Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-01332/USCOURTS-cand-3_06-cv-01332-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

LAUREL VILLAGE BAKERY, LLC,

Plaintiff(s),

 vs.

GLOBAL PAYMENTS DIRECT, INC.., et al.,

Defendant(s). /

No. C 06-1332 MJJ (MEJ)

ORDER DENYING DEFENDANTS'

MOTION FOR ATTORNEYS' FEES

Before the Court is defendants Global Payments Direct, Inc., HSBC Bank USA, N.A., and

Mercury Payment Systems, LLC (collectively, "Defendants") Motion for Attorneys' Fees and

Expenses. Having read and considered the arguments presented by the parties in the papers

submitted to the Court, the Court finds this matter appropriate for resolution without a hearing. For

the following reasons, the Court DENIES Defendants' motion.

I. BACKGROUND

This case centers around a Card Services Agreement between plaintiff Laurel Village

Bakery, LLC ("Plaintiff") and Defendants wherein Defendants agreed to process Plaintiff's debit and

credit card transactions in exchange for certain fees. As part of this agreement, the parties agreed

that any disputes that they might have over their business arrangement would be handled in the

courts of DeKalb County, Georgia, and that Plaintiff would pay Defendants' legal fees if the latter

had to enforce their rights under the contract. (Hirsch Decl. Ex. G, ¶ 17.)

On February 22, 2006, Plaintiff filed this action, alleging that Defendants charged Plaintiff

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United States District Court

For the Northern District of California

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and other putative class members fees that exceeded those disclosed in the Card Services

Agreement. In response, Defendants filed a Motion to Dismiss for Improper Venue (Doc. #7),

which the District Court granted on September 25, 2006 (Doc. #27). In its order, the Court enforced

the forum selection clause in Paragraph 17 of the parties' agreement and found that venue was

improper in this district because Plaintiff's suit properly belonged in the courts of DeKalb County,

Georgia. Id. at 9.

On October 11, 2006, Defendants filed the present motion for attorneys' fees and costs. 

(Doc. #29), as well as the Declaration of Steven A. Hirsch in Support thereof (Doc. #30). Plaintiff

filed an Opposition on October 31(Doc. #32), and Defendants filed a Reply on November 7, 2006

(Doc. #33). On November 9, the Honorable Martin J. Jenkins referred Defendants' motion to a

magistrate judge for disposition. 

II. DISCUSSION

Defendants move the Court for an award of attorneys' fees and expenses in the amount of

$117,142.00 under Federal Rule of Civil Procedure 54(d)(2). Defendants argue that, just as the

Court enforced their right to litigate this action in the contractually agreed-upon forum, it should

now award the contractually agreed-upon fees and costs they incurred in enforcing their rights under

the parties' agreement. Defendants contend that they are the prevailing parties in this action, arguing

that it has come to a definitive end based on the Court's ruling.

In response, Plaintiff argues that the unilateral nature of the attorneys' fees clause violates a

fundamental public policy of California, as articulated by California Civil Code section 1717. 

Plaintiff contends that this violation means that California law governs the entitlement to attorneys'

fees, despite the Georgia choice-of-law provision in the parties' contract, and that Defendants are not

the "prevailing parties" under California law, which is a prerequisite to any contractual award of

attorneys' fees. In the alternative, Plaintiff argues that, even under Georgia law, the posture of this

dispute does not allow for the award of attorneys' fees.

A. Legal Standard

State law controls the determination of the right to attorneys' fees and the method for

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calculating attorneys' fees in cases involving diversity jurisdiction. Mangold v. California Pub. Util.

Comm., 67 F.3d 1470, 1478 (9th Cir. 1995). "[I]n an action involving state law claims, [federal

courts] apply the law of the forum state to determine whether a party is entitled to attorneys' fees,

unless it conflicts with a valid federal statute or procedural rule." MRO Commc'ns, Inc. v. AT&T

Co., 197 F.3d 1276, 1282 (9th Cir. 1999). Under California law, California state courts analyzing

contractual choice-of-law provisions "apply the principles set forth in Restatement [Second of

Conflict of Laws] section 187, which reflects a strong policy favoring enforcement of such

provisions." ABF Capital Corp. v. Osley, 414 F.3d 1061, 1065 (9th Cir. 2005) (internal quotations

omitted). Specifically, section 187 provides that:

(1) The law of the state chosen by the parties to govern their

contractual rights and duties will be applied if the particular issue is

one which the parties could have resolved by an explicit provision in

their agreement directed to that issue.

(2) The law of the state chosen by the parties to govern their

contractual rights and duties will be applied, even if the particular

issue is one which the parties could not have resolved by an explicit

provision in their agreement directed to that issue, unless either

(a) the chosen state has no substantial relationship to

the parties or the transaction and there is no other reasonable basis for

the parties' choice, or

(b) application of the law of the chosen state would be

contrary to a fundamental policy of a state which has materially

greater interest than the chosen state in the determination of the

particular issue and which, under the rule of § 188, would be the state

of the applicable law in the absence of an effective choice of law by

the parties.

(3) In the absence of a contrary indication of intention, the

reference is to the local law of the state of the chosen law.

Restatement (Second) of Conflicts of Law § 187 (1971). Thus, a prevailing party is identified with

reference to the law of the state that governs the contract providing for an award of attorneys' fees. 

See, e.g., Trustees of the Cent. States, Southeast & Southwest Areas Pension Fund v. Golden Nugget,

Inc., 697 F. Supp. 1538, 1553-54 (C.D. Cal. 1988).

B. Application to the Case at Bar

Here, the parties' Card Services Agreement explicitly provides that Plaintiff agreed to

reimburse Defendants for reasonable attorneys' fees and expenses with respect to any litigation

arising out of or relating to the agreement, and that any actions arising out of the agreement be

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brought in the courts of DeKalb County, Georgia. (Hirsh Decl. Ex. G, ¶ 17.) Despite this explicit

agreement, Plaintiff argues that Georgia law on attorney fee entitlement conflicts with California

law. Specifically, the attorneys' fees provision in the parties' agreement allows Defendants to

recover costs and attorneys's fees from Plaintiff, but does not allow Plaintiff to recover costs or fees

from Defendants. 

While this unilateral fee agreement is enforceable under Georgia law, O'Brien's Irish Pub,

Inc. v. Gerlew Holdings, Inc., 175 Ga. App. 162 (1985), Plaintiff contends that it is not enforceable

under California Civil Code section 1717 ("Section 1717"), which transforms a nonmutual fee clause

into a mutual one. Cal. Civ. Code § 1717. However, Section 1717 "enable[s] consumers and other

who may be in a disadvantageous contractual bargaining position to protect their rights through the

judicial process by permitting recovery of attorney's fees incurred in litigation in the event they

prevail." Milman v. Shukhat, 22 Cal. App. 4th 538, 543 (1994) (internal quotations omitted). Thus,

Section 1717 does not apply here because, even if it transformed the clause into a mutual one, there

is no rational view of the law that could transform Plaintiff into the prevailing party here, where the

Court dismissed its claims for improper venue. Accordingly, the Court must apply Georgia law to

Defendants' request.

Having determined that Georgia law applies, the Court must next determine whether

Defendants were the prevailing parties. Under Georgia law, in an action on a contract, a "prevailing

party with regard to an attorney fees claim" is the party that "has obtained relief." Magnetic

Resonance Plus, Inc. v. Imaging Sys. Int'l, 273 Ga. 525, 528 (2001). The necessary relief can be

"some but less than all of the relief sought" and "need not be monetary damages." Id. In applying

this standard, Georgia courts refer to the test that the United States Supreme Court uses to determine

whether a plaintiff is a prevailing party in an action brought under 42 U.S.C. § 1983. Id. Under this

standard, a moving party prevails "when actual relief on the merits materially alters the legal

relationship between the parties by modifying the [other party's] behavior in any way that directly

benefits the [moving party]." Id. (citations omitted). 

Here, Defendants argue that they prevailed in this action because the Court's order

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dismissing the case requires Plaintiff to modify its behavior - by forcing it to stop litigating its

claims in this district and to file suit in DeKalb County, Georgia. The Court, however, questions this

argument because it seems to ignore whether Defendants obtained "relief on the merits" of Plaintiff's

claims. The Court's conclusion that proper venue was lacking expressly precluded the Court from

making any findings with respect to the merits of the underlying action. Further, the Court's

dismissal for improper venue did not foreclose the possibility that Plaintiff could pursue its claims in

DeKalb County, Georgia. Thus, it remains to be seen which entity is the prevailing party on

Plaintiff's action. Idea Place Corp. v. Fried, 390 F. Supp. 2d 903, 905 (N.D. Cal. 2005).

III. CONCLUSION

Based on this analysis, the Court DENIES Defendants' motion for attorneys' fees without

prejudice to seeking such fees in the DeKalb County, Georgia action.

IT IS SO ORDERED.

Dated: December 4, 2006 

MARIA-ELENA JAMES

United States Magistrate Judge

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