Judge James C. Chalfant, Case Number: 22STCP02332, Date: 2023-06-29 Tentative Ruling

BT-1 Ventures, LLC v. No Mo-Stache LLC, 22STCP02332

Tentative decision on motion for attorney’s fees: granted in part

Respondent No Mo-Stache, LLC (“Company”) moves for an award of $41,277.50 in attorney’s fees and $1,521.38 in costs against Petitioner BT-1 Ventures, LLC (“BT-1”).

The court has read and considered the moving papers, opposition, and reply,[1] and renders the following tentative decision.

Petitioner BT-1 filed the Petition on June 17, 2022, alleging in pertinent part as follows.

BT-1 is a Company member through a Subscription Agreement (“Agreement”) dated April 4, 2018 and BT-1’s purchase of membership units.

On March 21, 2022, BT-1 sent a request via email to Company owner Gita Vasseghi (“Vasseghi”) for (1) Company’s Schedule K-1 for BT-1 members Teri Gevinson (“Gevinson”) and Garrett Bender (“Bender”), and (2) documentation relating to Company’s distribution schedule. BT-1 never received a response.

On April 11, 2022, BT-1 sent a letter demanding the right to inspect (1) all audited and unaudited financial statements prepared by or on behalf of Company from April 4, 2018 to present; (2) all tax returns filed with any agency or unit of any level of government from April 4, 2018 to present; (3) all written records, reports, memoranda, communications, correspondence, and documentation relating to or reflecting distributions Company has made from April 4, 2018 to present; (4) all written records, notes, reports, memoranda, summaries, and documentation relating to or reflecting annual, semi-annual, quarterly, or other regular meetings of Company or its Board of Managers from April 4, 2018 to present; and (5) a current list of full name and last known business or residential address of each Company member and transferee, in alphabetical order, with their contribution and share in profits and losses.

The April 11 letter explained that BT-1 wanted this information to understand Company’s financial condition in relation to its past and present ability to make distributions and better assess the valuation of BT-1’s membership interest.

On May 16, 2022, counsel for Company stated that it would respond to BT-1’s letter in five days but did not do so. On May 25 and June 9, 2022, BT-1 sent emails asking for a status update, but No-Mostache did not provide one.

BT-1 seeks a writ of mandate requiring Company to permit inspection of the books and records and to bear the costs of inspection and copying of such books and records. BT-1 also seeks attorney’s fees and costs.

On July 29, 2022, upon request, the court entered default against Company. BT-1 agreed to set this default aside on September 29, 2022.

On January 27, 2023, the court denied Company’s ex parte application to specially set a hearing on a motion to dismiss for BT-1’s lack of standing. The court emphasized that a standing argument would be appropriate at trial of the Petition.

On June 14, 2023, the appellate court sent BT-1 a Notice of Default for failure to pay a reporter’s transcript fee.

“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.” Civil Code §1717(a).

“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.” Id. “Attorney's fees provided for by this section shall not be subject to waiver by the parties to any contract which is entered into after the effective date of this section. Any provision in any such contract which provides for a waiver of attorney's fees is void.” Id.

“The court, upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section…[and] the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. The court may also determine that there is no party prevailing on the contract for purposes of this section.” Civil Code §1717(b)(1).

Civil Code section 1717 was enacted to establish mutuality of remedy where contractual provision makes recovery of attorney fees available for one party, and to prevent oppressive use of one-sided attorney’s fees provisions. In re Tobacco Cases I, (2011) 193 Cal.App.4th 1591, 1599. Under the doctrine of mutuality of remedy, if the party would have been exposed to fees had the court found against it, then that party is entitled to fees for prevailing. Eden Township Healthcare Dist. v. Eden Medical Center, (“Eden Township”) (2013) 220 Cal.App.4th 418, 429. On the same principle, if a party would not have been entitled to attorneys’ fees under the contract had it prevailed in the dispute, the other party may not claim attorneys’ fees under the auspice of section 1717. See, e.g., Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, (“Blickman”) (2008) 162 Cal.App.4th 858, 902 (holding that because, under the scope of the contractual attorneys’ fees provision at issue, one party “could not have recovered fees had it prevailed…[the other party] had no reciprocal right to fees under Section 1717.”)

The moving party bears the burden of proof as to the reasonableness of any fee claim. CCP §1033.5(c)(5). This burden requires competent evidence as to the nature and value of the services rendered. Martino v. Denevi, (“Martino”) (1986) 182 Cal.App.3d 553, 559. “Testimony of an attorney as to the number of hours worked on a particular case is sufficient evidence to support an award of attorney fees, even in the absence of detailed time records.” Id. “‘The reasonable market value of the attorney's services is the measure of a reasonable hourly rate. This standard applies regardless of whether the attorneys claiming fees charge nothing for their services, charge at below-market or discounted rates, represent the client on a straight contingent fee basis, or are in-house counsel.’” Center For Biological Diversity v. County of San Bernardino, (2010) 188 Cal.App.4th 603, 619 (citations omitted).

A plaintiff’s verified billing invoices are prima facie evidence that the costs, expenses, and services listed were necessarily incurred. See Hadley v. Krepel, (“Hadley”) (1985) 167 Cal.App.3d 677, 682. “In challenging attorney fees as excessive because too many hours of work are claimed, it is the burden of the challenging party to point to the specific items challenged, with a sufficient argument and citations to the evidence. General arguments that fees claimed are excessive, duplicative, or unrelated do not suffice.” Lunada Biomedical v. Nunez, (“Lunada”) (2014) 230 Cal.App.4th 459, 488.

In determining whether the requested attorney’s fees are reasonable, the court’s “first step involves the lodestar figure—a calculation based on the number of hours reasonably expended multiplied by the lawyer’s hourly rate. The lodestar figure may then be adjusted, based on consideration of facts specific to the case, in order to fix the fee at the fair market value for the legal services provided.” Gorman v. Tassajara Development Corp., (2008) 162 Cal.App.4th 770, 774 (“Gorman”). In adjusting the lodestar figure, the court may consider the nature and difficulty of the litigation, the amount of money involved, the skill required and employed to handle the case, the attention given, the success or failure, and other circumstances in the case. EnPalm LLC v. Teitler, (2008) 162 Cal.App.4th 770, 774; see also PLCM Group, Inc. v. Drexler, (2000) 22 Cal.4th 1084, 1095.

On April 4, 2018, the parties executed the Agreement, which provided that BT-1 would purchase 30% of the Company for $300,000. Smith Decl., ¶2, Ex. A. Section 1.1 states that BT-1 would then enjoy all rights, terms, and privileges set forth in the Agreement and as enjoyed by Company founders. Smith Decl., ¶2, Ex. A. Section 23.11 also provided that in any action to enforce or interpret the Agreement by reason of or with respect to an alleged breach of any provision thereof, the prevailing party may receive from the non-prevailing party the amount that the court may judge to be reasonable attorneys’ fees and costs. Smith Decl., ¶2, Ex. A.

BT-1 failed to sign and perform the Agreement. Smith Decl., ¶2, Ex. A. It later admitted that it failed to fully perform its obligations therein. Smith Decl., ¶2.

On June 21, 2022, BT-1 filed its Petition to compel inspection of Company’s books and records under Corporations Code (“Corp. Code”) sections 17704.10 et seq. Smith Decl., ¶3, Ex. A. BT-1 asserted that it had rights as a member through the Agreement. Smith Decl., ¶3, Ex. A.

On October 20, 2022, Company filed an Answer. Smith Decl., ¶4. On November 1, 2022, the parties stipulated to a briefing schedule. Smith Decl., ¶5. On December 2, 2022, BT-1 filed its opening brief. Smith Decl., ¶6. On January 6, 2023, Company filed its opposition. Smith Decl., ¶7. On January 17, 2023, BT-1 filed its reply brief. Smith Decl., ¶8.

On January 25, 2023, Company substituted counsel. Smith Decl., ¶9. On January 26, 2023, the Company applied ex parte to specially set a hearing on a proposed motion to dismiss for lack of standing. Smith Decl., ¶10, Ex. A. Company argued that BT-1’s purported standing stemmed from the existence of the Agreement, and that establishing whether it was enforceable exceeded the court’s jurisdiction. Smith Decl., ¶10, Ex. A. On January 27, 2023, the court denied the ex parte application. Smith Decl., ¶11.

On February 2, 2023, the court denied the Petition. Smith Decl., ¶12, Ex. C. The court ruled that BT-1 never invested the full $300,000 required to finalize the membership purchase under the Agreement. Smith Decl., ¶12, Ex. C. BT-1 argued that Company had twice admitted that BT-1 was a member, but the court rejected that argument. Smith Decl., ¶12, Ex. C. While oral modification allowed BT-1 to invest the $300,000 price after closing, BT-1 did not obtain a vested membership interest because it never paid the full amount required. Smith Decl., ¶12, Ex. C.

On March 6, 2023, the court entered judgment and found Company as the prevailing party on all claims. Smith Decl., ¶12, Ex. C.

Company’s previous counsel was Andrew Pongracz, Esq. (“Pongracz”) of Seki, Nishimura & Watase, LLP (“Seki”), who billed at $400 per hour. Smith Decl., ¶18.

The firm Wolf Wallenstein, PC (“Wolf”) substituted in as counsel for Company. Christopher Smith, Esq. (“Smith”) is a partner that bills $650 per hour. Smith Decl., ¶15. Partner Barbara Croutch, Esq. (“Croutch”) bills at $705 per hour. Smith Decl., ¶16. Paralegal Cristina Gutierrez (“Gutierrez”) bills at $325 per hour. Smith Decl., ¶17.

Seki’s invoices show that Pongracz’s last act as counsel was on January 23, 2023. Smith Decl., ¶¶ 19-20, Ex. B. He billed 31.1 hours for total attorney’s fees of 31.1 hours x $400 per hour = $11,700. Smith Decl., ¶¶ 19-20, Ex. B.

Wolf’s invoices show that Smith billed 39 hours for a total of 39 hours x $650 per hour = $25,350. Smith Decl., ¶19, Ex. B. Croutch billed three hours for a total of 3 hours x $705 per hour = $2,115. Smith Decl., ¶19, Ex. B. Gutierrez billed 6.5 hours for a total of 6.5 hours x $325 per hours = $2,112.50. Smith Decl., ¶19, Ex. B.

Wolf’s first invoice shows that work on the ex parte to specially set a hearing on a proposed motion to dismiss accounts for 12.65 of Smith’s hours, 0.75 of Croutch’s hours, and 2.25 of Gutierrez’s hours. Smith Decl., ¶19, Ex. B. Before the February 2, 2023 hearing on the Petition, Smith also spent 6.35 hours reviewing the briefs and exhibits filed before substitution of counsel. Smith Decl., ¶19, Ex. B.

The attorney’s fees total $41,277.50. Smith Decl., ¶19, Ex. B. Company has also incurred $1,521.38 in costs between the two firms that served as its counsel. Smith Decl., ¶¶ 22-23, Ex. B.

Company founder and owner Vasseghi hired all of the attorneys and paralegals that did work for the case. Vasseghi Decl., ¶17. She reviewed and paid all the fees and costs reflected in the invoices. Vasseghi Decl., ¶16, Ex. B. The rates resemble rates she paid for other professional services related to Company business. Vasseghi Decl., ¶18.

The court’s judgment identified Company as the prevailing party for this action. Smith Decl., ¶12, Ex. C. BT-1 does not deny that Company is the prevailing party but disputes that Company is the prevailing party on the Agreement. BT-1 argues that it filed the Petition to enforce its membership rights under Corp. Code section 17704.10 and did not file a breach of contract action. Based on this distinction, BT-1 asserts that Company has no statutory right to attorney’s fees under Civil Code section 1717. Opp. at 3.

Civil Code section 1717 was enacted primarily to establish mutuality of remedy where a contractual provision makes recovery of attorney fees available for one party, and to prevent oppressive use of one-sided attorney’s fees provisions. In re Tobacco Cases I, supra, 193 Cal.App.4th at 1599. Under the doctrine of mutuality of remedy, if the party would have been exposed to fees had the court found against it, then that party is entitled to fees for prevailing. Eden Township, supra, 220 Cal.App.4th at 429.

BT-1’s Petition sought attorney’s fees under Corp. Code section 17704.10(g). BT-1 did not rely on the Agreement’s attorney’s fee clause for such an award. Pet. ¶49. As a result, Company has no right to attorney’s fees based solely on Civil Code section 1717’s mutual remedy.

Civil Code section 1717 also applies to bilateral attorney’s fee clauses. Santisas v. Goodin, (1998) 17 Cal.4^th 599, 614. Whether Company is entitled to its attorney’s fees is dependent upon the language of Civil Code section 1717 concerning bilateral fee clauses and the specific fee clause in the Agreement.

BT-1 cites Orozco v. WPV San Jose, LL, (“Orozco”) (2019) 36 Cal. App. 5th 375, 408-09, which held that the phrase “action on a contract” in Civil Code section 1717 must be liberally construed but cannot be stretched to include tort actions. See also Moallem v. Coldwell Banker Com. Group, Inc., (1994) 25 Cal. App. 4th 1827, 1831-32 (Civil Code section 1717 does not extend to tort claims). A cause of action does not warrant a recovery under Civil Code section 1717 merely because a contract with an attorney’s fee provision is part of the backdrop of the case. Orozco, supra, 36 Cal.App.5^th at 408. An action or cause of action is “on a contract” if (1) the action or cause of action “involves” an agreement in the sense that it 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, and (2) the agreement contains an attorney’s fee clause. Id.

BT-1’s claim for membership inspection meets the first element of an action on a contract. BT-1 relied on its membership in Company to argue that it had statutory inspection rights under Corp. Code section 17704.10. The action involved the Agreement in the sense that it was based upon, or related to, BT-1’s membership as provided in the Agreement as properly interpreted.

The second element of an action on a contract requires that the Agreement contain an applicable attorney’s fees clause. Section 23.11 of the Agreement provides that in any action to enforce or interpret the Agreement by reason of or with respect to an alleged breach of any provision thereof, the prevailing party may receive from the non-prevailing party the amount that the court may judge to be reasonable attorneys’ fees and costs. Smith Decl., ¶2, Ex. A.

BT-1 contends that, while the Petition may have required an interpretation of the Agreement, it did not seek to enforce a breach of the Agreement. Opp. at 4. The Agreement entitled BT-1 to a 30% interest in the Company upon payment of the $300,000 subscription price. Smith Decl., ¶2, Ex. A. Once BT-1 made this payment, it would enjoy all rights, terms, and privileges that Company founders enjoy. Smith Decl., ¶2, Ex. A. This includes the right as a member to access books and records under Corp. Code section 17704.10.

BT-1 did not make a breach of contract claim with respect to the Agreement. Rather, BT-1 assumed that it had membership rights under the Agreement and sought to enforce its statutory right to inspection. This was not a direct breach of contract claim, but it was an indirect one. That is, BT-1 contended that Company was denying its statutory inspection rights, which itself was a breach of BT-1’s rights under the Agreement. As Civil Code section 1717 must be broadly construed (Orozco, supra, 36 Cal. App. 5th at 408-09), this suffices to meet the second element of an “action on a contract”.

Thus, the Petition is an action on a contract where the contract specifically provides that attorney's fees incurred to enforce that contract shall be awarded to the prevailing party. Company as the party prevailing on the contract is entitled to reasonable attorney's fees and costs. Civil Code §1717(a).

The court employs the lodestar analysis when looking to determine the reasonableness of an attorney’s fee award. The lodestar figure is calculated by multiplying the number of hours reasonably spent by the reasonable market billing rate. Serrano v. Priest, (1977) 20 Cal.3d 25, 48. The petitioner bears the burden of proof as to the reasonableness of any fee claim. CCP §1033.5(c)(5). This burden requires competent evidence as to the nature and value of the services rendered. Martino, supra, 182 Cal.App.3d at 559. “Testimony of an attorney as to the number of hours worked on a particular case is sufficient evidence to support an award of attorney fees, even in the absence of detailed time records.” Id.

Generally, the reasonable hourly rate used for the lodestar calculation is the rate prevailing in the community for similar work. Center for Biological Diversity v. County of San Bernardino, (2010) 188 Cal.App.4th 603, 616. In making its calculation, the court may rely on its own knowledge and familiarity with the legal market, as well as the experience, skill, and reputation of the attorney requesting fees, the difficulty or complexity of the litigation to which that skill was applied, and affidavits from other attorneys regarding prevailing fees in the community and rate determinations in other cases. 569 East County Boulevard LLC v. Backcountry Against the Dump, Inc., (2016) 6 Cal.App.5th 426, 437.

Pongracz, the original attorney for this action, billed at $400 per hour. Smith Decl., ¶18. When Wolf became counsel, it billed $650 per hour for Smith, $705 per hour for Croutch, and $325 per hour for Gutierrez. Smith Decl., ¶¶ 15-17.

BT-1 objects to Company’s decision to change to attorneys billing almost double the hourly rate. Opp. at 7.

Company responds without evidence that BT-1’s own counsel charged higher rates in the past at his previous law firm. Reply at 9. Company also asserts that a switch to a more expensive attorney the week before trial is a common practice. Reply at 9. This may be true but the issue is whether the higher rates are appropriate.

The court finds nothing wrong with the higher rates charged by the Wolf firm. They are within the realm of reasonable.

An attorney’s fee award should ordinarily include compensation only for all the hours reasonably spent on the litigation. Ketchum v. Moses, (2001) 24 Cal.4th 1122, 1133. The trial court must carefully review attorney documentation of hours expended and eliminate padding in the form of inefficient or duplicative efforts. Id. at 1132.

Invoices show that Pongracz billed 31.1 hours at the Seki firm. At the Wolf firm, Smith billed 39 hours, Croutch billed three hours, and Gutierrez billed 6.5 hours. Smith Decl., ¶¶ 19-20, Ex. B.

BT-1 asserts that the supporting invoices are not admissible. Opp. at 5. BT-1 cites to Copenbarger v. Morris Cerullo World Evangelism, Inc. (“Copenbarger”) (2018) 29 Cal. App. 5th 1, 13, which held that an invoice itself is hearsay and is not admissible to prove the work or services reflected in the invoice were performed unless a foundational showing is made of an exception to the hearsay rule. Opp. at 5.

As Company notes, Copenbarger’s holding is limited. Reply at 6-7. In Mai v. HKT Cal, Inc. (“Mai”) (2021) 66 Cal.App.5th 504, 522, the court noted that plaintiff’s witness in Copenbarger testified he had copies of the attorney’s invoices but did not bring the invoices to trial. Id. at 514. He also could not recall what services his attorney had billed for, and he did not even keep himself informed of what his lawyer was doing during the litigation. Id. Mai concluded that Copenbarger only applies only applied when a plaintiff attempts to read the detailed entries on the bills during testimony to prove the specific services rendered. Id. at 522. In contrast, the parties always can use invoices for a more limited purpose of corroborating testimony that they actually paid certain amounts or to make a prima facie showing that the charges were reasonably incurred. Id. at 522.

Company’s use of invoices in this motion is permissible under Mai, supra, 66 Cal.App.5th at 522. Company’s owner and counsel both attach the invoices to their declarations and the owner testifies that she reviewed them as she paid them. Smith Decl., ¶19, Ex. B; Vasseghi Decl., ¶16, Ex. B. The invoices are admissible to corroborate the statements that the fees were reasonably incurred and paid.

Company asserts that because Vaseghi has already paid these invoices, they establish a presumption that the fees therein are reasonable. Reply at 8. While the invoices serve as prima facie evidence that the costs, expenses, and services listed were necessarily incurred (Hadley, supra, 167 Cal.App.3d at 682), the presumption is rebuttable.

“In challenging attorney fees as excessive because too many hours of work are claimed, it is the burden of the challenging party to point to the specific items challenged, with a sufficient argument and citations to the evidence. General arguments that fees claimed are excessive, duplicative, or unrelated do not suffice.” Lunada, supra, 230 Cal.App.4th at 488.

BT-1 challenges the reasonableness of hours incurred based on Company’s change of lawyers. The Company substituted the Wolf firm into the case in January 2023 after the parties had submitted all briefs on the merits of the case. Smith Decl., ¶¶ 8-9. The one action Wolf took before trial was to apply ex parte to specially set a hearing on a motion to dismiss for lack of standing under the Agreement. Smith Decl., ¶10, Ex. A. The court denied the application (Smith Decl., ¶11) and said that it would reach that issue at the trial.

BT-1 points to the difference between Pongracz’s hours and Wolf’s collective hours. Opp. at 8-10. The Seki firm prepared the brief’s and the Wolf firm’s only tasks were the unsuccessful ex parte application and to prepare for the hearing. Yet, the Seki firm billed $11,700 and the Wolf firm billed $29.577.50. Opp. at 8-9.

Company asserts that this substitution on the eve of trial for more experienced counsel is a normal practice, even if new counsel has to spend extra time to familiarize itself with the case. Reply at 10.

Perhaps so, but that does not mean that BT-1 should pay for Company’s decision to change lawyers, or for it to make an unnecessary ex parte application a week before trial. The Wolf firm’s work on the ex parte to specially set a hearing on a proposed motion to dismiss accounts for 12.65 of Smith’s hours, 0.75 of Croutch’s hours, and 2.25 of Gutierrez’s hours. Smith Decl., ¶19, Ex. B. Before the February 2, 2023 hearing on the Petition, Smith also spent 6.35 hours reviewing the briefs and exhibits filed before the substitution of counsel. Smith Decl., ¶19, Ex. B. These hours are disallowed.

Pongracz’s 31.1 hours are allowed in full. Smith’s hours are reduced to 39 – 12.65 – 6.35 = 20 hours. Croutch’s hours are reduced to 3 – 0.75 = 2.25 hours. Gutierrez’s hours are reduced to 6.5 – 2.25 = 4.25 hours.

Based on a $400 hourly rate, Pongracz’s fees for 31.1 hours of work amount to $400 x 31.1 = $12,440.[2]

Based on a $650 hourly rate, Smith’s fees for 20 hours of work amount to $650 x 20 = $13,000.

Based on a $705 hourly rate, Croutch’s fees for 2.25 hours of work amount to $705 x 2.25 = $1,586.25.

Based on a $325 hourly rate, Gutierrez’s fees for 4.25 hours of work amount to $325 x 4.25 = $1,381.25.

The total Lodestar for attorney’s fees is $12,440 + $13,000 + $1,586.25 + $1,381.25 = $28,407.50.

Company’s motion for attorney’s fees is granted in the amount of $28,407.50.[3]

[1] BT-1 failed to lodge a courtesy copy of its opposition in violation of the Presiding Judge’s First Amended General Order Re: Mandatory Electronic Filing. Counsel is admonished to provide courtesy copies in all future filings.

[2] The $11,700 that Company seeks for his fees was a miscalculation. See Smith Decl., ¶¶ 19-20, Ex. B.

[3] In contrast to attorney’s fees, Company is automatically entitled to costs. Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding. CCP §1032(b). The procedure for doing so is governed by filing a memorandum of costs pursuant to CCP section 1034(a) and CRC 3.1700, 3.1702, and 3.2000. The memorandum of costs is mandatory. CRC 3.1700(a). Company filed a memorandum of costs on March 23, 2023 in the amount of $248.38. BT-1 did not move to strike or tax these costs which are final, and Company cannot increase them through this motion.