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Media Alerts - First Intercontinental Bank v. Christina Ahn, Ninth Circuit
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October 16, 2015
  First Intercontinental Bank v. Christina Ahn, Ninth Circuit
Headline: The Ninth Circuit panel, applying California's choice-of-law doctrine, affirmed the district court's ruling that California law - which prohibits the enforcement of unilateral attorney's fees clauses in contracts - governs the enforceability of the contract's unilateral attorney's fees clause, where the contract contains a choice-of-law provision calling for the application of Georgia law which permits non-reciprocal attorney's fees clauses.

Area of Law: Civil Procedure, Choice of Law
Issues Presented: Whether California or Georgia law governs a dispute over the enforcement of a contract's unilateral attorneys' fees clause when California law prohibits the use of non-reciprocal attorney's fees but the contract contained a choice-of-law provision specifying the application of Georgia law which permits such non-reciprocal clauses.

Brief Summary:
The district court awarded defendant summary judgment, releasing her from any obligations under a loan agreement she had signed with plaintiff Bank, and filed a Motion for Attorneys' Fees. The loan contract provided for attorneys' fees only to the Bank in case of a dispute, and also provided that Georgia law governed the contract. California Civil Code section 1717(a) makes reciprocal otherwise unilateral attorneys' fees clauses in contracts, so the panel had to decide whether to apply Georgia or California law to determine whether defendant should prevail.

Since the action was brought in California, California's choice-of-law rules govern the dispute. The panel followed the approach outlined in California Restatement (Second) of Conflict of Laws § 187. Although the panel found the that there was a reasonable basis for the choice-of-law provision contained in the loan agreement , the panel also found that California law would be applied in the absence of the choice-of-law provision, and that California a fundamental public policy against unilateral attorneys' fees provisions. Since the Bank chose to bring the action in California, and the defendant is a California resident, the panel ruled that California has a materially-greater interest than Georgia in seeing its own public policy applied.

The decision of the panel affirmed the district court's award of attorney's fees to defendant.

Extended Summary:
Plaintiff Bank brought suit in federal district court for repayment of a loan. The Bank added Christina Ahn as a defendant although it had previously released her from the loan in her individual capacity. The district court granted summary judgment to Christina, who then filed a Motion for Attorneys' Fees and Costs. The district court granted Christina's motion and awarded attorneys' fees to her.

The loan contract only provided for attorneys' fees to the lender in case of successful litigation. It also included a choice-of-law provision specifying that Georgia law governs the contract. However, California Civil Code section 1717(a) makes reciprocal otherwise unilateral attorney's fees clauses in contracts, so the panel had to decide whether to apply Georgia or California law to determine whether Christina should prevail.

Since the action was brought in California, the district court correctly applied California's choice-of-law rules. The panel determined that California choice-of-law doctrine follows the Restatement (Second) of Conflict of Laws § 187 which provides a four-step approach to determine the law to apply when a contract has a choice-of-law provision:

(1) The first question is "whether the chosen state has a substantial relationship to the parties or their transaction, or . . . whether there is any other reasonable basis for the parties' choice of law."
(2) If yes, the court next determines whether California law would be applicable in the absence of effective choice-of-law by the parties.
(3) If yes, the court then determines whether the relevant portion of the chosen state's law is contrary to a fundamental policy in California law.
(4) If yes, the court finally determines whether California has a "materially greater interest than the chosen state in the determination of the particular issue." If yes, California law is applied. If the answer to any of these questions is no the court applies the law of the forum selected in the contract.

Since the Bank is located in Georgia, and the contract and related documents were drafted in Georgia, there is a reasonable basis for the choice-of-law provision contained in the contract.

To decide whether California would apply its own law in the absence of the choice-of-law provision, the Court looked to Restatement (Second) of Conflict of Laws section 188. The restatement provides five factors to consider: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. The contract was made and negotiated in both California and Georgia. The payments were due in Georgia but it is unclear where Christina made payments from. The loan contract was for a hotel in Louisiana, and Christina is a citizen of California while the Bank's principal place of business is in Georgia. Therefore none of the factors favor either state. The panel adopted the approach used by the California District Court of Appeals in ABF Capital Corp. v. Grove Properties Co. which applied California law where the factors do not lead to a clear conclusion. Accordingly, the panel determined that California would apply its own law to the dispute in the absence of the choice-of-law provision selecting Georgia law.

Next, the panel found that California Civil Code section 1717(a) embodied a fundamental public policy against non-reciprocal attorney's fees clauses. The legislature's purpose behind section 1717(a) is to enable consumers and others who may be in a disadvantageous contractual bargaining position to protect their rights through the judicial process by permitting recovery of attorneys' fees incurred in litigation in the event they prevail. The panel ruled that applying Georgia law would be contrary to California's fundamental public policy.

Finally, the panel focused on two factors to determine whether California has a materially-greater interest than another state in an attorneys' fees dispute: (1) whether the parties chose to bring litigation in a California state court; and (2) the citizenship of the parties. Here, the Bank chose to file the lawsuit in federal district court in California rather than another state. Also, since Christina is a California citizen and would be on the losing end of a non-reciprocal attorneys' fees provision, California has a substantial interest in applying its own law in this case.

The panel held that section 1717(a) governs the outcome of this case and affirmed the district court's decision to award attorneys' fees to the defendant.

To read the full opinion, please visit:

http://www.thompsoncoburn.com/...m_Documents/ahn_1.pdf

Panel: Milan D. Smith, Jr. and N. Randy Smith, Circuit Judges, and Joan H. Lefkow, Senior District Judge

Argument Date: June 5, 2015
Date of Issued Opinion: August 18, 2015
Docket Number: 13-56097
Decided: Affirmed
Case Alert Author: Matthew J. Gustin

Counsel:
S. Young Kim (argued), Park & Lim, Los Angeles, California, for Plaintiff-Appellant.

Natalie Ikhlassi (argued) and Helen B. Kim, Thompson Coburn LLP, Los Angeles, California, for Defendants-Appellees.

Author of Opinion: Judge Milan D. Smith, Jr.
Circuit: Ninth
Case Alert Circuit Supervisor: Professor Glenn Koppel

    Posted By: Glenn Koppel @ 10/16/2015 05:46 PM     9th Circuit  

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