Thursday, June 23, 2011
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C.A. Rejects Bid for Attorney Fees Based on Different State’s Laws
By SHERRI M. OKAMOTO, Staff Writer
The law of one state cannot decide the issue of whether an award of attorney fees can be made in a contract dispute and the law of another state determine which party prevailed, the First District Court of Appeal has ruled.
Div Four on Tuesday rejected an argument by a Massachusetts-based biotechnology company that it was entitled to attorney fees pursuant to a choice-of-law provision in a contract with Gary D. Aronson and John S. Gorton, as construed by California law, because it was the prevailing party in the dispute under the laws of its home state.
Aronson and Gorton entered into a settlement agreement with Advanced Cell Technology in 2005 to resolve a breach-of-contract suit they had filed in Massachusetts.
The agreement provided that it was to be governed by, and construed and enforced under, Massachusetts law. The terms of this agreement stated that “any attorney’s fees and costs incurred by any of the Plaintiffs [Aronson or Gorton] hereafter in connection with the enforcement of the terms of this agreement…shall, together with interest…be paid on demand by [ACT].” The agreement did not provide for any reciprocal recovery of attorney fees by ACT in the event of a dispute.
Settlement Agreement
Aronson and Gorton later filed a complaint against ACT in California, asserting the company had breached the terms of the settlement agreement. After a trial date was set, Aronson and Gorton requested the case be dismissed.
ACT then filed a motion for attorney fees seeking $645,542.40, claiming it was the prevailing party under Massachusetts law, but that California law should apply to make the attorney fee provision in the settlement agreement reciprocal.
California Civil Code Sec. 1717 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.”
Alameda Superior Court Judge Winifred Y. Smith found Sec.1717 applicable the terms of the agreement reciprocal, but that ACT was not the prevailing party under this statute because the claims against it had been voluntarily dismissed without prejudice.
Choice of Law
On appeal, ACT renewed its arguments, while Aronson and Gorton argued the court should honor the parties’ selection of Massachusetts law and decline to award attorney fees, because no such award was contemplated by their agreement.
Justice Patricia K. Sepulveda, in her decision for the appellate court, said this issue did not need to be decided, because even assuming California law applied, ACT was not entitled to attorney fees.
If, as ACT contended, Sec. 1717’s guarantee of mutuality of remedy for attorney fee claims under contractual attorney fee provisions reflects a fundamental public policy of California, Sepulveda said, “it logically follows that the definition of prevailing party contained in that same statute is used to determine whether appellant is entitled to attorney fees.”
She noted that ACT could cite no precedent in which a court applied Sec. 1717(a)’s mutuality provision, but the law of another state to provide the definition of a prevailing party, or any other term, and declined to take such an approach to this case.
ACT “is correct that the court should conduct a choice-of-law analysis as to each particular issue presented for decision…and that the issue of entitlement to attorney fees under a choice-of-law analysis is thus addressed separately from analysis of substantive issues of the case,” the justice explained, but once “a court concludes that it will apply a California statute to determine whether to award attorney fees, a determination of whether a party is a prevailing party as defined by that same statute is not a separate issue to be analyzed.”
Presiding Justice Ignazio J. Ruvolo and Justice Timothy A. Reardon joined Sepulveda in her decision.
The case is Aronson v. Advanced Cell Technology, 11 S.O.S. 3222.
Copyright 2011, Metropolitan News Company