Costs: Second District, Division 7 Seems To Part Company With Fourth District, Division 3 Over Procedure For Recovering Non-statutory Costs

 

Division 7 Seems To Favor Trial Proof Method Over Post-Judgment Costs Hearing Approach in Unpublished Decision.

     On June 23, 2010, we reported on Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC, __ Cal.App.4^th __, 2010 WL 2473831 (4^th Dist., Div. 3 June 21, 2010), where a panel of the Fourth District, Division 3 (in a 3-0 opinion authored by Justice Moore) found that non-statutory expert witness fee costs did not have to be specifically pled and then proved up during trial even though the expert fees are explicitly included in the contract as recoverable costs. In doing so, the Thrifty Payless panel expressly parted company with contrary appellate authority exemplified by the “pleading and proof at trial” approach required in Carwash of America-PO LLC v. Windswept Ventures No. I, 97 Cal.App.4^th 540, 544 (2002). Now, we apparently have the Second District, Division 7—albeit in an unpublished decision—adhering to the Carwash approach. Sometime in the future, the California Supreme Court likely may need to resolve the conflict. 

     Unzipped Apparel, LLC v. Apparel Distribution Services, LLC, Case No. B212775 (2d Dist., Div. 7 July 7, 2010) (unpublished) was one of three appellate decisions issued on July 7 in protracted litigation featuring an 11-week jury trial over the manufacture, distribution, and sale of Bongo jeans (a brand of jeans for junior girls).

     In the prior appeals, Division 7 vacated the trial court’s post-trial rulings, some of which restored large jury verdicts and one of which overturned a prior JNOV denial on a trademark claim. Interestingly enough, the trial court awarded plaintiffs $647,712.69 (yes, you read that right) in statutory costs, a ruling not challenged on appeal. Plaintiffs then sought to recover more than $12.8 million in fees (gulp again) as well as $2.5 million in non-statutory costs (primarily expert witness fees paid to plaintiffs’ forensic accounting and audit experts) that were not recoverable under the routine costs statutes but were recoverable under contractual cost-shifting language (last gulp). Pursuant to a stipulation that did not endorse the procedure as necessarily proper, the non-statutory costs issues were considered at a post-judgment evidentiary hearing by the trial court after the jury verdicts were reached. Eventually, the trial court found that a post-trial evidentiary hearing was the wrong way to recover non-statutory costs—with zippo being awarded--and awarded plaintiffs only $100,000 in attorney’s fees against certain parties based upon plaintiffs having prevailed on trademark causes of action. Plaintiffs, unhappy about losing $2.5 million in requested non-statutory costs and $2.4 million in requested fees, appealed the costs/fee determinations.

     In a 3-0 opinion authored by assigned L.A. Superior Court Judge John Segal, the Second District, Division 7 affirmed, reversed, and dismissed in part.

     Initially, defendants argued that California law does not allow contracting parties to shift non-statutory costs (or at least argued it was an “open question”). Not so open, said Division 7. Rather, the majority of appellate courts did find that such costs could be shifted through a contractual clause. (Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., 47 Cal.App.4^th 464, 490, 492 (1996); First Nationwide Bank v. Mountain Cascade, Inc., 77 Cal.App.4^th 871, 878 (2000).) “We agree with Arntz and First Nationwide Bank that contracting parties can agree that the prevailing party in a dispute can recover costs beyond those listed in section [CCP §] 1033.5, at least where, as here, the parties are sophisticated and there is no claim or issue of adhesion, unconscionability, or unequal bargaining power or positions.” (Slip Opn., p. 10.)

     That brought the Division 7 panel to the issue of whether the hefty non-statutory costs had to be pled and proven at trial (in this case, before the jury) as an element of the parties’ damages—as mandated by Carwash and other appellate decisions. Judge Segal, on behalf of the appellate panel, found that the post-trial evidentiary hearing was not the proper procedure. “Non-statutory costs are ‘special contract damages,’ and, like plaintiffs’ other contract damages claims, should be proven to the jury at trial.” (Slip Opn., p. 12.) In doing so, there is an interesting discussion of how the jury and lower court can consider these issues and prevent any bizarre/unworkable results. Also, the panel seems to intimate—although not directly coming out and saying so—that they do not like the Thrifty Payless cost memorandum approach (akin to a post-trial evidentiary hearing before the trial judge) for resolving the non-statutory cost issue where costs are recoverable under a contractual cost-shifting clause. Rather, the trier of fact (a jury, in this one) was the appropriate factfinder on the contractual non-statutory cost issues. (Slip Opn., pp. 12-15.)

     With respect to the $100,000 fee award based on the trademark causes of action, that award had to be reversed based on the overturning of a JNOV denial as to those claims. Fees could only be awarded under one contractual agreement, with a remand necessary to determine if and what amount of fees should be awarded.

     BLOG UNDERVIEW—A couple of years ago, co-contributors Marc and Mike tried an unusual ejectment case before Judge Segal, who was sitting in Santa Monica Superior Court at the time. They did win the case after a 2 ½ day trial replete with allegations of forgeries and translator-aided testimony from witnesses who were originally from Vietnam. Quite a trial, which was efficiently processed by Judge Segal.