Judge: Daniel M. Crowley, Case: 20STCV19564, Date: 2025-04-22 Tentative Ruling

Case Number: 20STCV19564    Hearing Date: April 22, 2025    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

Stem Holdings’ motion for attorneys’ fees and costs is granted in the total amount of $94,791.97, comprised of attorneys’ fees in the reduced amount of $92,894.50, and costs in the amount of $1,897.47.

Stem Holdings, Inc. (“Stem”) moves for an order awarding its attorneys’ fees and costs under Civil Code §1717, in the amount of $98,394.50 in fees and $1,897.47 in costs, for a total award of $100,291.97.  (Notice of Motion, pg. 1; Civ. Code §1717.)  Stem moves on the grounds that it defeated contractual claims brought by Plaintiffs Chris Haas (“Haas”), Carla Baumgartner (“Baumgartner”), and Eric Steele (“Steele”) (collectively “Plaintiffs”) under a Settlement Agreement dated November 30, 2020, between Plaintiffs and the Defendants Driven Deliveries, Inc. (“Driven”), Christian Schenk (“Schenk”), and Brian Hayek (“Hayek”) (collectively “Defendants”).  Defendants breached the Settlement Agreement. After obtaining a Stipulated Judgment against the Defendants for $349,876.69, Plaintiffs filed a Motion to Amend the Judgment to include Stem as a defendant. On September 24, 2024, the Court of Appeal reversed this Court’s Order granting Plaintiffs’ Motion to Amend the Judgment. The Court of Appeal’s Decision became final on October 24, 2024.  (Notice of Motion, pg. 1.)

Background

Plaintiffs filed their initial Complaint against Driven, Hayek, and Schenk on May 22, 2020, and settled the following November for $774,621 in equal bi-monthly payments over a period of 17 months.  Defendants defaulted on payments due under the Settlement Agreement in November 2021, and Plaintiffs obtained a Stipulated Judgment against Driven, Schenk and Hayek for the balance, $349,876.69, on March 28, 2022, three months after Stem divested itself of Driven.

On August 15, 2022, Driven filed for bankruptcy in the U.S. Bankruptcy Court for the Central District of California.  Three weeks later, Plaintiffs filed a Motion to Amend the Judgment to add Villanueva (under alter ego theory) and Stem Holdings (under successor corporation theory) as Defendants.

At a hearing on the Motion to Amend the Judgment on November 2, 2022, Judge Bachner granted Plaintiffs’ motion as to Villanueva. As to Stem Holdings, the Court requested that Plaintiffs and Stem file supplemental briefs on which state law should apply regarding successor liability.

On December 12, 2022, following a second hearing, Judge Bachner granted Plaintiffs’ Motion to Amend the Judgment as to Stem Holdings, relying on C.C.P. §187’s grant of “power to use all means necessary to carry its jurisdiction into effect, even if those processes are not set out in the code.”  The Court held that Stem Holdings “expressly agreed to assume Driven’s liability to Plaintiffs. In its official Form S-4 filing with the United States government on December 28, 2020, after the Driven-Plaintiffs settlement agreement was signed, Stem declared: ‘Following the completion of the merger, Stem will also assume Driven’s outstanding net indebtedness.’”

Stem timely appealed from the December 12, 2022 Order, asserting that the Court had erred in applying corporate successor liability theory to Stem.  The Court of Appeal reversed in part, ruling that “Stem is not subject to successor liability because it did not purchase Driven’s principal assets. Rather, . . . the merger transaction amounted to Stem only acquiring all of Driven’s shares—but Driven survived the transaction.”  (9/24/24 Appellate Opinion, pg. 12.)

The Court of Appeal also rejected Plaintiffs’ contention that Stem was obligated to honor an agreement entered into by Defendants prior to the transaction.  “[T]he settlement agreement between Driven and plaintiffs cannot bind Stem, a nonparty. [Citation.] There is no evidence that Stem agreed to be bound by the settlement agreement reached between plaintiffs and defendants.”  (Id.)

Stem filed the instant motion on October 31, 2024.  Plaintiffs filed their opposition on April 8, 2025.  As of the date of this hearing no reply has been filed.

Discussion

Civil Code §1717(a) provides, in part:

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, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.

Where a contract provides for attorney’s fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract.

Reasonable attorney’s fees shall be fixed by the court, and shall be an element of the costs of suit.

(Civ. Code §1717(a), emphasis added.)

California courts liberally construe the term “on a contract” to include any claim that arises out of, is based upon, or relates to an agreement by seeking to define or interpret its terms or to determine or enforce a party’s rights or duties under the agreement.  (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 241-242.)

In Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, the California Supreme Court determined that the rule of mutuality of Civil Code §1717 applied to non-signatories to agreements with fee-shifting provisions.  The Court held:

Section 1717 was enacted to establish mutuality of remedy where contractual provision makes recovery of attorney’s fees available for only one party, and to prevent oppressive use of one-sided attorney’s fees provisions. Its purposes require section 1717 be interpreted to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney’s fees should he prevail in enforcing the

contractual obligation against the defendant. . . .

(Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128-129; see also Pueblo Radiology Medical Group, Inc. v. Gerlach (2008) 163 Cal.App.4th 826, 829 [“The determinative fact was that the individual defendants had prevailed on the alter ego issue. The trial court’s determination that respondents were not the alter egos of the

corporation effectively ended the case as to them. They were entitled to recover attorney fees under the contract.”].)

Here, Stem is the prevailing party on a contract, the Settlement Agreement, containing an attorneys’ fees provision.  (Decl. of Alger ¶12, Exh. 2 at §10.) Therefore, Stem is entitled to an award of its reasonable attorneys’ fees and costs.

Plaintiffs’ argument that the instant matter is one under the Labor Code and Stem cannot recover is unavailing.  Here, Plaintiffs attempted to enforce the Settlement Agreement against Stem as an alter ego, which is an issue on a contract.  (See Westwood Homes, Inc. v. AGCPII Villa Salerno Member, LLC (2021) 65 Cal.App.5th 922, 928 [rejecting any distinction for purposes of §1717 between alter ego allegations in an original lawsuit, or a second action, or a motion to amend the judgment].)

Reasonable Fees

To calculate a lodestar amount, the Court must first determine the reasonableness of the hourly rates sought by the party’s counsel.  The Supreme Court of California has concluded that a reasonable hourly lodestar rate is the prevailing rate for private attorneys “conducting non-contingent litigation of the same type.”  (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1133, emphasis added.)

Stem’s counsel declares the following hourly rates: (1) Timothy L. Alger ($500.00-$550.00/hour); (2) David Kopliak ($425.00/hour); (3) Kaci Hohmann ($350.00/hour); (4) Blake Marvis ($325.00/hour); (5) Shalina Pannu ($250.00/hour); (6) Robert McCarthy ($320.00/hour); and (7) Glen Smith ($375.00/hour).  (Decl. of Alger ¶¶8-9, 14-15; Exhs. D, E.)  These rates are reasonable in their community of practice and specialized area of law.

Billed Hours

The party seeking fees and costs bears the burden to show “the fees incurred were allowable, were reasonably necessary to the conduct of the litigation, and were reasonable in amount.”  (Nightingale v. Hyundai Motor America (1994) 31 Cal.App.4th 99, 104.)

Stem’s counsel’s fee recovery is based on an unspecified number of hours spent by their attorneys litigating this case before this Court and at the appellate level.  Stem’s counsel declares that when he worked for Emerge Law Group, the fees incurred were for a total of $32,675.00.  (Decl. of Alger ¶14.)  Stem’s counsel declares that when he moved to Alger Law, the fees incurred were for a total of $60,219.50.  (Decl. of Alger ¶15.)  Petitioners also request an additional $5,500 to draft a reply, which was not filed, and was therefore not reasonably incurred.  The Court calculates the total of billed fees to be $92,894.50, while Stem’s Counsel declares the total fees are $98,394.50.  (Decl. of Alger ¶18, Exhs. B, C.)

Plaintiffs object to Stem’s fees on the basis that the amount of fees is outrageously high and that Stem opposed a single motion before this Court.  (Opposition, pg. 7.)  Plaintiffs’ objections to Stem’s request for fees do not point to the specific items challenged with sufficient arguments and citations to the evidence; general arguments that fees claimed are excessive, duplicative, or unrelated do not suffice.  (Premier Medical Management Systems, Inc. v. California Insurance Guarantee Association (2008) 163 Cal.App.4th 550, 564.)

Stem’s request for attorneys’ fees is granted in the reduced total amount of $92,894.50.

Costs

Stem requests a total of $1,897.47 in costs.  (Motion, pg. 8; Decl. of Alger ¶18.)  Plaintiffs’ opposition does not challenge Stem’s request for costs. 

Accordingly, Stem’s request for costs is granted in the total of $1,897.47.

Conclusion

Stem’s motion is granted in the reduced total amount of $94,791.97, comprised of attorneys’ fees in the reduced amount of $92,894.50, and costs in the amount of $1,897.47.

Moving Party to give notice.

Dated:  April _____, 2025