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 An unpublished Court of Appeal decision upheld the order shifting fees to the prevailing party.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.