The California Supreme Court Rules On The Right To Attorney Fees Following Procedural Dismissals

Contractual provisions specifying forums and venues for dispute resolution are ubiquitous in modern life.  From on-line retailers to airlines to e-mail providers, it is no exaggeration to state that the average American agrees to ten or more of them per day simply by visiting websites or installing software alone.   Such provisions are equally wide-spread in commercial contracts and, given their wide use, significantly impact just about everyone’s rights in civil litigation.  They determine when, where, and how disputes between private parties are resolved.

The California Supreme Court took a small -- albeit flawed -- step towards softening the impact of such provisions when a plaintiff files in a forum other than the contractually specified forum.  In DisputeSuite.com, LLC v. ScoreInc.com, et al., S226652 (Apr. 6, 2017), the court affirmed a trial court order denying a fee award following procedural dismissals.  In doing so, it reduced the potential for insult in the form of an attorney fee award following the “injury” of pretrial dismissals founded on technicalities in contract cases

In DisputeSuite.com, the plaintiff brought a lawsuit in Los Angeles County alleging both contract and fraud claims.  The dispute arose from a contractual relationship in which some of the contracts contained Florida choice of venue provisions. 

The high court affirmed a lower court decision rejecting an award of attorney fees to a defendant who successfully moved to dismiss a contract and fraud case based on the doctrine of forum non-conveniens.  The supreme court found that the trial court had not abused its discretion in denying attorney fees under Civil Code section 1717 when the defendant secured a mere procedural dismissal of a contract cause of action.    The high court reasoned that the dismissal was merely procedural because the plaintiff could and in fact did re-file the lawsuit in Florida.

Broadly speaking the high court’s opinion in DisputeSuite.com is uncontroversial.  It affirms trial courts’ discretion under Section 1717(b) to find that no party prevails unless a contract dispute is completely resolved.  (See Civ. Code § 1717, Subd. b [“The court may also determine that there is no party prevailing on the contract . . .”].)  That affirmation is squarely in line with the public policy behind the section.  It was intended to prevent unfairly one-sided fee provision.   (Santisas v. Goodin (1998) 17 Cal.4th 599, 602 (Santisas).)  If a defendant could claim attorney fees for forum-related dismissals, fee awards in the pre-trial dismissal context would be one-sided even if a plaintiff ultimately succeeds on the merits in another forum.   

 However, in relying solely on Civil Code section 1717 in a case that included both contract and fraud claims the supreme court's opinion begs the question of what types of claims are covered by the decision. 

The supreme court itself has recognized that Civil Code section 1717 only applies to contract claims.  (See, e.g., Santisas, supra, 17 Cal.4th p. 615; Khan v. Shim (2016) 7 Cal.App.5th 49.)  Because section 1717 only applies to contract claims, it does not govern fee awards arising from tort claims like the fraud claim asserted by the plaintiff in DisputeSuite.com.  As the supreme court has noted:

[T]his conclusion [about the reach of Civil Code section 1717] does not affect the seller defendants' right to recover as costs the attorney fees they incurred in defense of the tort claims. Because section 1717 does not apply to those claims . . . it does not bar recovery of attorney fees that were incurred in litigation of those claims and that are otherwise recoverable as a matter of contract law.  (Santisas v. Goodin, supra, 17 Cal.4th p. 615 [alterations added; citations omitted.)

Simply put, tort claims “are not covered by section 1717, and the attorney fee provision, depending upon its wording, may afford . . . a contractual right, not affected by section 1717, to recover attorney fees incurred in litigating those causes of action.”  (Santisas v. Goodin, supra, 17 Cal.4th p. 615.)

The supreme court in DisputeSuite.com does not appear to have addressed its own prior statements in Santisas that tort causes of action fall outside the scope of Civil Code section 1717.  Rather, it characterized the entire action, including the plaintiff’s contract and fraud claims, as a single “contract” action.   Thus, the decision begs the question of whether a trial court’s discretion to deny fees under Subdivision (b)(1) of Section 1717 applies only to contract causes of action or to other actions as well.

Given the widespread use of contractual forum provisions, including arbitration clauses and contractual choices of venue, the supreme court missed a good opportunity to clarify for the plaintiffs' bar and its clients the risks they face from getting forum choices wrong in civil litigation.  Similarly, it could have used the opportunity to clarify the potential rewards available to defendants through venue and forum challenges.

John Claassen is an experienced commercial litigator.  He practices 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 possible 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 2017.  All rights reserved.