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Nuvasive Inc. v. Madsen Medical Inc.

United States District Court, S.D. California

July 1, 2016

NUVASIVE, INC., a Delaware corporation, Plaintiff,
v.
MADSEN MEDICAL, INC., a Nevada corporation; KRIS MADSEN, an individual residing in Nevada; and DOES 1-10, inclusive, Defendants. MADSEN MEDICAL, INC., a Nevada corporation, Counterclaimant,
v.
NUVASIVE, INC., a Delaware corporation, Counterdefendant.

          ORDER GRANTING IN PART AND DENYING IN PART MADSEN’S MOTION FOR ATTORNEY’S FEES AND NON-TAXABLE COSTS AND DENYING NUVASIVE’S MOTION TO RETAX COSTS

          Barry Ted Moskowitz, Chief Judge.

         Defendant and counterclaimant Madsen Medical, Inc. (“MMI”) and defendant Kris Madsen (collectively “Madsen”) have filed a Motion for Attorney’s Fees and Non-Taxable Costs. NuVasive, Inc. (“NuVasive”) has filed a Motion to Retax Costs. For the reasons discussed below, Madsen’s motion for attorney’s fees and non-taxable costs is GRANTED IN PART and DENIED IN PART, and NuVasive’s motion to retax costs is DENIED.

         I. BACKGROUND

         On September 5, 2013, NuVasive commenced this action against MMI and Kris Madsen. NuVasive asserted claims based on MMI’s alleged failure to return items to NuVasive upon MMI’s termination as well as claims for breach of the ESR Agreement (breach of nondisclosure agreement and noncompetition agreement). Subsequently, NuVasive added additional claims including tort claims for intentional interference with contractual relations.

         MMI asserted counterclaims for intentional interference with contractual relationships, breach of the ESR Agreement by soliciting and hiring MMI’s employees, intentional interference with prospective economic advantage, breach of contract relating to failure to pay commissions, unfair competition, breach of the implied covenant of good faith and fair dealing, and unjust enrichment.

         NuVasive abandoned its claim for breach of the noncompetition agreement in the ESR Agreement after Madsen filed a motion to dismiss. NuVasive also did not oppose Madsen’s Motion for Judgment on the Pleadings on NuVasive’s claim that MMI is the alter ego of Kris Madsen.

         After cross-motions for summary judgment were filed, the Court granted summary judgment in favor of Madsen on NuVasive’s claims based on allegedly missing “sets” of instruments and implants (as opposed to “disposables”) and NuVasive’s breach of contract and tort claims based on threats and disparagement. The Court granted summary judgment in favor of NuVasive on MMI’s claim for breach of § 11.5(d) of the ESR Agreement by soliciting and hiring MMI’s sales representatives and breach of the implied covenant of good faith and fair dealing.

         By the time of trial, the remaining claims of NuVasive included claims based on missing disposables (conversion, common count, breach of contract) and claims based on disclosure of confidential information (breach of contract and unfair competition). The claims of MMI to be tried included intentional interference with contractual relations, intentional interference with prospective economic advantage, breach of the ESR Agreement (failure to pay commissions), unfair competition, and unjust enrichment.

         Just before trial, NuVasive voluntarily dismissed with prejudice its claims based on disclosure of confidential information. During trial, NuVasive dismissed its remaining claims based on missing disposables after NuVasive witness Derrick Von Stein testified that his chart of lost inventory was unreliable. On February 17, 2016, judgment was entered in favor of Madsen on NuVasive’s affirmative claims for relief.

         After a thirteen-day trial, MMI prevailed on all of its counterclaims that were tried. The jury awarded MMI (1) $294, 805.16 in in unpaid commissions (breach of the ESR Agreement); (2) $7.5 million in lost profits on the tort claims; (3) $14 million in unjust enrichment on the tort claims (disgorgement of profits earned by NuVasive); and (4) $20 million in punitive damages. On March 18, 2016, the Court entered judgment in favor of MMI in the amount of $27, 794.805.16. The judgment did not include the award for unjust enrichment.

         II. DISCUSSION

         A. Attorney’s Fees

         Madsen moves for an award of attorney’s fees in the total amount of $1, 184, 066.03.[1] Madsen requests that of these fees, $637, 165.27 be allocated as having been incurred in connection with the litigation of NuVasive’s affirmative claims against Madsen. For the reasons discussed below, the Court grants attorney’s fees but reduces them to $1, 094, 508.03, with $356, 661.96 allocated to NuVasive’s affirmative claims.

         1. Prevailing Party under ESR Agreement

         NuVasive contends that MMI’s interference counterclaims relate to MMI’s employment agreements with its former employees, not the ESR Agreement, and that MMI is not the prevailing party under the ESR Agreement. But, as discussed below, the attorney’s fees clause in the ESR Agreement is worded so broadly that it extends to MMI’s interference counterclaims and renders MMI the “prevailing party” as to the entire action.

         Section 12.1(b) of the ESR Agreement provides: “The prevailing party in any action or suit shall be entitled to recover all costs it incurred in connection therewith, including, without limitation, reasonable attorney’s fees.”

         Under Cal. Civ. Code § 1717, upon which NuVasive relies, “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract . . . shall be entitled to reasonable attorney's fees in addition to other costs.” Cal. Civ. Code § 1717(a). The “party prevailing on the contract” is defined as “the party who recovered a greater relief in the action on the contract.” Cal. Civ. Code § 1717(b). The court may also determine that there is no prevailing party on the contract. Id.

         However, parties are free to draft attorney fee clauses that are broader than the type of clause discussed in section 1717. Cal. Civ. Proc. Code § 1021 provides: “Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties.”

         Section 1021 allows parties to agree to an attorney fee clause that entitles the prevailing party in litigation to recover fees whether the litigation sounds in contract, tort, or both. Maynard v. BTI Group, Inc., 216 Cal.App.4th 984 (2013). If the attorney fee provision is broad enough to encompass tort claims, “the prevailing party entitled to recover fees normally will be the party whose net recovery is greater, in the sense of most accomplishing its litigation objectives, whether or not that party prevailed on a contract cause of action.” Id. at 992. Furthermore, “in awarding fees to the prevailing party it [is] unnecessary to apportion fees between those claims.” Id.

         In Maynard, the agreement at issue was a listing agreement between the seller of a retail business and the broker. The agreement contained the following attorney fee clause: “All parties to this agreement agree to mediate, in good faith, any dispute prior to initiating arbitration or litigation. The prevailing party in the event of arbitration or litigation shall be entitled to costs and reasonable attorney fees.” The California Court of Appeal found that “an attorney fee provision awarding fees based on the outcome of ‘any dispute’ encompasses all claims, whether in contract, tort or otherwise.” Id. at 993. Therefore, the court determined that the plaintiff was the prevailing party because she obtained a net recovery in the action, even though she recovered on a negligence claim rather than a breach of contract cause of action.

         Similarly, in Gonzales v. Personal Storage, Inc., 56 Cal.App.4th 464 (1997), a customer sued a storage facility after all of her belongings were stolen from the facility by a woman falsely claiming to be the plaintiff. The jury awarded her damages for breach of contract, conversion, and emotional distress. The trial court denied the plaintiff’s request for attorney’s fees, appearing to rely on the fact that the plaintiff was awarded a substantial sum in tort damages. Id. at 480. The California Court of Appeal found that the trial court had erred because the attorney fee provision in the lease agreement provided: “In the event of any legal action or proceeding between the parties hereto, reasonable attorney’s fees and expenses of the prevailing party in any such action or proceeding may be added to the judgment therein.” Id. at 478. The court explained that by its terms, the attorney fee clause applies to “any legal action” and that clauses with such broad language permit the recovery of attorney fees in tort as well as contract actions. Id. at 480. See also Thompson v. Miller, 112 Cal.App.4th 327 (2003) (holding that Share Purchase Agreement’s attorney fee provision gave the defendants the right to recover attorney’s fees in defending against tort claims because the provision stated that the prevailing party “in any dispute under this Agreement shall be entitled to reasonable attorneys fees incurred in such dispute.”); Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4th 1338 (1992) (holding that Purchase Agreement’s attorney fee clause, which entitled the prevailing party in a lawsuit arising from the Agreement to attorney’s fees, encompassed acts and omissions occurring in connection with the Purchase Agreement and the entire transaction).

         Here, the attorney fee clause is extremely broad, entitling the prevailing party “in any action or suit” to recover reasonable attorney’s fees. To the extent that there has to be some nexus between the ESR Agreement and the counterclaims, the counterclaims certainly relate to the ESR Agreement because NuVasive sought to defend its actions based on the language of the ESR Agreement and MMI sought damages for lost profits due to termination of the ESR Agreement. Accordingly, section ...


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