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GDS Industries, Inc. v. Great American Insurance Co.

United States District Court, S.D. California

June 2, 2017

GDS INDUSTRIES, INC., A California Corporation, Plaintiff,
GREAT AMERICAN INSURANCE COMPANY, A Surety; DOES 1 through 100, Defendant.


          Hon. Anthony J. Battaglia United States District Judge

         Presently before the Court is Defendant Great American Insurance Co.'s (“Defendant”) motion to be deemed the prevailing party and for attorney's fees and costs. (Doc. No. 20.) Plaintiff GDS Industries, Inc. (“Plaintiff”) opposes the motion. (Doc. No. 22.) Having reviewed the parties' moving papers and controlling legal authority, and pursuant to Local Civil Rule 7.1.d.1, the Court finds the matter suitable for decision on the papers and without oral argument. For the reasons set forth below, the Court GRANTS IN PART Defendant's motion and AWARDS Defendant $41, 209 in attorney's fees.


         This dispute arises from nonpayment for materials, equipment, and services Plaintiff rendered to nonparty Rodeway Engineering Works, Inc. (“Rodeway”). (Doc. No. 1-2 ¶¶ 8-13, 18.)[1][2] Defendant is a surety company that duly made, executed, and filed a payment and performance bond whereby Defendant guaranteed to pay in the event Rodeway failed to do so. (Id. ¶¶ 20-21.) Plaintiff submitted a formal bond claim to Defendant on February 9, 2016, which Defendant ultimately denied on April 7, 2016, for being time barred. (Id. ¶ 23.)

         Plaintiff instituted this lawsuit in San Diego Superior Court on May 10, 2016. (Doc. No. 1 ¶ 1; see Doc. No. 1-2.) On June 8 and 14, 2016, Defendant informed Plaintiff in writing that its claim is time barred. (Doc. No. 20-2 ¶¶ 6-7; see Id. at 13-14, 17-18.) Plaintiff did not respond to these letters; accordingly, on June 15, 2016, Defendant answered the complaint in state court. (Doc. No. 1 ¶ 3; see Doc. No. 1-4.) Defendant subsequently removed the action to this Court the following day. (Doc. No. 1.)

         On July 8, 2016, the parties filed a joint discovery plan. (Doc. No. 6.) Following an early neutral evaluation conference (“ENE”), on July 21, 2016, Magistrate Judge Major issued a scheduling order that set a deadline for fact discovery to be completed by February 17, 2017, and dispositive motions to be filed by March 20, 2017. (Doc. No. 10.)

         On August 5 and 30, 2016, Defendant informed Plaintiff of its intent to file a motion for summary judgment at the end of August. (Doc. No. 20-2 ¶ 8; see Id. at 30.) On September 20, 2016, Defendant reserved a motion hearing date for the motion, which was calendared for December 29, 2016. (Doc. No. 20 ¶ 8.) That same day, Plaintiff informed Defendant that Plaintiff intended to file a motion for voluntary dismissal. (Doc. No. 20-2 ¶ 9.) As such, Defendant took its motion for summary judgment off calendar. (Id.) Defendant agreed to stipulate to a voluntary dismissal if Plaintiff reimbursed Defendant in the amount of $29, 686 for attorney's fees and costs and $1605.58 in recoverable costs. (Doc. No. 20-2 at 32.) Plaintiff did not respond to this request for reimbursement but instead filed its motion for voluntary dismissal on September 22, 2016. (Doc. No. 20-2 ¶ 9; Doc. No. 12.)

         The parties fully briefed Plaintiff's motion for voluntary dismissal. (Doc. Nos. 14, 15.) After considering the parties' respective positions, the Court dismissed the case with prejudice. (Doc. No. 19.) The Court declined to condition the dismissal on an award of attorney's fees to Defendant, but permitted Defendant to brief the issue of prevailing party status and the propriety of an attorney's fee award under California Civil Code section 9564. (Id. at 5-6 & n.4.) Defendant accepted the Court's invitation and filed the instant motion to be deemed prevailing party and for an award of attorney's fees on December 13, 2016. (Doc. No. 20.) The parties fully briefed the motion. (Doc. Nos. 22, 23.) This order follows.

         Legal Standard

         In the absence of a rule, statute, or contract authorizing the award, each party must bear its own attorney's fees. Sheet Metal Workers' Int'l Ass'n Local Union No. 359 v. Madison Indus., Inc., 84 F.3d 1186, 1192 (9th Cir. 1996). When there is no federal statute or rule on point, Federal Rule of Civil Procedure 54(d)(2) establishes a procedure for claiming a right to an award of attorney's fees. Rule 54(d)(2) requires an independent source of authority for awarding attorney's fees. See Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 257 (1975); Travelers Indem. Co. v. Arena Group 2000, L.P., No. 05-CV-1435 JLS (CAB), 2008 WL 696932, at *2 (S.D. Cal. March 13, 2008).

         In looking for such an independent source of authority, a federal court sitting in diversity must apply state law in denying or granting those fees because the decision to award fees reflects a substantial policy of the state. Id. at 259 n.31; see Sioux Cnty. v. Nat'l Sur. Co., 276 U.S. 238, 243 (1928) (explaining that when state policy allows for recovery of attorney's fees, removal to federal court cannot thwart that policy).


         Defendant brings its claim for attorney's fees and costs pursuant to California Civil Code section 9564. (Doc. No. 20-1 at 2.) Section 9564[3] governs actions seeking to enforce liability of a surety on a payment bond. Cal. Civ. Code § 9564(a), (b). It provides, in pertinent part, “In an action to enforce the liability on the bond, the court shall award the prevailing party a reasonable attorney's fee.” Id. § 9564(c).

         Defendant asserts it is entitled to an award of attorney's fees because it is the prevailing party. (Doc. No. 20-1 at 5-6.) Accordingly, Defendant argues that section 9564 mandates that it be awarded its reasonable attorney's fees. (Id. at 7-8.) Defendant finally contends that its request of $43, 818 in attorney's fees and $891.50 in costs is reasonable. (Id. at 11; Doc. No. 23 at 11.)[4]

         I. Attorney's Fees Under Section 9564

         A. Defendant is the Prevailing Party.

         Defendant argues it is the prevailing party within the meaning of section 9564 and thus entitled to a fee award. (Doc. No. 20-1 at 5-6.) Plaintiff asserts that Defendant is not a true prevailing party because the dismissal resulted from Plaintiff's own motion. (Doc. No. 22 at 4.) Plaintiff further contends that Defendant should not be awarded attorney's fees because a fee award generally does not follow a voluntary dismissal. (Id. at 3-4.)[5]

         Section 9564 mandates that “the court shall award the prevailing party a reasonable attorney's fee.” Cal. Civ. Code § 9564(c). The section does not define “prevailing party.” In the absence of a definition, California courts take a pragmatic approach, looking at “the extent to which each party has realized its litigation objectives, whether by judgment, settlement, or otherwise.” Santisas v. Goodin, 17 Cal.4th 599, 622 (1998) (citing Hsu v. Abbara, 9 Cal.4th 863, 877 (1995)).

         When California state law is applied, Defendant is the prevailing party. The California Supreme Court's decision in Santisas v. Goodin is dispositive. There, the plaintiffs sued the defendants for various tort and contract claims arising out of the plaintiffs' purchase of a home, a purchase in which each defendant played a role. Id. at 603. After discovery proceedings, including depositions of some of the parties, the plaintiffs voluntarily dismissed their complaint with prejudice. Id. at 603-04. The defendants thereafter sought an award of attorney's fees pursuant to the fee provision contained in the sales agreement, which read, “In the event legal action is instituted by the Broker(s), or any party to this agreement, or arising out of the execution of this agreement or the sale, or to collect commissions, the prevailing party shall be entitled to receive from the other party a reasonable attorney fee to be determined by the court in which such action is brought.” Id. at 604, 607.

         The plaintiffs asserted section 1717 barred the defendants from recovering any attorney's fees. Id. at 607-08. That section, which governs fee awards for claims sounding in contract, provides, “Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall ...

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