Disputesuite, LLC v. Scoreinc.com
Disputesuite, LLC v. Scoreinc.com
Opinion
*971
Is the defendant in an action arising out of contract entitled to an award of attorney fees under Civil Code section 1717 (section 1717 ) by virtue of having obtained a dismissal from a California court on the ground that the agreement at issue contained a forum selection clause specifying the courts of another jurisdiction? In the circumstances of this case, we conclude the trial court did not abuse its discretion in finding that defendants were not prevailing parties for purposes of section 1717. Considering that the action had already been refiled in the chosen jurisdiction and the parties' substantive disputes remained unresolved, the court could reasonably conclude neither party had yet achieved its litigation objectives to an extent warranting an award of fees. (See § 1717, subd. (b)(1) [court may determine that there is no party prevailing on the contract];
Hsu v. Abbara
(1995)
*111 FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff DisputeSuite.com, LLC (DisputeSuite) owns copyrighted software it markets to credit repair organizations (CROs) for their use in serving their customers. Defendant Scoreinc.com performs services for CROs, including supporting credit repair software such as DisputeSuite's. The individual defendants are principals of Scoreinc.com; we refer to defendants collectively as Score.
The parties entered into a business relationship embodied in a series of oral and written agreements. Under these agreements, DisputeSuite referred CROs buying its software to Score for outsourcing services, licensed the software to Score and allowed Score to relicense it to end users, and provided Score with proprietary marketing methods. In return, Score agreed to pay DisputeSuite a commission on referred CROs, to provide services only to CROs that used DisputeSuite's software, to market that software exclusively, and to maintain the confidentiality of marketing information and software DisputeSuite provided.
Two of the parties' written agreements, referred to as the "Master Re-Seller Agreement" and the "Cross-Marketing Agreement," contain clauses subjecting disputes arising out of the agreements to the sole jurisdiction of courts in Florida. According to DisputeSuite, a third contract, the "End-User Agreement," had been modified to specify courts in Los Angeles as the exclusive *972 forum for dispute resolution, but Score denied receiving notice of that modification.
In July of 2012, DisputeSuite brought this action for breach of contract, fraud, and related causes of action, alleging Score had breached its obligations to pay commissions and to use only DisputeSuite's software in its services to CROs. In September, the court issued a preliminary injunction barring Score from transferring CROs referred by DisputeSuite to other software platforms or transferring DisputeSuite software to anyone other than the parties' joint customers.
Citing the two Florida forum selection clauses, Score moved to dismiss the action on grounds of forum non conveniens. On October 11, 2012, the trial court granted the motion, concluding the action arose out of the Master Re-Seller and Cross-Marketing Agreements, which specified courts in Florida as the proper forum, rather than the End-User Agreement, which DisputeSuite maintained specified Los Angeles as the forum. The court, however, stayed the action rather than immediately dismissing it, giving DisputeSuite 60 days to refile in Florida. After **1184 granting DisputeSuite a one-week extension of that period, on December 18, 2012, the court dismissed the case and vacated its preliminary injunction.
Score then moved to recover $84,640 in attorney fees incurred in connection with the motion to dismiss, relying on an attorney fee clause in the Cross-Marketing Agreement and on section 1717. The trial court denied the motion, finding that because the merits of the contract issues were still disputed and under litigation, Score was not the prevailing party for purposes of section 1717. In the trial court's view, a defendant would be entitled to fees for obtaining a nonmerits victory only if that victory finally ended the parties' litigation, which was not the case here. "DisputeSuite has filed suit in Florida, the more convenient forum. As Defendants have not prevailed on the parties' contract, they are not entitled to an award of reasonable attorneys' fees."
The Court of Appeal affirmed, agreeing with the trial court that Score was not entitled to fees because "there has been no *112 final resolution of the contract claims." Score had not achieved an unqualified victory on the contract claim against it. Rather, "[d]efendants succeeded only in enforcing one contractual clause, not in disposing of all of plaintiff's contract claims. Thus, defendants obtained merely an interim victory by succeeding in getting the case moved from one forum to another, thereby delaying final resolution of the contract claims."
We granted Score's petition for review.
*973 DISCUSSION
Section 1717, subdivision (a), provides in part: "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." Subdivision (b)(1) of the statute provides: "The court, upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section, whether or not the suit proceeds to final judgment. Except as provided in paragraph (2) [relating to voluntary dismissals and settlements], the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. The court may also determine that there is no party prevailing on the contract for purposes of this section."
The trial court ruling on a motion for fees under section 1717 is vested with discretion in determining which party has prevailed on the contract, or that no party has. (
Hsu v. Abbara
,
supra
, 9 Cal.4th at p. 871,
In
Hsu
, the trial court granted the defendants' motion for judgment on the complaint for breach of contract but denied the defendants' motion for fees under section 1717. (
Hsu
,
supra
, 9 Cal.4th at pp. 868-869,
Applying these principles, we conclude the trial court acted within its discretion in determining that Score had not "prevail[ed] on the contract" within the meaning of section 1717, subdivision (b)(1), by moving the litigation to Florida. While Score had succeeded in enforcing the forum selection clauses in two of its agreements with DisputeSuite, it had not defeated DisputeSuite's breach of contract and related claims. Because none of those claims had yet been resolved and the litigation was still ongoing in Florida, the California trial court was in no position to "compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives"; that comparison could be made only "upon final resolution of the contract claims." (
Hsu
,
supra
, 9 Cal.4th at p. 876,
No reported California case appears to have decided the precise issue before us here, a defendant's entitlement to attorney fees for obtaining dismissal of a contract action under the agreement's forum selection clause. The section 1717 issue has, however, arisen in related procedural contexts, in which a party has won a procedural victory ending the contract litigation in one court but the litigation has continued or could continue in a different forum. Courts of Appeal have reached differing results on the diverse facts of these cases.
In
Estate of Drummond
(2007)
The Court of Appeal affirmed. The court held the fees were properly denied under section 1717 because the testator's children had "obtained only an interim victory, based on [the attorney] having attempted to pursue his claims in the wrong forum." (
Drummond
,
supra
, 149 Cal.App.4th at p. 51,
The same may be said of Score's achievement in the California trial court. In obtaining dismissal in favor of a Florida venue, Score did not defeat DisputeSuite's breach of contract and related claims, but succeeded only in moving their resolution to another forum. This is not a case in which the claims' prosecution in another forum is barred or even doubtful; DisputeSuite had already refiled in Florida at the time Score requested its fees for obtaining dismissal in California. Far from "obtain[ing] a 'simple, unqualified win' " on the contract claims (
Hsu
,
supra
, 9 Cal.4th at p. 877,
The court in
Lachkar v. Lachkar
(1986)
*976
(
Id.
at pp. 643-645, 647,
Although decided under an earlier version of section 1717,
Lachkar
's conclusion accords with
Drummond
's : A party does not become the prevailing party under the statute merely by obtaining a forum for resolution of the contractual dispute or by moving it from one forum to another.
Lachkar
's view that the prevailing party cannot be determined until the contractual dispute reaches a final disposition and the parties' respective achievements can be compared prefigured this court's direction that the trial court should decide which party, if either, has prevailed "only upon final resolution of the contract claims and only by 'a comparison of the extent to which each party ha [s] succeeded and failed to succeed in its contentions.' " (
*115
Hsu
,
supra
, 9 Cal.4th at p. 876,
Frog Creek Partners, LLC v. Vance Brown, Inc.
(2012)
The Frog Creek court held that under section 1717, attorney fees for the first petition to compel should have been awarded to the defendant, who prevailed on the contract dispute as a whole, rather than to the plaintiff, who won only an interim victory on the first petition. That victory did not make the plaintiff the prevailing party on the contract because denial of the petition to compel arbitration "did not resolve the parties' contract dispute; instead, the merits of that dispute remained before the court in [the plaintiff's]
*977
complaint and [the defendant's] cross-complaint." (
Frog Creek
,
supra
, 206 Cal.App.4th at p. 546,
Although
Frog Creek
is not closely analogous to this case procedurally-the petition to compel for which fees were sought there did not result in moving the litigation to another forum, as the dismissal motion here did-it supports the denial of fees in this case by its invocation of the general principle, equally applicable here, that fees under section 1717 are awarded to the party who prevailed on the contract overall, not to a party who prevailed only at an interim procedural step. (
Frog Creek
,
supra
, 206 Cal.App.4th at p. 546,
As was the case for the plaintiff in
Frog Creek
, here Score prevailed only on an
*116
interim motion that did not resolve the parties' contract dispute. Whether Score will ultimately be the overall victor, and become entitled to its attorney fees pursuant to the agreements, remains to be seen.
1
*978
Score relies primarily on two cases in which fees were awarded to the defendant for obtaining dismissal in a California court:
Profit Concepts Management, Inc. v. Griffith
(2008)
In
Profit Concepts
, a company sued its former employee, a resident of Oklahoma, in California for breach of an agreement containing an attorney fees clause. The trial court granted the defendant's motion to quash service for lack of personal jurisdiction and awarded the defendant his fees. (
Profit Concepts
,
supra
, 162 Cal.App.4th at pp. 952-953,
Profit Concepts
' reference to "speculation" about the litigation continuing in another forum would seem to distinguish it from the present case, where the trial court delayed dismissal to give plaintiff time to refile in Florida and relied, in exercising its discretion against a fee award, on its knowledge that the litigation was indeed continuing in that forum. But the opinion goes on, rather puzzlingly, to note that the plaintiff
did
file an action in Oklahoma; the
Profit Concepts
court nonetheless affirmed the fee award because "the matter has been completely resolved vis-à -vis the California courts." (
Profit Concepts
,
supra
, 162 Cal.App.4th at p. 956,
PNEC Corp.
followed
Profit Concepts
in affirming a fee award to a breach-of-contract defendant who successfully moved to dismiss the action, the difference being that the dismissal in
PNEC Corp
. was based on forum non conveniens rather than lack of personal jurisdiction. (
PNEC Corp
.,
supra
, 190 Cal.App.4th at pp. 68-69,
Whether or not these decisions reached defensible results, portions of their reasoning are inconsistent with our analysis.
Profit Concepts
reasoned the defendant was the prevailing party because "[t]he case
in California
has been finally resolved" without any recovery on the contract, and the prevailing party determination "must be made without consideration of whether the plaintiff may refile the action" in another forum. (
Profit Concepts
,
supra
, 162 Cal.App.4th at p. 956,
Score also relies on
Turner v. Schultz
(2009)
The California and Florida actions in the present case were not substantively independent in the manner of the San Francisco and Contra Costa actions in
Turner
. Whereas in Mr. Turner's San Francisco action only the question of arbitration was at issue, and not the substance of the contractual dispute being litigated in Contra Costa County, here DisputeSuite's California lawsuit put at issue the entirety of its claims against Score, claims that, at the time the California court denied Score's fee motion, were still being litigated in Florida. Nor did DisputeSuite choose to make Score "fight on two fronts" (
Turner
,
supra
, 175 Cal.App.4th at p. 985,
Finally, Score cites this court's decision in
Christensen v. Dewor Developments
(1983)
The
Christensen
court did not discuss section 1717's definition of "prevailing party" or whether the defendants' defeat of the petition to compel arbitration should be considered merely an interim victory, given that the plaintiff's civil action had been dismissed without prejudice. (See
*981
Christensen
,
supra
, 33 Cal.3d at p. 784,
Score argues that an award of fees under section 1717 should not require a victory on the merits of the contractual dispute, as opposed to a victory on procedural grounds. We agree. A procedural victory that finally disposes of the parties' contractual dispute, such as an involuntary dismissal with prejudice and without any *119 likelihood of refiling the same litigation in another forum, may merit a prevailing party award of fees under section 1717. The flaw in Score's claim to be the prevailing party here is not that its victory in the California trial court was procedural but that it was not dispositive of the contractual dispute. By the time of the trial court's decision on fees, that dispute was already being litigated in a Florida court.
Score also warns that a failure to award attorney fees here will encourage "distant forum abuse," especially in debt collection cases: "unscrupulous creditors will be encouraged to file consumer collection actions in the wrong forum, knowing that a dismissal based on forum non conveniens will never trigger contractual fee shifting." 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. 2 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).)
CONCLUSION AND DISPOSITION
We hold that Score'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 motion *982 for attorney fees. We affirm the judgment of the Court of Appeal, which reached the same conclusion.
We Concur:
Cantil-Sakauye, C.J.
Chin, J.
Corrigan, J.
Liu, J.
Cuéllar, J.
Kruger, J.
As the trial court suggested in denying Score's fee request, Score, should it ultimately prevail in Florida, may be able to recover the attorney fees incurred on its successful motion to dismiss the California case. (See
East Coast Metal Decks, Inc. v. Boran Craig Barber Engel Constr. Co.
(Fla.Dist.Ct.App. 2013)
Because events occurring after the lower court's ruling cannot affect the correctness of that ruling, we deny as irrelevant Score's request, filed January 31, 2017, for judicial notice of docket entries and filed documents from the Florida trial court.
A court's discretion to determine the defendant has prevailed for purposes of section 1717 by obtaining a dismissal in favor of another forum is not, however, unbounded; such an order should be supported by a record showing that the contract claims have been finally resolved.
Reference
- Full Case Name
- DISPUTESUITE, LLC, Plaintiff and Respondent, v. SCOREINC.COM Et Al., Defendants and Appellants.
- Cited By
- 53 cases
- Status
- Published