First District, Division 3 Decides Dismissal is Final For Section 1717 Purposes.
Recently, we have seen a slew of decisions, mainly unpublished, on what situations constitute finality for purposes of justifying a fee award under Civil Code section 1717. They go from one extreme like Santisas v. Goodin, 17 Cal.4th 599 (1998) (where the California Supreme Court confirmed that a plaintiff’s voluntary dismissal of purely contractual claims will not justify a fee award under section 1717) to Profit Concepts Management, Inc. v. Griffith, 162 Cal.App.4th 950, 955 (2008) (where section 1717 fees were found available when a defendant was dismissed for lack of personal jurisdiction in a California action despite a pending case in another jurisdiction). For those of you wanting to review these cases, see our February 25, 2009 post on Center Associates v. Altman [unpublished; dismissal without prejudice based on service technicality does not give rise to fees]; our February 24, 2009 post on Kato v. Superior Court [unpublished; voluntary dismissal by plaintiff, even after losing preliminary injunction, did not result in fee award]; our February 20, 2009 post on Hall-Mark Services, Inc. v. Harris & Associates [unpublished; denial of petition to compel arbitration did not give rise to fees where action still pending; litigation merely shifted from courtroom to arbitral venue]; our November 26, 2008 post on Glencoe v. Neue Sentimental Film AG, 168 Cal.App.4th 874 (2008) [fees not awarded where plaintiff dismissed contract action with prejudice prior to up-for-grabs decision on potentially dispositive motion]; Otay River Constructors v. San Diego Expressway, 158 Cal.App.4th 796, 801, 808 (2008) [fees justified where no action pending and petition to compel arbitration was denied; discrete legal proceeding produced a clear winner].
Last Friday, the First District, Division Three faced another particular factual twist on this inquiry: did a dismissal of a foreign corporate plaintiff’s action constitute section 1717 finality when it followed on the heels of the plaintiff’s failure to post a substantial $1 million court-ordered undertaking as security for the defendant’s fees and costs under Code of Civil Procedure section 1030? The answer: yes, according to the appellate court in Global Reach Investment Corp. v. Burlingame Investment Corp., Case No. A120324 (1st Dist., Div. 3 Feb. 27, 2009) (unpublished).
Justice Siggins, writing for a 3-0 panel, found that the issue presented a legal issue worthy of de novo review. The Court of Appeal determined that defendant had achieved an “unqualified win” so as to be entitled to a fee award under section 1717. (See Hsu v. Abbara, 9 Cal.4th 863, 877 (1995).)
Plaintiff strenuously argued otherwise, primarily banking on the Sixth District’s decision in Estate of Drummond, 149 Cal.App.4th 46, 49-50, 52 (2007), where no fees were awarded when a probate petition was dismissed only because it had been brought in the wrong forum but the claims could be pursued in a civil case. The First District, Division 3 found Drummond to be inapt because the dismissal in the facts before it meant that the foreign corporate plaintiff had no more ability to pursue claims against the winning defendant (even though an assignee of plaintiff had a different action against defendant, with the assignee being a subsidiary of plaintiff formed to evade the undertaking order). The appellate panel went on to list cases holding that not all possible litigation need be completed before a prevailing defendant on a contract may be awarded attorney’s fees under section 1717. (See, e.g., Christensen v. Dewor Development, 33 Cal.3d 778, 784, 786 (1983) [fees awarded upon denial of plaintiffs’ petition to compel arbitration where plaintiffs dismissed complaint without prejudice, with court recognizing that plaintiffs may “seek to renew their litigation”]; Pueblo Radiology Medical Group, Inc. v. Gerlach, 163 Cal.App.4th 826, 828-829 (2008) [fees awarded to defendants who prevailed on alter ego issue, despite continuing litigation of contractual breach claim]; Otay River Constructors, supra, 158 Cal.App.4th at 807 [fees awarded in discrete legal proceeding even though the underlying litigation on the merits was not final]; Carroll v. Import Motors, Inc., 33 Cal.App.4th 1429, 1437 (1995) [fees awarded where court dismissed action after striking complaint for violation of compulsory cross-complaint rule]; Cole v. BT & G, Inc., 141 Cal.App.3d 995, 996-998 (1983) [fees awarded to defendants who successfully vacated confession of judgment even though litigation on the contract was not final].)
So that the loop is complete, we now share the fee exposure to the losing plaintiff. Defendant had moved for an award of approximately $1.2 million in fees. The trial court awarded defendant $810,000 in fees—ouch!