California Supremes on Attorneys’ Fees: A “Procedural Victory” Might, or Might Not, Merit a Fee Award

by Brendan M Loper, Esq.

One of the thornier aspects of litigation - and an aspect that is significant to any attorney and client - is the issue of fees, and more specifically the potential for recovering a client's fees paid in litigation. In California, fees generally may only be recoverable if either the contract or a statute provides for fees. Civil Code Section 1717 permits fees to be awarded in "any action on a contract" where said contract "specifically provides" for fees and costs to be awarded in the event of litigation. While this seems straightforward in theory, in practice it is anything but. Parties will fiercely dispute not only which party prevailed, but also whether they prevailed in a manner entitling them to fees. While the jurisprudence in this area is ponderous, it cannot be said to be fully settled, as courts continue to refine the law with respect to attorneys' fees.

But it did become slightly more settled with the California Supreme Court's decision in, LLC v., Case No. S226652 (Apr. 6, 2017). There, one software company filed a breach of contract and fraud action against another. The contracts at issue - which admittedly contained attorneys' fees clauses - also contained provisions requiring any dispute to be subject to jurisdiction in Florida. The plaintiff, however, instituted suit in California; when the defendant moved to dismiss on grounds of forums non conveniens - a fancy way of saying that the case had to be brought in Florida - the trial court agreed.

But when the defendant subsequently sought to recover $84,640 in attorneys' fees on the grounds that it prevailed on the contract, the trial court denied its request. In affirming, the Supreme Court held that the dismissal did not finally settle the litigation; instead, it simply shifted the litigation to another forum. "Such a victory was insufficient to make [the defendant] the prevailing party as a matter of law." (Id. at 8.) Because the plaintiff could still conceivably recover on its claims in the Florida court, the defendant was not sufficiently victorious to recover fees. In essence, it had won a battle, but not the war.

It should be noted that the Supreme Court was quick to emphasize that, in some circumstances, this kind of procedural dismissal could entitle a defendant to fees: "A procedural victory that finally disposes of the parties' contractual dispute...may merit a prevailing party award of fees..." (Id. at 15-16.) But where the dispute remains to be litigated, a California court will be reluctant to award fees.