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Rq Construction, Inc v. Ecolite Concrete U.S.A.

December 7, 2012

RQ CONSTRUCTION, INC.,
PLAINTIFF,
v.
ECOLITE CONCRETE U.S.A., INC.,
INTERNATIONAL, INC.,
BRIAN SMITH,
DEFENDANTS.



The opinion of the court was delivered by: Cathy Ann Bencivengo United States District Judge

ORDER GRANTING DEFENDANT'S MOTION TO RE-TAX COSTS, DENYING PLAINTIFF'S MOTION FOR ATTORNEYS' FEES, and DENYING DEFENDANT'S APPLICATION FOR ECOLITE ORDER TO TREAT ATTORNEY'S FEES MOTION AS TOLLING MOTION AS MOOT [Doc. Nos. 193, 212, 216]

Before the Court are Defendant Smith's Motion to Re-Tax Costs [Doc. No. 193,] Plaintiff RQ Construction Inc.'s ("RQ") Motion for Attorneys' Fees [Doc. No. 212,] and Defendant Smith's Application an Order to treat Plaintiff's Motion for Attorney's Fees as Tolling Motion Under FRCP 58 (e) [Doc. No. 216.] The Court took the first two matters under submission without oral argument [Doc. Nos. 211, 215.] the reasons set forth below, Smith's Motion to Re-Tax Costs is GRANTED IN PART, RQ's Motion for Attorneys' Fees is DENIED, and Smith's tolling motion is DENIED AS MOOT.

I. BACKGROUND

RQ brought this action against Defendants in December of 2009 for securities fraud and negligent misrepresentation arising out of a business relationship between the parties involving Defendants' Ecolite concrete product. In November of 2011, RQ filed the operative Second Amended Complaint, alleging the following claims: 1) Failure to Register, Title 15 U.S.C. § 77e, l; 2) Negligent Misrepresentation in a Public Offering, 15 U.S.C. § 77l; 3) Control Person Liability, 15 U.S.C. § 77o; 4) Negligent Misrepresentation (stock); 5) Breach of Contract (Put Option Agreement); 6) Rescission of Put Option Agreement, Cal. Civ § 1689; 7) Breach of Contract (warrants); 8) Rescission of Warrants, Cal. Civ. Code § 1689; 9) Negligent Misrepresentation (Capitalization); 10) Negligent, False, or Misleading Statements, Cal. Corp.Code §§ 25401, 25501; and 11) Sale in Violation of Qualification Requirements; Cal. Corp. Code § 25110. [Doc. No. 90.] No motions for summary judgment were filed; however Defendant Smith raised several potentially dispositive issues in his respective motions in limine. Because several of the motions the issue of Plaintiff's standing to bring certain claims, which can be raised at any time, the Court considered the arguments in the interest of managing the issues for trial. [Doc. No. 158.]

The Court found as a matter of law that Plaintiff lacked standing to raise its First Cause of Action for Failure to Register pursuant to 15 U.S. C. §§ 77e, and 77 l for the Defendants' alleged failure to register the sale of stock to the investment entity Eye See Partners, LLC -- an entity that not a party to this lawsuit-- finding that RQ's purchases of stock were not "integrated" with the to Eye See Partners. Id. at 2, citing S.E.C. v. Murphy , 626 F.2d 633, 645 (9th Cir. 1980). The Court accordingly dismissed the Failure to Register claim prior to trial. Id.

A jury trial commenced on June 18, 2012. During the trial, Smith made an oral motion to dismiss Plaintiff's Second Cause of Action for Negligent Misrepresentation in a Public Offering, 15 U.S.C. § 771, because there was no evidence of a prospectus that was issued in connection with RQ's stock purchases.

Court permitted Plaintiff's counsel to proffer evidence regarding a prospectus outside the presence of jury, and finding that there was no credible evidence as such, dismissed Plaintiff's 15 U.S.C. § 771

The trial proceeded until June 27, 2012, whereupon the jury received instructions as to the negligent misrepresentation claims only. The jury returned a verdict in favor of the Plaintiff on July 2, 2012, and awarded Plaintiff $4,343,917 in damages for its investment in the manufacturing business. [Doc. No. 179.] It awarded $0 in damages for the stock acquisition. Id. Judgment was entered accordingly in favor of RQ Construction, Inc. and against Brian Smith. [Doc. No. 180.] Default Judgment was entered against Defendant ECUSA for rescission of the Put Option Agreement in the amount of $3,000,000 for the Sixth Tenth Causes of Action, and against Defendants ECUSA and Ecolite International, Inc. in the amount of $4,343,917 based on their respective joint and several liability with Mr. Smith. [Doc. No. 208.]

II. MOTION TO RE-TAX COSTS

Plaintiff submitted a Bill of Costs on July 17, 2102, seeking recovery of $18,934.06 in costs. [Doc. No. 184.] Smith objected to several of the requested items, and on August 6, 2012 the Clerk of the Court entered an order Taxing Costs against Smith in the amount of $18,367.56 (reducing the requested amount $566.50 for s for non-taxable costs). [Doc. No. 192.] Smith timely filed the instant Motion to Re-Tax Costs pursuant to CivLR 54.1.h. [Doc. No. 193.]

In his motion, Smith challenges RQ's recovery of costs in light of the fact that Smith prevailed on of RQ's claims against him. Because RQ ultimately prevailed on its negligent misrepresentation claim, was awarded a jury verdict of $4.3 million, the Court does find that RQ is entitled to recover some costs; however it should not be permitted to recover costs for pursuing its non-meritorious securities claims. See Rule Civ. Proc. 54(b); Assoc. of Mexican-American Educators v. State of California, 231 F.3d 572, 591 (9th Cir. 2000) (District Court has discretion to refuse to award costs).

As RQ did not dispute Smith's assertions that the specific costs he challenged were spent in pursuit the failed securities claims, the Court finds it appropriate to reduce the costs award by $7,710.88, and accordingly orders that $10,656.88 be taxed in favor of RQ.

III. MOTION FOR ATTORNEYS' FEES

RQ moves to recover $933,491 in attorneys' fees pursuant to the attorneys' fees provision in the parties' Put Option Agreement. The fee request includes RQ's attorneys' fees incurred in pursuing all of claims through trial. [Doc. No. 212-1 at 18.] As with the costs motion, the Court finds that while RQ may entitled to recover attorneys' fees for its successful claims, it would be inequitable to award fees incurred pursuit of RQ's unsuccessful claims. See Anderson v. Melwani, 179F.3d 763, 766 (9th Cir. 1999) (court refuse to enforce a contractual attorney's fees provision where an award of fees would be "inequitable unreasonable"). Where, as here, a plaintiff prevails on only one of several claims, the fact that " the plaintiff is a 'prevailing party' ... may say little about whether the expenditure of counsel's time was reasonable in relation to the success achieved." Hensley v. Eckerhart, 461 U.S. 424, 436 (1983). See also Traditional Cat Ass'n, Inc. v. Gilbreath, 340 F.3d 829, 832, 833--834 ...


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