The Second District: Obtaining Dismissal Based On Forum Selection Clause Does Not Entitle The Defendant To A Contractual Fee Award

(Oakland, CA, April 18, 2015)  There is currently a debate in California intermediate-level courts about whether attorney’s fees should be awarded to a defendant who obtains a non-substantive dismissal of a contract action when the contract contains an attorney-fee provision. The Second District Court of Appeals considered this issue in Disputesuite.com, LLC v. Scoreinc.com, et al., B248694 (Apr. 14, 2015) last week.  In an apparent case of first impression among California courts, it held that a defendant who obtains a dismissal of an action based on a forum selection clause in a contract is not a “prevailing party” entitled to an award of attorney’s fees.  A forum selection clause is a contract provision that requires actions to be asserted in a particular geographic location. 

In Disputesuite.com the defendants obtained a dismissal of the case brought in California in favor of Florida based on a contract provision that provided “for the exclusive jurisdiction of the state and federal courts located in Hillsb[o]rough, Florida.”  The Second District affirmed an order denying the defendant’s motion for attorney’s fees.  To understand why the court declined to award fees, some background is in order.

In 1995, the Supreme Court held that “[t]he prevailing party determination is to be made only upon final resolution of the contract claims…[.]”  Hsu v. Abbara (1995) 9 Cal.4th 863, 876.  It held that a defendant who obtained a simple, unqualified victory by proving no contract was formed was entitled to an award of fees.  Id. at p. 876.

The Supreme Court in HSU did not decide whether a defendant who obtains a dismissal for technical reasons is the prevailing party.  Without a Supreme Court decision directly on point, state intermediate courts have come out on both sides of the issue.  In Estate of Drummond (2007) 149 Cal.App.4th 46, the Sixth District Court of Appeal held that an attorney’s former clients, who had sued the attorney in a prior action, were not entitled to contractual attorney’s fees against him after he filed a petition against them in probate court.  Because the dismissal stemmed from the compulsory counterclaim rule, a technical deficiency in the petition, the Sixth District reasoned there was no “final resolution” under Hsu.

The Fourth District has issued two decisions coming to the opposite result.  See Profit Concepts Management, Inc. v. Griffith (2008) 162 Cal.App.4th 950 [awarding attorney fees after a defendant obtains a dismissal for lack of personal jurisdiction]; PNEC Corp. v. Meyer (2010) 190 Cal.App.4th 66 [finding no abuse of discretion where the trial court awarded contractual attorneys fees to a defendant who prevailed on a motion to dismiss based on forum non-conveniens].

Following Drummond, the Second District reasoned in Disputesuite.com that an award of attorney’s fees could only be reconciled with the pre-condition in Hsu that there be a final resolution of the contract claims if the word “final” is qualified to mean “final” for purposes of a particular lawsuit.  Such an outcome, it reasoned, would be inconsistent with the thrust of the Hsu decision.  Such an outcome, it continued, would also be inconsistent with the plain language of Civil Code section 1717, which articulates the circumstances under which contractual attorney fee provisions are honored.

The award of attorney’s fees in civil litigation is no insignificant event.  The risk that the filing of any particular lawsuit might result in the award of fees is an important factor.  In light of the conflict between the Fourth District on the one hand and the Second and Sixth Districts on the other hand, this important issue is ripe for review by the California Supreme Court.  The way the Supreme Court resolves the question is less important than clarifying under what circumstances an award of attorney’s fees might be made.

John Claassen is an experienced litigator.  He practices throughout California from the offices of Claassen, P.C. in Oakland, California.  For more information about his firm, please click here.  While this blog entry is published for informational purposes, portions of this blog post may constitute "communications" within the meaning of California Rule of Professional Conduct 1-400.  Thus, as a possible "Advertisement" it is not intended to constitute legal advice.  Similarly, no statement made in this blog post is intended as a guarantee, warranty, or promise about the outcome of any litigation matter taken on by the firm.  This Advertisement is not intended for any matter that would require the rendition of legal services outside of the State of California or under the laws of any jurisdiction outside of the State of California. Copyright 2015.  All rights reserved.