Judge: Martha K. Gooding, Case: 2018-00979038, Date: 2022-10-24 Tentative Ruling
1) Motion for Attorney Fees
2) Motion for Attorney Fees
3) Motion for Attorney Fees
4) Motion to Strike or Tax Costs
Before the Court are four separate motions. The Court rules on each motion below.
DEFANDANTS’ MOTION TO STRIKE OR TAX PLAINTIFF’S MEMORANDUM OF COSTS
Defendants Femtometrix Inc., Alon Raphael, Brian Larzelere, Tyler Rubin, and Tom Rolfes move to strike or tax the Memorandum of Costs filed by Plaintiff Hovik Nazaryan. ROA 866. Plaintiff’s Memorandum of Costs seeks costs of $103,788.39.
A. The Motion is granted as to Defendants Rolfes and Larzelere in its entirety.
The Court GRANTS the Motion to Strike the Memorandum in its entirety as it relates as to Defendants Rolfes and Larzelere.
For cost awards under CCP § 1032(a)(4), there is only one prevailing party. (Sharif v Mehusa, Inc. (2015) 241 CA4th 185, 195.) Code of Civil Procedure § 1032(a)(4) describes four categories of litigants that automatically qualify as prevailing parties. (Charton v Harkey (2016) 247 CA4th 730, 736). A judge has no discretion to deny prevailing party status to a litigant that falls within one of these four categories. Id. at 737; In re Tobacco Cases II (2015) 240 CA4th 779, 806.) A defendant as against those plaintiffs who do not recover any relief against that defendant is the prevailing party. (See Nelson v Anderson (1999) 72 CA4th 111, 128; Andersen v Pacific Bell (1988) 204 CA3d 277, 286–287 (defendant that obtained summary judgment against one plaintiff, although action continued against defendant as to other plaintiffs, was entitled to costs as matter of right as against first plaintiff).
The Court previously ruled Defendants Rolfes and Larzelere prevailed in this case on Plaintiff’s claims. Thus, Plaintiff has no right to an award of costs against them. Their Motion to Strike Plaintiff’s Memorandum of Costs as it pertains to them is GRANTED.
B. Defendants Femtometrix Inc., Alon Raphael, and Tyler Rubin’s request to strike the entire Memorandum of Costs
Because Plaintiff Nazaryan obtained a net monetary recovery against Defendants Femtometrix, Raphael, and Rubin, Plaintiff is the prevailing party as to them and is entitled to an award of costs against them, not the other way around. Code Civ. Pro. § 1032(a)(4) (“Prevailing party” includes the party (plaintiff or defendant) who obtains a net monetary recovery.”)
Defendants argue that, even if Plaintiff is the prevailing party as to them, his costs should be stricken in their entirety because the prevailing party is not entitled to costs in an “unlimited” civil case where the amount recovered could have been obtained in a limited civil case or in a small claims action.
It is true that “[c]osts or any portion of claimed costs shall be as determined by the court in its discretion in a case other than a limited civil case in accordance with Section 1034 where the prevailing party recovers a judgment that could have been rendered in a limited civil case.” CCP § 1033(a). See also CCP § 1033(b)(1) (an award of costs is discretionary where the judgment in a limited civil case could have been obtained in the court's small claims division ($5,000 or less).
The Court concludes section 1033 does not support Defendants’ argument that costs should be stricken in their entirety.
First, the judgment Plaintiff received here could not have been rendered in a limited civil case because Nazaryan sought, and the Court awarded, specific performance ordering Femtometrix to correct the Form 1099. (Judgment p. 1; Statement of Decision at p. 34:8-13.) Permanent injunctions, such as the order requiring Femtometrix to correct the Form 1099 it issued to Plaintiff, are not available in limited jurisdiction. (Code Civ. Pro. § 580(b)(2) (“the following types of relief may not be granted in a limited civil case: … (2) A permanent injunction, except as otherwise authorized by statute.”); see also Code Civ. Pro. § 86(a)(8)(“(a) The following civil cases and proceedings are limited civil cases: … (8) An action to issue a temporary restraining order or preliminary injunction….”)
Second, even if the requirements of section 1033 were met, the award of costs would be within the Court’s discretion. The Court exercises its discretion to award costs. It was not unreasonable for Nazaryan to bring this case as an unlimited civil action, given his request for damages that included emotional distress damages, the potential for damages in the form of an IRS deficiency, and the damages available to him under 26 U.S.C. 7434. Based on those factors, as well as the Court’s intimate knowledge of the facts of this case (having presided over trial of the matter and issued a very detailed Statement of Decision), the Court in its discretion declines to deny costs to Plaintiff.
C. Defendants’ Requests to Strike Portions of Plaintiff’s Claimed Costs
Defendants take issue with two items of costs:
1. $753.70 in costs for the deposition of Daniel Howard.
2. $80,000 in expert fees for Robert Wood and his staff. Mr. Wood and his staff’s time.
Allowable costs must be reasonably necessary to the conduct of the litigation, rather than merely convenient or beneficial to its preparation. (Code Civ. Proc., § 1033.5, subd. (c)(2); see Moss v. Underwriters' Report (1938) 12 Cal.2d 266, 274; Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 774.)
Allowable costs must also be reasonable in amount. (Code Civ. Proc., § 1033.5, subd. (c)(3).)
If the items on their face appear to be proper charges, the verified memorandum of costs is prima facie evidence of their propriety, and the burden is on the party seeking to tax costs to show they were not reasonable or necessary. (Ladas v. California State Auto. Assn., supra, 19 Cal.App.4th at pp. 774-776; Jones v. Dumrichob (1998) 63 Cal.App.4th 1258, 1266 [mere statements in points and authorities and Declaration of counsel insufficient to rebut prima facie showing].)
On the other hand, items that are properly objected to are put in issue, and the burden of proof is on the party claiming them as costs. (Ladas v. California State Auto. Assn., supra, 19 Cal.App.4th at pp. 774-776.) Whether an item listed on the cost bill was reasonably necessary is a question of fact for the trial court, whose decision is reviewed on appeal for abuse of discretion. (Bender v. County of Los Angeles (2013) 217 Cal.App.4th 968, 989.)
Even costs otherwise “allowable as a matter of right” may be disallowed if the court determines they were not “reasonably necessary.” Likewise, the court has power to reduce the amount of any cost item to an amount that is reasonable. [Perko's Enterprises, Inc. v. RRNS Enterprises (1992) 4 CA4th 238, 245—“intent and effect [of § 1033.5(c)(2)] is to authorize a trial court to disallow recovery of costs, including filing fees, when it determines the costs were incurred unnecessarily”.)
Deposition Costs
Plaintiff claims $753.70 for the deposition of Daniel Howard. Mr. Howard was Defendants’ accountant. In the first action between the parties, Defendants filed a motion to enforce the parties’ settlement, asking the Court to find that the Form 1099 issued to Plaintiff was correct because the characterization of the stock reflected in it was required by tax law. Mr. Howard filed a declaration in support of that motion, in which he opined that the stock Femtometrix issued to Plaintiff pursuant to the settlement agreement was properly characterized as compensation under the Internal Revenue Code (“IRC”) and related regulations. The Court denied Defendants’ motion in the first action. However, the propriety of Defendants’ characterization of the settlement stock as compensation under the IRC – and whether that characterization was required by law, as Mr. Howard had previously testified – was squarely at issue in this case.
Defendants argue this entire amount should be taxed because Plaintiff did not call Mr. Howard to testify or otherwise use his deposition testimony during trial of this case.
The Court concludes Plaintiff’s decision to take the deposition of Mr. Howard was reasonable and necessary to the conduct of this litigation. That Plaintiff did not ultimately call Mr. Howard to testify at trial or otherwise rely on his deposition testimony does not mean that the deposition was not reasonable or necessary to the conduct of the litigation. See, e.g., Evers v. Cornelson (1984) 163 Cal.App.3d 310, 317–318, 209 Cal.Rptr. 497 [fee of potential expert witness recoverable as cost even if expert does not actually testify].)
The Court denies Defendants’ request to tax the $753.70 cost for Mr. Howard’s deposition.
Expert Costs
The Court found in favor of Plaintiff on his claim against three of the Defendants – Femtometrix, Rubin, and Raphael – for fraudulently filing an information return, pursuant to 26 U.S.C. § 7434). The Judgment states as follows:
“Pursuant to 26 U.S.C. § 7434(b), Plaintiff Hovik Nazaryan shall have and recover from Defendants Femtometrix, Inc., Alon Raphael, and Tyler Rubin an amount to be determined by the Court, which amount is equal to the greater of $5,000 or the sum of (a) the actual damages sustained by Plaintiff Hovik Nazaryan as a result of the filing of the fraudulent information return; and (b) the costs of this action (which shall be determined based on a properly submitted memorandum of costs); and (c) in the Court’s discretion, reasonable attorney’s fees, the amount of and entitlement to which will be determined based on a post-trial motion for attorneys’ fees. Defendants Femtometrix, Inc., Alon Raphael, and Tyler Rubin are jointly and severally liable for this amount, which will be reflected in an Amended Judgment following the Court’s determination of the amount owing under the statute.” Judgment ¶ D(3) (ROA 875).
Section 7434 provides that “[I]n any action brought under subsection (a), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the greater of $5,000 or the sum of – (1) any actual damages sustained by the plaintiff as a proximate result of the filing of the fraudulent information return (including any costs attributable to resolving deficiencies asserted as a result of such filing), (2) the costs of the action, and (3) in the court’s discretion, reasonable attorneys’ fees.” U.S.C. § 7434(b)(1) (emphasis added).
Thus, by its terms, the statute provides that the “costs attributable to resolving deficiencies asserted as a result of” the fraudulent filing are part of the first component of the damages award. The “costs of the action” is a separate component.
Here, the IRS never assessed a deficiency against Plaintiff as a result of the Defendants’ fraudulently issued Forms 1099. There was no evidence that the IRS ever did anything in response to the amended 1099s. Thus, the amounts Plaintiff paid as expert fees to Wood in this action cannot fairly be said to be a cost “attributable to resolving deficiencies asserted as a result of” the fraudulent filings. They would be awardable, if at all, only as a “cost of the action” under section 7434(b)(2).
Because Mr. Wood is not an expert witness that was ordered by the Court, his expert fees are not recoverable as costs under California law.
The Court grants the motion to tax the sums claimed for expert fees for Mr. Wood and his colleagues.
MOTION BY DEFENDANTS BRIAN LARZELERE AND TOM ROLFES FOR ATTORNEY’S FEES
For the reasons set forth below, the Court GRANTS the Motion by Defendants Brian Larzelere and Tom Rolfes for Attorney’s Fees albeit in a much reduced amount.
Plaintff Hovik Nazaryan brought this action against Defendants Femtometrix Inc., Alon Raphael, Brian Larzelere, John Changala, Tyler Rubin and Tom Rolfes, asserting the same five claims against all six defendants: breach of contract, breach of the covenant of good faith and fair dealing, fraudulent concealment, fraudulent filing of information returns under 26 U.S.C. § 7434, and breach of fiduciary duty.
The crux of all of Plaintiff’s claims is his contention that Defendants breached the written settlement agreement of a prior lawsuit between the parties (the “2015 Action”) by issuing to Plaintiff two amended IRS Form 1099s that characterized the stock he received in settlement as non-employee compensation for services rendered. In the settlement agreement, Defendants had acknowledged and agreed that the shares were not compensation, salary or income for services performed by Nazaryan but were, instead, “Founders Stock” issued to Nazaryan for his capital/equitable contributions to Femtometrix.
Plaintiff also asserted a few other, minor breaches of the settlement agreement, including his assertion that Defendants sometimes missed by a few day the deadline to provide him quarterly financial disclosure documents; on one occasion Defendants failed to timely provide him the complete “capitalization tables” required by the settlement agreement; and Defendants breached the confidentiality provisions of the settlement agreement by disclosing the settlement agreement to Femtometrix’s accountant.
All Defendants relied on a defense that, notwithstanding their agreement that the shares issued to Plaintiff were NOT compensation for services rendered, they were required by tax law to report them as such.
In addition, Defendants Larzelere and Rolfes asserted the additional argument that they had nothing to do with the issuance of the 1099 Forms or with the characterization of the shares as compensation; they asserted did not even know the 1099s had been issued until Plaintiff filed this lawsuit.
The Court issued a long and very detailed Final Statement of Decision. In brief, it found that Femtometrix’s issuance of the disputed 1099 Forms, characterizing the stock as compensation for services rendered, was a breach of the settlement agreement. It also found for Plaintiff on his other claimed breaches, except for his claim for breach of the confidentiality provision.
In other words, the Court rejected the assertion by all Defendants that the characterization of Plaintiff’s stock as compensation for services rendered was compelled by law. The Court found Femtometrix, Raphael and Rubin liable to Plaintiff for the issuance of the inaccurate and fraudulent 1099 Forms.
Nevertheless, as to Larzelere and Rolfes, the Court found they were not liable to Plaintiff on any of the claims because, in essence, neither played any role in the issuance of the 1099s or in the periodic disclosures Femtometrix was required to make to Plaintiff, which in some instances were belatedly made.
Rolfes and Larzelere now seek an award of attorney’s fees on the ground that they are the prevailing parties vis a vis Plaintiff. They seek an award of $271,971.63 – which they explain is two-sixths of the total $814,915.29 attorney’s fees that all Defendants incurred in defense of the action.
1. Brian Larzelere and Tom Rolfes are the prevailing parties.
In an action to enforce a contract authorizing an award of fees and costs to one party, the party “prevailing on the contract” is entitled to reasonable fees. [See Civ. Code § 1717]
“(T)he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract.” [Civ. C. § 1717(b) & (c); Santisas v. Goodin (1998) 17 C4th 599, 615; see also Civ. C. 1717(a)—authorizing such awards “(i)n any action on a contract”; and Hjelm v. Prometheus Real Estate Group, Inc. (2016) 3 CA5th 1155, 1170—“on the contract” extends to claims beyond direct breach of contract claim.]
When a party obtains a simple, unqualified victory by completely prevailing on, or defeating, all contract claims and the contract provides for attorney fees, section 1717 entitles that party to recover reasonable attorney fees. [Scott Co. of Calif. v. Blount, Inc. (1999) 20 C4th 1103, 1109.]
Here, the breach of contract claims (breach of contract and breach of the covenant of good faith and fair dealing implied in the written contract) were based on a breach of the Settlement Agreement, which provides in relevant part:
“Prevailing Party Attorney’s Fees. In the event of a dispute under or by reason of this settlement Agreement … the prevailing Party in any such dispute shall be entitled to reimbursement of its reasonable attorney’s fees and costs.”
(SAC, Ex. A, Section W.)
The Court has no difficulty finding that Larzelere and Rolfes are the prevailing parties under the contract as to Plaintiff.
2. The attorney’s fees clause is broadly worded to include tort claims.
Generally, fees must be apportioned to reflect counsel's services at trial on the separate contract vs. noncontract claims. [Reynolds Metals Co. v. Alperson (1979) 25 C3d 124, 129; Casella v. SouthWest Dealer Services, Inc. (2007) 157 CA4th 1127, 1161-1162; Exxess Electronixx v. Heger Realty Corp. (1998) 64 CA4th 698, 708-709.)
But if the attorney fee clause is properly worded, fees may be recoverable in a tort action pursuant to CCP section 1021. [Thompson v. Miller (2003) 112 CA4th 327, 336—contractual language “any dispute under the [agreements]” broad enough to encompass tort action for fraud. (See San Francisco CDC LLC v. Webcor Const. L.P. (2021) 62 CA5th 266, 285-287—award of fees permitted for non-contractual statutory disgorgement claim under contractual provision allowing fees in an action brought “because of contract,” since “an action may be brought ‘because of’ a breach of contract without being an action for breach of contract and without being an action merely arising out of the contractual relationship” (emphasis in original) (CCP § 1021 not cited in opn.).]
Here the attorney’ fees clause provides for an award of fees to the prevailing party in any dispute “under or by reason of this Settlement Agreement.” The Court finds this broad wording includes the non-contract claims asserted by Plaintiff, as they too arise under, or by reason of, the settlement agreement’s provision regarding issuance and characterization of the stock provided to Plaintiff as part of the settlement.
Moreover, fees need not be apportioned between contract and tort claims if counsel's services relate to an issue common to both causes of action. (Wilshire Westwood Assocs. v. Atlantic Richfield Co. (1993) 20 CA4th 732, 747; Cruz v. Fusion Buffet, Inc. (2020) 57 CA5th 221, 236.)
3. Hourly Rates and Time Spent.
In determining the amount of a reasonable fee, the Court begins with the familiar lodestar calculation, i.e., “the number of hours reasonably expended multiplied by the reasonable hourly rate” for each attorney. (See PLCM Group, Inc. v Drexler (2000) 22 C4th 1084, 1095–1096; Cavalry SPV I, LLC v Watkins (2019) 36 CA5th 1070, 1100–1101.)
A judge has broad discretion in determining the amount of a reasonable fee, and the award of contractual attorney's fees is governed by equitable principles. (Wertheim, LLC v Currency Corp. (2021) 70 CA5th 327, 340; Burkhalter Kessler Clement & George LLP v Hamilton (2018) 19 CA5th 38, 43). The amount of money involved in the case is an important factor in determining the amount of an award of contractual attorney's fees. Equity countenances against awarding fees to parties who litigate unnecessarily or in expensive battles that eclipse the dispute that brought them to court. (Wertheim, LLC v Currency Corp., supra, 70 CA5th at 340.)
The reasonable market value of an attorney's services for purposes of the lodestar calculation is the measure of a reasonable hourly rate. This standard applies regardless of whether the attorney represents the client on a straight contingent fee basis, charges at below-market or discounted rates, charges nothing for services, or is an in-house attorney. (Nemecek & Cole v Horn (2012) 208 CA4th 641, 651.)
Here, the court finds the hourly rates reasonable. The hourly rate billed by the attorneys at Alpert Barr and Grant, was $575 for lead counsel Mr. Grant, and $385-$475 for associates. The hourly rate billed by the partners at Schein Law Group and at Liang Ly, was at or under $400 per hour, and Mr. Wang was billed at only $200 per hour. These are all reasonable.
However, the Court finds that the fees requested are far in excess of what is reasonable or necessary.
A judge has the discretion to reduce a prevailing party's contractual attorney's fees to the extent they were unnecessary. (Hill v Affirmed Hous. Group (2014) 226 CA4th 1192, 1198–1199; see Holguin v Dish Network LLC (2014) 229 CA4th 1310, 1329–1331, (in awarding plaintiffs fees for work of both their attorneys at trial, judge properly reduced hourly rate for fees of attorney who merely acted as assistant to primary attorney). In setting the amount of a reasonable fee award, a judge may consider whether the prevailing party over-litigated the case. (Marriage of Minkin (2017) 11 CA5th 939, 955.)
Some of the problems with defendants’ fee requests are as follows:
First, Larzalere and Rolfes offer no authority to support their contention that they can include the costs they incurred for their expert witness, Lavar Taylor, as attorney’s fees under Civil Code section 1717. Mr. Taylor did not act as counsel in this case; he was designated and testified at trial as an expert on tax matters. Expert witness costs are not compensable in this Motion.
Second, all Defendants – including Larzalere and Rolfes – lost on the argument that the amended IRS 1099 Forms Femtometrix issued to Plaintiff were proper because the characterization of the stock as compensation for services rendered was required by law, and Femtometrix therefore was not required to honor the agreement that the stock was NOT being issued as compensation for services. That issue was the overarching issue in the case, and it accounted for the vast bulk of the attorney’s fees expended.
In contrast, Larzalere and Rolfes prevailed only on the very narrow argument that neither of them was responsible for, or played any role in, issuing the1099 Forms, characterizing the stock, or belatedly making the financial/capitalization table disclosures to Plaintiff. Those arguments are not just the tail of the dog here; they are the tip of the tail of the dog.
Plaintiff points out that the direct examination of Rolfes at trial consumed less than three transcript pages and focused entirely on whether he knew about the 1099s and the other alleged breaches. (Derbarseghian Decl. Exh. 5 at 25-27.) The direct examination of Larzalere was only slightly longer – about eight pages – and it, too, focused on whether he knew about the 1099s and the other alleged breaches. (Id. at 72-80.) Neither Larzalere nor Rolfes was deposed, and Plaintiff propounded only limited written discovery on them. (Derbarseghian Decl. ¶ 7.)
There is no legitimate basis, equitable or otherwise, to award defendants tens or hundreds of thousands of dollars in attorney’s fees for pursuing a meritless argument/defense on which none of the six defendants prevailed. The amounts reasonably spent on the narrow defense on which Larzalere and Rolfes prevailed is a tiny fraction of the total fees incurred.
Third, the suggestion by Larzalere and Rolfes that the Court “apportion” their fees by arbitrarily awarding them two-sixths (i.e., one third) of the total fees incurred by all six Defendants is not an appropriate method of apportionment.
Fourth, in any event, the attorney’s fees billed by Defendants’ counsel are clearly excessive and unnecessary. Three sets of lawyers were involved in the case – first there was Alpert Barr and Grant; that firm was replaced by Schein Law Group; and then Liang Ly LLP and its lawyers were added to the team. With each new lawyer (or group of lawyers), there was substantial duplication of effort while the new lawyer(s) came up to speed on the case, e.g., by “review[ing] case file” “review[ing] case file and related files” and “review[ing] background materials. See Derbarseghian Decl. Ex. 2. Moreover, there was no legitimate need for three lawyers to attend the trial of the action. The issues were not difficult or complex. The case was, quite simply, over-lawyered, over-litigated and overbilled. (As noted in the Court’s ruling on Plaintiff’s attorney’s fee motion, this was true of both sides.)
Even apart from the serial substitution or addition or new lawyers, the billing records show considerable duplication of effort, inefficiency and padding. Furthermore, many of the time entries are extremely vaguely worded – e.g., “finalize pretrial documents,” “review background material,” “prepare for trial” and the like – and/or are set forth in block billing – which at least hinders, if not precludes, meaningful analysis by the Court. Some time entries were redacted, which precludes any analysis or evaluation by Plaintiff or by the Court.
Defendants’ first counsel – Alpert, Barr & Grant – represented defendants in this case until July 2019, and in that short amount of time, six attorneys managed to bill more than 500 hours and $200,000. And in just a few months, two attorneys at Liang Ly LLP managed to bill over $200,000.
It is no answer to say – as Defendants do – that “trial prep is intensive and all consuming.” At all phases of a case, counsel’s fees must be reasonable in amount and the fees they incur must be reasonably necessary to the case. The fact that a case ultimately goes to trial is no excuse for overbilling, over-litigating, duplication of effort, and inefficiency.
In sum, this Court presided over this case from beginning to end, including all pretrial motions and the bench trial. It is intimately familiar with the case, the issues, and the manner in which it was litigated and, ultimately, tried. Based on this Court’s own experience with this litigation and with similar and/or comparable litigation, the Court concludes that the number of hours claimed by defendants is clearly excessive.
Taking all of the above into account, and after reviewing the evidence, including the detailed billing records provided, the Court finds that the reasonable amount of attorney’s fees to be awarded to defendants Larzalere and Rolfes is $64,720.
MOTION BY PLAINTIFF NAZARYN FOR ATTORNEY’S FEES
And
MOTION BY DEFENDANTS FEMTOMETRIX, RAPHAEL AND RUBIN FOR ATTORNEY’S FEES
For the reasons set forth below, the Court GRANTS Plaintiff’s Motion for an award of attorney’s fees but awards a significantly lesser amount than Plaintiff requests. The Court notes that Plaintiff requests a lodestar of $615,633 and a 1.2 multiplier, for a total award of $738.759.90.
For the reasons set forth below, the Court DENIES the Motion by Femtometrix, Raphael and Rubin (the “Femtometrix Defendants”) for an award of their attorney’s fees. The Court notes the Femtometrix Defendants seek fees of $407,457.65, which they assert represents half of the total fees incurred (including approximately $75,000 in expert fees). These defendants state they seek only half of the total fees incurred because the motion is made on behalf of only three of the six named Defendants. Defendants Larzelere and Rolfe filed their own motions for attorney’s fees – which the Court addressed above – and named Defendant John Changala settled prior to trial.
The Court begins by analyzing Plaintiff’s Motion for Attorney’s Fees.
In response to Plaintiff’s Motion for an award of fees, the three Femtometrix Defendants argue Plaintiff should not be awarded any fees at all because, in their view, the Femtometrix Defendants are the prevailing parties under section 1717. Alternatively, the Femtometrix Defendants argue the Court should find that neither side prevailed. The Court finds both arguments are without merit.
Courts determine the prevailing party “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.” (Hsu v. Abbara (1995) 9 C4th 863, 876 (internal quotes omitted).)
“(T)he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract.” (Civ. C. § 1717(b) & (c); Santisas v. Goodin (1998) 17 C4th 599, 615; see also Civ. C. 1717(a)—authorizing such awards “(i)n any action on a contract”; and Hjelm v. Prometheus Real Estate Group, Inc. (2016) 3 CA5th 1155, 1170—“on the contract” extends to claims beyond direct breach of contract claim.)
If neither party achieves a complete victory on all the contract claims, it is within the trial court's discretion to determine which party “prevailed” on the contract. (Scott Co. of Calif. v. Blount, Inc. (1999) 20 C4th 1103, 1109; De La Cuesta v. Benham (2011) 193 CA4th 1287, 1294; Jackson v. Homeowners Ass'n Monte Vista Estates-East (2001) 93 CA4th 773, 786-789)
In deciding that issue, the court must “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” (Hsu, supra, at p. 876; Harris v. Rojas (2021) 66 CA5th 817, 820—“[w]hen the demand is $200,000 and the verdict is $6,450 or less, the trial judge has discretion to decide the ‘victory’ is pyrrhic and nobody won” (denial of fee request on ground there was no prevailing party affirmed).)
Plaintiff pressed three different contract theories at trial. Plaintiff claimed the defendants breached the settlement agreement by (1) falsely classifying, in 1099 Forms issued to Plaintiff and reported to the IRS, the stock provided to Plaintiff under the settlement agreement as compensation for services; (2) failing to timely provide to Plaintiff certain quarterly document disclosures required by the settlement agreement; and (3) breaching the confidentiality provisions of the settlement agreement by providing a copy of the agreement to Femtometrix’s accountants.
Defendants argue that, at most, Plaintiff won a pyrrhic victory because Plaintiff obtained only a small or nominal monetary award.
The Court disagrees.
There is no question Plaintiff achieved his main litigation goal. The core issue in this case was Plaintiff’s assertion that Defendants breached the parties’ written settlement agreement by issuing Form 1099s that classified the stock Plaintiff received in settlement as compensation for services, even though the Defendants agreed in the settlement agreement that the stock “is not ‘compensation’,’ ‘salary,’ or ‘income’ for services performed by Nazaryan.” Although Plaintiff alleged some other, minor breaches of the settlement agreement, the dispute over the Defendants’ misclassification of the settlement shares was clearly the driving force for this lawsuit. Obtaining a remedy for that misclassification – in damages and/or by an injunction ordering defendants to correct the1099 Forms – was plainly Plaintiff’s main litigation objective.
There is no question the Court found in Plaintiff’s favor on the stock classification issue. The Court found:
“Femtometrix’s issuance of the two 1099s classifying the settlement stock as ‘non-employee comepnsation’ was wrongful; it was a violation of Femtometrix’s contractual agreement that the settlement stock was not compensation, salary of income for services performed by Nazaryan but rather was provided to Nazaryan as ‘Founders Stock’ for his capital/equitable contributions to Femtometrix.’ Leaving the 1099 uncorrected makes it more likely that Nazaryan will suffer harm in the future as a result of Femtometrix’s false reporting on the 1099s. In fairness to Nazaryan, to ensure Nazaryan receives the benefit of the characterization of the shares that the parties bargained for, the Court will order Femtometrix, as part of the final Judgment in this action, to issue, within 30 days of notice of Judgment, a corrected 1099 in conformance with the Court’s findings here.’”
(ROA 871, Final Statement of Decision (“FSOD”) at 34:19-28.
In addition, the Court found the Femtometrix Defendants willfully violated 28 U.S.C. § 7434 by issuing the fraudulent 1099 Forms that reported Nazaryan’s settlement stock as non-employee compensation. (See FSOD at 39-42).
This Court also found that Femtometrix “issued the fraudulent 1099s” to Plaintiff “intending not only to mislead and defraud the IRS but also to harass Nazaryan.” (FSOD at 40:21-25.) The Court found that Rubin “personally directed and participated in the issuance of the fraudulent 1099s … knowing that the 1099s issued to Plaintiff were false and fraudulent, and intending to mislead the IRS and harass Nazaryan.” (Id. 41:14-18.) And the Court found that Raphael “agreed Femtometrix should issue the 1099s to Nazaryan in order to mislead the IRS and harass Nazaryan.” (Id. at 42:3-4.)
The Court has no difficulty concluding Plaintiff is the prevailing party under Civil Code §1717 relative to moving defendants Femtometrix, Raphael, and Rubin.
Further, as set forth above, this includes Plaintiff’s torts claims because of the broadly-worded attorney’s fees clause set forth in the settlement agreement.
Moreover, there is no dispute Plaintiff prevailed on the Section 7434 claim, which includes its own provision authorizing, in the Court’s discretion, an award of attorney’s fees. The Court exercises its discretion to award Plaintiff attorney’s fees under section 7434.
In sum, the three Femtometrix Defendants are not prevailing parties under the contract and their Motion is DENIED.
Plaintiff’s Motion is GRANTED.
The Court therefore turns to the appropriate amount of attorney’s fees to be awarded to Plaintiff as the prevailing party.
1. Hourly Rates and Time Spent.
As an initial matter, as detailed above, the Court evaluates the reasonable hourly rates for the attorneys for whom Plaintiff seeks fees.
At the time of the trial, attorney Aren Derbarseghian had been practicing for about 6 years. Attorney Amir Abdizadeh has been practicing approximately 7 years. Alfred Shaumyan had been practicing about 11 years.
Given the information provided to the Court regarding each of the attorney’s experience and qualifications, and having reviewed the work performed by them, the Court finds the hourly rate of $325-425 reasonable for Mr. Derbarseghian; an hourly rate of $425 reasonable for Mr. Abdizadeh; and an hourly rate of $525 reasonable for Mr. Shaumyan.
Further, Plaintiff asks the Court to include, in the award of attorney’s fees, approximately $80,000 in fees charged by his expert witness, Mr. Wood and his associates. But Mr. Wood did not act as counsel to Plaintiff in this action; he acted as an expert witness on tax issues. This is clear not just from the fact that he was designated by Plaintiff as an expert witness and testified for Plaintiff as an expert witness, but from the fact that Plaintiff included Mr. Wood’s fees in his own Memorandum of Costs. Thus, Mr. Wood’s expert fees are properly addressed as costs and are not properly sought as attorney fees. The $77,603 billed by Mr. Wood and his associates is deducted from the amounts sought.
As set forth above, this Court presided over this case from start to finish, including all pretrial motions and the court trial. The Court is intimately familiar with the factual and legal issues posed by the case. Indeed, the Court wrote a 49-page Statement of Decision after the court trial.
Based on this Court’s own experience with this litigation and with similar and/or comparable litigation, the Court finds that the number of hours and the amount of attorney’s fees claimed by Plaintiff is excessive. Particularly given the nature of the issues presented (which were not difficult or complex), the Court concludes the case was over-litigated and over-billed, with considerable duplication and inefficiency. (The Court finds the same is true with respect to Defendants’ counsel; see above.) As but one example: there was no legitimate reason to have three attorneys present for the entire trial, particularly given the lack of complexity, the short duration of trial, and the fact that one of the three lawyers appeared to play no active or substantive role in the trial.
The manner in which this case was litigated by both sides reflects something akin to a “grudge match.” Emotions ran high. More motions were filed than should reasonably have been necessary. The litigation was unnecessarily contentious on both sides. But that does not justify unnecessary and unreasonable billing by either side.
After reviewing all evidence including the detailed billing records, the Court finds that the reasonable amount of Plaintiff’s attorney’s fees in this action is $435,000.
The Court further finds there is no basis to apply a multiplier to the lodestar figure here or otherwise to upwardly adjust the fees beyond the lodestar. The issues were not complex; the issues did not require that particular expertise be brought to bear, beyond what would be expected for attorneys charging these amounts; and, although Plaintiff clearly prevailed, the result achieved was not exceptional. The hourly fees charges amply compensate counsel for their work and the results they achieved.
Plaintiff is ordered to serve notice of this Order on all four motions.