Second District Finds Profits Concepts and PNEC Better Reasoned Than Drummond; Federal Court Denial Of Fees Based On No Contract With Fees Clause Did Not Require Different Result.
Interesting procedural issues were at the forefront in Kandy Kiss of California, Inc. v. Tex-Ellent, Inc., Case No. B234541 (2d Dist., Div. 8 Sept. 21, 2012) (published).
There, plaintiff sued defendants for breach of a warranty in state court after a federal jury found that neither side owned the copyright to the paisley print design. Defendant successfully moved to dismiss the state court lawsuit because the federal court had exclusive jurisdiction over copyright disputes. Defendant moved for attorney’s fees apparently under the parties’ dueling invoices (remember “battle of the forms” from law school?), recovering $129,492.40 in fees. However, there is another kicker to this situation. Plaintiff filed suit in district court, and defendant did obtain a total summary judgment dismissal but was denied fees because the district judge found the federal suit was not “an action on a contract containing a fee clause.”
Plaintiff appealed the state court fee award, which was affirmed on appeal and remanded so defendant could seek fees for winning also upon review.
The first issue was that the invoices were somewhat conflicting–one had a bilateral fees clause and the other had a unilateral fees clause. However, that did not matter because Civil Code section 1717 mandates reciprocity on this issue even if a fees clause is worded unilaterally in fashion.
Plaintiff then argued because the state court dismissal was only on a procedural ground (so it could proceed in federal court), there was no prevailing party in the state court venue. After canvassing the split in appellate authority on this issue in Estate of Drummond, 149 Cal.App.4th 46, 49, 53 (2007) [procedural dismissal of probate petition allowing continued litigation in another civil department meant no prevailing party], Profit Concepts Management, Inc. v. Griffith, 162 Cal.App.4th 950, 952-953, 956 (2008) [employee successfully quashing service of state court summons for lack of personal jurisdiction was prevailing party; discussed in our very first May 11, 2008 post], and PNEC Corp. v. Meyer, 190 Cal.App.4th 66, 68-69, 72-73 (2010) [defendant obtaining forum non conveniens dismissal was prevailing party; discussed in our November 18, 2010 post], the Second District, Division 8 found Profit Concepts and PNEC to be better reasoned opinions and more consistent with Hsu [a California Supreme Court opinion, one of our Leading Cases]. Defendant did win totally at the state court level, and this was all that was necessary.
That brought plaintiff to its final main argument based on collateral estoppel: the federal court denial of the defense fee request had collateral estoppel effect in the state court. Aside from suggesting that the argument was raised too late in a reply brief, the Kandy Kiss court found that plaintiff had always litigated the action as if a contract existed in state court and it would be unfair to allow it to “reverse field and claim the opposite.” That meant the fee award was affirmed, with the appellate court remanding so the defense could obtain further fees for winning on appeal.
BLOG OBSERVATION–Profit Concepts, authored by Justice Fybel, and PNEC, authored by Justice Ikola, both originated out of our local Fourth District, Division 3 Santa Ana court.