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Weco Supply Company, Inc., A California Corporation v. the Sherwin-Williams Company

January 2, 2013

WECO SUPPLY COMPANY, INC., A CALIFORNIA CORPORATION
PLAINTIFF,
v.
THE SHERWIN-WILLIAMS COMPANY,
DEFENDANT.



ORDER DENYING DEFENDANT'S MOTION FOR ATTORNEY FEES (Doc. 74) JUDGMENT AND COSTS AND RELATED CROSS-ACTION

On December 22, 2009, Plaintiff Weco Supply Company, Inc. ("Weco"), initiated the instant action against Defendant The Sherwin-Williams Company ("Sherwin-Williams") for claims related to a business dispute, including a claim for misappropriation of trade secrets. On May 25, 2012, the Court granted summary judgment in favor of Sherwin-Williams on the misappropriation of trade secrets claim. See Court's Docket, Doc. No. 73. Sherwin-Williams now moves for attorney's fees and costs, including expert fees, for the trade secrets claim pursuant to California Civil Code § 3426.4. For the reasons stated herein, the motion is denied. The Court will enter judgment in favor of Sherwin-Williams and will award costs of suit as detailed below.

BACKGROUND

The background of this action has been described in the Court's prior orders. Id. at Doc. Nos. 66, 73. In sum, the parties' dispute centered around a written agreement for the distribution of Sherwin-Williams paint products by Weco (the "Jobber Agreement"). Weco alleged that Sherwin-Williams breached the Jobber Agreement by discontinuing a certain product line and by selling directly to two end users who were Weco's customers. In addition to the breach of contract claims, Weco also asserted claims for unfair competition, unfair trade practices, and misappropriation of trade secrets in violation of California law. Sherwin-Williams filed a cross-complaint alleging, among other things, that Weco breached the Jobber Agreement by refusing to pay for an order of paint totaling $135,083.27.

The parties filed cross-motions for summary judgment. In two orders dated May 25, 2012, and August 7, 2012, the Court granted summary judgment in favor of Sherwin-Williams as to all causes of action in Weco's First Amended Complaint, and on the breach of contract claim in Sherwin-Williams' First Amended Cross-Complaint. Id. at Doc, Nos. 66, 73. The Court ordered Sherwin-Williams to file proof of its damages, fees, costs, and interest at the legal rate under Ohio law. See id. at Doc. No. 73 ¶ 3. On August 27, 2012, Sherwin-Williams filed the instant motion for attorney's fees and costs, along with the required proof. Id. at Doc. No. 74. Weco opposes the motion and objects to Sherwin-Williams' bill of costs. Id. at Doc. Nos. 77, 77-3. Sherwin-Williams filed a reply and a response to Weco's objections. Id. at 78, 79.

LEGAL STANDARDS

A. Attorney's Fees

California Civil Code § 3426.4 provides:

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney's fees and costs to the prevailing party. Recoverable costs hereunder shall include a reasonable sum to cover the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the prevailing party.

Because there is no statutory definition of "bad faith" in the context of trade secret misappropriation, California courts have developed a two-pronged standard for the evaluation of such claims. The party seeking an award of attorney's fees and expert fees under section 3426.4 must show (1) the objective speciousness of the opposing party's claim, and (2) the subjective bad faith of the opposing party in bringing or maintaining the action, that is, an improper purpose. Gemini Aluminium Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1261, 116 Cal.Rptr.2d 358 (2002). "Objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim." FLIR Systems, Inc. v. Parrish, 174 Cal.App.4th 1270, 1276, 95 Cal.Rptr.3d 307 (2009). Objective speciousness may be shown by, among other factors, demonstrating that there was no misappropriation or threatened misappropriation or that the opposing party could not have suffered any economic harm. Id. As for the second prong:

Subjective bad faith may be inferred by evidence that [a party bringing an action for trade secret infringement] intended to cause unnecessary delay, filed the action to harass [the opposing party], or harbored improper motive. [....] The timing of the action may raise an inference of bad faith. [....] Similar inferences may be made where the plaintiff proceeds to trial after the actions's fatal shortcomings are revealed by opposing counsel.

Id. at 1278, 95 Cal.Rptr.3d 307 (internal citations omitted).

B. Costs

Federal Rule of Civil Procedure 54(d)(1) provides, in pertinent part, that "costs-other than attorney's fees-should be allowed to the prevailing party." Fed. R. Civ. P. 54(d)(1). "By its terms, the rule creates a presumption in favor of awarding costs to a prevailing party, but vests in the district court discretion to refuse to award costs." Ass'n of Mexican Am. Educators v. California, 231 F.3d 572, 591 (9th Cir. 2000) (citing National Info. Servs., Inc. v. TRW, Inc., 51 F.3d 1470, 1471 (9th Cir. 1995)). The court's discretion is not unlimited; it must "specify reasons" for denying costs. Id. at 591-92 (citing Subscription Television, Inc. v. Southern Cal. Theater Owners Ass'n, 576 F.2d 230, 234 (9th Cir.1978)). "Proper grounds for denying costs include (1) a losing party's limited financial resources; (2) misconduct by the prevailing party; and (3) the chilling effect of imposing ... high costs on future civil rights litigants, as well as (4) whether the issues in the case were close and difficult; (5) whether the prevailing party's recovery was nominal or partial; (6) whether the losing party litigated in good faith; and (7) whether the case presented a landmark issue of national importance." Quan v. Computer Sciences Corp., 623 F.3d 870, 888 (9th Cir. 2010) (quoting Champion Produce, Inc. v. Ruby Robinson Co., 342 F.3d 1016, 1022 (9th Cir. 2003) (omission in original) (internal quotation marks omitted)).

Rule 54(d) does not authorize a court to award costs beyond those authorized by statute or contract. See Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441-45, 107 S. Ct. 2494, 96 L.Ed.2d 385 (1987). In this District, "[c]osts shall be taxed in conformity with the provisions of 28 U.S.C. ...


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