Case Number: BS164497    Hearing Date: June 21, 2018    Dept: 85

Eurocom Networks S.A. v. Chol Enterprises, Inc., BS 164497

Tentative decision on (1) motion to strike costs: granted; (2) motion for additional attorneys’ fees: granted

Respondent Chol Enterprises, Inc. (“CEI”) moves to strike or tax the memorandum of costs filed by Petitioner Eurocom Networks S.A. (“Eurocom”).  Eurocom moves for additional attorneys’ fees.

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

  1. Statement of the Case
  2. Petition

Petitioner Eurocom commenced this proceeding on August 22, 2016.  The operative pleading is the First Amended Petition (“FAP”) filed on February 14, 2017.  The FAP alleges in pertinent part as follows.

Eurocom is a minority shareholder in Respondent CEI.  On August 1, 2016, Eurocom requested that CEI allow inspection and copying of its accounting records, tax records, shareholders’ list, minutes, bylaws, and the Articles of Incorporation, Amendments, and Statement of Information.  Eurocom also requested that CEI hold annual meetings of shareholders in accordance with the bylaws. Finally, Eurocom sought an election of three directors in order to comply with California law.

On August 7, 2016, CEI stated that it would not respond to the request until resolution of a lawsuit filed in France which questioned the validity of the shares of CEI held by Eurocom.  On August 10, 2016, Eurocom reiterated its request and responded that the lawsuits in France had no bearing on Eurocom’s lawful request for access to documents and enforcement of corporate rules regarding the election of directors.  CEI continued to refuse to produce the documents requested or follow the appropriate corporate procedures.

CEI is required to comply with Corporations Code section 1500 by keeping minutes of the proceedings of its shareholders, board and committees, and keeping a record of its shareholders.  Corporations Code section 213 requires CEI to keep a copy of its bylaws and furnish shareholders with a copy of the bylaws as amended.  CEI must provide notice and hold annual meetings of shareholders for the election of directors under Corporations Code section 600.  Corporations Code section 212 requires that CEI have at least three director positions, since there are more than three shareholders, and at the present time, there is only one director position stated in the bylaws. Finally, CEI must provide a list of shareholders and access to the accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board under Corporations Code sections 1600 and 1601.

  1. Course of Proceedings

On August 31, 2016, Eurocom filed a motion for judgment on the petition.  On November 29, 2016, Eurocom withdrew the motion and it was placed off calendar.

On February 9, 2017, the court sustained CEI’s demurrer to the Petition with leave to amend as to the shareholder meeting claim. Otherwise, the demurrer was overruled in its entirety.  At the same hearing, the court denied CEI’s motion for an order requiring Eurocom to file an undertaking pursuant to CCP section 1030.

On May 4, 2017, the court granted Eurocom’s petition.  The court ruled that Eurocom was a shareholder of CEI.  As a shareholder, Eurocom was entitled to inspection under Corporations Code sections 213 and 1601.  As Eurocom owned more than 5% of CEI, it was also entitled to inspection under Corporations Code section 1600.  Eurocom had demonstrated that it sought inspection for a proper purpose of assessing CEI’s financial position, and was therefore entitled to a writ of mandate compelling CEI to permit inspection of its books and records under section 1601.  The court additionally ruled that Eurocom was entitled to a writ of mandate to compel CEI to hold an annual meeting, and to compel CEI to amend its bylaws to comply with Corporations Code section 212(a).

On May 19, 2017, the court entered judgment for Eurocom.  On July 13, 2017, the court denied CEI’s motion for reconsideration of the court’s order.

On October 3, 2017, the court granted Eurocom’s motion for attorneys’ fees in the amount of $47,116.50.

On October 18, 2017, CEI filed a notice of appeal.

On December 8, 2017, Eurocom filed a motion to enforce the writ.  At the January 16, 2018 hearing, the court granted counsel’s request for a continuance.  On February 7, 2018, the motion was taken off calendar pursuant to Eurocom’s request.

  1. Statement of Facts
  2. Petitioner’s Evidence
  3. Procedural History

David A. Robinson (“Robinson”) is an attorney representing Eurocom.  Robinson Decl. ¶1.  Robinson was contacted by Eurocom, a shareholder in CEI, because Eurocom had not received any information from CEI concerning financial results, shareholder meetings, appointment of directors, and voting rights.  Robinson Decl. ¶2.  On August 1, 2016, Robinson wrote a letter to Eric Chol (“Chol”), CEI’s CEO, requesting a copy of CEI’s accounting records, tax records, shareholder list, minutes, bylaws, and all articles of incorporation, amendments, and statements of information.  Robinson Decl. ¶3.  Robinson also requested that the corporation hold annual meetings of shareholders to elect directors on a date and time specified in the bylaws.  Id.

On August 7, 2016, CEI responded via its counsel that it was resolving a lawsuit filed in France by a shareholder which jeopardized the validity of shares held by Robinson’s clients.  Robinson Decl. ¶5.  On August 10, 2016, Robinson reiterated his request for access to the corporate documentation and noted that the lawsuit in France had no bearing on this request.  Robinson Decl. ¶6.

On August 22, 2016, Eurocom filed the instant Petition.  Robinson Decl. ¶8.  On August 15, 2017, the court issued a writ of mandate in Eurocom’s favor.  Robinson Decl. ¶16.  The court ruled that Eurocom is entitled to a writ of mandate compelling CEI to (1) permit inspection of its books and records under Corporations Code section 1601, (2) hold an annual meeting, and (3) amend its bylaws to comply with Corporations Code section 212(a).  Id., Exs. 1-2.

On September 5, 2017, Eurocom filed a motion for attorneys’ fees.  Robinson Decl. ¶24.  The court granted the motion in the amount of $47,116.50.  Id.

On September 12, 2017, CEI filed an appeal.  Robinson Decl. ¶25.

On December 8, 2017, Eurocom filed a motion to enforce writ because CEI had failed to comply with the writ.  Robinson Decl. ¶26. At the hearing on the motion, the court circulated a tentative ruling.  Robinson Decl. ¶27, Ex. 3.  The motion was thereafter postponed because CEI agreed to voluntarily comply with the tentative.  Robinson Decl. ¶28.  CEI did so, and the hearing was taken off calendar. Robinson Decl. ¶29.

On April 4, 2018, CEI’s appeal was dismissed because it never filed an opening brief.  Robinson Decl. ¶¶ 30, 34, Ex. 4.

  1. Billing Statements

Robinson has been an attorney since 1992.  Robinson Decl. ¶37.  His current billing rate is $350 per hour, but he agreed to work on this matter at the discounted rate of $325.  Id.  Robinson attaches to his declaration invoices reflecting all of the additional attorneys’ fees and costs billed in this matter.  Robinson Decl. ¶39, Exs. 6-7.

Robinson estimates that he will incur approximately $3,550 to file the instant motion, read and analyze any opposition, draft and file a reply, and appear for the motion.  Robinson Decl. ¶41.

  1. Respondent’s Evidence

Jonathan Freund (“Freund”), former counsel of record for CEI, made substantial efforts on behalf of CEO to comply with the writ issued on August 15, 2017.  Freund Decl. ¶2, Ex. E.

On November 2, 2017, Robinson emailed Freund stating that he had not heard from Freund regarding available dates for inspection of CEI’s corporate records.  Freund Decl. Ex. E, p.5.  On November 6, 2017, Robinson emailed Freund again stating the same.  Freund Decl. Ex. E, p.3.

On November 7, 2017, Freund emailed Robinson informing him that CEI was amenable to allow the inspection and asked what dates would work for Robinson.  Freund Decl. Ex. E, p.2.  On November 8, 2017, Robinson emailed Freund to confirm whether Barbara Uzzan (“Uzzan”), Eurocom’s accountant, could inspect the records on  November 20, 2017.  Freund Decl. Ex. E, p.29.

On November 10, 2017, Uzzan asked Freund for 2015, 2016, and 2017 income tax returns, financial statements, balance sheets, profits and loss statements, general ledgers, and payroll annual statements.  Freund Decl. ¶3, Ex. E, p.1.

On November 13, 2017, Freund sent Uzzan a 1099 summary of all payments, 2015 and 2016 CEI balance sheets, 2015 and 2016 CEI Profit & Loss Statement, a 2016 CEI tax return, a 2016 CEI full general ledger, and a 2016 federal summary depreciation schedule. Freund Decl. ¶4, Ex. E, p.18.

On November 16, 2017, Robinson emailed Freund asking for more documents: the 2015 general ledger and 1099 schedule and the 2017 general ledger, balance sheet, and profit and loss statement.  Freund Decl. ¶5, Ex. E, p.26.  Robinson also commented that Freund never responded about the inspection date.  Id.  Uzzan also emailed Freund requesting additional information relating to cash flows and payroll for 2016.  Freund Decl. ¶6, Ex. E, p.33.  On December 21, 2017, Freund sent further financial documentation.  Freund Decl. ¶7, Ex. E, p.42.  Freund did not provide all of the documentation requested.  See id.

On January 3, 2018, Freund told Robinson that he had provided much of what Robinson sought, put CEI’s accountant in contact with Uzzan, and offered to make additional books and records available for physical inspection.  Freund Decl. ¶¶ 8, 9, Ex. E, pp. 44, 49. Freund asked Robinson to move the enforcement motion 30-45 days.  Id., p. 44.  On January 19, 2018, Freund made available several more documents via a Dropbox folder.  Freund Decl. ¶11, Ex. E, p.60.  On January 22, 2018, Freund inquired of Robinson whether Uzzan could inspect records that week.  Freund Decl. ¶22, Ex. E, p.64.

On January 30, 2018, CEI’s new counsel notified Robinson that CEI was in full compliance with the writ as Eurocom had inspected CEI’s books and records on January 30, 2018, CEI had held an annual shareholder meeting, and CEI had amended its bylaws.  Pietz Decl. Ex. B.

  1. Motion to Tax or Strike Costs
  2. Applicable Law

Although the purpose of much civil litigation is to make the injured party “whole,” the traditional common law rule is that the parties must bear their own costs.  Davis v. KGO-TV, Inc., (1998) 17 Cal.4th 436, 446.  It is, therefore, axiomatic that the right to recover costs is purely statutory.  In the absence of an authorizing statute, no costs can be recovered by either party.  Crib Retaining Walls, Inc. v. NBS/Lowry, Inc., (1996) 47 Cal.App.4th 886, 889; Garcia v. Hyster Co., (1994) 28 Cal.App.4th 724, 732; Perko’s Enterprises, Inc. v. RRNS Enterprises, (“Perko’s”) (1992) 4 Cal.App.4th 238, 241.

Prejudgment costs allowable under statute shall be claimed and contested in accordance with rules adopted by the Judicial Council. CCP §1034(a).  Thus, any notice of motion to strike or to tax costs shall be served and filed 15 days after service of the cost memorandum; if the cost memorandum was served by mail, the period is extended as provided in CCP section 1013.  CRC 3.1700(b)(1).  These time limitations, however, are not jurisdictional, and a trial court has broad discretion in allowing relief from a late filing where there is absence of a showing of prejudice by the opposing party.  Hoover Community Hotel Development Corp. v. Thomson, (1995) 168 Cal.App.3d 485.  Also, CRC 3.1700(b)(3) allows the parties to agree to extend the time for serving and filing the cost memorandum and a motion to strike or tax costs.

CCP section 1032 defines the term “prevailing party” as the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, or a defendant who avoids all liability.  Great Western Bank v. Converse Consultants, Inc., (1997) 58 Cal.App.4th 609, 612;Childers v. Edwards, (1996) 48 Cal.App.4th 1544, 1548; Coltrain v. Shewalter, (1998) 66 Cal.App.4th 94, 101-02.  CCP section 1032(a)(4) provides that when any party recovers other than monetary relief, the prevailing party shall be as determined by the court, and under those circumstances, the court in its discretion may allow costs or not.  Building Maintenance Services Co. v. AIL Systems, Inc., (1997) 55 Cal.App.4th 1014, 1025.

The statutory scheme clearly establishes two mutually exclusive sets of trial preparation expenses – one set which is allowable as a matter of right to the prevailing party (CCP §§1032(b), 1033.5(a)), and one which is not (CCP §§ 1033.5(b), 1032(b)).  Expenses which do not fit into either of these two categories fall into a special statutory safety net: they may be recovered only at the discretion of the court.  CCP §1033.5(c).  Science Applications Internat. Corp. v. Superior Court, (“Science Applications”) (1995) 39 Cal.App.4th 1095, 1103.  CCP section 1033.5(a) contains a list of expenses which are allowable as costs, and includes filing fees, deposition transcripts, models, blowups, exhibits and copies of exhibits if reasonably helpful to the trier of fact. Michell v. Olick, (1996) 49 Cal.App.4th 1194, 1200; Science Applicationssupra, 39 Cal.App.4th at 1102 & n.7.

Even where a party receiving a favorable judgment is entitled to costs “as of course,” the trial court has broad discretion to disallow unnecessary costs.  Perko’ssupra, 4 Cal.App.4th 238.  It is generally held that costs awarded should be reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation.  Thon v. Thompson, (1994) 29 Cal.App.4th 1546, 1548.  When items claimed as costs do not appear on their face as proper and necessary and the items are properly challenged by a motion to tax costs, the burden of establishing the necessity of the items is on the party claiming them as costs.  Whitney v. Whitney, (1958) 164 Cal.App.2d 577.

 

  1. Analysis

CEI seeks to strike or tax the Eurocom’s memorandum of costs on the basis that it was untimely filed and that Eurocom has no evidentiary or legal basis to seek attorneys’ fees through a memorandum of costs.  Mot. at 3-4.  Eurocom presents no opposition.[1]

 “A prevailing party who claims costs must serve and file a memorandum of costs within 15 days after the date of service of the notice of entry of judgment or dismissal by the clerk under Code of Civil Procedure section 664.5 or the date of service of written notice of entry of judgment or dismissal, or within 180 days after entry of judgment, whichever is first.”  CRC 3.1700(a).

CEI is correct.  The court entered judgment on May 19, 2017.  Regardless of when (or even if) the notice of entry of judgment was served, Eurocom was required to file the memorandum of costs within 180 days of May 19, 2017, or by November 15, 2017.  The memorandum of costs filed on March 29, 2018 did not comply with this rule.

CEI’s motion to strike costs is granted.

  1. Motion for Attorney’s Fees
  2. Applicable Law

A court may award reasonable expenses, including attorney’s fees, against a corporation where a shareholder must resort to court action as a result of a corporation’s unjustified failure to comply with a proper demand.  Corp. Code §1604.  The trial court has discretion to award attorney’s fees to shareholders under this statute.  Valtz v. Penta Investment Corp., (1983) 139 Cal.App.3d 803, 810.

  1. Analysis
  2. Entitlement to Fees

Eurocom seeks an award of $18,013.32 in additional attorney’s fees.  The court previously determined that Eurocom was entitled to attorney’s fees and awarded Eurocom $47,116.50 in fees on September 25, 2017.  Eurocom asserts that the additional fees sought were incurred as a result of CEI’s unjustified refusal to comply with Eurocom’s demands pursuant to the writ.  Mot. at 8.

As noted in the court’s unadopted tentative on Eurocom’s motion to enforce judgment, CEI failed to timely and adequately comply with Eurocom’s shareholder inspection demands.  This failure warrants reimbursement of Eurocom’s reasonable attorney’s fees under Corporations Code section 1604.

CEI contends that Eurocom’s motion is procedurally improper.  Opp. at 4.  CEI argues that Eurocom fails to explain the legal basis for its motion.  Opp. at 5.  Eurocom states that it requests attorney’s fees and costs “pursuant to Corporations Code [section] 1604.”  Mot. at 8.  While the motion does not mention it, Eurocom’s memorandum of cost, CEI’s opposition, and the reply further discuss CCP section 685.040.  Opp. at 5; Reply at 4.  While Eurocom should have cited this statute in its notice of motion, no prejudice has resulted to CEI. CCP section 685.040 permits a judgment creditor to obtain attorney’s fees incurred in enforcing a judgment where they are “otherwise provided by law.”  Attorney’s fees were included in the judgment under Corporations Code section 1604, and therefore were otherwise provided by law.  Such fees may be recovered as costs if expended to enforce a judgment.  Rosen v. LegacyQuest, (2014) 225 Cal.App.4th 375, 382, 384.

CEI argues that it diligently complied with the writ and the motion to compel enforcement was not necessary.  Opp. at 4.  CEI contends that it provided records nearly as fast as they were requested.  Id.

In a shareholder lawsuit filed on August 22, 2016, the court entered judgment for Eurocom on May 19, 2017, and denied CEI’s motion for reconsideration on July 13, 2017.  CEI appealed, but still should have acted promptly to produce records.  It did not.  CEI’s own evidence shows as much.

First, Eurocom repeatedly asked CEI to email it corporate records prior to the inspection date.  On November 10, 2017, Uzzan asked Freund for 2015, 2016, and 2017 income tax returns, financial statements, balance sheets, profits and loss statements, general ledgers, and payroll annual statements.  Freund Decl. ¶3, Ex. E, p.1.  On November 13, 2017, Freund sent Uzzan some, but not all, of the records for which she asked.  Freund Decl. ¶4, Ex. E, p.18.  On November 16, 2017, Robinson emailed Freund asking for more documents. Freund Decl. ¶5, Ex. E, p.26.  CEI did not respond to Eurocom’s November 16, 2017 request until more than a month later, on December 21, 2017.  Freund Decl. ¶7, Ex. E, p. 42.  CEI’s response also was deficient because CEI failed to provide Eurocom with all the documents requested.  See id.  CEI failed to diligently comply with Eurocom’s corporate records requests.

Second, Eurocom failed to diligently schedule the shareholder inspection date.  On November 2, 2017, Robinson asked Freund for a shareholder inspection date.  Freund Decl. Ex. E, p.5.  On November 8, 2017, Robinson suggested an inspection date of November 20, 2017.  Freund Decl. Ex. E, p.29.  On November 16, 2017, Robinson commented that Freund never responded about the inspection date.  Freund Decl. ¶5, Ex. E, p.26.  Freund failed to respond at all until the November 20 date passed. and the inspection did not occur until nearly three months later, on January 30, 2018.  CEI was the source of the delay.

This necessitated Eurocom’s December 8, 2017 motion to compel enforcement, which was taken off calendar when CEI agreed to comply.  Eurocom is entitled to post-judgment attorney’s fees.

  1. Reasonableness of Fees

Robinson requests additional attorney’s fees at the hourly rate of $325.  Robinson Decl. ¶37.  He asserts that this is the market rate consistent with attorneys that have his level of experience in the Los Angeles area.  Id.  Robinson presents billing statements attesting to the work that he performed with respect to enforcing the writ and handling CEI’s appeal.  Robinson Decl. Exs. 6-7.  This is prima facieevidence that the fees sought are reasonable.

CEI asserts that Eurocom cannot be awarded fees for preparing appellate documents.  Opp. at 6.  CEI’s assertion is incorrect.  Trial courts have jurisdiction to award costs and attorney’s fees on appeal based on a statutory right without direction by the court of appeal. M. C. & D. Capital Corp. v. Gilmaker, (1988) 204 Cal.App.3d 671, 678.  In this case, Corporation Code section 1604’s broad language allows appeal attorney’s fees.

  CEI asserts that Eurocom cannot be awarded attorney’s fees for preparing and filing an untimely and borderline frivolous memorandum of costs.  Opp. at 6.  CEI points out that Eurocom tacitly abandoned the memorandum of costs in its moving papers.  Id. CEI also argues that Eurocom declined to meet and confer prior to filing the cost memorandum, which would have avoided unnecessary attorney expenditure.  Opp. at 7.

The memorandum of costs was clearly untimely and unnecessary.  However, Eurocom did not charge for work preparing this memorandum (see Robinson Decl. Exs. 6-7), and the award will not be discounted.

CEI contends that it had substantial justification for contending that parts of the court’s writ judgment were automatically stayed pending appeal.  Opp. at 7.  CEI points to the court’s unadopted tentative decision wherein the court examined whether Corporations Code sections 600 and 212(a) established special proceedings, and thus whether they were subject to the appellate stay rule.  Robinson Decl. Ex. 3.  The tentative decision concluded that the former was a special proceeding and not subject to the appellate stay rule, and that the latter was not a special proceeding and was subject to the appellate stay rule.  Id.

CEI’s contention is unpersuasive.  CEI did not oppose Eurocom’s motion to enforce judgment, and it cannot justify its actions based on the court’s analysis without evidence that it relied on the same position.  More important, the court’s tentative found that the shareholder inspection aspect of the writ was not subject to a stay on appeal.  Eurocom is entitled to attorney’s fees on its motion to compel enforcement.

An additional award of $18,013.32 in attorney’s fees is not unreasonable for work on the motion to compel enforcement, emails with CEI’s attorney and Eurocom’s accountant, and an appellate opposition.

  1. Conclusion

Eurocom’s motion for attorney’s fees is granted.

[1] Eurocom’s notice of motion for additional attorney’s fees states that CEI’s motion to tax costs is moot.  This contention is incorrect. Eurocom’s memorandum of costs may be moot, but CEI’s motion is not.  Until Eurocom withdraws its memorandum of costs, CEI’s motion is ripe for judicial determination.

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