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Awarding Attorneys’ Fees (Or Not)

A contractual clause requiring an award of attorneys’ fees to the prevailing party in litigation can have a significant impact on the parties’ decisions to file or pursue a case.  On the one hand, a potential plaintiff who believes he has a valid claim may be emboldened to sue.  On the other hand, the prospect of having to pay the defendant’s fees and costs may deter a plaintiff from filing a weak case.  Similarly, for the defendant, the risk of paying plaintiff’s fees may lead to a more generous settlement offer.   (For additional discussion of the impact of an attorneys’ fees clause, see John Porter’s January 2017 post.)

In a recent decision, the California Supreme Court explored the effect of a non-merits procedural dismissal on the defendant’s entitlement to attorneys’ fees pursuant to a contract clause.   In DisputeSuite.com v. Scoreinc.com, 2 Cal. 5th 968 (2017), the issue was whether a defendant who prevailed on a forum non conveniens motion was entitled to an award of attorneys’ fees under the contract and Civil Code section 1717.  The Court noted that this issue had never been decided by a California court.

The parties had three written agreements.  The first two contained clauses subjecting disputes arising out of the agreements to the sole jurisdiction of courts in Florida.  Plaintiff argued that a third agreement specified jurisdiction in Los Angeles, but defendant disputed the applicability of that agreement.

Citing the two Florida forum selection clauses, defendant moved to dismiss the action on grounds of forum non conveniens.  The trial court granted the motion, concluding the action arose out of the first two agreements rather than the third.  Defendant moved to recover $84,640 in attorneys’ fees incurred in connection with the motion to dismiss.  The trial court denied the motion, finding that because the merits of the contract issues were still disputed and under litigation, defendant was not the prevailing party for purposes of section 1717.

The California Supreme Court concluded that the trial court did not abuse its discretion in finding that defendant was not the prevailing party for purposes of section 1717.  The Court noted that plaintiff refiled the action in the other jurisdiction and that the parties’ substantive disputes remained unresolved.  Consequently, the trial court “could reasonably conclude neither party had yet achieved its litigation objectives to an extent warranting an award of fees.”

The Court noted that pursuant to Civil Code section 1717(b)(1), the trial court may determine that there is no party prevailing on the contract, and also cited to Hsu v. Abbara, 9 Cal.4th 863, 876 (1995) (prevailing party determination is to be made by comparing the parties’ relative degrees of success upon final resolution of the contract claims).

Finally, the Court emphasized that it was not holding that “fees may never be awarded for obtaining a dismissal on grounds of improper forum, only that to deny fees here, where the action had been promptly refiled in the appropriate forum, was not an abuse of the court’s discretion.

The Court discussed other cases in which a party won a procedural victory ending the contract litigation in one court but the litigation has continued or could continue in a different forum, and noted that the Courts of Appeal had reached differing results on the diverse facts of those cases.  The opinion provides a useful compendium of fact patterns in which attorneys’ fees have been awarded or denied.