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Ninth Circuit Upholds California Resident’s Right to Recover Under Reciprocal Provisions of California Civil Code – Glass & Goldberg | Financing, Property & Bankruptcy Law
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Ninth Circuit Upholds California Resident’s Right to Recover Under Reciprocal Provisions of California Civil Code

Ninth Circuit Upholds California Resident’s Right to Recover Under Reciprocal Provisions of California Civil CodeThe U.S. Court of Appeals for the Ninth Circuit has upheld a district court ruling that a California resident was entitled to recover attorney’s fees from a Georgia bank since California had a greater interest in the dispute than Georgia.

In First Intercontinental Bank v. Ahn, Californian Christina Ahn was one of several borrowers who obtained a loan from Georgia-based First Intercontinental Bank to renovate a hotel in Louisiana. At some time afterward, Ahn was released from the loan. The other borrowers defaulted along with the guarantors. First Intercontinental brought suit against the borrowers, including Ahn, and the guarantors in the Central District of California.

The district court found for Ahn, finding that she had been released from the bank from her loan obligations. Ahn moved for recovery of attorney’s fees and costs under California Civil Code §1717(a), which makes unilateral attorney’s fees clauses reciprocal in contracts.

The bank argued that Georgia law should govern the dispute over attorney’s fees since the original loan agreement included a Georgia forum selection clause. The district court again found for Ahn, finding that California law applied.

Upon appeal, the Ninth Circuit affirmed the district court’s decision, finding its 2005 decision in ABF Capital Corporation v. Grove Properties Company relevant. The 2005 case involved a conflict of law between California and New York regarding attorney’s fees. The court held that with no forum selection clause, California law would apply since the state has a fundamental policy interest in protecting its citizens “from unfair litigation tactics or procedures,” which includes nonreciprocal attorney’s fee clauses.

Since Ahn did include a forum selection clause, the next issue for the court to consider was whether a nonreciprocal attorney’s fee clause was contrary to California law regarding fundamental public policy. The court concluded that it was, based on case history in state courts that demonstrated California generally disfavors nonreciprocal attorney’s fee clauses.

In addition, the court found that since the bank decided to litigate the matter in California, and the defendant was a California resident, California had a greater interest in having its fundamental public policy applied than Georgia.

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