For purposes of the section on recovery of expenses, do you want to specify what “prevailing party” means?

The meaning of “prevailing party” has “spawned a great deal of litigation.” Robert L. Rossi, 1 Attorneys’ Fees § 6:8 (3d ed. 2010). If the plaintiff voluntarily dismisses its action, has the defendant prevailed? If a party’s case has been dismissed for want of jurisdiction, has the other party prevailed? What if both a complaint and a counterclaim have been dismissed? If the plaintiff has recovered on its complaint against the defendant and the defendant has recovered on its counterclaim against the plaintiff, is the prevailing party the party in whose favor a net judgment was entered, or are both parties entitled to recover? Is a decision required, or can you prevail in a settlement or consent decree? Is a money judgment required, or do equitable remedies qualify? And to be the prevailing party in a dispute, do you have to succeed on all claims? Those are just some of the issues that can arise.

This question offers you two ways, out of many alternatives, of reducing the uncertainty regarding the meaning of “prevailing party.” But given all the potential issues, and given that determining the prevailing party is such a fact-specific inquiry, it might be best to resist the temptation to set rules in advance.

Cal. Civil Code § 1717(b)(1) contains a definition of “prevailing party” for purposes of claims under a contract. That definition is mandatory and cannot be altered or avoided by contract. See, e.g., Exxess Electronixx v. Heger Realty Corp., 75 Cal.Rptr.2d 376, 383 (Cal. Ct. App. 1998). So if you elect to have the contract governed by California law and answer “Yes” to this question, the language added by answering “Yes” would be unenforceable, except with respect to claims other than contract claims (if in this questionnaire you specified that you don’t want the dispute resolution provisions to be limited to contract claims).