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Dci Solutions Inc., A California Corporation v. Urban Outfitters

January 30, 2012

DCI SOLUTIONS INC., A CALIFORNIA CORPORATION,
PLAINTIFF,
v.
URBAN OUTFITTERS, INC., A PENNSYLVANIA CORPORATION, AND DOES 1-20, DEFENDANTS.



The opinion of the court was delivered by: Irma E. Gonzalez United States District Judge

ORDER DENYING CROSS FEES MOTIONS FOR ATTORNEYS' [Doc. Nos. 132, 136] AND RELATED COUNTER CLAIMS.

Presently before the Court is the parties' cross motions for attorneys' fees. [Doc. Nos. 132, 136.] For the reasons below, the Court DENIES the motions.

BACKGROUND

This case arises out of a contract dispute between Plaintiff and Counterdefendant DCI Solutions Inc. ("DCI") and Defendant and Counterclaimant Urban Outfitters, Inc. ("Urban"). The factual background of this action is set forth in detail in this Court's prior order granting in part and denying in part Urban's motion for summary judgment and need not be repeated herein. [See Doc. No. 60.]

On January 25, 2010, DCI filed this action in San Diego County superior court. [Doc. No. 1, Compl.] On February 16, 2010, Urban removed the action to this Court on the basis of diversity jurisdiction. [Doc. No. 1, Notice of Removal.] In its complaint, DCI asserted four causes of action against Urban for (1) fraud in the inducement, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, and (4) quantum meruit. [Compl.] In its complaint, DCI alleged that it had suffered damages in excess of $500,000. [Id. ¶¶ 29, 33.] On May 25, 2010, Urban filed an amended answer and counterclaims against DCI asserting causes of action for (1) fraud in the inducement; (2) fraud; (3) breach of contract; (4) violation of California Business and Professions Code §§ 17200 et. seq.; (5) declaratory relief; and (6) rescission. [Doc. No. 25.] In its counterclaims, Urban alleged that it had suffered damages in excess of $700,000. [Id. ¶¶ 18, 23, 28.]

Beginning on September 6, 2011, the Court held a jury trial on all of DCI's claims and on Urban's fraud and breach of contract counterclaims. On September 16, 2011, the jury returned a verdict in favor of Urban on all of DCI's claims and in favor of DCI on Urban's fraud and breach of contract counterclaims. [Doc. No. 116.] Following the verdict, the Court granted Urban's motion to dismiss without prejudice its remaining counterclaims for violation of California Business and Professions Code §§ 17200 et. seq., declaratory relief, and rescission. [Doc. No. 129.] Subsequently, the Court entered judgment on all of the parties' claims. [Doc. Nos. 130, 131.]

By the present motions, both parties seek an award of attorneys' fees. Urban requests an award of attorneys' fees in the amount of $355,415.50. [Doc. No. 132-1 at 6.] DCI requests an award of attorneys' fees in the amount of $650,768.50. [Doc. No. 136-1 at 3.] However, in DCI's motion, DCI explains that it believes neither party is entitled to an award of attorneys' fees and that it is only seeking attorneys' fees to the extent this Court determines that an award of attorneys' fees is appropriate pursuant to California Code of Civil Procedure § 1032. [Id. at 1-3.]

DISCUSSION

Under the American rule, the prevailing litigant ordinarily is not entitled to collect attorneys' fees from the losing party. Travelers Casualty & Surety Co. of Am. v. Pacific Gas & Electric Co., 549 U.S. 443, 448 (2007). A statute or enforceable contract allocating attorneys' fees, however, can overcome this rule. Id. In a diversity action, state law governs whether a party is entitled to attorneys' fees pursuant to the terms of the contract. See Security Mortgage Co. v. Powers, 278 U.S. 149, 153 (1928); Mangold v. Cal. Pub. Utils. Comm'n, 67 F.3d 1470, 1478 (9th Cir 1995). Under California law, attorneys' fees may be awarded if a contract provides for the allowance of attorneys' fees, and an action is instituted to enforce the provisions of the contract. See CAL. CODE CIV. PROC. § 1021; Iverson v. Spang Indus., 45 Cal. App. 3d 303, 314 (1975).

The parties agree that the contract at issue in this lawsuit allows for the award of attorneys' fees to the prevailing party. [Doc. No. 132-1 at 1-2; Doc. No. 143 at 1.] However, the parties dispute who is the "prevailing party" under the contract and what law governs that determination. Urban argues that California Code of Civil Procedure § 1032 governs the determination of who is the prevailing party under the contract and that under that statute, Urban is the "prevailing party."*fn1

[Doc. No. 132-1 at 3-4.] DCI argues that California Civil Code § 1717 governs the determination and that under that statute, neither party is the "prevailing party." [Doc. No. 143 at 1-4.]

California Code of Civil Procedure § 1033.5(a)(10)(A) provides that attorneys' fees are allowable as "costs" under Section 1032 when authorized by contract. CAL. CODE CIV. PRO. § 1033.5(a)(10)(B). Section 1032(b) entitles the prevailing party to recover costs, and defines a "prevailing party" as "a defendant where neither plaintiff nor defendant obtains any relief." Id. § 1032(b). Urban argues that the interplay of these two statutes show that it is the "prevailing party" in this action, and it is entitled to attorneys' fees pursuant to the agreement. [Doc. No. 132-1 at 3-4; Doc. No. 147 at 3-4.] However, California courts have rejected this argument:

While it is true Code of Civil Procedure section 1033.5 allows fees to be considered as costs in contract cases under section 1032, it does not follow that section 1032 is the exclusive statute governing recovery of fees in contract actions. By its own terms, section 1032 defines prevailing party only for "costs" under that section and does not purport to define it for other statutes. Courts have consistently held the prevailing party for the award of costs under section 1032 is not necessarily the prevailing party for the award of attorney's fees in contract actions under section 1717.

Sears v. Baccaglio, 60 Cal. App. 4th 1136, 1142 (1998) (citations omitted); see also McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn., 231 Cal. App. 3d 1450, 1456 (1991) ("We emphatically reject the contention that the prevailing party for the award of costs under section 1032 is necessarily the prevailing party for the award of attorneys' fees"). Therefore, California Civil Code § 1717, not California Code of Civil Procedure § 1032(b), "is the applicable statute when determining whether and how attorney's fees should be awarded under a contract." Sears, 60 Cal. App. 4th at 1157; see also id. (California Civil ...


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