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Khavarian Enterprises, Inc v. Commline

May 14, 2013


APPEAL from orders of the Superior Court of Los Angeles County, Susan Bryant-Deason, Judge. (Los Angeles County Super. Ct. No. BC444337)

The opinion of the court was delivered by: Suzukawa, J.


Reversed and remanded.


Plaintiff Khavarian Enterprises, Inc., doing business as Vision Communications Co. (Vision), appeals from orders denying its motion for attorney fees and costs and granting the motion to strike its cost memorandum in favor of defendants Commline, Inc., Jeffrey Fukusawa, James Timjun, and Theresa Camden (Commline or the Commline defendants). Vision contends the trial court erred in finding that it could not properly decide either motion because the matter was resolved by settlement agreement prior to trial. Because we conclude that parties to a settlement agreement can validly specify that one party is potentially a prevailing party and reserve for later determination by the trial court whether that party did prevail, as well as other factual matters involved in making an award of statutory attorney fees, we reverse the trial court's orders and remand the matter to the trial court to consider the motions.

factual and procedural background

In August 2010, Vision filed an action for trade secret misappropriation, seeking damages, restitution, and injunctive relief. Respondents filed a timely answer. Defendant Fukusawa filed a cross-complaint against Vision alleging failure to pay commissions. Vision answered.

In April 2012, the parties engaged in mediation and resolved the matter, entering into a confidential settlement agreement. The settlement allowed Vision to move, pursuant to Civil Code section 3426.4 (section 3426.4), for attorney fees and to file a memorandum of costs pursuant to Code of Civil Procedure section 1033.5 (section 1033.5).

Specifically, the agreement stated that Commline would pay Vision a specified dollar amount. "This Settlement Sum is exclusive of attorneys' fees and costs. . . . [¶] [Vision] shall apply to the Court by way of a motion for such attorney's fees and costs incurred in the Action pursuant to Cal. Civ. Code § 3426.4, and for costs incurred in the Action pursuant to Memorandum of Costs under Cal. Civ. Proc. Code § 1033.5, and Defendants reserve their right to oppose and tax same. No duplicate recovery will be allowed." Fukusawa agreed to return to Commline a commission check and business cards. The settlement agreement noted that "the Parties understand and agree that nothing in this Settlement Agreement is intended, or should be construed as an admission of any liability, misconduct, or wrongdoing by any Party herein." The parties further agreed that the Los Angeles Superior Court would retain jurisdiction pursuant to Code of Civil Procedure section 664.6 to enforce the settlement agreement. Finally, the parties agreed to mutual dismissal of the case in its entirety and to mutual releases.

The parties then filed a joint notice of complete settlement, stating that "the parties to this action . . . have settled all causes of action in this lawsuit, reserving only the issue of Plaintiff's costs and attorney's fees, which shall be submitted to the Court." The parties dismissed the action in its entirety, noting "Plaintiff to separately seek recovery of fees and costs, subject to opposition."

Vision filed a memorandum of costs pursuant to section 1033.5 and a motion for attorney fees pursuant to section 3426.4. Commline filed opposition to the motion for attorney fees and costs and moved to strike the memorandum of costs.

The Hearing on the Attorney Fees Motion

The motion for attorney fees and costs was heard by the court on July 11, 2012. Counsel for Vision began by describing the attorney fees motion as being "fairly complicated." The court responded, "For me it's really -- it's probably a much simpler plan than you would like for me to think that it is. For me it's really an issue as to whether or not we should be having the motion. Based upon my reading of the law, it appears to the court that this matter was resolved in a settlement. And so, therefore, for me to make a determination that defendants engaged in any willful and malicious misappropriation would be well nigh impossible because this was all worked out. This would actually mean that I would have to go back through the entire case, which is what it appears that you would have me do. And I have read the majority of what you have submitted. I have not read everything because a lot of this I already read before about submissions that have been before. I am just not sure how we get there." As counsel for Vision described the showing required by section 3426.4, the court again commented, "This is a settlement. You settled, you made your peace. I didn't understand the motion to begin with. And after having read everything, I still don't understand why we're here. I'm giving you a really clear record because if you decide to take this [up on] appeal, which I'm sure you will, I want the Court of Appeal to know -- although they don't even read the hearings, they only read the moving papers -- I don't -- I mean, that's common knowledge, that they are interested in not what I say but they are interested in the moving papers. In my review of all the moving papers, the fact that this has settled does not make the plaintiff the prevailing party. And a dismissal was filed, so I'm not sure that it doesn't just make the defendants the prevailing party."

Counsel for Vision argued that "Chinn[*fn1 ] says we cannot determine who the waiver of costs goes to, therefore, we will advert to the statutory definition of prevailing party under Civil Code [sic] 1032. That has nothing whatsoever to do with the case here where the parties agreed that Vision gets a certain amount of money, non-monetary relief, plus the ability to apply to this court for attorney's fees under the Uniform Trade Secrets Act and under 1033.5 in the Code of Civil Procedure, avoiding the Chinn problem entirely, because the parties agree that Vision can make the application. It makes no difference whatsoever whether Vision is a prevailing party or not. [¶] . . . [¶] Here, not only does the agreement say that Vision is entitled to make this motion under the Uniform Trade Secrets Act, but in the notice of settlement the parties say that Vision is entitled to move for fees and file for costs. There is no doubt that the Chinn analysis, which adverts to the prevailing party's status under 1032 of the Code of Civil Procedure is simply not relevant to this particular settlement. . . . The challenge that defendants have mounted that, yes, they've agreed that the language in the settlement agreement says that Vision is entitled to move for fees and costs doesn't really mean what it says."

The court characterized the parties' agreement as saying that "you all agreed to take your best shot." Counsel for Commline argued, "I think the court hit the nail on the head from the very outset, which is, there is absolutely no case law, no statutory authority, nothing that sets up a procedure to do what the plaintiff is trying to do, that is, settle a case under 3426.4, and then come in and give you a bunch of paper, declarations and say this shows willful and malicious misappropriation." He pointed out the only case plaintiff cited in support of its position was Vacco Industries, Inc. v. Van Den Berg (1992) 5 Cal.App.4th 34 (Vacco), which involved a jury finding. Counsel continued, "I think, we're on the same page as the court on its interpretation of the language of the settlement agreement, which basically says, sure you can move and we can oppose it. And the reason why is a nonissue; we know there's no finding of willful and malicious misappropriation."

Commline's counsel asserted it would be akin to a violation of due process if the court were to consider the pleadings and the submissions to determine whether attorney fees were to be awarded because there had been no right of cross-examination. "They have just submitted a mountain of paperwork, which admittedly we've submitted a mountain of paperwork on summary judgment. I think if you look at the volume of paperwork there there's clearly ...

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