DISPUTESUITE.COM v. SCOREINC.COMAppellants’ Petition for ReviewCal.May 27, 2015s 826652el IN THE SUPREME COURT OF THE STATE OF CALIFORNIA DISPUTESUITE.COM, LLC Plaintiff& Respondent, vs. SCOREINC.COM,etal. Defendants & Appellants. AFTER A PUBLISHED DECISION BY THE COURT OF APPEAL SECOND APPELLATE DISTRICT, DIVISION Two,NO. B248694 . ON APPEAL FROM ORDER OF LOS ANGELES SUPERIOR COURT SUJPREME COURT CASE No. BC489083 FILED HONORABLE JAMES C. CHALFANT, TRIAL JUDGE MAY 27 2015 PETITION FOR REVIEW Frank A. McGuire Clerk. Deputy Marvin Gelfand (SBN 53586) Robert Cooper (SBN 209641) * Brendan J. Begley (SBN 202563) WILSON,ELSER, WEINTRAUB TOBIN CHEDIAK MOSKOWITZ, EDELMAN & COLEMAN GRODIN DICKER LLP Law Corporation 555 South FlowerStreet, 29th Floor 9665 Wilshire Blvd, Ninth Floor Los Angeles, CA 90071 Beverly Hills, CA 90212 Tel: 213-443-5100 T: 310.858.7888; F: 310.550.7191 Fax: 213-443-5101 mgelfand@weintraub.com robert.cooper@vwilsonelser.com bbegley(@weintraub.com Attorneysfor Defendants & Appellants SCOREINC.COM,INC., JOEL S. PATE & JOSHUA CARMONA 2250175v.1 IN THE SUPREME COURT OF THE STATE OF CALIFORNIA DISPUTESUITE.COM, LLC Plaintiff& Respondent, vs. SCOREINC.COM,et al. Defendants & Appellants. AFTER A PUBLISHED DECISION BY THE COURT OF APPEAL SECOND APPELLATE DISTRICT, DIVISION TWO, NO. B248694 ON APPEAL FROM ORDER OF LOS ANGELES SUPERIOR COURT CASE NO. BC489083 HONORABLE JAMES C. CHALFANT, TRIAL JUDGE PETITION FOR REVIEW Marvin Gelfand (SBN 53586) Robert Cooper (SBN 209641) * Brendan J. Begley (SBN 202563) WILSON,ELSER, WEINTRAUB TOBIN CHEDIAK | MOSKOWITZ, EDELMAN & COLEMAN GRODIN DICKER LLP Law Corporation 555 South Flower Street, 29th Floor 9665 Wilshire Blvd, Ninth Floor Los Angeles, CA 90071 Beverly Hills, CA 90212 Tel: 213-443-5100 T: 310.858.7888; F: 310.550.7191 Fax: 213-443-5101 megelfand@weintraub.com robert.cooper@vwilsonelser.com bbegley@weintraub.com Attorneysfor Defendants & Appellants SCOREINC.COM,INC., JOEL S. PATE & JOSHUA CARMONA 2250175v.1 TABLE OF CONTENTS Page ISSUE PRESENTED ...........ccccccsscscesseesesecesssonsessceseesessesenensesnestnersetaseeeeeees 1 REASONS WHY REVIEW SHOULDBE GRANTED.............cseeeeeees 1 STATEMENTOF THE CASE...ceccesssssessesseeeeseesenensneesnersnerentneeeeeey3 A. The Parties and the Claims...........cs secesseeseeseecnneeresseneseaeenes3 B. Score Obtains Dismissal ofthe California Action..............00+4 C. After Obtaining Full Dismissal of the California Action, Score Files Its Motion for Attorneys’ Fees..........:scscsseeseeees5 D. The Court of Appeal Upholds the Denial of Score’s Fee Motion .....ccccscssccsseccccsseesceseerssesscensueesseaeessesseeseesssesseesneees6 E. The Court of Appeal Denies Rehearing..........sesesesereeeeeeees7 LEGAL DISCUSSION........cccccsccssccessseceesscseessseseecenessessnensessneessessesraseseseaes7 A. There Is An Express Conflict Among Appellate Courts Regarding Whether a Party That Obtains Dismissalof a Lawsuit on Procedural Grounds May Recover Contractual Attorneys’ Fes .........scssesssssessssseeseesessessennsseescesastssseseesenseessseees7 B. Given the Current Budget Crisis, Review Is Particularly Necessary to Eliminate the Current Incentive for Non- California Plaintiffs to Clog Up the California Court System without Any Fee ExpOSure ........:.cssccsseeseereesesesseesesseresseeates 11 CONCLUSION.........cccccccsssssssesecececesneceesscssceeseensessesseseneessasenseesessassasenasens 12 CERTIFICATE OF WORD COUNT.....0......cccccccsseesssseeteeererereteeneeneesoenes 13 i 2250175v.1 TABLE OF AUTHORITIES Page Cases Carnes v. Zamani (9th Cir. 2007) 488 F.3d 1057, 1059 ......csesecessseretetsereteesesssssseseneneses 10 Estate ofDrummond (2007) 149 Cal.App.4th 46 occeccceseeesssereneteseeeeersnenseresssssssnsessnenes 7,8 Hsu v. Abbara (1995) 9 Cal4th 863 oo... essscsssscsssssesessssessesssesessseesseneseeressesersensassesesaees 9 Kandy Kiss ofCalifornia, Inc. v. Tex-Ellent, Inc. (2012) 209 Cal.-App.4th 604 0... cceseseesssereerenereteresstensssessnsessssseneseees 1,6 PNEC Corp. v. Meyer (2010) 190 Cal.App.4th 66 .......cccsssesesesssesscseneseeenerensseseeneeessenseeeeens 9, 10 Profit Concepts Management, Inc. v. Griffith (2008) 162 Cal.App.4th 950cccesccesesssseetsseseteenereeseeeetenesterscaees 8,9, 10 Statutes Civil Code, § 1717 ....cceeeesesssesesecssssssssscsssssssessessessssenaseneneeneesoesasegees 1, 2, 8-10 Code Civ. Proc., § 904.1, subd. (€)(3).......ccscesesteesesseeersteeetereeseeesesseeensees 5 Rules Cal. Rules of Court, rule 8.25 .......ccsceessseeesesssecsssessssceneeseaneesseeesseenseeesssees 14 Cal. Rules of Court, rule 8.204(C)........eecseeeesnessrseeeseeeceseeeeceseneeseeseneeseneerens 13 ii 2250175v.1 ISSUE PRESENTED > Whether contractual attorneys’ fees may be denied to a successful party whodefeats a California lawsuit based on the mere fact that litigation may proceedin a different jurisdiction. REASONS WHY REVIEW SHOULD BE GRANTED There are two conflicting views as to whether a party may obtain contractual attorneys’ fees in the absence of a final determination of the merits of the case. Giventhis conflict, this Court previously granted review to resolve this issue in Kandy Kiss of California, Inc. v. Tex-Ellent, Inc. (2012) 209 Cal.App.4th 604, review granted January 16, 2013, S206354, review dismissed August 13, 2014. Because the parties settled that case after it was briefed in this Court, this Court never resolved this issue. This case presents the perfect opportunity to finally resolve this conflict. The issue presented here has significant practical implications. By precluding the recovery of contractual fees by defendants after the dismissal of a lawsuit on procedural grounds, the Court of Appeal’s decision below invites non-California plaintiffs to file lawsuits here, burdening our congested courts with lawsuits that lack sufficient connection to California. In addition, the Court of Appeal’s decision effectively eliminates the concomitant fee exposure for plaintiffs in pursuing suchlitigation, a risk that both parties would otherwise face at the beginning of each lawsuit. As a result, by minimizing the risk of fee exposure for only one side (the plaintiff losing a lawsuit on procedural grounds), the Court of Appeal’s decision undermines the reciprocity principles governing contractual fee shifting under Civil Code section 1717. 2250175v.1 While the Court of Appeal’s decision here represents one of two lines of authority, there is a glaring need for clear and consistent rulesin this area. Instead of consistency, confusion and disagreement has plagued California trial practice for years, creating substantial inefficiencies regarding whether contractual attorneys’ fees may be recovered before a final merits determination. While there are no knownstatistics regarding the number of proceduraldispositions (rulings terminating a case based on equitable forum non conveniens, etc.) or dispositions based upon a contractual forum-selection clause, this conflict calls out for this Court’s review andclarification. The issues presented here comeup inall types of contract disputes that entail fee shifting, particularly in the real estate and construction industries. Such cases typically entail contract disputes involving purchase and sale agreements, leases, development agreements, financing and loan agreements. While the fee dispute here arose after contesting the proper forum to litigating a trade secrets case, contractual fee disputes can also arise in employment litigation, attorney-client lawsuits, partnership disputes, etc. When such lawsuits are dismissed on any procedural grounds (e.g., improper venue, misjoinder, failure to prosecute, delay in bringing case to trial, compulsory cross-complaintrule, etc.), the parties will be embroiled in satellite litigation over fee recovery, each side invoking a different line of authority. The published opinion in this case is a prime example of the complete unpredictability of decisions on the issue presented,reflecting a sharp discontinuity in the law that needs to be remedied. Needless to say, the Legislature did not intend to create this sort of disarray when enacting the contractual fee-shifting statute—Civil Code section 1717. Deep discord on recurring issue of civil procedure undermines the judicial process andlitigants’ faith in just results. This Court should step in 2 2250175v.1 before the law becomes even more obscure. The uncertainty occasioned by this conflict is particularly intolerable given this Court’s responsibility to oversee the even-handed and consistent functioning of the state judiciary. Different appellate districts have weighed in with discordant results. Some have intramural inconsistencies. The only possible source of clarity is this Court. The published decision warrants reviewfor all of these reasons. STATEMENT OF THE CASE A. The Parties and the Claims In July 2012, Plaintiff and Respondent DisputeSuite.com, LLC (“DisputeSuite”) filed a civil action in the Los Angeles County Superior Court against Defendants and Appellants Scoreinc.com, Joel S. Pate, and Joshua Carmona(collectively “Score”). (1 Appellants’ Appendix (“AA”) 77-121 [complaint]; 6 AA 1370.) Claiming to be a leading provider of credit repair software/services to credit repair organizations, DisputeSuite alleged that it presented its “confidential proprietary trade secret method of doing business” to Score while providing Score with a license to use the “proprietary copyrighted software at a severely discounted price.” (1 AA 84, J§ 20-21.) DisputeSuite claimed that four contracts governed its business relationship with Score. (1 AA 84, 922; 87, 25; 90, 934.) The complaint alleged breach of contract, bad faith, fraud, conspiracy and misappropriation of trade secrets (amongothers). (1 AA 77-78.) In addition to seeking damages andinjunctiverelief, DisputeSuite, a Florida company, sought attorneys’ fees. (1 AA 121; 1 AA 79, ¥1.) 2250175v.1 B. Score Obtains Dismissal of the California Action. After opposing DisputeSuite’s request for injunctive relief (2 AA 435; 1 AA 154 — 2 AA 433), Score filed its motion to quash service of summons. (2 AA 443-523.) Based on its declarations and supporting evidence, Score argued that “the only connection this case has with California is that Plaintiff's counsel practices here.” (2 AA 444:10-11.) Invoking the forum selection clauses found in the parties’ Master Re-Seller Agreement and Cross-Marketing Agreement (2 AA 449-450, 452-453), Score argued that those clauses require the parties to litigate their disputes in Florida. (2 AA 453-457.) DisputeSuite opposed the motion. (3 AA 597-607; 3 AA 608-650 & 5 AA 1150-1176 [declarations]; 3 AA 651 — 5 AA 1149 [exhibits].) After receiving the opposition and reply papers (5 AA 1178-1188), the court held a hearing. While the existence/enforceability of the four contracts alleged in the complaint was disputed, the trial court found that those four contracts, at best, present a “battle of forum selection clauses.” (5 AA 1194.) Rejecting DisputeSuite’s arguments, the trial court held that the issues presented in this lawsuit “are governed by contracts that select Florida as the proper forum.” (5 AA 1195.) \ As a result, the court granted Score’s motion while staying the case for 60 days pending the filing of a new lawsuit in Florida. (5 AA 1189- 1195; typed opn. 3.) Based on Score’s stipulation, the court also extended The clause in the Master Re-Seller Agreement provides as follows: “any disputes, actions, claims or causes of action arising out of or in connection with this Agreement ... shall be subject to the exclusive jurisdiction of the state and federal courts located in Hillsb[o]rough, Florida.” (1 AA 135, §23.) Similarly, the Cross-Marketing Agreement provides that “the sole jurisdiction and venue for actions related to the subject matter of the agreement shall be Pinellas County, Florida.” (1 AA 150, 410 [capitalization omitted].) 2250175v.1 by seven days the preliminary injunction that was granted earlier. (5 AA 1280; 3 AA 595.) ” A subsequent hearing was held on an order to show causeas to the dismissal of the case, followed by a written order dismissing the case as of December 18, 2012. (5 AA 1279-1280.) The order of dismissal, signed and filed on January 3, 2013, also vacated the preliminary injunction as of December 18, 2012. (5 AA 1280.) DisputeSuite did not appeal the dismissal of its case or any other rulings. (Code Civ. Proc., § 904.1, subd. (a)(3).) Instead, it filed a new action in Florida. (Typed opn.3.) C. After Obtaining Full Dismissal of the California Action, Score Files Its Motion for Attorneys’ Fees. The Cross-Marketing Agreementincludes a reciprocal attorneys’ fee provision as follows: “The prevailing party in any legal action brought by one party against the other and arising out of this Agreement shall be entitled ... to reimbursement of legal expenses incurred in such action, including ... reasonable attorney’s fees.” (1 AA 150-151, 411.) Based on this fee provision, Score filed a fee motion after the hearing on the order to show cause. (5 AA 1197-1206 [fee motion]; 1207- 1275 [declaration and exhibits].) Having received opposition (6 AA 1283- 1328) and reply papers (6 AA 1329-1365), the trial court held a hearing, denying Score’s motion for attorneys’ fees. (6 AA 1369-1377.) * The injunction precluded the sale/use of DisputeSuite’s software as to third parties that were not joint customers. (3 AA 595, 42.) It also precluded the transfer of any joint customers to anyone that does not use DisputeSuite’s software. (/d., 1.) 2250175v.1 The trial court reasoned that “[w]hile the Supreme Court will decide” the issue presented here in Kandy Kiss, “the court must make a choice between split in the existing appellate authority.” (6 AA 1376.) Choosing one line of authority over another, the court denied the fee motion, citing the fact that DisputeSuite had moved the parties’ dispute to Florida by filing a new lawsuit in that forum. (/d.) D. The Court of Appeal Upholds the Denial of Score’s Fee Motion. Score appealed the trial court’s ruling on the fee motion. (6 AA 1378.) In a published opinion, the Second Appellate District, Division Two affirmed the Superior Court’s decision. (Exhibit A.) While confirming the existence of a split of authority (typed opn. 6), the Court of Appeal reasoned that Score “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.” (Typed opn. 8.) The Court of Appeal rationalized that “[w]hile one could argue that the Florida case is a separate lawsuit from the California case, the fact remains that the contract claims against defendants are still the same andstill viable.” (d.) While practically acknowledging that Score successfully enforced the contractual forum selection clause, the Court of Appeal speculated about the possibility that Score may lose the Florida lawsuit in the future. (Typed opn. 8-9.) The court concluded that there was “no final resolution of the contract claims and therefore it would be premature to makea prevailing party determination at such juncture.” (Typed opn.9.) 2250175v.1 E. The Court of Appeal Denies Rehearing. Score sought rehearing, pointing out a factual error in the opinion regarding which side had insisted on the Florida forum selection clause. The Court of Appeal modified its opinion by deleting the language indicating that Score had insisted on using that clause. (Exhibit B.) The Court of Appeal did not address the other points raised in the rehearing petition regarding the standard of review or other statutory grounds for awarding attorneys’ fees. LEGAL DISCUSSION A. There Is An Express Conflict Among Appellate Courts Regarding Whether a Party That Obtains Dismissal of a Lawsuit on Procedural Grounds May Recover Contractual Attorneys’ Fees. Asthe appellate court explained in this case, under the first line of authority, fees may be denied when a case is dismissed on procedural grounds and the ultimate merits determination is left for another day. (Typed opn.5-6.) In Estate ofDrummond(2007) 149 Cal.App.4th 46 (Drummond), for example, a probate attorney seeking payment from his formerclients filed a petition in the probate court to recover his fees. After the probate court granted the petition, the appellate court reversed that order. The court held that the petition should have been filed as a compulsory cross-complaint in a separate civil action the clients had filed against the attorney. (/d. at p. 49.) On remand, the lawyer filed a cross-complaint in the civil action. (Ibid.) Conversely,the clients sought contractual attorneys’ fees on remand, 7 2250175v.1 claiming they had prevailed by obtaining dismissal of the attorney’s petition in the probate court. (/bid.) The probate court denied the fee motion under Civil Code section 1717. (id. at pp. 49-50.) Upholding the denial of fees, the appellate court found there was no prevailing party under section 1717. Ud. at pp. 51-54.) The court reasoned that the clients “obtained only an interim victory, based on [the attomey] having attempted to pursue his claims in the wrong forum.” (/d. at p. 51.) The court cautioned that it “can conceive of cases wherea party obtaining a dismissal of contract claims on purely procedural grounds might be found to have prevailed on the contract, even though the dismissal was without prejudice, because the plaintiff had no other means to obtain relief under the contract.” (/d. at p. 53.) As an exampleof its ad- hoc prevailing party determination, the court held that contractual fees may be awarded after a procedural dismissal where “litigation in the proper forum would entail greater expense, inconvenience,or risk than the plaintiff was willing to hazard, or that a new suit wherever brought would be subject to a bar such asthe statute of limitations.” (Ibid.) The court concluded that “neither side can be said to have prevailed”in that case, given the “interim nature of [the clients’] success.” (/d. at pp. 53-54.) “More recently, two cases out of the Fourth District reached the opposite result.” (Typed opn. 6.) In Profit Concepts Management, Inc. v. Griffith (2008) 162 Cal.App.4th 950, a California company filed a lawsuit against its former employee, an Oklahomaresident. (/d. at p. 952.) After the former employeefiled a successful motion to quash service based on lack of personal jurisdiction, the trial court awarded contractual attorneys’ fees. Id.) Affirming the fee award, Division Three of the Fourth Appellate District explained that “the current version of section 1717 does not contain the requirement of a final judgment”(id. at p. 954), thereby dismissing the 8 2250175v.1 plaintiffs reliance on obsolete case law. Rejecting the plaintiff's argument “that a determination on the ‘merits’ of the contract claim is necessary,” the appellate court reasoned that the “case in California has been finally resolved” while plaintiff obtained nothing on its entire complaint. (/d. at p. 956.) To further support its decision, Profit Concepts also examined this Court’s decision in Hsu v. Abbara (1995) 9 Cal.4th 863. In that case, this Court held that “in deciding whether there is a ‘party prevailing on the contract,’ the trial court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made 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 succeedin its contentions.’” (Profit Concepts, supra, 162 Cal.App.4th atp. 956 [quoting Hsu].) Noting that Hsu “does not use the term ‘merits’”, Profit — Concepts held that “the contract claim was finally resolved within the meaning of Hsu”, thustriggering fee shifting. (/d.) Accordingly, the court upheld the fee award undersection 1717. Applying Profit Concepts, another panel of the Fourth Appellate District, Division Three upheld a contractual fee award in PNEC Corp.v. Meyer (2010) 190 Cal.App.4th 66 (PNEC).In that case, after the trial court dismissed a contract action based on forum non conveniens grounds, the court entered a judgment of dismissal without prejudice. (/d. at p. 68.) The court then awarded attorney’ fees to the defendant under section 1717. (id. at p. 69.) Affirming the fee award, the appellate court rejected the argument that a dismissal on forum non conveniens ground “does not provide an adequate basis for deeming a defendant to be a ‘party prevailing on the 9 2250175v.1 contract’” under section 1717. (/d.) While conducting de novo review, the court found “the cogent statutory analysis set forth in Profit Concepts to apply equally to this case.” (/d. at p. 71.) The court further reasonedthat its view “was consistent with other cases awarding attorney fees even though the [lower] court did not reach a final, on-the-merits ruling on the contract claim.” (Ud. at p. 72 [citations omitted; brackets added].) As a result, the court upheld the fee award, even though there was no decision on the merits of the claim presented in the California lawsuit. In reaching its decision, the court “note[d] that several federal cases point toward a contrary result.” (/d. at p. 73 [citations omitted].) Rejecting this line of authority, PNEC held that “[t]hese federal cases rest on the observation that a jurisdictional or inconvenient forum dismissal is not a final, on-the-merits resolution of a contract claim.” (/d.) Given the mutually exclusive rationale adopted by Profit Concepts and the federal district court decisions invoked by the plaintiff, the court held that “to rely on the rationale of these federal authorities in this case would be to disavow Profit Concepts.” (Id.) Accordingly, unlike the Second Appellate District’s decision in this case, the Fourth Appellate District upheld the fee award in PNEC, another case involving dismissal based on forum non-conveniens grounds. In sum, the views adopted in these cases are mutually exclusive, thus requiring review. Finally, review is necessary to minimize forum shopping between state and federal courts. (See Carnes v. Zamani (9th Cir. 2007) 488 F.3d 1057, 1059 [“In a diversity case, the law of the state in which the district court sits determines whether a party is entitled to attorney fees, and the procedure for requesting an award of attorney fees is governed by federal law”].) As between PNEC and the federal cases rejected by that court, federal courts may be inclined to apply the latter, thus increasing the 10 2250175v.1 likelihood of forum shopping and inconsistency. Therefore, review should be granted forall of these reasons. B. Given the Current Budget Crisis, Review Is Particularly Necessary to Eliminate the Current Incentive for Non-California Plaintiffs to Clog Up the California Court System without Any Fee Exposure. Irrespective of the conflicting views applied by the appellate courts, review is necessary for anotherpractical reason. Underthe line of authority applied in this case, non-California plaintiffs such as DisputeSuite are incentivized to initiate contract lawsuits in California, even if they have no real connection to this state. After all, regardless of whether their lawsuit was dismissed based on equitable forum non-conveniens grounds or based on a contractual forum selection clause (as in this case), non-California plaintiffs who clog California courts have no fee exposure here at all, even if their lawsuit is ultimately dismissed here. As a result, the view adopted by the Second Appellate District essentially encourages plaintiffs who know their legal disputes do not belong in any California courtroom to nonetheless play the litigation lottery in the Golden State while making others pay for their ticket. California’s public policy should discourage litigants from clogging the line to our courthouses with civil cases that must be adjudicated in other states — rather than welcomesuchantics — especially when weare furloughing staff and having our courtrooms go dark to cope with budgetary shortfalls and litigation overload. Therefore, review should be granted for this additional reason. il 2250175v.1 CONCLUSION The petition should be granted. Dated: May 26, 2015 2250175v.1 Respectfully submitted, WEINTRAUB TOBIN CHEDIAK COLEMAN GRODIN Marvin Gelfand Brendan J. Begley WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP Robert Cooper Attorneys for Defendants/Appellants SCOREINC.COM,INC., JOEL S. PATE & JOSHUA CARMONA 12 CERTIFICATE OF WORD COUNT Cal. Rules of Court, rule 8.204(c) This document was generated by Microsoft Office, Word 2007. According to the word-counting feature in this program, the text of this document contains 3,124 words. Dated: May 26, 2015 WEINTRAUB TOBIN CHEDIAK COLEMAN GRODIN Marvin Gelfand Brendan J. Begley WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP Robert Cooper Attorneys for Defendants/Appellants SCOREINC.COM,INC., JOEL S. PATE & JOSHUA CARMONA 13 2250175v.1 Filed 4/14/15 CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DISPUTESUITE.COM,LLC, Plaintiff and Respondent, v. SCOREINC.COMetal, Defendants and Appellants. DIVISION TWO B248694 (Los Angeles County Super. Ct. No. BC489083) APPEAL from an orderofthe Superior Court of Los Angeles County. JamesC. Chalfant, Judge. Affirmed. Weintraub Tobin Chediak Coleman Grodin, Marvin Gelfand and Brendan J. Begley for Defendants and Appellants. J.J. Little & Associates and JamesJ. Little for Plaintiff and Respondent. The question presented is whether defendants who obtained dismissalof a case in California pursuant to a Florida forum-selection clause are entitled to contractual attorney fees? We conclude the answeris no, because there has been nofinal resolution of the contract claims. FACTUAL AND PROCEDURAL BACKGROUND Plaintiff and respondent DisputeSuite.com, LLC (plaintiff) filed a lawsuit in the Los Angeles Superior Court against defendants and appellants Scoreinc.com andits principals Joel S. Pate and Joshua Carmona(collectively defendants) on July 26, 2012. The complaint contained 21 causesof action, including causes ofaction for breach of contract, fraud, misappropriation oftrade secrets, and interference with contract. Plaintiff sought compensatory and punitive damagesas well as preliminary and permanent injunctiverelief. The complaintalleges that plaintiff is a leading provider of credit repair software andservicesthat it markets to credit repair organizations (CROs) to help them service their customers in need ofcredit repair. Defendants, on the other hand, work directly for CROshandling daily administrative tasks. According to the complaint, plaintiff agreed to provide defendants with its confidential list of CROs and other proprietary information,includingits “secret method by whichit sells its software and other products to its customers.” While the parties dispute the existence and enforcementofcertain contracts, including end-user agreements,it is undisputed that in September 2010, they entered into a master reseller agreement that enabled defendantsto act as a licensed reseller of plaintiff’s software. At defendants’ insistence, the master reseller agreementcontains a forum-selection clause by which “any disputes, actions, claims or causesofaction arising out of or in connection with this Agreementor the Service shall be subject to the exclusivejurisdiction of the state and federal courts located in Hillsb[o]rough,Florida.” It is also undisputed that in March 2012,the parties entered into a cross-marketing agreement, which also contains a Florida forum-selection clause. The cross-marketing agreement further providesthat “The prevailing party in any legal action brought by one 2 party against the other and arising out of this Agreementshall be entitled... to reimbursement of legal expenses incurred in such action, including court costs and reasonable attorneys’ fees.” The same dayplaintiff filed the complaint, plaintiff applied ex parte for an order to show cause regarding a preliminary injunction and temporary restraining order. Thetrial court denied the application without prejudice. Plaintiff later renewed its ex parte application. This time the trial court granted a temporary restraining orderas to two of the five requested actions: barring defendants from transferring any customers referred to them byplaintiff to any entity that did not use plaintiff's software and barring defendants from making commercialuse of plaintiff’s software. The trial court subsequently granted preliminary injunctive relief on the same two bases. Meanwhile, defendants filed a motion to quash service of summons and complaint (which thetrial court and parties subsequently referred to as the “motion to dismiss”) based on the Florida forum-selection clauses in the master reseller agreement and cross- marking agreement. Plaintiff opposed the motion, arguing that a California forum- selection clause in the end-user agreements applied. Thetrial court granted the motion to dismiss, stayed the case for 60 days, and extended the effective date of the preliminary injunctionso thatplaintiff could file suit in Florida and seek injunctiverelief in that forum. After plaintiff refiled the case in Florida,the trial court dismissed the case in California and dissolved the preliminary injunction. Defendants then filed a motionin the trial court for an award of attorney fees in the amount of $84,640, on the ground that they were the prevailing parties in connection with the motion to dismiss. The trial court denied the motion. Defendantsfiled this appeal from the trial court’s order denying attorney fees. DISCUSSION I. Statutory and Case Law Civil Code section 1717, subdivision (a) 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 awardedeither to one ofthe parties or to the prevailing party, then the party whois 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.” The statute goes on to provide that “The court, upon notice and motion by party, shall determine whois the party prevailing on the contract for purposesofthis section, whether or notthe suit proceedstofinal judgment. ... [T]he party prevailing on the contractshall be the party who recovered a greaterrelief in the action on the contract. The court may also determinethatthere is no party prevailing on the contract for purposesofthis section.” (Civ. Code, § 1717, subd. (b)(1).) In Hsu v. Abbara (1995) 9 Cal.4th 863 (Hsu), our supreme court held that “in deciding whether there is a ‘party prevailing on the contract,’ the trial court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those sameclaimsand their litigation objectives as disclosed by the pleadings,trial briefs, opening statements,and similar sources. The prevailing party determinationis to be made only uponfinalresolution ofthe contract claims and only by ‘a comparison of the extent to which each party ha[s] succeeded andfailed to succeed in its contentions.’ [Citation.].” (/d. at p. 876,italics added.) The Hsu court concluded that when a defendant“obtains a simple, unqualified victory by defeating the only contract claim in the action”(id. at p. 877), “the defendantis the party prevailing on the contract under section 1717 as a matter of law”(id. at p. 876), andthetrial court has no discretion not to award fees.' In Hsu, the defendants obtained a simple, unqualified victory by proving that no contract was ever formed. (/d. at p. 868.) In addition to Hsu, the trial court and the parties focused primarily on three other cases in connection with the motion to dismiss. In Estate ofDrummond (2007) 149 Cal.App.4th 46 (Drummond), an opinion by the Sixth District, a lawyerfiled a petition in probate court for contractual attorney fees against his formerclients, who had filed a separate civil action against him. His petition was granted, but the appellate court reversed on the ground urgedbytheclients that the petition violated the compulsory cross-complaintrule. (/d. at p. 49.) On remand,the lawyerfiled a cross-action seeking his fees and the clients also sought their fees for having litigated the petition. Thetrial court denied the clients’ motion for attorney fees. The clients appealed, and the Drummondcourt affirmed. Relying on Hsu, the Drummondcourt found there had been no “‘final resolution of the contract claims.’” (Drummond, supra, 149 Cal.App.4th at p. 51.) The court stated: “Appellants’ argument could be reconciled with Hsu only by qualifying ‘final’ to mean, ‘final for purposes of a particular lawsuit.’ But this view is inconsistent with the thrust of the decision, which is that status as the ‘party prevailing on the contract’ is ascertained not by technicalities of pleading and procedure but by a pragmatic assessment of the parties’ ultimate positions vis-a-vis their litigation objectives as reflected in pleadings, prayers, and arguments... . Appellants’ reading is also inconsistent with the phrase ‘prevailing on the contract,’ which implies a strategic victory at the endofthe day, not a tactical victory in a preliminary engagement.” (Drummond, supra,at p. 51.) The Drummondcourt concludedthat the clients had obtained only an “interim victory” based on the lawyer’s having attempted to pursuehis claimsin the wrong forum. (Drummond, supra, 149 Cal.App.4th at p. 51.) The court stated thatthe clients had “at no ' While we review the determination ofthe legal basis for an award of attorney fees de novo, (Pueblo Radiology Medical Group, Inc. v. Gerlach (2008) 163 Cal.App.4th 826, 828),the trial court’s actual determination ofprevailing party status is often reviewed for an abuseofdiscretion (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109). 5 time won victory ‘on the contract.’ They have only succeeded at moving a determination on the merits from one forum to another.” (/d. at p. 53.) While the Drummondcourt could “conceive of cases where a party obtaining a dismissal of contract claims on purely procedural grounds might be found to have prevailed onthe contract, even thoughthe dismissal was without prejudice, because the plaintiff had no other meansto obtain relief under the contract,” it found that in the case before it “[t]he dismissal of [the lawyer’s] petition in the probate matter did not defeat his contract claims; it merely deflected orforestalled them.” (/bid.) The Drummondcourt stated: “We think the interim nature of appellants’ success provided a soundbasis for a discretionary finding that neither party prevailed on the contract.” (Jd. at p. 54.) Morerecently, two cases out of the Fourth District reached the opposite result. In Profit Concepts Management, Inc. v. Griffith (2008) 162 Cal.App.4th 950 (Profit Concepts), a California company sued a former employee for breach of contract. The employee,a resident of Oklahoma,brought a motion to quash service of summonsfor lack of personaljurisdiction. The companyfiled a notice of nonopposition,andthe trial court granted the motion. The employeethen filed a motion for attorney fees as the prevailing party, which thetrial court granted, and the appellate court affirmed. (dd.at p. 952.) The Profit Concepts court stated: “The only claimsbefore thetrial court were contained in Profit Concepts’s complaint, which sought compensatory and punitive damages in an amount to be determined, as well as preliminary and permanent injunctive relief. The case in California has beenfinally resolved. What was awarded on Profit Concepts’s complaint? Zero. Thus, the contract claim was finally resolved within the meaning of Hsu v. Abbara, and that case doesnot use the term ‘merits.’ [{] The determination of which party is the prevailing party must be made without consideration of whetherthe plaintiff mayrefile the action after a motion to quashservice is granted. Theissue offinal resolution should not depend on theplaintiff's possiblefuture conduct. Prevailing party attorney fees should be awarded based onthe contract language, the statutory language, and the fact of dismissal of the case, not on speculation.” (Profit Concepts, supra, at p. 956.) The Profit Concepts court noted that the employer had 6 refiled its suit in Oklahoma,but found “nothing in the language ofthe statute or of Hsu v. Abbara,or any other case, that requires resolution in anotherstate on the merits of a contract claim first asserted in California before a prevailing party can be determined here, when the matter has been completely resolved vis-a-vis the California courts.” (Profit Concepts, supra, at p. 956.) In PNECCorp. v. Meyer (2010) 190 Cal.App.4th 66 (PNEC),the trial court dismissed a contract action against a defendant based upon forum non conveniens, and entered a judgmentof dismissal without prejudice. (/d. at p. 68.) The defendant then sought and obtained an award of attorney fees pursuantto the contract, which the PEC court affirmed. The court essentially rejected Drummondand followed Profit Concepts in findingthat the trial court “did not abuse its discretion in making an award for the work done while the case was underits jurisdiction.” (PNEC, supra,at p. 73.) II. The Motion for Attorney Fees Was Correctly Denied Notsurprisingly, defendants here rely on Profit Concepts and PNECin arguing that the trial court erred in denying their motion for an award of attorney fees. They go onestep further and arguethat their position is even stronger than that of the defendants in those cases because, unlike those defendants who obtained dismissal of the contract actions on procedural grounds, defendants here obtained dismissal by successfully enforcing the contractual forum-selection clause. Thus, they claim they prevailed on the only contract claim at issue here. According to defendants, they “conclusively endedthe litigation in California and thereby achieveda final resolution of the dispute so far as the Golden State is concerned.” In denying the motion to dismiss, the trial court found that Drummond more closely followed the Hsu court’s dictate that “[t]he prevailing party determinationis to be made only uponfinalresolution ofthe contract claims.” (Hsu, supra, 9 Cal.4th at p. 876, italics added.) The trial court agreed that defendants had prevailed in the sense that they obtained dismissal of the case in California, but because the contract claims werestill in dispute and being litigated in Florida, there had beenno final resolution of those claims, and therefore no prevailing party on the contract. 7 Weagree with the trial court’s reasoning. As stated in Drummond, defendants’ argument“could be reconciled with Hsu only by qualifying ‘final’ to mean, ‘final for purposesofa particular lawsuit.’ But this view is inconsistent with the thrust of the [Hsu] decision,. . .” that courts look at the overall objectives of the parties. (Drummond, supra, 149 Cal.App.4th at p. 51.) Defendants did not obtain a simple, unqualified victory on the only contract claim against them, thus ending all litigation on the contract. Rather, plaintiff put its entire complaint before the trial court, includingall of its contract claims against defendants. Defendants succeeded only in enforcing one contractualclause, not in disposingofall of plaintiff's contract claims. Thus, defendants obtained merely an interim victory by succeedingin getting the case moved from one forum toanother, thereby delaying final resolution of the contractclaims. Defendants’ positionis also inconsistent with the plain language of Civil Code section 1717, subdivision (b)(1) that “the party prevailing on the contract shall be the party who recovereda greaterrelief in the action on the contract.” (Italics added.) As Drummondandothercases explain, the language action on the contract “refers to the contract claims in the lawsuit as a whole,” since a single action can involve multiple contract claims, like here. (Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515, 539 (Frog Creek).) Based onits analysis of the statutory language, legislative history, and case law, the Frog Creek court concluded that “under Civil Code section 1717 there can only be one prevailing party on a given contract in a given lawsuit.” (Frog Creek, supra,at p. 543.) While one could argue that the Florida case is a separate lawsuit from the California case, the fact remains that the contract claims against defendantsare still the same andstill viable. If it were not the case that there can only be one prevailing party on a contract, then a party could be considereda prevailing party by succeeding on one contract issue or claim while later losing on others. Surely, the Legislature did not intend this result. Nor do we believe the Legislature intended for courts to make piecemealattorney fee awards for each resolution of a contract clause. Like here, resolution of one contract clause does not always equate to a resolution ofall contract claims. 8 Defendants complain thatour result is unfair because “there is no evidencethat [Civil Code] section 1717 is applicable in Florida.” But defendants cannot be heard to complain about a forum they chose. Weconcludethat where, as here, a defendant obtains an interim procedural victory that results only in a relocation of an active contract dispute from one forum to another, there has been no final resolution of the contract claims and therefore it would be premature to makea prevailing party determination at such juncture. Accordingly, the trial court did not err in denying defendants their attorney fees for obtaining a dismissal of the case in California based on a Florida forum-selection clause. DISPOSITION The order denying defendants’ motion for attorney feesis affirmed. Plaintiff is entitled to recoverits costs on appeal. CERTIFIED FOR PUBLICATION. ,J. ASHMANN-GERST We concur: »P.J. BOREN CHAVEZ CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT COURT OF APPEAL - SECONDDIST. DIVISION TWO ie If Th, = 1D) MAY 14 2015 DISPUTESUITE.COM,LLC, B248694 JOSEPH A. LANE Clerk Plaintiff and Respondent, (Los Angeles County Deputy Clers Super. Ct. No. BC489083) v. ORDER MODIFYING OPINION SCOREINC.COMetal, AND DENYINGPETITION FOR REHEARING Defendants and Appellants. [NO CHANGEIN JUDGMENT] THE COURT?’ It is ordered that the opinion filed herein on April 14, 2015, be modified as follows: Onpage 2, the second sentence of the fourth full paragraph, the words “At defendants’ insistence,” are deleted so the sentence now reads: The master reseller agreement contains a forum-selection clause by which “any disputes, actions, claims or causes of action arising outofor in connection with this Agreementor the Service shall be subject to the exclusive jurisdiction of the state and federal courts located in Hillsb[o]rough, Florida.” * BOREN,P. J.. ASHMANN-GERST,J., CHAVEZ,J. Onpage 9, the secondsentenceofthefirst full paragraph, the words “they chose” are changedto “to which they agreed”so the sentence now reads: But defendants cannot be heard to complain about a forum to which they agreed. Thereis no change in the judgment. Appellants’ petition for rehearing is denied. PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employedin the County of Los Angeles, State of California. I am over the age of eighteen. I am not a party to this action; my business address is 555 South Flower Street, 29" Floor, Los Angeles, California 90071. On May 26, 2015, I caused the foregoing document described as PETITION FOR REVIEWto be served on the interested parties in this action by placing a true copy thereof enclosed in sealed envelopes addressed as follows: SEE ATTACHED SERVICELIST [X] (BY OVERNIGHT DELIVERY) Theattached documentis being filed and served by delivery to a common carrier promising overnight delivery as shown onthe carrier’s receipt pursuant to CRC 8.25. Executed on May26, 2015 at Los Angeles, California. I declare under penalty of perjury under the laws of the State of California that the aboveis true and correct. “—-KkKe=>- 7 ( ! Mw Michelle Kang 14 2250175v.1 SERVICE LIST James J. Little J.J. Little & Associates 13763 Fuji Way - Suite EU-4 Marina Del Rey, CA 90292 Attorneys for Disputesuite.com, LLC Plaintiff and Respondent Marvin Gelfand Brendan J. Begley Weintraub Tobin Chediak Coleman Grodin Law Corporation 9665 Wilshire Blvd Ninth Floor Beverly Hills, CA 90212 Co-counsel for Defendants- Appellants Supreme Court of California 350 McAllister Street San Francisco, CA 94102 Original and thirteen copies Court ofAppeal Second District, Division Two Ronald Reagan Bldg. 300 South Spring Street Second Floor, North Tower Los Angeles, CA 90013 Telephone: 213.830.7000 No. B248694 Honorable James ChalfantLos Angeles Superior Court111 N. Hill StreetLos Angeles, CA 90012 Case No: BC489083Trial Judge 15 2250175v.1
