FOURTH DISTRICT, DIVISION THREE COURT OF APPEAL DETERMINES
THAT CONTRACTUAL ATTORNEYS FEES AWARDABLE UPON A FAVORABLE MOTION TO QUASH A CALIFORNIA ACTION.
On May 5, 2008, the Fourth District, Division Three Court of Appeal decided in Profit Concepts Management, Inc. v. Griffith, Case No. G039077 that an Oklahoma ex-employee winning a motion to quash service of a California action for lack of personal jurisdiction against a California-based employer was entitled to an award of attorneys fees as the prevailing party under a contract containing an attorneys fees clause.
Procedurally speaking, the lower court quashed service and dismissed the action in entirety. The appellate court first observed that there was no need for a final judgment, distinguishing an earlier case that relied on an older version of Civil Code section 1717 which had a final judgment requirement, unlike the current version which has no such requirement. Instead, the Profit Concepts Mgt. court analogized the situation to cases where section 1717 fees were awardable due to a dismissal of an action based on violation of the five-year-to-trial rule. The Court of Appeal summarized its conclusion in these words: “The case in California has been finally resolved. What was awarded on Profit Concepts’s complaint? Zero. Thus, the contract claim was finally resolved within the meaning of Hsu v. Abbara [(1995) 9 Cal.4th 863, 876], and that case does not use the terms ‘merits.’” (Slip Op. at p. 7.)
The interesting question is whether the result might have differed had the case been stayed rather dismissed. Many courts stay, rather than dismiss, an action upon granting of a motion to quash service. There are decisions holding that there can be no prevailing party under section 1717 until final disposition of the parties’ substantive rights. See, e.g., Lachkar v. Lachkar (1986) 182 Cal.App.3d 641 (obtaining an order compelling arbitration does not entitle a litigant to fees because there is no determination of substantive rights). If stayed litigation pending completion of an arbitration results in no fee winner, the same argument can be advanced that a stayed case pending completion of an adjudication of substantive rights in a different state also means there can be no winner.
The procedural posture of the dismissal in Profits Concepts Mgt. was certainly an important factor leading to the award of fees under section 1717.