Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-00553/USCOURTS-cand-3_05-cv-00553-10/pdf.json

Parties Involved:
CDT Limited
Defendant
Cambridge Display Technology, Inc.
Interested Party
Opsys Limited
Defendant
Sunnyside Development Company, LLC
Plaintiff

Document Text:

UNITED 

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For the Northern District of California

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UNITED 

STATES 

DISTRICT 

COURT

U

For the Northern District of California

NITED 

STATES 

DISTRICT 

COURT

U

For the Northern District of California

NITED 

STATES 

DISTRICT 

COURT

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SUNNYSIDE DEVELOPMENT COMPANY, LLC,

Plaintiff,

v.

 OPSYS LIMITED,

Defendants,

 /

No. C 05 0553 MHP

MEMORANDUM & ORDER

Re: Plaintiff’s Motion for Attorneys’

Fees and Costs

Plaintiff Sunnyside Development Company, LLC (“plaintiff” or “Sunnyside”) filed this

breach of contract action against defendant Opsys Limited (“defendant” or “Opsys Ltd.”) in the

California Superior Court for the County of Alameda on December 14, 2004. Defendant removed

the action to this court on February 7, 2005. The matter proceeded to jury trial on February 21,

2007. On March 9, 2007 the jury returned a verdict in favor of plaintiff. Plaintiff now moves for an

award of attorneys’ fees and costs in the amount of $936,534.83. Having considered the parties’

arguments and submissions, and for the reasons stated below, the court enters the following

memorandum and order.

BACKGROUND

The factual background of this action is set forth in this court’s order on defendant’s motion

for summary judgment. Sunnyside Dev. Co. v. Opsys Ltd., No. C 05 0553 MHP, 2007 WL 419865

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(N.D. Cal. Feb. 6, 2007) (Patel, J.). The background related to the attorneys’ fee dispute is set forth below.

The lease upon which plaintiff brought action (“Lease”) contained an attorneys’ fee clause

which provided, in relevant part:

If any Party or Broker brings an action or proceeding involving the

Premises to enforce the terms hereof or to declare rights hereunder, the

Prevailing Party (as hereafter defined) in any such proceeding, action,

or appeal thereon, shall be entitled to reasonable attorney’s fees. . . . 

The term, “Prevailing Party” shall include, without limitation, a Party

or Broker who substantially obtains or defeats the relief sought, as the

case may be, whether by compromise, settlement, judgment, or the

abandonment by the other Party or Broker of its claim or defense. The

attorney’s fees award shall not be computed in accordance with any

court’s fee schedule, but shall be such as to fully reimburse all

attorney’s fees reasonably incurred. In addition, Lessor shall be

entitled to attorney’s fees, costs and expenses incurred in the

preparation and services of notices of Default and consultations in

connection therewith, whether or not a legal action is subsequently

commenced in connection with such Default or resulting Breach.

Huber Dec., Exh. 1 ¶ 31. The Assignment agreement which formed the basis for defendant’s

affirmative defense (“Assignment”) also contained an attorneys’ fee provision: “In the event an

action is initiated to interpret or enforce any of the terms of this Assignment or enforce any

judgment, the prevailing party shall be entitled to receive from the other party reasonable attorney’s

fees, costs, and expenses incurred in the action.” Huber Dec., Exh. 2 ¶ 8(f). Having received a

verdict in its favor, plaintiff now seeks an award of attorneys’ fees and costs pursuant to these

contractual provisions.

LEGAL STANDARD

Because this case is based on diversity jurisdiction, the court will apply California state law

regarding attorneys’ fees. Farmers Ins. Exch. v. Law Offices of Conrado Joe Sayas, Jr., 250 F.3d

1234, 1236 (9th Cir. 2001). “Unless authorized by either statute or agreement, attorney’s fees

ordinarily are not recoverable” in California. Reynolds Metals Co. v. Alperson, 25 Cal. 3d 124, 127

(1979). Where a contract does provide for attorneys’ fees, these contractual provisions are governed

by California Civil Code section 1717, which provides in relevant part:

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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.

Application of this provision is subject to the “ordinary rules of contract interpretation,” which is

governed by “the mutual intention of the parties at the time the contract is formed . . . .” Exxess

Electronixx v. Heger Realty Corp., 64 Cal. App. 4th 698, 709 (1998) (internal quotations omitted). 

“Such intent is to be inferred, if possible, solely from the written provisions of the contract . . . .” Id.

(internal quotations omitted). “Where a party is entitled by statute or contract to attorney’s fees, the

amount awarded is within the discretion of the trial court.” Nevin v. Salk, 45 Cal. App. 3d 331, 339

(1975).

DISCUSSION

I. Applicability of Attorneys’ Fees Provisions

Defendant claims that plaintiff is not entitled to attorneys’ fees under the Lease or the

Assignment.1 The court will consider each provision in turn.

A. Lease

Notwithstanding the clear language of the lease providing for attorneys’ fees, defendant

claims that the provision is inapplicable to this litigation. Specifically, defendant claims that

plaintiff’s breach of contract action was not an action brought “to enforce the terms hereof or to

declare rights hereunder” as provided for in the contract. Rather, defendant asserts that plaintiff’s

action claimed that the lease was terminated, and sought statutory damages. In support of this

distinction, defendant cites the last sentence of the attorneys’ fee provision, which states: “In

addition, Lessor shall be entitled to attorney’s fees, costs and expenses incurred in the preparation

and services of notices of Default and consultations in connection therewith, whether or not a legal

action is subsequently commenced in connection with such Default or resulting Breach.” Because

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the terms “Default” and “Breach” do not appear elsewhere in the provision, plaintiff asserts that an

action alleging default or breach does not constitute an action to enforce the terms of the contract or

to declare rights thereunder.

Defendant’s interpretation of the contract is overly strained. The statutory damages sought

by plaintiff are explicitly tied to its rights under the contract. See Cal. Civ. Code § 1951.2. 

Accordingly, an action seeking these damages is clearly an action to enforce contractual rights. 

Furthermore, defendant’s parsing of the final sentence is unpersuasive. The purpose of the final

sentence is to provide for additional attorneys’ fees and costs in the event of default or breach for

work not directly connected to a legal proceeding. Reading this additional cost provision as an

exclusion of attorneys’ fees for actions for breach of contract would be manifestly unreasonable.

Plaintiff is correct, however, that the provision does not provide for an award of litigation

costs. Rather, the lease provision only allows recovery of “reasonable attorney’s fees” incurred in a

legal action or proceedings.

B. Assignment

Plaintiff asserts that it is entitled to enforce the attorneys’ fee provision of the Assignment

notwithstanding the jury’s finding that the Assignment was never effective. In support of this claim,

plaintiff asserts that the Assignment was raised as an affirmative defense by defendant, and that

because plaintiff was the prevailing party with respect to that defense, it is entitled to attorneys’ fees. 

Plaintiff is correct that a party which defeats a contract claim is entitled to a recovery of fees where

the contract at issue provides for attorneys’ fees. This principle derives from the reciprocity of

section 1717. If Opsys Limited had brought an action to enforce the Assignment against Sunnyside

and prevailed, Opsys Limited would have been entitled to attorneys’ fees under the terms of the

Assignment. Accordingly, Sunnyside must receive the same benefit as the prevailing party despite

the fact that the contract is ultimately found to be unenforceable. See Reynolds Metals, 25 Cal. 3d at

128.

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However, a different rule applies where a contract forms the basis of an affirmative defense

rather than a cause of action. The California Court of Appeal has squarely held that the language

“brings an action to enforce the contract,” which is functionally identical to the operative language

at issue here, is “quite narrow,” and does not include situations where the contract is asserted as a

defense. Gil v. Mansano, 121 Cal. App. 4th 739, 744 (2004). In Gil, the court held that “the

assertion of a defense does not constitute the bringing of an action” to enforce a contract,

notwithstanding the fact that “a defense to [an action] based on a provision of the contract may have

the effect of enforcing the provisions of the contract.” Id. at 743.

Because the Assignment was raised as an affirmative defense, no action was brought to

enforce its terms. Accordingly, the attorneys’ fee provision of the Assignment is inapplicable. 

However, this does not mean that plaintiff is not entitled to attorneys’ fees incurred in litigating the

Assignment. “California law is settled that an obligation to pay attorney fees incurred in the

enforcement of a contract ‘includes attorneys’ fees incurred in defending against a challenge to the

underlying validity of the obligation.’” Siligo v. Castellucci, 21 Cal. App. 4th 873, 878 (1994)

(quoting Finalco, Inc. v. Roosevelt, 235 Cal. App. 3d 1301, 1308 (1991)). Accordingly, attorneys’

fees incurred in litigating the Assignment are available through the attorneys’ fees provision in the

lease. The effect of the inapplicability of the Assignment provision, therefore, is that plaintiffs are

unable to recover an award of costs and expenses. Plaintiffs are entitled to attorneys’ fees only.

II. Apportionment

Plaintiffs are undisputably the prevailing party in this action, and are therefore entitled to be

“fully reimburse[d]” for attorneys’ fees covered by the Lease provision. Because this action

involved other claims, however, the court must determine the proper amount of attorneys’ fees.

A. Applicable Law

California courts apply section 1717 narrowly, particularly where the contractual provision is

itself narrow. First, “section 1717 does not apply to tort claims; it determines which party, if any, is

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entitled to attorneys’ fees on a contract claim only.” Exxess Electronixx, 64 Cal. App. 4th at 708

(emphasis in original). Actions for fraud do not constitute actions to “enforce the terms” of a

contract or “declare rights” under the contract. Id. at 708–09. “[T]ort claims are premised on a duty

. . . that was not created by the lease,” but rather a “general duty to society which the law imposes

without regard to the substance of the contractual obligation.” Id. at 711 (internal quotations

omitted). See also Gil, 121 Cal. App. 4th at 743 (holding that “[a] tort claim does not enforce a

contract”). Likewise, provisions for the recovery of contractual attorneys’ fees do not cover

equitable claims to determine the “distribution of loss among multiple tortfeasors . . . .” Exxess

Electronixx, 64 Cal. App. 4th at 714 (internal quotations omitted). Finally, each contract claim must

be treated separately for the purposes of determining entitlement to contractual attorneys’ fees. 

Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., 47 Cal. App. 4th 464, 490–91 (1996).

“‘Where a cause of action based on the contract providing for attorney’s fees is joined with

other causes of action beyond the contract, the prevailing party may recover attorney’s fees under

section 1717 only as they relate to the contract action.’” Id. (quoting Reynolds Metals, 25 Cal. 3d at

129). Recovery of attorneys’ fees for work related to multiple claims is appropriate where claims

are “inextricably intertwined, making it impracticable, if not impossible, to separate the multitude of

conjoined activities into compensable or noncompensable time units.” Id. at 1085 (internal

quotations and citations omitted). With these principles in mind, “[a]pportionment of a fee award

between fees incurred on a contract cause of action and those incurred on other causes of action is

within the trial court’s discretion . . . .” Erickson v. R.E.M. Concepts, Inc., 126 Cal. App. 4th 1073,

1083 (2005).

As a matter of legal formality, therefore, plaintiff is only entitled to attorneys’ fees for its

breach of contract action against Opsys Limited. Plaintiff is not entitled to attorneys’ fees related to

its fraud claims against CDT Limited or Opsys Limited, which were separate tort claims. Plaintiff’s

breach of contract claim against CDT Limited was separate from its breach of contract claim against

Opsys Limited, and was resolved in favor of CDT Limited. Accordingly, plaintiff is not entitled to

attorneys’ fees for its breach of contract claim against CDT Limited. Finally, plaintiff is not entitled

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to its attorneys’ fees for its successor liability claim against CDT, for two reasons. First, successor

liability is an equitable doctrine, Steinbach v. Hubbard, 51 F.3d 843, 846 (9th Cir. 1995), and is

therefore not a contract claim. Exxess Electronixx, 64 Cal. App. 4th at 714. Second, as set forth in

this court’s Order on Plaintiff’s Motion to Add CDT, Inc. as a Party, plaintiff is not the prevailing

party on its successor liability claim.

The question, therefore, is to what extent the issues involved in these claims were “common”

or “intertwined” with the issues related to the breach of contract action against Opsys Limited.

B. Commonality

1. Fraud Claims and Breach of Contract Claims Against CDT Limited

Plaintiff conclusorily claims that its initial pleading of fraud in the inducement of the Lease

arises from the same nucleus of facts and relates to the Lease. Defendant asserts that all fees

generated by plaintiff’s initial counsel should be discounted, because defendant’s successful Rule

12(b)(6) motions were the subject of almost all of plaintiff’s initial counsel’s time. Additionally,

defendant asks the court to discount the initial work performed by plaintiff’s current counsel, which

was directed toward amending plaintiff’s original “shoddy” complaint. Defendant claims that it

should not be held accountable for plaintiff’s counsel’s need to “clean up” the poor representation at

the outset of this action.

According to plaintiff’s calculations, plaintiffs incurred fees in the amount of $6,200 from

their initial counsel. It is not clear how much time was directed toward 12(b)(6) and “clean up”

issues by plaintiff’s current counsel, though plaintiff’s chart includes $71,137.50 for “Initial Case

Analysis.” Defendant should not be liable for plaintiff’s poor choice of initial counsel. 

Accordingly, the $6,200 in attorneys’ fees from plaintiff’s initial counsel is not recoverable. In

terms of the “Initial Case Analysis,” plaintiff’s current counsel would have had to do a certain

amount of review and analysis regardless of whether any previous attorneys have been involved. 

Accordingly, the fees for “Initial Case Analysis” are recoverable.

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2. Successor Liability Claim

Plaintiff asserts that fees incurred through its efforts to add CDT, Inc. as a successor party are

clearly recoverable, apparently because plaintiff sought to add CDT, Inc. in aid of enforcement of

the judgment. As a legal matter, plaintiff is incorrect. The Lease provision, which is the only

operative attorneys’ fee provision for the purposes of this motion, allows for fees only to enforce the

provisions of the lease. As noted above, successor liability is a separate, equitable claim which does

not arise from the contract. Only the Assignment provision mentions the enforcement of judgments,

and relief under that clause is unavailable.2

Turning to the commonality of issues between the breach of contract claim against Opsys

Limited and the successor liability claim against CDT, Inc., plaintiff claims that it is entitled to fees

for its initially pled unconsented assignment claim, which plaintiff admittedly dropped to “avoid

confusing the jury.” Mot. at 8. Plaintiff conclusorily asserts that this claim was “integrally related

to the breach of contract claim.” In response, defendant cites passages of the Second Amended

Complaint (“SAC”) which suggest that plaintiff’s claims against CDT, Inc. are wholly separate from

its claims against Opsys Limited. The SAC states that its substantial allegations regarding CDT, Inc.

were “asserted both (1) to establish the relevance of discovery to be directed to [CDT, Inc.] given

[CDT, Inc.]’s knowledge of Opsys Limited’s bad faith effort to avoid its lease obligations, and (2) to

support later amendment as described below at paragraph 26. SAC ¶ 20. Paragraph 26 states that

“plaintiff will seek leave to add Cambridge Display Technology, Inc. as a defendant successor to

Opsys Limited at such time as the primary liability of Opsys Limited is established.

Ultimately, plaintiff proved only that Opsys Limited remained a party to, and breached, the

Lease. The complicated factual background related to CDT, Inc. was largely irrelevant to these

findings, which formed the basis for the single claim on which plaintiff prevailed. Accordingly, the

court finds that the issues associated with plaintiff’s successful claim were not so intertwined with

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the issues surrounding CDT, Inc. as to warrant attorneys’ fees for work related to CDT, Inc.’s

alleged successor liability.

Plaintiff’s calculations allocate 55.8 hours, valued at $20,060.50, to “Efforts to Add CDT,

Inc.” Mot at 6. Defendant claims that this understates the time related to CDT, Inc. In particular,

defendant asserts that most of the 264.65 hours ($71,137.50) for initial case analysis were devoted to

reviewing CDT, Inc.’s public filings and press releases to develop a successor liability theory. 

Defendant additionally cites substantial discovery related to CDT, Inc., and claims that most of the

time devoted to expert discovery concerned successor liability. Defendant further claims that CDT,

Inc. issues contributed to trial preparation fees in the form of motions in limine related to CDT, Inc. 

Thus, defendant asserts that virtually all of plaintiff’s claimed post-verdict work pertains to

successor liability, and is therefore not recoverable. Defendant also points to plaintiff’s lack of

success on its claim for breach of the covenant of good faith and fair dealing in arguing for a

reduction in the amount of fees attributable to CDT, Inc. issues.

To the extent that plaintiff’s initial case analysis involved exploring claims against CDT,

Inc., plaintiff is entitled to those fees. However, because plaintiff’s claims against CDT, Inc. were

ultimately unsuccessful, plaintiff may not recover fees attributed to work regarding CDT, Inc.

beyond initial case analysis. 

3. Mitigation

Finally, defendant claims that plaintiff’s fee award should be reduced in light of defendant’s

asserted successful mitigation claim. As noted above, attorneys’ fees related to affirmative defenses

are recoverable as part of a contract claim. Siligo, 21 Cal. App. 4th at 878. Although plaintiff was

not awarded the full recovery sought, it was clearly the prevailing party notwithstanding any

possible findings by the jury as to mitigation (which themselves are unclear). Accordingly, the court

may, but need not, reduce plaintiff’s attorneys’ fee award based on the mitigation issue. The court

finds, however, that plaintiff substantially prevailed on its breach of contract claim and therefore no

reduction in attorneys’ fees is necessary based on defendant’s mitigation defense.

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III. Sufficient Explanation

In addition to the categorical claims discussed above, defendant raises several objections to

specific entries in plaintiff’s fee accounting, and argues as a general matter that plaintiff’s labels

provide insufficient explanation for each class of fees. In particular, defendant asserts that there is

no clear distinction between “Document Management,” “Fact Discovery,” “Expert Discovery,”

“Trial Preparation” and “Trial.” The court does not find these classifications to be overly obtuse,

and therefore declines to reduce the fee request based on plaintiff’s choice of categorization.

Defendant also argues that “Efforts to Add CDT, Inc.” appears to be duplicative of all of

plaintiff’s post-verdict work. Plaintiff claims 13.8 hours for “Post-Verdict,” 35.65 hours for “Fee

Application,” and 55.8 hours for “Efforts to Add CDT, Inc.” The fee application and post-verdict

numbers appear reasonable. It is unclear from plaintiff’s chart whether the “Efforts to Add CDT,

Inc.” included work before and after the verdict. It seems likely that additional work related to CDT,

Inc. was included in other categories, including expert discovery. Because plaintiff is not entitled to

these fees, the inclusion of this work mandates a reduction in the total fee award.

Defendant also objects to plaintiff’s claim of nearly fifty hours’ worth of fees related to a sixhour mediation. Plaintiff actually ascribes this number of hours to “Mediation & Settlement.” Even

assuming that fifty hours is an unreasonable time to spend preparing for a six-hour mediation

session, the inclusion of settlement activities within this amount renders the number of hours worked

reasonable.

Finally, defendant claims that plaintiff is seeking an unreasonable amount of time—more

than 320 hours—for work related to opposing defendant’s motion for summary judgment. This

number is likewise not unreasonable. The summary judgment motion involved a great deal of

documentary evidence and covered several claims and defenses.

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CONCLUSION

For the reasons stated above, the court GRANTS IN PART and DENIES IN PART

defendant’s Motion for Attorneys’ Fees and Costs. Defendant’s motion is DENIED to the extent

that it seeks an award of costs and expenses. Defendant’s motion is GRANTED IN PART as to

attorneys’ fees. Defendant shall submit within thirty (30) days of the date of this order a declaration

setting forth in detail the work and the dates of the work performed in connection with the following

categories listed in their submissions:

Initial Case Analysis

Efforts to Add CDT, Inc.

Post-Verdict

Estimate 3/24 - 5/16

and all contemporaneous time records and/or billing records if the latter reflect contemporaneous 

entries.

IT IS SO ORDERED.

Dated: August 29, 2007 

MARILYN HALL PATEL

United States District Court Judge

Northern District of California

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1. Defendant further asserts that the jury’s allegedly inconsistent verdict renders attorneys’ fees

unavailable. As discussed in this court’s Order on Plaintiff’s Motion for Judgment as a Matter of

Law and For a New Trial, the jury’s verdict was not inconsistent, and therefore this argument is

rejected.

2. Additionally, it is not at all clear that the phrase “enforce any judgment” would include a claim of

successor liability, rather than a separate action or proceeding to enforce the judgment against Opsys

Limited.

ENDNOTES

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