Opinion
G037317
5-31-2007
JAY KIM, Plaintiff and Respondent, v. HAYES LEMMERZ INTERNATIONAL, INC., Defendant and Appellant.
Dykema Gossett and Jon D. Cantor for Defendant and Appellant. Crandall, Wade & Lowe, Edwin B. Brown and Victor R. Anderson III for Plaintiff and Respondent.
NOT TO BE PUBLISHED
Defendant Hayes Lemmerz International, Inc., (Hayes) appeals an order denying it attorney fees after successfully moving for judgment (Code Civ. Proc., § 631.8) on the breach of contract and other claims asserted by plaintiff Jay Kim doing business as JB Enterprises, Inc., (JB). Hayes contends the trial court erred by applying Michigan law, which treats contractual attorney fees as an item of damages, and instead should have applied California law, which treats them as costs. Alternatively, Hayes argues the trial court should have awarded fees even under Michigan law.
We conclude the trial court erred in denying attorney fees. Michigan law pertaining to contractual attorney fee provisions conflicts with a fundamental policy of California, embodied in Civil Code section 1717, to award attorney fees to the party prevailing on a contract containing an attorney fee clause, even if the clause does not provide for that party to recover fees. California has a materially greater interest in enforcing the equitable rules governing access to its own courts than Michigan does in having its law pertaining to attorney fees enforced by a foreign jurisdiction. Accordingly, we reverse.
We grant JBs request for judicial notice.
I
FACTUAL AND PROCEDURAL BACKGROUND
JB contracted to supply Hayes with truck wheels, which Hayes would then sell to its customers. A dispute arose, and JB sued Hayes for, inter alia, breach of contract and conversion, alleging Hayes failed to pay for $160,000 in product Hayes had received. The case proceeded as a nonjury trial. After JB rested its case, Hayes orally moved for judgment under Code of Civil Procedure section 631.8. The trial court took the matter under submission, and directed Hayes to proceed with its defense. At the close of trial, the court requested further briefing on Hayess motion for judgment. After the parties submitted their briefs, the trial court ruled as follows: "IT IS ORDERED that the motion of . . . Hayes . . . for an order directing a verdict in accordance with Code of Civil Procedure, [s]ection 631.8, is granted in its entirety due to the fact that [JB] failed to satisfy its burden of proof as to any cause of action." The judgment concluded "Hayes . . . is the prevailing party and shall submit the necessary papers and/or motions for costs and attorney fees." Hayes then filed a motion for attorney fees, which the trial court denied as being unavailable under Michigan law. Hayes now appeals the trial courts denial of his attorney fees motion.
II
DISCUSSION
A. Hayes May Obtain Attorney Fees Under California, But Not Michigan Law
The written contract between the parties provided it "shall be construed according to the laws of the state of Michigan and the federal laws of the United States of America, . . . notwithstanding any choice of law provisions that could otherwise require application of any other law." The parties agree Michigan treats attorney fees differently than California. Specifically, under Michigan law, attorney fees generally are not recoverable as costs unless authorized by a statute or rule. (Haliw v. City of Sterling Heights (2005) 471 Mich. 700, 706-707.) Rather, a party may recover attorney fees under Michigan law as part of the damages awarded for breach of a contract, but only if the contract specifically provides for such an award. (Grace v Grace (2002) 253 Mich. App. 357, 370-371; Central Transport, Inc v. Fruehauf Corp. (1984) 139 Mich.App. 536, 548-549.) Because contractual attorney fee provisions represent an exception to the general rule against fee awards unauthorized by statute or court rule, their provisions are narrowly construed. (Rinaldi v. Rinaldi (1983) 122 Mich.App. 391, 402.)
The attorney provision at issue reads: "Upon any default hereunder, in addition to all other remedies hereunder or under applicable law or in equity, [Hayes] may exercise any one or more of the following remedies: . . . (f) recover attorneys fees and costs of suit . . . ." Here, the trial court expressly based its judgment on JBs failure to establish any of its causes of action, and not on Hayess defense that JB defaulted on its own obligations. As a result, Hayes failed to establish a breach of contract upon which it could recover attorney fees as damages. Hayes is therefore not entitled to attorney fees under Michigan law.
The result is different under California law. California Civil Code section 1717, subsection (a), provides: "In any action on a contract, where the contract specifically provides that attorneys 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 attorneys fees in addition to other costs." Section 1717 further provides that "[r]easonable attorneys fees shall be fixed by the court, and shall be an element of the costs of suit."
As originally enacted, Civil Code section 1717 was intended to transform a unilateral attorney fee provision — purporting to confer the right to recover fees to one of the contracting parties, but not the other — into a reciprocal provision. (Santisas v. Goodin (1998) 17 Cal.4th 599, 614.) The section was later expanded, however, to ensure mutuality of the attorney fee remedy, even in reciprocal agreements, where a party successfully defends against a suit on the contract. Indeed, a successful defendant may recover attorney fees as a "party prevailing on the contract" under Civil Code section 1717 even if the defense established was that the contract was invalid or never formed. (Santisas, at p. 614.) Thus, the Legislature decreed that "`equitable considerations must prevail over both the bargaining power of the parties and the technical rules of contractual construction." (PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1091.)
The attorney fee clause here allowed only Hayes to obtain attorney fees if Hayes could establish JB breached the agreement. Nonetheless, Civil Code 1717 makes the clause reciprocal, so that JB could have obtained attorney fees if it had established Hayess breach. Because Hayes was the party seeking attorney fees, however, the trial court erroneously concluded section 1717 was inapplicable. Section 1717, however, also makes the availability of attorney fees mutual. Because JB could have obtained attorney fees under section 1717 if it were successful, the statute operates to grant Hayes its attorney fees upon defeating JBs claims as the "party prevailing on the contract." Accordingly, we conclude California law entitles Hayes to its attorney fees as costs.
B. Hayess Inconsistent Position at Trial Does Not Preclude Application of California Law in Connection with Hayess Attorney Fee Motion
Recognizing Michigan treats attorney fees as damages, Hayes argued at trial that Michigan law applied, and initially sought the fees it incurred as an offset to money purportedly owed to JB. Hayess counsel argued in its opening statement: "[P]laintiff and I have both agreed that this is governed by Michigan law. . . . The attorneys fees are going to have to be governed by Michigan law. I have presented in my trial brief some authority for Michigan [law] . . . and that . . . attorneys fees are treated as damages. . . . [¶] The attorney fees for me, . . . will be also used as an offset." Hayes defended against plaintiffs claims in part by demonstrating JBs own breach of the agreement required Hayes to buy more expensive wheels from another manufacturer. Hayes introduced evidence that the costs of covering JBs breach, combined with attorney fees expended in the case, exceeded what it owed JB.
This evidence came through the testimony of Scott Hrach, Hayess controller for its Akron, Ohio, plant who testified Hayes had spent $57,771.25 in attorney fees in the case thus far, and concluded: "Q. Based upon the cost that was incurred by Hayes Lemmerz for the air shipment, the cover from Accuride, the cover from Northeast Great Dane and now the attorney fees that have incurred, have all those exceeded the $156,000 thats due — thats allegedly due and owing from JB Enterprises? [¶] A. Yes, they have exceeded. [¶] Q. And based upon that Hayes Lemmerz made a decision not to pay JB Enterprises any additional funds? [¶] A. That is correct."
Despite Hayess insistence during trial that Michigan law governed the application of the contracts attorney fee clause, Hayes changed course in its posttrial attorney fee motion and asserted California law should govern the provision. JB contends Hayes waived its right to invoke California law because it took an inconsistent position at trial. We disagree.
JB cites no legal authority in support of its waiver argument. A review of its contentions, however, leads us to conclude JB is asserting the doctrine of judicial estoppel, not waiver. "`"`Judicial estoppel precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position. [Citations.] . . ." [Citation.] The doctrine [most appropriately] applies when: "(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake." [Citations.]" (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 422.)
Judicial estoppel does not apply in the present case because the third element, Hayess success in asserting its first position, is not met. Specifically, the trial court granted Hayess motion for judgment because JB failed to establish any cause of action, not because of Hayess offset defense. "As a general rule, the court should apply the doctrine [of judicial estoppel] only when the party stating an inconsistent position succeeded in inducing a court to adopt the earlier position or to accept it as true. If the party did not succeed, then a later inconsistent position poses little risk of inconsistent judicial determinations and consequently introduces "`little threat to judicial integrity."" (ABF Capital Corp. v. Berglass (2005) 130 Cal.App.4th 825, 832 (Berglass).)
We also reject JBs contention an attorney fee award to Hayes would constitute a double recovery. The trial court never ruled on Hayess defense, so Hayes did not recover its fees as an offset.
C. Michigan Has a Substantial Relationship With Hayes
In considering whether to apply the parties Michigan choice of law provision to the attorney fee motion, the trial court relied on the test articulated by the Supreme Court in Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 465 (Nedlloyd). This test, adopted from Restatement Second of Conflict of Laws, section 187, subdivision (2), requires "the court first to determine either: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties choice of law. [Fn. omitted.] If neither of these tests is met, that is the end of the inquiry, and the court need not enforce the parties choice of law. If, however, either test is met, the court must next determine whether the chosen states law is contrary to a fundamental policy of California. [Fn. omitted.] If there is no such conflict, the court shall enforce the parties choice of law. If, however, there is a fundamental conflict with California law, the court must then determine whether California has a `materially greater interest than the chosen state in the determination of the particular issue . . . . [Citation.] If California has a materially greater interest than the chosen state, the choice of law shall not be enforced . . . . [Fn. omitted.]" (Nedlloyd, at p. 466.)
The law considers the parties to a transaction to have a reasonable basis for their choice of law if one of them resides in the state whose law is chosen. (Nedlloyd, supra, 3 Cal.4th at p. 467.) A corporations principal place of business is generally deemed to be its residence. (Berglass, supra, 130 Cal.App.4th at p. 834); Pac. Gas etc. Co. v. State Bd. of Equal. (1955) 134 Cal.App.2d 149, 152-153.) Undisputed evidence establishes that Hayess principal place of business is Michigan. This alone is sufficient to meet the first part of the Nedlloyd analysis.
Other evidence, however, also establishes a substantial relationship between Michigan and Hayes. Despite a declaration submitted by Hayess assistant general counsel stating that Hayes has no employees or assets in Michigan, JB submitted evidence demonstrating otherwise. Significantly, as Hayes concedes, the checks used to pay JB were drawn on Hayess Michigan bank account. Hayess website lists its "World Headquarters" as Northville, Michigan, and lists the names of six individuals purportedly employed there. Hayess web site also lists the addresses and telephone numbers of various business units and manufacturing plants in the Michigan towns of Au Gres, Southfield, Montague, Homer, and Cadillac. Because Michigan has a substantial relationship with Hayes, we need not determine whether the transaction had a substantial relationship as well.
D. Michigan Law Concerning Attorney Fees Conflicts With a Fundamental Policy of California
We now turn to the next step in the Nedlloyd analysis: Whether enforcement of Michigan law with respect to the attorney fee provision is contrary to a fundamental policy of California. We conclude that it is.
In ABF Capital Corp. v. Grove Properties Co. (2005) 126 Cal.App.4th 204 (Grove Properties), the court considered whether application of New York law to an attorney fee provision would conflict with a fundamental California policy. The clause provided for the defendants to pay the plaintiffs attorney fees expended in enforcing the agreement if a court determined defendants had breached the contract. (Id. at p. 210.) Unlike California, New York allows nonreciprocal attorney fee clauses, and enforces them as written.
Although finding New York had a substantial relationship to both the parties and the transaction, the appellate court in Grove Properties nonetheless applied California law to the attorney fee issue, observing: "California does have a fundamental policy concerning the reciprocity of attorney fee provisions in contracts. Civil Code section 1717, subdivision (a) expressly provides that, `Attorneys fees provided for by this section shall not be subject to waiver by the parties to any contract which is entered into after the effective date of this section. Any provision in any such contract which provides for a waiver of attorneys fees is void. [Citation.] . . . `This language 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 attorneys fees contractual provisions create reciprocal rights to such fees. . . . [¶] . . ." (Grove Properties, supra, 126 Cal.App.4th at p. 217.)
JB contends a more recent case, Berglass, supra, 130 Cal.App.4th 825, "disagreed with Grove Properties that California had a fundamental interest in ensuring reciprocity of attorney fee provisions." JB is mistaken. Berglass never reached the "fundamental interest" issue because it determined that under its facts, New York law would have applied had the parties not included a choice of law provision in their contract. (Berglass, at p. 839.)
JB also contends that Grove Properties is inapposite because the attorney fee provision at issue here grants Hayes a unilateral right to fees. Because Hayes, not JB, is seeking fees, JB argues reciprocity under Civil Code section 1717 is not an issue. We disagree. As noted above, Civil Code section 1717 ensures that the prevailing party on a contract containing an attorney fee clause may obtain attorney fees as costs. One purpose of this section is to curtail "overreaching . . . in the use of the courts during litigation." (Grove Properties, supra, 126 Cal.App.4th at p. 218.) Attorney fee clauses enforceable by only one of the parties "`"can . . . be used as instruments of oppression to force settlements of dubious or unmeritorious claims."" (Id. at pp. 218-219.) JB chose to file suit in California and would have, under Civil Code section 1717 and Grove Properties, obtained attorney fees if it had prevailed on its claims. Granting JB, but not Hayes, a right to attorney fees would have given JB the unfair and oppressive litigation advantage section 1717 was designed specifically to prevent. (See Trope v. Katz (1995) 11 Cal.4th 274, 289 [the legislative purpose underlying Civil Code section 1717 "is to ensure that contractual attorney fee provisions are enforced evenhandedly"].)
E. California Has a Materially Greater Interest than Michigan in Determining the Attorney Fee Issue
The next step in our Nedlloyd analysis is to determine whether California has a materially greater interest than Michigan in determining Hayess entitlement to attorney fees. We conclude it does.
True, as JB notes, the present case is distinguishable from Grove Properties because the defendant seeking fees there was a California resident, and here JB as plaintiff is the California resident. As Grove Properties noted: "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 Properties, supra, 126 Cal.App.4th at p. 220.) But Californias interest in fair play in its courts extends not just to its residents. Indeed, the defendants California residency was only part of the reason why Grove Properties determined California had a materially greater interest than New York: "California has a materially greater 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, when those attorney fees are not incurred as a result of any use of New York courts, and have no effect on the accessibility to New York courts." (Id. at p. 220.) In the present case, JB does not address what interest Michigan would have in enforcing its law concerning attorney fees in a foreign court. Under these circumstances, we conclude the trial court erred in applying Michigan law to the attorney fee agreement.
III
CONCLUSION
The order denying attorney fees is reversed. Hayes is entitled to its costs of this appeal.
We concur:
OLEARY, Acting P. J.
MOORE, J.