decide 1717 Evinces Fundamental State Policy.

    In one of our early posts on June 11, 2008, we talked about Civil Code section 1717—which makes unilateral contractual fees clauses reciprocal in nature—and its interplay with choice of law decision—decisions considering whether a choice of law clause in jurisdictions allowing unilateral clauses to prevail will “trump” section 1717.  Right now, there is a split among decisions, the Grove Properties and Berglass California appellate intermediate decisions both involving ABF Capital Co.  Grove Properties determined that 1717 trumped another choice-of-law clause as far as fee recovery, with Berglass going the other way.  The California Supreme Court has yet to weigh in.

    However, the Ninth Circuit has in First Intercontinental Bank v. Ahn, Case No. 13-56097 (9th Cir. Aug. 18, 2015) (published).

    The basic facts were that a defendant was released from a loan under a court ruling, subsequently moving for recovery of attorney’s fees under a contractual fees clause based on Civil Code section 1717.  Bank said, wait a moment – this is governed by Georgia law which allows for unilateral fee clauses (like the one in the loan documents) only in favor of bank.  That meant, according to Bank, that fee recovery was not permissible against Bank.  The district judge awarded fees to prevailing defendant and against Bank.

    The Ninth Circuit found Grove Properties more applicable and persuasive than Berglass.  After going through California choice-of-law analytical factors (finding involvement both in California and Georgia), the federal appeals court significantly found that California would deem 1717 to be a fundamental policy of the state in line with Grove Properties and not akin to Berglass which found a weaker interest to be at issue (an equal access rationale).  Fee recovery affirmed and reasoning which will likely be used in future California state court battles on the choice-of-law issue involved here.

     NOTE:  Marc and Mike were involved in a choice-of-law case in which there was no fee provision, but there was a Hong Kong choice-of-law provision.  The trial court held that Hong Kong law, which applies the English Rule that the prevailing party recovers fees, allowed the prevailing party to recover fees.  An unpublished Court of Appeal decision upheld the order shifting fees to the prevailing party.  See our October 17, 2013 post on Dampier v. Solar & Environmental Technologies Corp.

Choice Of Law: D.C. Circuit Reduces $13.4 Million Fee Award To McKesson Corp. Down To $29,516

 

Reason Was that Iranian Law Limited Calculation of Amount In Accordance With Official Tariff Ceiling.

     Although not from California, this case is important in highlighting how the choice of law can really drive the result in a particular matter, including on appeal.

     In McKesson Corp. v. Islamic Republic of Iran, No. 01-7041 (D.C. Cir. June 3, 2014), Iran appealed a $13.4 million fee award to McKesson Corp. under a U.S. fee-shifting calculation after a “baroque procedural history” of some years following a $29.3 million judgment in McKesson’s favor for expropriating its interests in a dairy after the 1979 Iranian Revolution.

     Iran did well to appeal on the choice of law issue. The D.C. Circuit reduced the fee award down to $29,516. (Yes, this is no typo.) Both sides agreed that Iranian law applied to fee entitlement, which did exist, but McKesson tried to run away from the reality that Iranian law had an “official tariff” rule that capped the calculation of fees at much, much lower levels than the district judge’s award using American lodestar/multiplier analysis. Because McKesson could not meet its burden of showing the official tariff did not apply, the fee award had to be reduced to the tariff “cap.” Ouch!

Diminished.  “Shamus O’Brien”, Irish Wolfhound, and “Cortez”, Mexican Chihuahua.  Seventh Annual Dog Show of the Washington Kennel Club.  1920.  Library of Congress.

Choice of Law: Ninth Circuit Faces Some Interesting Choice Of Law Questions Where Venued Diversit Action Has “English Rule” Loser Pays, But Another State’s Law Governs The Dispute Contractually

 

Hold On For The Answers.

     Alaska Rent-A-Car, Inc. v. Avis Budget Group, Inc., Nos. 10-35137 et al. (9th Cirl Mar. 6, 2013) (published) faced some interesting issues in a situation where a venued diversity action had a “loser pay” statutory fee recovery provision under Alaska law--the venue--but the contract between the parties specified that New York law applied. The prevailing party won $1.605 million in fees under the Alaska “loser pay” statutes, prompting an appeal that presented some thorny choice of law issues. Here is how the Ninth Circuit ruled:

     1. Did federal law or state law apply to the fee award under Erie? Answer: State law. (Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240 (1975).)

     2. Given that Alaska was the forum, does Alaska or New York choice-of-law rules apply? Answer: The parties agreed that Alaska choice-of-law rules applied. (Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).)

     3. Was the Alaska fee provision substantive or procedural for choice of law purposes? Answer: It was procedural based on how Alaska state courts would characterize it. Given that it was procedural, Alaska law--the English Rule--applied. However, if it was substantive, then New York law--the American Rule--would have applied (although it didn’t).

      Given the answer to No. 3, the procedural issue, the $1.605 million fee award was affirmed on appeal.

     Takes us back to law school, doesn’t it?

Choice of Law/Indemnity/Section 1717: Losing Indemnitee Bears Full Requested Attorney’s Fees Against It, As Non-Prevailing Party, Of $161,669.87 For Being Defeated In Indemnity Action

 

Indemnitee Drafted Pennsylvania Choice of Law Clause, Putative Indemnitor Conceded Fees Clause In Indemnity Agreement Was Reciprocal, And Apportionment Not Required Because Liability And Indemnity Issues Inextricably Intertwined.

     You knew where this one was going when it opened “Appellant . . . was hoist by its own petard when the trial court enforced an unfavorable choice-of-law provision in a form contract written by [appellant].” Ouch .... and it didn’t get any better.

     What happened is this: an employee sued appellant crane operator (third-party tortfeasor that can be sued outside of workers’ compensation) for worksite personal injuries, with crane operator then cross-complaining against respondent employer for indemnity based on an indemnity agreement drafted by appellant crane operator and containing a Pennsylvania choice of law clause. There also was an attorney’s fees clause in the agreement, which employer conceded during the course of the litigation was reciprocal--a good concession for employer as you shall soon see.

Above:  crane operator in the yard.  Jack Delano, photographer.  July 1942.  Decatur, Alabama.  Library of Congress. 

     Employee settled with third-party crane operator, but crane operator then lost its indemnity cross-claim against employer (the attempt to recoup settlement moneys paid to employee from employer), based primarily on what even the trial court thought seemed harsh but was within the contractual bargain of the two parties: Pennsylvania law, which crane operator wanted in its indemnity agreement with employer, held that an employer has no liability to a third party tortfeasor such as crane operator unless the liability is provided by a contract entered into prior to the date of the worker’s injury. As the fates would have it, the indemnity contract had been signed the day of the worksite accident, not prior to it. Crane operator lost the indemnity action, and employer was awarded fully requested fees of $161,669.87 under the fee-shifting clause based on Civil Code section 1717.

     The judgment was affirmed in a 3-0 decision in Maxim Crane Works, L.P. v. Tilbury Constructors, Case No. C067054 (Aug. 8, 2012) (published), which has a great discussion on contractual expectations for use by litigators in contractual disputes.

     The indemnity agreement was enforced by its terms, and there was no California public policy that nullified the Pennsylvania choice of law, especially given that the crane operator was the drafter of the contract and could have inserted contractual language requiring indemnity even if the contract was signed on the day of the accident.

     With respect to the fee award, employer did a smart thing by acknowledging that the fees clause was reciprocal, potentially avoiding choice of law problems under Civil Code section 1717. (See our June 11, 2008 discussion of ABF Capital Corp. duology and other decisions on the choice of law issue.) That left appellant crane operator with the argument that the trial court should have apportioned work spent on the personal injury circumstances versus simply defending on the indemnity cross-claim. The appellate court agreed with the lower court that the work was inextricably intertwined, illustrating this reality in these two ways: (1) employer was defending the indemnity cross-claim in part by arguing that employee’s claims were inflated; and (2) employer had to explore personal injury circumstances to minimize potential indemnity exposure by arguing that the employee-crane operator was unreasonable in nature.

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.