Opinion ID: 2828013
Heading Depth: 4
Heading Rank: 6

Heading: Grove Properties

Text: In ABF Capital Corporation v. Grove Properties Company, a case involving a conflict between New York and California law concerning attorney’s fees, the California District Court of Appeals confronted a situation similar to the one we consider here. 23 Cal. Rptr. 3d 803 (Ct. App. 2005). In that case, which involved a California defendant contracting with a New York plaintiff to purchase oil and gas interests in Oklahoma and Texas, the parties had selected New York law to govern the contract. As in this case, the analysis of which state’s law would have applied in the absence of the forum-selection clause was unclear based on § 188 of the Restatement. The California District Court of Appeals ultimately decided that California law would have applied primarily because California has a fundamental policy interest in protecting its citizens “from unfair litigation tactics or procedures,” including non-reciprocal attorney’s fees clauses. Id. at 815. See also Section II.C, infra. We are persuaded by the reasoning in Grove Properties because the same policy interest is at issue here. Christina, a California citizen, would be on the losing end of a nonreciprocal attorney’s fees clause when litigating in a California court. We therefore conclude that, in the absence of the choice-of-law provision in the contract, a California FIRST INTERCONTINENTAL BANK V. AHN 11 court would apply California law to the attorney’s fees dispute between Christina and the Bank. The Bank urges us to reject the Grove Properties approach and instead adopt the holding of the California District Court of Appeals in ABF Capital Corp. v. Berglass, 30 Cal. Rptr. 3d 588 (Ct. App. 2005). Although the facts in Grove Properties and Berglass are substantially similar, the Berglass court applied New York law, rather than California law, in part because it concluded that New York’s law would have applied in the absence of a New York choice-of-law clause. Id. at 596–97. We believe that Berglass is inapposite here for two reasons. First, the Berglass court distinguished that case from Grove Properties on the ground that it did “not know where [the] defendant executed the contract or the parties negotiated the contract.” Id. at 597. By contrast, there was evidence in Grove Properties “that the contract was negotiated in both California and New York and was made in California.” Id. The case before us is more like Grove Properties because the district court clearly found that the contract was negotiated and executed in both California and Georgia. Second, Berglass did not give sufficient weight to one of the primary purposes of California Civil Code § 1717(a), which seeks to ensure that California citizens do not fall victim to non-reciprocal attorney’s fees clauses when litigating in California courts. See Section II.C, infra. The Berglass court only recognized that the policy underlying § 1717 was to enhance “free and equal access to the courts . . . by preventing the oppressive use of one-sided fee provisions,” 30 Cal. Rptr. 3d at 597, and held that New York effectuated the same policy “by enforcing strictly the parties’ 12 FIRST INTERCONTINENTAL BANK V. AHN intentions.” Id. In Grove Properties, on the other hand, the Court of Appeals concluded that California had a stronger interest in “enforcing the equitable rules governing access to its courts—including the reciprocal attorney fees rule—than New York has in assuring the enforcement of New York law concerning attorney fees.” Grove Props. Co., 23 Cal. Rptr. 3d at 813 (emphasis added). Grove Properties thus recognizes that one of the fundamental purposes of § 1717 is to ensure that California citizens in a disadvantageous bargaining position are protected against non-reciprocal attorney’s fees clauses when litigating in California courts. We apply the law from Grove Properties, and conclude that California law would have applied to the contract at issue here in the absence of the choice-of-law provision selecting Georgia. C. California’s Fundamental Policy Against Non- Reciprocal Attorney’s Fees Clauses We next consider whether Georgia law permitting nonreciprocal attorney’s fees clauses is contrary to a fundamental public policy in California law. To determine the public policy of a state, “the Constitution, laws, and judicial decisions of that state, and as well the applicable principles of the common law, are to be considered.” Twin City Pipe Line Co. v. Harding Glass Co., 283 U.S. 353, 357 (1931). Based on our review of existing legal authorities, we conclude that California has a fundamental policy disfavoring nonreciprocal attorney’s fees clauses in litigation in its state courts. California generally enforces parties’ freely-negotiated choice-of-law clauses. See Washington Mut. Bank, FA, 15 P.3d at 1078–79. As the California Supreme Court held: FIRST INTERCONTINENTAL BANK V. AHN 13 It is to the interest of the public generally that the right to make contracts should not be unduly restricted, and no agreement will be pronounced void, as being against public policy unless it clearly contravenes that which has been declared by statutory enactment or by judicial decisions to be public policy, or unless the agreement manifestly tends in some way to injure the public. Jensen v. Traders & Gen. Ins. 345 P.2d 1, 6 (Cal. 1959) (quoting Spangenberg v. Spangenberg, 126 P. 379, 382 (Cal. Ct. App. 1912)). However, the California legislature has prohibited the use of non-reciprocal attorney’s fees through California Civil Code § 1717(a), which provides: In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs. Section 1717’s “effect is to make an otherwise unilateral right to attorney fees reciprocally binding upon all parties to actions to enforce the contract.” Xuereb v. Marcus & Millichap, Inc., 5 Cal. Rptr. 2d 154, 157 (Ct. App. 1992). 14 FIRST INTERCONTINENTAL BANK V. AHN The California Supreme Court has yet to rule on whether § 1717 embodies a fundamental policy of the state, although it has recognized that one of the primary purposes of § 1717 is “to prevent oppressive use of one-sided attorney’s fees provisions.” Reynolds Metals Co. v. Alperson, 599 P.2d 83, 85 (Cal. 1979). “When the state’s highest court has not squarely addressed an issue, we must ‘predict how the highest state court would decide the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treaties and restatements for guidance.’” Glendale Assocs., Ltd. v. Nat’l Labor Relations Bd., 347 F.3d 1145, 1154 (9th Cir. 2003) (quoting Nat’l Labor Relations Bd. v. Calkins, 187 F.3d 1080, 1089 (9th Cir. 1999)). The California District Court of Appeals has held that “California does have a fundamental policy concerning the reciprocity of attorney fee provisions in contracts.” Grove Props. Co., 23 Cal. Rptr. 3d at 810. Soon after the legislature passed § 1717, the Court of Appeals also concluded that the statute “is part of an overall legislative policy designed to enable consumers and others 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.” Coast Bank v. Holmes, 97 Cal. Rptr. 30, 39 n.3 (Ct. App. 1971). See also Milman v. Shukhat, 27 Cal. Rptr. 2d 526, 529 (Ct. App. 1994) (“Section 1717 was enacted in 1968. It is one of several similarly worded statutes which are recognized as being part of an overall legislative policy designed to enable consumers and others who may be in a disadvantageous contractual bargaining position to protect their rights through the judicial process by permitting recovery of attorney’s fees in the litigation in the event they prevail.” (citations omitted)). FIRST INTERCONTINENTAL BANK V. AHN 15 Federal courts have also concluded that California has a fundamental policy against non-reciprocal attorney’s fees clauses. Our circuit has yet to address this issue in a published decision, but in an unpublished decision, we concluded that “California law requiring mutuality of attorneys’ fees provisions reflects a strong public policy, overriding another strong public policy of freedom of contract.” See Daniel Indus., Inc. v. Barber-Colman Co., 8 F.3d 26 (9th Cir. 1993) (table) (citing Harbor View Hills Community Ass’n. v. Torley, 7 Cal. Rptr. 2d 96, 99-100 (Ct. App. 1992)). Additionally, in Ribbens International, S.A. de C.V. v. Transportation International Pool, Inc., a district court in the Central District of California held that § 1717 is “mandatory, unavoidable and emphatic. Section 1717(a) is no default provision or gapfiller, subject to override by the parties. Rather, it represents a basic and fundamental policy choice by the state of California that nonreciprocal attorney’s fees contractual provisions create reciprocal rights to such fees.” 47 F. Supp. 2d 1117, 1122 (C.D. Cal. 1999). Having considered these authorities, we are persuaded that if the issue were presented to the California Supreme Court, it would conclude that Civil Code § 1717 reflects a fundamental policy of the state of California, and we hold that it is. D. California Has a Materially-Greater Interest than Georgia in this Dispute In addressing whether California had a materially-greater interest than New York in an attorney’s fees dispute analogous to the one we face here, the California District Court of Appeals focused on: (1) whether the parties chose to bring litigation in a California state court, and (2) the 16 FIRST INTERCONTINENTAL BANK V. AHN citizenship of the parties. Grove Props. Co., 23 Cal. Rptr. at 812–13. Applying these two factors here, we conclude that California has a materially-greater interest in the attorney’s fees dispute than does Georgia. 1. Choice To Bring Litigation in California Court We first examine whether “the party choosing the litigation availed itself of California courts. Fair access to California courts is a significant part of the policy underlying Civil Code section 1717.” Id. at 812. In this case, the Bank filed a federal diversity suit in the Central District of California, even though we have no reason to believe it could not have filed the same action in a federal district court in Georgia. Although this case differs from Grove Properties in that the Bank brought suit in a California federal court, rather than a state court, “a federal court adjudicating a state-created right solely because of the diversity of citizenship of the parties is for that purpose, in effect, only another court of the State.” Guar. Trust Co. of N.Y. v. York, 326 U.S. 99, 108 (1945). Accordingly, the Bank’s choice to bring its lawsuit in a federal district court in California, rather than another federal district court, satisfies the first prong of the Grove Properties court’s analysis. 2. Residency of Litigants The Grove Properties court also considered whether either of the litigating parties was a California resident: “The interest of California in seeing its residents receive fair play with respect to attorney fees, when resort is made to the California courts, is a fundamental equitable policy of this state.” Grove Props. Co., 23 Cal. Rptr. at 813. FIRST INTERCONTINENTAL BANK V. AHN 17 Christina is a resident of California. The Bank is incorporated in Georgia, with its principal place of business in Georgia. Because Christina is a California citizen and would be on the losing end of a non-reciprocal attorney’s fees provision, the state of California has a substantial interest in applying its law to the attorney’s fees dispute in this case. See Milman, 27 Cal. Rptr. 2d. at 529–31. Given that both prongs of the Grove Properties analysis have been satisfied, we conclude that California has a materially-greater interest in seeing its fundamental policy applied in this case than Georgia has in applying its own law. The district court did not err in applying California law and awarding attorney’s fees to Christina. E. Telco Leasing Finally, the Bank calls our attention to Telco Leasing, Inc. v. Transwestern Title Co., in support of the proposition that Georgia law must be applied in this dispute. 630 F.2d 691 (9th Cir. 1980). In Telco Leasing, whose facts bear some resemblance to those in the present case, we concluded that Illinois law, not California law, applied to an attorney’s fees dispute. We noted therein that the contract in Telco Leasing had selected Illinois law to govern any disputes concerning the agreements in that case. Id. at 693. However, Telco Leasing is easily distinguishable from this case because the litigants in that case originally filed suit in Illinois before transferring the case to California. As a result, we concluded that Illinois law applied, emphasizing that “the applicable state law is that which would have been applied by the transferor court.” Id. at 694. Moreover, we engaged in no choice-of-law analysis in Telco Leasing, which 18 FIRST INTERCONTINENTAL BANK V. AHN predated the California Supreme Court’s adoption of § 187 of the Restatement (Second) of Conflict of Laws. Here, by contrast, no venue transfer occurred, and California choiceof-law rules clearly apply.