On August 18, 2015, the US Court of Appeals for the Ninth Circuit held in First Intercontinental Bank v. Ahn that, under California choice-of-law principles, California law applied to the parties' dispute over attorneys' fees in a diversity breach of contract action, even though the agreement specified that Georgia law would govern any disputes under the agreement (No. 13-56097, (9th Cir. Aug. 18, 2015)).

The plaintiff, a Georgia bank, commenced an action in the US District Court for the Central District of California against Christina Ahn, a citizen of California, alleging that Ahn failed to make payments on a loan she had taken from the bank. The promissory note included in the loan documents stated that the agreement would be governed by Georgia law. It also included a non-reciprocal attorneys' fees provision that provided that the bank could collect attorneys' fees from Ahn if any of the loan amount was collected by or through an attorney. Ahn moved for summary judgment on the grounds that the bank released her from any obligations under the loan in December 2009. The Central District of California granted summary judgment in Ahn's favor. As the prevailing party, Ahn moved for attorneys' fees and costs under California Civil Code § 1717(a), which makes reciprocal otherwise unilateral attorneys' fees contractual provisions. The district court awarded attorneys' fees to Ahn, rejecting the bank's argument that Georgia law controlled the issue. The bank appealed.

The Ninth Circuit explained that, in diversity cases, the court must apply the substantive law of the forum where the court is located, including the forum's choice-of-law rules. California follows the approach in the Restatement (Second) of Conflict of Laws § 187 to determine which law applies to a contract with a choice-of-law provision. Under this approach, a court must consider the following criteria:

The Ninth Circuit found that there was a reasonable basis for the agreement to specify Georgia law in its choice-of-law provision because the bank is chartered in and has its principal place of business in Georgia and the agreement was drafted in Georgia. The Ninth Circuit, persuaded by precedent set by the California Court of Appeal under similar circumstances, also found that California law would apply in the absence of the choice-of-law provision because California has a fundamental policy interest in protecting its citizens from unfair litigation tactics, including non-reciprocal attorneys' fees clauses.

California's fundamental policy of disfavoring non-reciprocal attorneys' fees clauses in litigation is set out in California Civil Code § 1717(a), which overrides the general freedom of contract to make an otherwise unilateral right to attorneys' fees reciprocally binding on all parties to actions to enforce the contract. This policy allows consumers and others who may be in a disadvantageous bargaining position to protect their rights by allowing recovery of attorneys' fees incurred in litigation if they prevail.

Finally, the Ninth Circuit determined that California had a greater material interest because:

Counsel should be aware that non-reciprocal attorneys' fees clauses violate a fundamental policy in California and that, in the Ninth Circuit, disputes regarding such provisions likely will be considered under California law, if the action involves a California citizen, regardless of the choice of law set out in any agreements between the parties.