Judge: Mark A. Young, Case: SC12874, Date: 2022-08-24 Tentative Ruling
Case Number: SC12874 Hearing Date: August 24, 2022 Dept: M
CASE NAME: Levenstein, v. Chang, et al.
CASE NO.: SC12874
MOTION: Motion for Attorneys’ Fees x3
HEARING DATE: 8/24/2022
BACKGROUND
On October 4, 2017, Plaintiff Nicholas Levenstein dba Mongoose Help Desk filed this fraud action against Defendants Jerome Chang, Blankspaces LLC (“BLA”), Blankspaces Experience LLC (“BEX”), and BDTLA Broadway LLC (“BDTLA”). The complaint states 11 causes of action for 1) fraud; 2) breach of contract; 3) unjust enrichment; 4) breach of fiduciary duty of loyalty; 5) breach of fiduciary duty of reasonable care; 6) breach of contract; 7) conversion; 8) inducing breach of contract; 9) false advertising; 10) unfair competition; and 11) alter ego.
The Complaint alleges that Pine Street Real Estate LLC (“PRSE”) assigned all of its claims against Defendants to Plaintiff on October 2, 2017. PSRE and Blankspaces LLC were both members of a third entity, BSM 2nd Street LLC (“BSM”). BSM leased commercial “co-working” space located in Santa Monica. PSRE had the exclusive right to manage BSM. On November 30, 2016, PSRE entered into an agreement with BLA to sell its (and Jones Parking Inc.’s) interest in BSM for $349,000.00 to BLA, accounting for 81.69% membership interest and management rights. This was secured by a promissory note. As part of the agreement, BSM agreed to comply with certain financial covenants. BSM also agreed that Plaintiff was allowed to conduct a beta-test of its Mongoose Help Desk software, including a right to access and maintain certain computers/desks at the property. BLA took possession and operations of BSM in December 2016. In December 2016, Defendants directed BSM to cut off PSRE’s internet and desk use at the property, and otherwise interfered with PSRE’s right to conduct the beta test and use the property. Defendants stopped all payments due under the agreement since February 2017. Defendants further violated the financial covenants. On February 23, 2017, PSRE executed its security rights pursuant to the agreement, foreclosed on the collateral, cancelled the sale to BLA, and transferred back the ownership interest in BSM to PSRE (and JPI). Defendants have refused to return management of BSM to Plaintiff. In October 2015, PSRE delegated day-to-day operations of BSM to BEX. PSRE later discovered that Chang, as manager of BEX, diverted profits from BSM members to companies he controlled. Defendants also failed to prepare and distribute certain financial records, monthly reports and distributions to members, in violation of the operating agreement.
Ultimately, a jury trial was conducted from May 3, 2022, to May 9, 2022, only regarding Plaintiff’s two contract claims against BLA. Plaintiff prevailed on the 2016 breach of contract claim.
Attorneys’ Fees Motion
The instant hearing regards cross-motions for attorneys’ fees. On June 14, 2022, Plaintiff filed a motion to deem himself the prevailing party and for an award of attorneys’ fees in the sum of $138,242.50. On August 2, 2022, Blankspaces LLC filed a motion for attorneys’ fees in the sum of $168,630.00.
On August 3, 2022, Chang, BEX, and BDTLA filed a motion for attorneys’ fees in the sum of $168,630.00, which is set for hearing on August 26, 2022. Given the substantial overlap between the motions, the Court will advance the August 26 hearing to this date and consider all the motions together. As to the alleged defective notice, the Court concludes that both Plaintiff’s and Defendants’ notices (1) both suffer from the same alleged defect, but (2) are sufficient.
Legal Standard
With respect to attorney fees and costs, unless they are specifically provided for by statute (e.g., CCP §§ 1032, et seq.), the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties.¿(CCP § 1021.) The prevailing party on a contract, which specifically provides for attorney fees and costs incurred to enforce the agreement, is entitled to reasonable attorney fees in addition to other costs.¿(Civ. Code § 1717(a); CCP §§ 1032, 1033.5(a)(10)(A).)¿The court, upon notice and motion by a party, shall determine the prevailing party and shall fix, as an element of the costs of suit, the reasonable attorney fees.¿(Civ. Code § 1717(a), (b).)¿Any notice of motion to claim attorney fees as an element of costs under shall be served and filed before or at the same time the memorandum of costs is served and filed; if only attorney fees are claimed as costs, the notice of motion shall be served and filed within the time specified in CRC 3.1700 for filing a memorandum of costs.¿(CRC 3.1702; Gunlock Corp. v. Walk on Water, Inc. (1993) 15 Cal.App.4th 1301, 1303, fn. 1.)
“It is well established that the determination of what constitutes reasonable attorney fees is committed to the discretion of the trial court, whose decision cannot be reversed in the absence of an abuse of discretion. [Citation.]” (Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 623 624.) The fee setting inquiry in California ordinarily “begins with the ‘lodestar’ [method], i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate.” (Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 154.) “[A] computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys’ fee award.” (Margolin v. Reg’l Planning Comm’n (1982) 134 Cal.App.3d 999, 1004.) The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided. (See Serrano v. Priest (1977) 20 Cal.3d 25, 49 [discussing factors relevant to proper attorneys’ fees award].) Such an approach anchors the trial court’s analysis to an objective determination of the value of the attorney’s services, ensuring that the amount awarded is not arbitrary. (Id. at 48, fn. 23.) The factors considered in determining the modification of the lodestar include “(1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, (4) the contingent nature of the fee award.” (Mountjoy v. Bank of Am. (2016) 245 Cal.App.4th 266, 271.)
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.¿(Premier Medical Management Systems, Inc. v. California Ins. Guaranty Assoc. (2008) 163 Cal.App.4th 550, 564.)¿General arguments that fees claimed are excessive, duplicative, or unrelated do not suffice. (Ibid.)
REQUEST FOR JUDICIAL NOTICE
Plaintiff's request for judicial notice is GRANTED.
Analysis
It is undisputed that the parties’ 2014 and 2016 contracts contained attorneys’ fee provisions which broadly apply to this action. The principal issue presented is which parties, if any, are prevailing and entitled to these fees.
A prevailing party is entitled to recover costs, which can include attorney’s fees, as a matter of contract, statute or law. (CCP, §§ 1032 (a)(4); 1033.5 (a)(10).) Additionally, a party prevailing on an action on a contract is entitled to attorney fees if the contract contains an attorney’s fees provision. (Civ. Code, § 1717(a).) “Prevailing party” includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant. If any party recovers other than monetary relief and in situations other than as specified, the “prevailing party” shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed, may apportion costs between the parties on the same or adverse sides pursuant to rules adopted under Code of Civil Procedure section 1034. (CCP § 1032(a)(4).) Under Civil Code section 1717, 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.”
When a party obtains a simple, unqualified victory by completely prevailing on or defeating all contract claims in the action and the contract contains a provision for attorney fees, [Civil Code] section 1717 entitles the successful party to recover reasonable attorney fees incurred in prosecution or defense of those claims as a matter of right. But if neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.
[I]n deciding whether there is a party prevailing on the contract, the trial court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions. [I]n determining litigation success, courts should respect substance rather than form, and to this extent should be guided by equitable considerations. That a party recovered less than the amount he prayed for does not make his adversary the prevailing party within the meaning of Civil Code section 1717. A trial court has wide discretion in determining which party is the prevailing party under [Civil Code] section 1717[.]
(Blue Mountain Enterprises, LLC. v. Owen (2022) 74 Cal.App.5th 537, 559, internal citations and quotations omitted.)
Further, under the unity of interest principle, the Court has the discretion to award or deny costs to one of multiple, jointly represented defendants presenting a unified defense when the other defendants were not also successful. (See Zintel Holdings, LLC v. McLean (2nd Dist. 2012) 209 Cal.App.4th 431, 44 [Zintel court questions—but does not determine—whether this principle survived changes to the statutory language in 1986, but recognizes that several appellate cases continue to apply the principle following amendment]; see, e.g., Benson v. Kwikset Corp. (2007) 152 Cal.App.4th 1254, 1278 [“the application of this provision [§ 1032, subd. (a)(4),] is discretionary where a prevailing defendant was ‘united in interest and shared the same counsel’ as another defendant found to be liable”].)
Turning to the record, Plaintiff found mixed success on his claims. Critically, on May 9, 2022, the Jury awarded Plaintiff $110,000.00 against BLA for breaching the December 1, 2016, agreement. Strictly speaking, Plaintiff’s net recovery would render him the prevailing party. Plaintiff is the party who recovered a greater relief “in the action on the contract.” While several defendants obtained dismissals, Plaintiff ultimately recovered greater relief on the contract action. Furthermore, Plaintiff is the party with a net monetary recovery, even if the other claims were dropped or dismissed over the course of the litigation, including all tort claims related to the underlying contract disputes and all claims against Chang, BEX, and BDTLA. Thus, based solely on the statutory language, Plaintiff is a prevailing party under Civil Code § 1717 and CCP §1032(a)(4).
However, the majority of the claims were dropped or dismissed over the course of the litigation, including all tort claims related to the underlying disputes and all claims against Chang, BEX, and BDTLA. Under Code of Civil Procedure section 1032(a)(4), Plaintiff did not recover any relief against these Defendants. Furthermore, Plaintiff still received limited success. In the operative FAC, Plaintiff sought i) compensatory damages with interest; ii) costs; iii) punitive damages; iv) an accounting; v) determinations that: a) BLA did not become the Manager of BSM since no vote of the membership was taken under the Operating Agreement; b) PSRE is the current Manager of BSM; c) whether PSRE ceased to be the Manager of BSM at any time between December 1, 2016 and February 23, 2017; and d) BEX was terminated as the Property Manager as of June 11, 2018; and vi) various injunctive orders, including return of effective control over BSM and to PSRE. From a substantial and practical perspective, Plaintiff’s litigation goals included monetary recovery on the contract claims, cancellation of certain corporate actions, and return of control of BSM to himself. Plaintiff thus achieved limited success by only prevailing on a single, but substantial, breach of contract claim.
The Court does conclude that, with these facts in mind, BLA lost and is not a prevailing party. Simply put, BLA owes Plaintiff $110,000.00 for breach of contract. Given the insurmountable fact that Plaintiff recovered more money from the contract claims than BLA, BLA cannot be considered a prevailing party by any reasonable metric. Accordingly, BLA’s motion is DENIED. Moreover, BLA’s fees are indistinguishable from Chang, BEX, and BDTLA’s attorneys’ fees. They shared an attorney and a common defense. In fact, all of their fees are inseparable, since Defendants request all the same fees. The Court will not these Defendants prevailing parties as a way for BLA to recover fees against Plaintiff.
When the Court considers the overall litigation goals of Plaintiff and whether Plaintiff met those goals, the Court concludes that Plaintiff did not meet those goals and is not the prevailing party. The mixed results suggest that neither party sufficiently met their litigation goals to justify an award of fees here.