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CALIFORNIA CORPORATE & SECURITIES LAW

Dismissal Based On Forum Non Conveniens Does Not Trigger Fee Shifting

California generally follows the “American Rule” with respect to attorney’s fees.  Trope v. Katz, 11 Cal.4th 274, 278 (1995).  Under the American Rule, each party to a lawsuit must ordinarily pay his own attorney’s fees.  A contract may provide, however, that the prevailing party to an action on the contract may recover attorney’s fees.  Sometimes these clauses are unilateral – specifying only that one party (e.g., the lender) will be entitled to attorney’s fees.  California Civil Code Section 1717(a) makes these unilateral clauses bilateral:

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.

Even under Section 1717, a party must be “prevailing” to recover its attorney’s fees.  What if a defendant succeeds in obtaining dismissal of a case based on a forum selection provision?

In Disputesuite.com, LLC v. Scoreinc.com, 2017 Cal. LEXIS 2550 (2017), the defendant, invoking contractual forum selection clauses, successfully moved to dismiss an action on grounds of forum non conveniens.  Citing an attorney’s fees clause and Section 1717, the defendant then sought an award of over $84,000 for attorney’s fees as the prevailing party.  The trial court denied the motion on the basis that the plaintiff had refiled its action in the forum specified in the contract.  The Court of Appeal agreed: “there has been no final resolution of the contract claims.” Score had not achieved an unqualified victory on the contract claim against it.  The Court of Appeal agreed and the defendant then made its case to the California Supreme Court.

The Supreme Court, in an opinion by Justice Kathryn M. Werdegar, affirmed holding that the defendant’s “victory in moving the litigation to Florida did not make it the prevailing party as a matter of law under section 1717, and the trial court therefore acted within its discretion in denying Score’s [the defendants’] motion for attorney fees”.   The Supreme Court, however, did not adopt an ironclad rule against the award of attorney’s fees when a defendant obtains dismissal of an action based on a forum selection clause:

We do not, however, hold fees may never be awarded for obtaining a dismissal on grounds of improper forum, only that to deny fees here, where the action had been promptly refiled in the appropriate forum, was not an abuse of the court’s discretion.  And as noted earlier (ante, fn. 1), the fees may ultimately be shifted should the defendant prevail in the contract action. Finally, if a defendant believes the action has been filed in California for an improper purpose, such as to harass the defendant or cause him or her needless litigation costs, the defendant may seek sanctions under Code of Civil Procedure section 128.7, which may include attorney fees incurred as a result of the improper filing. (Id., subds. (b)(1), (d).)

(footnote omitted).

Covenant, convents and conventicles

Although the phrase forum non conveniens is Latin, it reportedly postdates the Romans by many centuries.  According to a 1947 article by Edward L. Barrett, Jr., courts in Scotland coined the phrase to distinguish situations in which the court lacked jurisdiction, forum non competens, from those in which it had jurisdiction, but had discretion on whether to exercise it.  The Doctrine of Forum Non Conveniens, 35 Cal. L. Rev. 380, 386 n. 34 (1947).  This conceptualization of the doctrine is consistent with the California Supreme Court’s view quoted above.  The word “conveniens” is the participle form of the Latin word convenire, meaning to come together.  Convenire is also the source of the English words, covenant, convent and conventicles.  Perhaps it is no coincidence that courts in Scotland began using coveniens in the 17th century when the proper noun “Covenanters” also began to be applied to the signatories to the Solemn League and Covenant (1643), an agreement between the Scots and the English.

 

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