FOR PUBLICATION

UNITED STATES COURT OF APPEALS

 FOR THE NINTH CIRCUIT

PSM HOLDING CORP., a

Corporation,

Plaintiff-Appellant,

v.

NATIONAL FARM FINANCIAL

CORPORATION, a Corporation;

BUSINESS ALLIANCE

INSURANCE COMPANY, a

Corporation; LARRY P. CHAO,

an Individual,

Defendants-Appellees.

Nos. 15-55026

15-55941

D.C. No.

CV 05-08891 MMM
2 PSM HOLDING V. NAT’L FARM FINANCIAL

PSM HOLDING CORP., a

Corporation,

Plaintiff-Appellee,

v.

NATIONAL FARM FINANCIAL

CORPORATION, a Corporation;

BUSINESS ALLIANCE

INSURANCE COMPANY, a

Corporation; LARRY P. CHAO,

an Individual,

Defendants-Appellants.

Nos. 15-55087

15-55943

15-56184

D.C. No.

CV 05-08891 MMM

OPINION

Appeals from the United States District Court

for the Central District of California

Valerie B. Fairbank and

Margaret M. Morrow, District Judges, Presiding*

Argued and Submitted December 6, 2016

Pasadena, California

Filed March 7, 2018

Before: Stephen Reinhardt, A. Wallace Tashima,

and Richard A. Paez, Circuit Judges.

Opinion by Judge Tashima

*

Judge Fairbank presided over this case from its inception through

July 2009. On remand from the Ninth Circuit, the case was transferred to

Judge Morrow, who presided over all subsequent proceedings.
PSM HOLDING V. NAT’L FARM FINANCIAL 3

SUMMARY**

Restitution / Rescission

The panel affirmed in part, reversed in part, and dismissed

in part the district courts’ judgment and orders concerning

remedies in various appeals arising from claims for breach of

contract and fraud.

The district court held that a judgment creditor, who

seized a judgment debtor’s company pursuant to a judgment

that was reversed on appeal, could recover in restitution for

losses suffered while it was in possession of the seized

company. The district court denied the judgment creditor’s

request to rescind its quota share reinsurance agreement

(“QSA”) with Business Alliance Insurance Company.

The panel held that to the extent the district court’s orders

of July 26, 2010, and October 8, 2013, affirmed defendants’

right to recover restitution, theywere sound. In reviewing the

district court’s December 17, 2014 order, the panel held that

the district court erred in allowing the judgment creditor to

recover in restitution. The panel’s conclusion rested on the

California Supreme Court’s decision in Ward v. Sherman,

100 P. 864 (Cal. 1909), wherein the court in an analogous

situation, declined to award the judgment creditor an

affirmative recovery to offset its losses. The panel’s decision

was bolstered by the plain reading of Restatement (First) of

Restitution § 74 and Restatement (Third) of Restitution § 18,

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
4 PSM HOLDING V. NAT’L FARM FINANCIAL

which suggested that in similar cases, the right of restitution

ran only to the judgment debtor.

The panel rejected the judgment creditor’s challenges to

the district court’s October 8, 2013 order denying the

judgment creditor’s request for rescission of its QSA. 

Specifically, the panel held that the district court did not err

by failing to consider California Civil Code § 1019, which

concerns the removal of fixtures from leaseholds. Second,

the district court thoroughly analyzed whether the QSA

amounted to a necessary expense or, instead, an

improvement. Finally, policyconsiderations did not favor the

judgment creditor’s position.

The panel reversed the district court’s May 19, 2015 order

granting in part and denying in part defendants’ motion to

recover post-appeal attorneys’ fees. The panel held that the

district court erred in awarding attorneys’ fees under

California Civil Code § 1717, while simultaneously

concluding that the judgment creditor had fully satisfied the

obligations stemming from the operative judgments. The

panel dismissed, as moot, defendant’s appeal of the district

court’s reduction of the lodestar fee amount.

Because the panel reversed the judgment creditor’s

restitution award, the panel vacated the district court’s July

14, 2015 order denying defendants’ motion to retax costs

and remanded for reconsideration in light of changed

circumstances.

The panel ordered that in each of the five appeals, each

party should bear its own costs on appeal.
PSM HOLDING V. NAT’L FARM FINANCIAL 5

COUNSEL

Aluyah I. Imoisili (argued) and Linda Dakin-Grimm, Milbank

Tweed Hadley & McCloy, Los Angeles, California, for

Plaintiff-Appellant/Cross-Appellee.

Peder K. Batalden (argued) and Mitchell C. Tilner, Horvitz &

Levy, Encino, California; Joseph W. Cotchett and Nancy L.

Fineman, Cotchett Pitre & McCarthy, Burlingame,

California; for Defendants-Appellees/Cross-Appellants.

OPINION

TASHIMA, Circuit Judge:

At the heart of this case lies a conceptually

straightforward, but procedurally complex, question of first

impression for our Circuit: Can a judgment creditor, who

seizes a judgment debtor’s company pursuant to a judgment

that is subsequently reversed on appeal, recover in restitution

for losses suffered while it was in possession of the seized

company? The district court answered in the affirmative. In

doing so, it awarded Plaintiff PSM Holding Corp. more than

$1.1 million in restitution. Defendants now challenge this

award.

All told, the parties have filed five appeals and crossappeals, which were consolidated for oral argument and

decision. We have jurisdiction under 28 U.S.C. § 1291, and

we affirm in part, reverse in part, and dismiss in part.
6 PSM HOLDING V. NAT’L FARM FINANCIAL

I.

A. The Lawsuit and Trial

Prior to the instant lawsuit, Defendant-Appellee/CrossAppellant National Farm Financial Corporation (“National

Farm”) owned Business Alliance Insurance Company

(“BAIC”). Larry Chao, the president of National Farm, cofounded BAIC in the 1990s with his wife, Julie Chao. BAIC

provided insurance to small businesses. BAIC had $14.2

million in net written premiums and $2.8 million in net

income by 2005.

In early 2005, National Farm entered into negotiations to

sell BAIC to Plaintiff-Appellant/Cross-Appellee PSM

Holding Corporation (“PSM”). Ultimately, however,

National Farm walked away from the deal. Thereafter, PSM

sued National Farm, Larry Chao, and BAIC (collectively,

“Defendants”) alleging claims for breach of contract and

fraud.

Following a trial, a jury found in favor of PSM and

awarded it $40 million on its breach of contract claim and $3

million on its fraud claim. In post-trial proceedings, Judge

Fairbank granted in part and denied in part Defendants’

motion for judgment as a matter of law (“JMOL”). The

motion was denied, with the exception that judgment was

entered in favor of Defendants on the fraud claim, thereby

reducing PSM’s damages award to $40 million. Judge

Fairbank also granted Defendants’ motion to stay execution

of the judgment pending appeal, conditioned on Defendants

posting a $40 million bond. However, after Defendants failed

to post the required bond and National Farm entered

bankruptcy, PSM executed on the judgment. In October
PSM HOLDING V. NAT’L FARM FINANCIAL 7

2008, BAIC was transferred to PSM. At the time of transfer,

BAIC had more than $30 million in assets.

After taking possession of BAIC, PSM took various steps

to integrate BAIC into its existing business. For example,

PSM and BAIC entered into an intercompany quota share

reinsurance agreement (the “QSA”). The QSA provided that,

for every insurance policy BAIC issued, PSM would receive

90 percent of the policy’s insurance premiums in exchange

for assuming 90 percent of the policy’s risk of loss. BAIC

would retain the remaining ten percent of the premiums and

would continue to be responsible for ten percent of the

policies’ risk of loss. PSM also assumed control of 90

percent of BAIC’s loss and loss expenses reserves, thereby

rendering it responsible for 90 percent of BAIC’s losses on

policies written prior to October 21, 2008, as well as on

future policies. Additionally, PSM and BAIC entered into an

IntercompanyService Agreement (“ISA”), under which PSM

would provide to BAIC certain executive, administrative, and

other services.

B. The Judgment is Reversed

On June 18, 2009, the Ninth Circuit reversed Judge

Fairbank’s partial denial of Defendants’ JMOL motion. The

Ninth Circuit held that “[t]he plain terms of the agreement

dictate that no contract was formed because the signature

lines for National Farm; Larry Chao, as an individual; and

Julie Chao, as an individual, were left blank. As a result,

none of the parties could be liable under its terms.” PSM

Holding Corp. v. Nat’l Farm Fin. Corp., 339 F. App’x 693,

694 (9th Cir. 2009). The case was remanded to the district

court.
8 PSM HOLDING V. NAT’L FARM FINANCIAL

C. Post-Remand Proceedings

1. July 26, 2010, Order on Restitution

On remand from the Ninth Circuit, it was undisputed that

PSM should pay restitution to Defendants. At issue,

however, was the appropriate amount.

On July 26, 2010, the district court granted in part and

denied in part Defendants’ motion for restitution and

attorney’s fees. Although Defendants’ motion opposed a

return of BAIC to National Farm and, instead, sought a

restitution award in the amount of $59.6 million, the district

court ordered “[r]estitution in the form of the return of

BAIC’s shares to [D]efendants.”

The district court’s decision relied heavilyon Restatement

(First) of Restitution § 74, which provides that:

A person who has conferred a benefit upon

another in compliance with a judgment, or

whose property has been taken thereunder, is

entitled to restitution if the judgment is

reversed or set aside, unless restitution would

be inequitable or the parties contract that

payment is to be final; if the judgment is

modified, there is a right to restitution of the

excess.

Restatement (First) of Restitution § 74 (Am. Law Inst. 1937). 

In such situations, comment e to § 74 provides, “the judgment

debtor is entitled to specific restitution, together with the

value of [the property’s] use in the meantime, diminished by

expenses necessarilyincurred in the protection of the property
PSM HOLDING V. NAT’L FARM FINANCIAL 9

and the payment of taxes and liens, but not including the

expense of improvements.” Id. at § 74, cmt. e.

According to the district court, this rule is consistent with

a similar principle set forth in Restatement (Third) of

Restitution and Unjust Enrichment § 18 (Am. Law. Inst.

2011):

A transfer or taking of property, in

compliance with or otherwise in consequence

of a judgment that is subsequently reversed or

avoided, gives the disadvantaged party a

claim in restitution as necessary to avoid

unjust enrichment.

Finally, the court supported its decision by relying on

several state court decisions – from California and elsewhere

– that confronted similar issues, including Stockton Theatres,

Inc. v. Palermo, 264 P.2d 74 (Cal. Dist. Ct. App. 1953),

Erickson v. Boothe, 274 P.2d 460 (Cal. Dist. Ct. App. 1954),

and Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060

(Del. 1988).

Based on these authorities, the district court concluded

that “Defendants are entitled to specific restitution of the

BAIC shares.”1 Additionally, the district court determined

that Defendants were “entitled to an accounting of the profits

earned while PSM held BAIC, ‘diminished by expenses

necessarily incurred in the protection of the property and the

payment of taxes and liens.’” (Quoting Restatement (First)

of Restitution, § 74 cmt. e (Am. Law Inst. 1937).) 

Accordingly, the district court ordered “an accounting of the

1

 PSM returned the BAIC shares to Defendants in early 2011. 
10 PSM HOLDING V. NAT’L FARM FINANCIAL

profits PSM generated through its ownership of [the BAIC]

shares.”2

2. October 8, 2013, Order on Accounting and

Rescission of QSA

Post remand, Defendants filed a motion for an award of

PSM’s profits. Defendants sought $14 million in profits. 

PSM opposed the motion, arguing that it actually suffered a

$1.5 million loss as a result of its temporary possession and

control of BAIC. Additionally, PSM sought to rescind the

QSA. The district court determined that expert testimonywas

required in order to resolve Defendants’ motion for profits

and PSM’s request for rescission. Accordingly, it appointed

two experts: (1) Debra J. Roberts, who would consider the

QSA issue; and (2) Timothy H. Hart, a forensic accountant,

who would consider the question of profits. After each expert

filed her/his report, the district court ruled.

On the question of rescission, the district court denied

PSM’s request, relying on the following illustration:

A obtains judgment in ejectment against B

and is put in possession of Blackacre. After

knowledge that an appeal has been taken, A

makes improvements thereon to the amount of

$1000, at an expense of $100 repairs a roof

which otherwise would have leaked, and pays

taxes thereon to the amount of $300. He

2

In addition to ordering a return of the BAIC shares and an

accountingofprofits, the district court awarded Defendants $2,224,220.76

in attorneys’ fees and $53,984.99 in costs. These awards of fees and costs

are not at issue on this appeal.
PSM HOLDING V. NAT’L FARM FINANCIAL 11

remains on the land for two years, at the end

of which time the judgment is reversed. B is

entitled to restitution of the land and to the

reasonable rental value of the land during the

two years, less the amount expended by A for

the necessary repairs and for the payment of

taxes; ordinarily [diminishment in] restitution

for the value of the improvements would not

be granted.

Restatement (First) of Restitution § 74 cmt. f, illust. 14 (Am.

Law Inst. 1937). This rule, the district court reasoned, is

consistent with the well-established proposition that “the

distinction between ‘repairs and maintenance’ and

‘improvements’ can be characterized ‘as the difference

between ‘keeping’ and ‘putting’ [an] . . . asset in good

condition.” (Quoting Moss v. Commissioner, 831 F.2d 833,

835 (9th Cir. 1987).)

Under this legal framework, the district court concluded

that “[t]he factual record supports the conclusion that the

reinsurance agreement was an improvement rather than a

necessary cost of protecting BAIC.” It reasoned that “[t]he

reinsurance agreement increased the amount of reinsurance

BAIC had prior to the time PSM acquired it” and,

consequently, “the agreement added to BAIC’s value by

reducing the amount of risk it faced.” And, there is nothing

in the record to suggest that “absent replacement of the

existing excess of loss and catastrophe insurance with the

[QSA], BAIC would have been unable to function as an

insurance company.” Similarly, the district court found no

evidence suggesting that “there was an imminent danger that

the California Department of Insurance would take regulatory
12 PSM HOLDING V. NAT’L FARM FINANCIAL

action against BAIC that would have precluded it from

writing insurance business.”

Because, according to the district court, the QSA was

“better characterized as an ‘improvement’ [rather] than an

expense necessary to protect BAIC,” the district court

concluded that “rescission of the agreement [was] not

warranted.”

With respect to profits, the district court made the

following findings: (1) Defendants were entitled to recover

$203,532 in “synergy profits” from PSM; (2) there was no

evidence to support Defendants recovery of “future profits”;

(3) Defendants were entitled to recover a $30,973 tax benefit

previously received by PSM due to its ownership of BAIC;

(4) Defendants were not entitled to any recovery as a result of

PSM’s liquidation of PSM’s stock portfolio; (5) PSM was not

entitled to an additional management fee beyond what had

already been paid directly by BAIC; (6) Defendants were

entitled to recover $254,524 in improperly charged transition

costs; (7) PSM was entitled to “an adjustment of the

restitution award” of $332,190 to cover “operating expenses

associated with BAIC while it ran the company”; (8) PSM

was entitled to a credit of $557,402 in “ceded premiums,” i.e.,

premiums paid on reinsurance contracts that BAIC entered

into prior to PSM’s ownership; and (9) PSM could “offset”

any restitution payment to Defendants by $700,000 to

account for PSM’s assumption of a loan made by BAIC to

National Farm.

The district court then ordered the parties to jointly

“prepare an accounting of the amounts owed [Defendants]

and the amounts PSM [was] entitled to deduct.” The court
PSM HOLDING V. NAT’L FARM FINANCIAL 13

added that it would “enter judgment in favor of whichever

party is owed money pursuant to the accounting.”

3. December 17, 2014, Order on Restitution of Profits

The parties – unable to reach agreement on the amounts

owed – each filed a proposed judgment. The parties agreed

that, based on the district court’s prior October 8, 2013, order,

PSM was to be allotted $1,100,563 in net principal. That is,

per the October 8 order, PSM’s offsets and credits exceeded

the Defendants’ recovery of profits and benefits by just over

$1.1 million. Nonetheless, the parties disputed what should

happen next. For its part, PSM sought to recover $1,100,563

in net principal, net prejudgment interest at a rate of $211 per

day until the entry of judgment, and undetermined costs and

attorneys’ fees. In contrast, Defendants requested that the

district court award nothing to PSM and award unstated costs

to Defendants.

The crux of Defendants’ position was that the district

court should award nothing to PSM because “[b]ased upon

the rules of restitution, which are grounded on the principles

of equity, it would be inequitable to award PSM monies,

especially since it operated BAIC at a loss during its

operations.”

In its December 17, 2014, order, the district court rejected

Defendants’ arguments and awarded $1,100,563 to PSM. In

support of its decision, the court articulated the following

“fundamental rule” of restitution: “the goal of restitution is

‘to place the parties in as favorable a position as they could

have been in had the judgments not be enforced pending

appeal.’” (Citing Gunderson v. Wall, 126 Cal. Rptr. 3d 880,

883 (Ct. App. 2011).) Moreover, the district court continued,
14 PSM HOLDING V. NAT’L FARM FINANCIAL

“[a]bsent evidence of bad faith, even assuming PSM operated

BAIC at a loss, equity does not require that PSM be held

responsible for the loss.” (Citing Restatement (First) of

Restitution § 74, cmt. f. (Am. Law Inst. 1937).)

In the same order, the district court considered PSM’s

request for prejudgment interest, pursuant to California Civil

Code § 3287(a). As a preliminary matter, the district court

emphasized that, under § 3287(a), “[e]very person who is

entitled to recover damages certain, or capable of being made

certain by calculation . . . is entitled also to recover interest

thereon . . . .” (Quoting Cal. Civil Code § 3287(a) (emphasis

and alterations in original).) Moreover, the district court

added, “an accounting action is prima facie evidence [that] a

claim is uncertain.” (Quoting Chesapeake Indus., Inc. v.

Togova Enters., Inc., 197 Cal. Rptr. 348, 353 (Ct. App.

1983).) Then, after surveying several California appellate

court decisions which stand for the same proposition, the

district court reasoned that “[h]ere, the issue of restitution

was complex, and necessitated that the court appoint business

valuation and reinsurance experts,” and that “[t]here were

numerous discrete questions that the court had to resolve in

order to determine the amount of restitution.” Based on these

findings, the district court declined to award prejudgment

interest.

Concurrently with its December 17 order, the district

court entered a final judgment, in which it ordered that: 

(1) based on the Ninth Circuit’s reversal, PSM would “take

nothing by way of its complaint”; (2) Defendants would

recover $2,224,220.76 in attorneys’ fees and $53,984.99 in

costs stemming from pre-reversal proceedings; (3) PSM
PSM HOLDING V. NAT’L FARM FINANCIAL 15

would recover $1,100,563 fromDefendants as restitution; and

(4) the action would be dismissed.3

The parties cross-appealed from the December 17 order.

4. May 19, 2015, Order on Post-Reversal Attorneys’

Fees and Costs

On December 31, 2014, Defendants moved for postreversal attorneys’ fees. Defendants sought fees under

California Code of Civil Procedure § 685.040 or,

alternatively, under California Civil Code § 1717. PSM

opposed the motion. The district court first considered

whether Defendants could recover fees under § 685.040,

which provides:

The judgment creditor is entitled to the

reasonable and necessary costs of enforcing a

judgment. Attorney’s fees incurred in

enforcing a judgment are not included in costs

collectible under this title unless otherwise

provided by law. Attorney’s fees incurred in

enforcing a judgment are included as costs

collectible under this title if the underlying

judgment includes an award of attorney’s fees

to the judgment creditor pursuant to

subparagraph (A) of paragraph (10) of

subdivision (a) of Section 1033.5.

3 The district court also stated that Defendants may file subsequent or

additional attorneys’ fees motions, in accordance with Federal Rule of

Civil Procedure 54(d).
16 PSM HOLDING V. NAT’L FARM FINANCIAL

In turn, California Code of Civil Procedure

§ 1033.5(a)(10)(A) provides that collectible costs include

“attorneys’ fees[] when authorized by . . . [c]ontract.” The

district court further noted that “[a] motion for post-judgment

costs, including attorneys’ fees, under § 685.040 must ‘be

made before the judgment is satisfied in full, but not later

than two years after the costs have been incurred.’” (Quoting

Cal. Code. Civ. Proc. § 685.080(a).)

The district court interpreted Defendants’ position to be

that the “judgment” at issue was either (1) the Ninth Circuit’s

mandate reversing Judge Fairbank’s judgment in favor of

PSM on the breach of contract claim, or (2) the district

court’s December 17, 2014, judgment. Under either

interpretation, the district court found, Defendants cannot

prevail.

According to the district court, the Ninth Circuit’s

mandate could not serve as the operative judgment because

it did not itself include an award of attorneys’ fees, and, as a

result, § 685.040 has no applicability. Similarly, the district

court reasoned, the December 17, 2014, judgment likewise

fails to provide a basis for recovery of post-reversal fees

because the fees requested by Defendants were incurred prior

to entry of that judgment. Thus, “it is unclear how defendants

could have incurred fees ‘enforcing’ that judgment.” 

Additionally, the district court added that PSM satisfied each

of these judgments prior to the filing of Defendants’ motion,

a fact that independently precluded recoveryunder § 685.040.

Next, the district court considered Defendants’ alternative

motion for fees pursuant to § 1717, which provides as

follows:
PSM HOLDING V. NAT’L FARM FINANCIAL 17

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.

Cal. Civ. Code § 1717(a).

The district court began its analysis by observing that

PSM’s breach of contract claim was “indisputably” an action

“on the contract,” as required by § 1717. Moreover, the

district court reasoned, “the restitution motions . . . are ‘part

of [the] defense’ of the contractual claim.” (Alterations in

original.) (Quoting Anchor Pacifica Mgmt. Co. v. Green, No.

B253529, 2014 WL 3841227, at *1 (Cal. Ct. App. Aug. 5,

2014) (unpublished).) That is, according to the district court,

“Defendants here lost BAIC after Judge Fairbank entered

judgment and PSM executed on the judgment; their postappeal restitution motions sought to recover the company and

profits/benefits they were denied as a result of the erroneous

judgment.” Because the restitution motions were not distinct

or separate from the underlying breach of contract action, the

motions were, the district court concluded, “on the contract”

for purposes of § 1717.

Having determined Defendants’ post-reversal motions

were “on the contract,” the district court considered whether

Defendants were the prevailing party, as required for

recovery under § 1717. Rejecting PSM’s arguments to the
18 PSM HOLDING V. NAT’L FARM FINANCIAL

contrary, the district court emphasized that Defendants

“achieved total victory on the claims it asserted in its

complaint and their counterclaims when the Ninth Circuit

reversed the $40 million judgment entered in favor of PSM

and held that PSM had no binding purchase agreement with

defendants.” In light of this “total victory,” the district court

concluded that “Defendants’ relative success in the postappeal restitution proceedings for which they now seek fees

is more properly considered in determining a reasonable

lodestar amount.”

The district court next calculated the lodestar fee of

$438,175. It reduced this amount by 30 percent “to reflect

the defendants’ limited success on the post-appeal restitution

motions.” That is, while Defendants succeeded in securing

the return of BAIC from PSM, “the court declined to award

$59.6 million in restitution and denied their request for profits

in its entirety.” Accordingly, the district court awarded

Defendants post-reversal attorneys’ fees in the amount of

$306,722.50.

The parties filed cross-appeals from the May 19, 2015,

order on attorneys’ fees.

5. July 14, 2015, Order Denying Defendants’ Motion

to Retax Costs

On December 31, 2014, Defendants filed an application

to the Clerk to tax costs in the amount of $155,085.13. The

Clerk awarded Defendants $3,662.22 relating to certain

depositions, but refused to tax $455 in filing fees and

$150,967.22 in costs attributable to the court-appointed

experts. Defendants then moved to retax costs.
PSM HOLDING V. NAT’L FARM FINANCIAL 19

In considering Defendants’ motion to retax costs, the

district court began by acknowledging that the Ninth Circuit

has construed Federal Rule of Civil Procedure 54(d)(1) as

creating a “presumption in favor of awarding costs to the

prevailing party, while at the same time granting a district

court the discretion to decline to do so.” (Citing Berkla v.

Corel Corp., 302 F.3d 909, 921 (9th Cir. 2002).) However,

the district court continued, as part of its discretion, a court

may deny costs for several reasons, including, specifically,

“whether the prevailing party’s recovery was nominal or

partial.” (Citing Quan v. Computer Scis. Corp., 623 F.3d

870, 888–89 (9th Cir. 2010).)

In light of this discretion, as well as its prior findings of

limited success, the district court concluded that “it is

appropriate to deny certain cost[s] for which defendants seek

reimbursement despite their ‘prevailing party’ status.” Thus,

the court held:

[B]ased on defendants’ limited success and

partial recovery, the benefit to both parties of

the court-appointed experts’ reports, and the

necessity of retaining such experts to assist in

analyzing the complex issues raised by the

post-appeal restitution proceedings, the court

exercises its discretion to deny defendants’

request to tax their share of the courtappointed experts’ fees.

Defendants appealed the district court’s July 14, 2015,

order denying their motion to retax certain costs.
20 PSM HOLDING V. NAT’L FARM FINANCIAL

II.

We take the questions raised in these five appeals

seriatim.

A. The award of “restitution” to PSM (No. 15-55087)

1. Standard of Review

“We review a district court’s interpretation of state law de

novo.” Ariz. Elec. Power Co-Op., Inc. v. Berkeley, 59 F.3d

988, 991 (9th Cir. 1995) (citation omitted). “When

interpreting state law, federal courts are bound by decisions

of the state’s highest court.” Id. (citation omitted). “In the

absence of such a decision, a federal court must predict how

the highest state court would decide the issue using

intermediate appellate court decisions, decisions from other

jurisdictions, statutes, treatises, and restatements as

guidance.” Id. (quoting Sec. Pac. Nat’l Bank v. Kirkland (In

re Kirkland), 915 F.2d 1236, 1239 (9th Cir. 1990)).

2 Analysis

To the extent the district court’s orders of July 26, 2010,

and October 8, 2013, affirmed Defendants’ right to recover

restitution, they are sound. See Schubert v. Bates, 185 P.2d

793, 791 (Cal. 1947) (“A person who has conferred a benefit

upon another in compliance with a judgment, or whose

property has been taken thereunder, is entitled to restitution

if the judgment is reversed or set aside . . . .” (quoting

Restatement (First) of Restitution § 74 (Am. Law Inst. 1937)

(internal quotation marks omitted))). It is the district court’s

subsequent order of December 17, 2014, that broke new

ground. There, the district court awarded PSM, the judgment
PSM HOLDING V. NAT’L FARM FINANCIAL 21

creditor, restitution. This presents a question of first

impression: can a judgment creditor – who seizes a judgment

debtor’s company pursuant to a judgment that is then

reversed – recover in restitution for losses suffered while it

possessed the seized company? The district court answered

this question in the affirmative, thereby awarding PSM more

than $1.1 million in restitution. Perhaps because of its

doctrinal novelty, neither the parties’ briefing on appeal nor

the district court’s order cites controlling authority to support

this award. Instead, the parties rely on two provisions in the

Restatements of Restitution, § 908 of the California Code of

Civil Procedure, and several California state court decisions.

a. Restatements of Restitution

The Restatement (First) of Restitution was formally

adopted in 1936. Section 74 thereof provides that:

A person who has conferred a benefit upon

another in compliance with a judgment, or

whose property has been taken thereunder, is

entitled to restitution if the judgment is

reversed or set aside, unless restitution would

be inequitable or the parties contract that

payment is to be final.

Two comments to § 74 warrant mention. Comment e states:

If the property of the judgment debtor was

awarded to the judgment creditor . . . [then]

the judgment debtor is entitled to specific

restitution, together with the value of its use in

the meantime, diminished by expenses

necessarily incurred in the protection of the
22 PSM HOLDING V. NAT’L FARM FINANCIAL

property and the payment of taxes and liens,

but not including the expense of

improvements . . . .

Separately, Comment f provides:

The judgment creditor is not liable for losses

not caused by his mismanagement of the

property . . . except where the action was

brought in bad faith or where there was a sale

on execution and the sale was improperly

conducted . . . .

Finally, Illustration 15 to Comment f describes a situation

where, after a judgment creditor takes possession of certain

real property, a fire destroys valuable timber located

thereupon. See Restatement (First) of Restitution § 74 cmt.

f illus. 15 (Am. Law Inst. 1937). The Illustration makes clear

that while the judgment debtor is entitled to restitution of the

real property, he is not entitled to compensation for the

timber.

A plain reading of § 74 and the comments thereto

undermines the award of restitution to PSM. Section 74

provides a right of restitution to a particularly described

party: namely, the “person who has conferred a benefit upon

another in compliance with a judgment.” Id. at § 74. In this

case, that refers to the Defendants, not to PSM. The

comments to § 74 affirm this same principle. Comment e

expressly states that “the judgment debtor is entitled to

specific restitution.” Id. at § 74 cmt. e (emphasis added). 

Likewise, Comment f – in limiting what can be recovered in

restitution – speaks in terms of the judgment creditor’s

liability or lack of liability.
PSM HOLDING V. NAT’L FARM FINANCIAL 23

The California Supreme Court has not spoken directly to

the question presented in this appeal. On two occasions,

however, it cited § 74 approvingly. See, e.g., Sullivan v.

Wellborn, 195 P.2d 787, 789–91 (Cal. 1948) (comparing

defendant to a judgment creditor and denying his request to

reduce money owed to plaintiff because the costs incurred by

defendant were not necessary to preserve wrongfully

possessed property); Schubert v. Bates, 185 P.2d 793, 796

(Cal. 1947) (quoting § 74 in an order affirming a restitution

award to Bates, who was forced to leave her home pursuant

to an erroneous judgment that was subsequently reversed). 

These cases suggest that the California Supreme Court would

likely look to § 74 to resolve the instant appeal.

A similar provision is included in Restatement (Third) of

Restitution and Unjust Enrichment, formallyadopted in 2011. 

Section 18 thereof provides that:

A transfer or taking of property, in

compliance with or otherwise in consequence

of a judgment that is subsequently reversed or

avoided, gives the disadvantaged party a

claim in restitution as necessary to avoid

unjust enrichment.

Comment e to § 18 confirms that “[t]he rule of this section

recognizes a judgment debtor’s entitlement to restitution only

‘as necessary to avoid unjust enrichment.’” Restatement

(Third) of Restitution § 18 cmt. e (Am. Law Inst. 2011). 

Both this rule and the comment accord with the plain reading

of § 74. Specifically, § 18’s use of the phrase “disadvantaged

party,” when read in context, can be interpreted only as a

reference to the party who is deprived of property by court

order – in other words, the judgment debtor. Id. at § 18. 
24 PSM HOLDING V. NAT’L FARM FINANCIAL

PSM’s argument to the contrary, that the phrase

“disadvantaged party” should be read to invoke either the

judgment creditor or the judgment debtor, is unpersuasive. 

But, even if we accept PSM’s position and assume, without

deciding, that § 18 is ambiguous, Comment e clarifies and

confirms that § 18 “recognizes a judgment debtor’s

entitlement to restitution,” at least to the extent such

restitution is required to avoid unjust enrichment. Id. at § 18

cmt. e (emphasis added).

In sum, a plain reading of § 74 of the Restatement (First)

of Restitution and § 18 of the Restatement (Third) of

Restitution stands at odds with the district court’s December

17 order. However, because these authorities are, at most,

merely persuasive, our analysis must also take into account

other potential sources of law.

b. California Code of Civil Procedure § 908

California Code of Civil Procedure § 908 provides, in

part, as follows:

When the judgment or order is reversed or

modified, the reviewing court may direct that

the parties be returned so far as possible to the

positions they occupied before the

enforcement of or execution on the judgment

or order. In doing so, the reviewing court

may order restitution on reasonable terms and

conditions of all property and rights lost by

the erroneous judgment . . . .

Section 908 thus identifies the purpose of awarding

restitution in cases like the one at hand: to restore, in so far
PSM HOLDING V. NAT’L FARM FINANCIAL 25

as is possible, the parties involved to the positions they

occupied prior to enforcement of the judgment. Here, then,

§ 908 instructs that the purpose of restitution should be to

return PSM and Defendants to their respective positions ex

ante PSM’s execution of the judgment and its taking

possession of BAIC.

The district court’s December 17 order describes the

“fundamental rule” of restitution as “plac[ing] the parties in

as favorable a position as they could have been in had the

judgments not been enforced pending appeal.” (Citing

Gunderson, 126 Cal. Rptr. 3d at 883.) And, applying this

rule, the district court concluded that if PSM was not

permitted to recoup the expenses it incurred while it operated

BAIC, then Defendants would be placed in a position more

favorable than the one they would have occupied had PSM

never executed on the judgment.

At first glance, the district court’s application of the rule

embodied in § 908 may appear sound. But on careful

reflection, it is not. To begin with, the district court’s

approach is arguably inconsistent with § 908’s plain

language, which provides that a restitution award should

include “all property and rights lost by the erroneous

judgment.” Cal. Code Civ. Proc. § 908 (emphasis added). 

Here, it is incorrect to say that PSM suffered losses as a direct

consequence of the erroneous judgment. Rather, these losses

resulted from PSM’s own, affirmative decision to execute on

the judgment while Defendants’ appeal remained pending. 

Relatedly, the district court’s order ignores that PSM assumed

some amount of risk when it opted to execute on the

judgment while an appeal was pending. See, e.g., Strong v.

Laubach, 443 F.3d 1297, 1300 (10th Cir. 2006) (“By

executing on their judgment and receiving the garnished
26 PSM HOLDING V. NAT’L FARM FINANCIAL

funds during the pendency of the appeal, the Strongs assumed

the risk that they might have to repay the money if Laubach

prevailed on appeal.”).

c. California State Court Decisions

i. California Supreme Court

More than one hundred years ago, the California Supreme

Court in Ward v. Sherman, 100 P. 864 (Cal. 1909),

considered a case with facts analogous to the case at bench. 

In Ward, the plaintiff surrendered, pursuant to a judgment of

the Maricopa County Court, of the Territory of Arizona,

possession of the “Sun Flower cattle range,” together with its

animals and equipment, to defendants Sherman and

Hardenberg.

4

Id. at 864–65. On appeal, the Arizona

Territorial Supreme Court affirmed, but the U.S. Supreme

Court reversed. Id. at 865. Thereafter, the plaintiff, who had

already retaken possession of the property, brought an action

“to recover the cattle and horses and their natural increase . . .

less the reasonable cost of managing the range and caring for

the property, and for an accounting.” Id. In considering

plaintiff’s request for restitution, the California Supreme

Court stated the operative rule of law:

Where a judgment or decree of an inferior

court is reversed by a final judgment on

appeal, a party is in general entitled to

restitution of all the things lost by reason of

the judgment in the lower court; and,

accordingly, the courts will, where justice

4 Thus, unlike in the usual case, the plaintiff in Ward was the

judgment debtor.
PSM HOLDING V. NAT’L FARM FINANCIAL 27

requires it, place him as nearly as may be in

the condition in which he stood previously.

Id. (citations omitted).

Moreover, the court continued, where a party seeks to

recover under these circumstances:

[T]he defendant must account for the property

received under the judgment which has been

reversed, and the rule governing the extent of

his liability is that applicable to a trustee,

which [may be] stated as follows: “The

general doctrine being that trustees ought to

conduct the business of the trust on the same

manner as an ordinarily prudent man of

business would conduct his own, they will not

be chargeable with more than they have

received nor held responsible for losses that

may arise, when they have acted in good faith

and with common skill, prudence and

diligence.”

Id. at 865–66 (quoting 28 Am. & Eng. Ency. of Law 1059 (2d

ed. 1908).

Applying these principles to the case before it, the

California Supreme Court began by noting that “the

defendant and those who held the ranch and the personal

property under him conducted the business of the ranch with

care and diligence.” Id. at 866. That is to say, there was no

bad faith or mismanagement. Nonetheless, the court

determined, “the expense properly incurred by them in

conducting said business was more than $1,000 in excess of
28 PSM HOLDING V. NAT’L FARM FINANCIAL

the amount received by them as the proceeds of the ranch and

of the cattle.” Id. Accordingly, the California Supreme Court

affirmed the lower court order, which had concluded that

“plaintiff was not entitled to recover from the defendant, and

that the defendant should have judgment against the plaintiff

for his costs.” Id. at 865, 867.

Thus, the California Supreme Court in Ward confronted

a circumstance analogous to the one we face today: one

wherein a judgment creditor (who, in that case, was the

defendant) took possession of a property pursuant to an

erroneous judgment, managed the property responsibly and

in good faith, but nevertheless incurred losses that exceeded

any resulting profits.

The relevance of Ward lies as much in what the California

Supreme Court did not do, as well as with what it did do. 

That is, the court did not award the judgment creditordefendant an affirmative recoveryto offset the losses suffered

while it managed the ranch, despite of the fact that the court

made a finding that such expenses exceeded any potential

profits or proceeds that the defendant may have earned. 

Rather than allow defendant an affirmative recovery, the

court simply denied plaintiff’s request for restitution and

awarded defendant the costs of litigation. Id. at 865, 867.

ii. California Courts of Appeal

Although the district court acknowledged Ward in its

December 17, 2014, order, it relied more extensively on two

California Courts of Appeal decisions: Gunderson, 126 Cal.

Rptr. 3d 880, and Stockton Theatres, Inc. v. Palermo,

264 P.2d 74 (Cal. Dist. Ct. App. 1953).
PSM HOLDING V. NAT’L FARM FINANCIAL 29

This is itself arguably problematic: in diversity cases,

federal courts should consider decisions of the California

Courts of Appeal only “where the Supreme Court of

California has not spoken on the question” and where there is

no “convincing evidence that the highest court of the state

would decide [the issue] differently.” Cmty. Nat’l Bank v.

Fid. & Deposit Co. of Md., 563 F.2d 1319, 1321 n.1 (9th Cir.

1977) (internal quotation marks and citations omitted). Here,

the California Supreme Court’s decision in Ward may, itself,

well be such “convincing evidence.”

Even setting this issue aside, however, the district court’s

December 17, order remains problematic. This is because

neither Gunderson nor Stockton Theatres provides the legal

support necessary to sustain PSM’s recovery in restitution.

In Gunderson, a jury awarded the plaintiff compensatory

and punitive damages and the defendants appealed. See

126 Cal. Rptr. 3d. at 881.While the appeal was pending, the

plaintiff executed on the judgment. Id. at 881–82. The court

of appeal affirmed the compensatory damages, but reversed

the award of punitive damages. Id. at 882. The plaintiff

voluntarily returned the punitive damages, but declined to pay

the interest that had accrued during the pendency of the

appeal. Id. The defendant moved for restitution of the

interest , which the plaintiff opposed on the ground that he

had incurred $100,000 in unnecessary costs as a result of the

defendant’s misconduct. Id.

The court of appeal began its analysis by setting forth the

relevant legal principles. “A person whose property has been

taken under a judgment ‘is entitled to restitution if the

judgment is reversed or set aside, unless restitution would be

inequitable.’” Id. at 883 (quoting Stockton Theatres,
30 PSM HOLDING V. NAT’L FARM FINANCIAL

264 P.2d at 77). The court relied on California Code of Civil

Procedure § 908 for the proposition that

[U]pon the reversal or modification of a

judgment, “the reviewing court may direct

that the parties be returned so far as possible

to the position they occupied before the

enforcement of or execution on the judgment

or order. In doing so, the reviewing court

may order restitution on reasonable terms and

conditions of all property and rights lost by

the erroneous judgment or order.”

Id. at 883. Thus, the court summarized, “[t]he fundamental

rule guiding the court in such proceeding[s] is, so far as

possible, to place the parties in as favorable a position as they

could have been in had the judgments not been enforced

pending appeal.” Id. (alterations in original) (quoting

Stockton Theaters, 264 P.2d at 85).

Applying these principles, the court reasoned that because

Wall’s “prolonged evasive misconduct” caused Gunderson to

incur additional costs when executing the judgment,

returning the parties to their original positions did not require

restitution of interest. Id. at 885 (“By permitting Gunderson

to retain whatever interest had accrued on the reversed

portion of his award, the trial court was, in effect, attempting

to return him to the position he held prior to the execution of

the judgment.”). On this basis the court affirmed the trial

court’s denial of Wall’s motion for restitution. Id.

The district court’s reliance onGunderson is unpersuasive

for three reasons. First, Gunderson does not go as far as the

district court’s order: that is, the Gunderson court did not
PSM HOLDING V. NAT’L FARM FINANCIAL 31

require Wall (the judgment debtor) to affirmatively make a

payment in restitution to Gunderson (the judgment creditor).5

Yet this is precisely the legally dubious step at issue on this

appeal. Second, Gunderson involved a situation wherein the

judgment debtor’s recovery was limited because of the

debtor’s own misconduct. No such misconduct has been

ascribed to Defendants here. Finally, even if the district court

relied on Gunderson only for the general proposition that

restitution in this type of case aims to “return[] the parties to

their original positions,” it fails to persuade. This is because,

on the record here, there is insufficient evidence to conclude

that Defendants would have incurred the same losses had

their possession of BAIC not been interrupted.

The district court’s reliance on Stockton Theatres is

unconvincing for the same reasons. There, Emil Palermo, the

owner and lessor of a theater, sought a declaratory judgment

against Stockton Theatres Inc., the lessee of the theater, to

void the lease between them. Stockton Theatres, 264 P.2d at

76–77. The trial court found in favor of Palermo and voided

the lease. Id. at 77. Thereafter, Palermo initiated and

prevailed in an unlawful detainer action against Stockton

Theatres. Palermo retook possession of the property for

several years. Id. On appeal, both judgments were reversed. 

Id. Consequently, the lease was deemed valid and Palermo

returned possession of the theater back to Stockton Theatres. 

Id. Viewing this victory as incomplete, Stockton Theatres

5

If it had, then the court would have needed to calculate the

difference between the interest received by Gunderson while he possessed

the $800,000 pending appeal, and the additional costs incurred by him as

a result of Wall’s misconduct. The court did not do so, opting instead

simply to do rough justice by zeroing out Wall’s restitution award. To be

analogous to the instant case, the court would have had to order Wall (the

judgment debtor) to affirmatively pay Gunderson (the judgment creditor).
32 PSM HOLDING V. NAT’L FARM FINANCIAL

then sought to recover, in restitution, the income Palermo had

earned from operating the theater business during the period

the appeal was pending. Id. After an accounting, the trial

court awarded Stockton Theatres $13,658.75 in lost income. 

Id.

The court of appeal began by reiterating the familiar

principles of restitution in cases where a judgment is

subsequently reversed. Id. at 77–78 (citing Restatement

(First) of Restitution § 74 (Am. Law Inst. 1937) and Ward). 

In denying Palermo’s appeal, the court reasoned that Palermo

“knew those judgments were not final and that the basic one

had already been made the subject of an appeal.” Id. at 79. 

Thus, he knew that “if the appeal was successful he would be

subject to a demand by the theatre company that he account

for all that he had received through his enforcement of the

questioned judgments.” Id. “To make out the right of

restitution,” the court of appeal concluded, “it was only

necessary for the theatre company to show . . . that things of

value had been taken from it through the judgments appealed

from and through Palermo’s enforcement thereof and had

passed into Palermo’s hands and that thereafter the judgments

had been reversed.” Id. Once established, “[i]mmediatelythe

right of restitution arose and it was the duty of the court to

place the parties back as nearly as could be in the situation in

which each had been when the erroneous judgments were

rendered.” Id.

Here, too, the district court’s reliance on Stockton

Theatres is unpersuasive. Unlike the district court’s

December 17 order, the court in Stockton Theatres did not

require Stockton Theatres, the judgment debtor in that case,

to make an affirmatively pay in restitution to Palermo, the

judgment creditor. In fact, imagining such a result confirms
PSM HOLDING V. NAT’L FARM FINANCIAL 33

the district court’s error in our case: if Palermo had operated

the theater at a significant loss, no one would expect Stockton

Theatres to make him whole under a theory of restitution –

doing so would be self-evidently unfair.

d. Conclusion

Reviewing the December 17 order de novo, as we must

here do, we conclude that the district court erred in allowing

PSM – the judgment creditor – to recover in restitution. Our

conclusion rests on the California Supreme Court’s decision

in Ward, wherein the court, confronted with an analogous

circumstance, declined to award the judgment creditor an

affirmative recovery to offset its losses. Our holding is

bolstered by the plain reading of Restatement (First) of

Restitution § 74 and Restatement (Third) of Restitution § 18,

both of which suggest that, in cases such as the one before us,

the right of restitution runs only to the judgment debtor. 

Accordingly, for the reasons set forth, we reverse the district

court’s award of restitution to PSM.6

B. Rescission of PSM’s QSA with BAIC (No. 15-55026)

1. Standard of Review

The applicable standard of review for this part is the

standard set forth in Part II.A.1, supra.

6 Our conclusion with respect to restitution also renders moot PSM’s

appeal of the district court’s order denying PSM prejudgment interest. 

No. 15-55026. Because there is no award, the question of whether PSM

was entitled to receive prejudgment interest on that award is moot.
34 PSM HOLDING V. NAT’L FARM FINANCIAL

2. Analysis

The district court’s October 8, 2013, order denied PSM’s

request to rescind its QSA with BAIC. That decision relied

heavily on Comment e to § 74 of the Restatement (First) of

Restitution, which provides, in relevant part, that a judgment

creditor may “diminish[]” a judgment debtor’s recovery by

“expenses necessarily incurred” but not by “the expenses of

improvements.” The district court found that “[t]he factual

record supports the conclusion that the reinsurance agreement

was an improvement rather than a necessary cost of

protecting BAIC,” and, as a result, that rescission thereof

would be improper.

PSM raises three arguments on appeal. First, PSM

contends that the district court erred by not applying, or at

least considering, California Civil Code § 1019, which

concerns the removal of fixtures from leaseholds. Second,

PSM argues that the district court compounded this error by

misapplying § 908, which compels a court to return the

parties to the positions they occupied prior to enforcement of

the erroneous judgment. Finally, PSM argues that policy

considerations favor its position, particularly because, absent

reversal, “judgment creditors would face an insurmountable

dilemma.”

PSM’s arguments are unpersuasive. First, § 1019

provides:

A tenant may remove from the demised

premises, any time during the continuance of

his term, anything affixed thereto for purposes

of trade, manufacture, ornament, or domestic

use, if the removal can be effected without
PSM HOLDING V. NAT’L FARM FINANCIAL 35

injury to the premises, unless the thing has, by

the manner in which it is affixed, become an

integral part of the premises.

Cal. Civ. Code § 1019. The language of § 1019 – in

particular, its reference to “tenants” and “premises” – has

little relevance to the instant case. PSM was never a “tenant”

and never possessed a “premises” on which anything could be

“affixed.” Therefore, PSM’s argument that the district court

abused its discretion by failing to consider § 1019 is without

merit.7

Second, PSM’s argument that the district court erred in its

application of California Code of Civil Procedure § 908 is

similarly unconvincing. Relying on Stockton Theatres, PSM

argues that it should not be held liable for expenses that were

necessarily incurred to preserve BAIC’s value, and that the

district court’s “mechanical removal” of these costs was

error. Contrary to PSM’s argument, however, the district

court thoroughly analyzed whether the QSA amounted to a

necessary expense or, instead, an improvement.

The district court reasoned that the applicable test for

distinguishing between “repairs and maintenance” and

“improvements” is whether “the improvements were made to

‘put’ the particular capital asset in efficient operating

condition . . . [or] if . . . they were made merely to ‘keep’ the

asset in efficient operating condition[.]” (Quoting Moss,

831 F.2d at 835.) Applying this standard, the district court

7 Moreover, PSM’s reliance on Central Pacific Supply Corp. v.

Breton, 937 F.2d 611, 1991 WL 134448 (9th Cir. 1991) (unpublished), is

likewise unavailing. Central Pacific involved a leasehold ofreal property,

see id. at *1, which is far afield from our facts.
36 PSM HOLDING V. NAT’L FARM FINANCIAL

concluded from the record evidence that PSM’s decision to

enter into the QSA “added to BAIC’s value by reducing the

amount of risk it faced.” (Emphasis added.) Because the

QSA “put” BAIC into a better position than it had been at the

time PSM took possession of it, the district court concluded

that “the reinsurance agreement is better characterized as an

‘improvement’ than an expense necessary to protect BAIC.”

Finally, PSM’s policy argument also fails. The crux of

PSM’s argument is that, absent reversal, judgment creditors

who execute on a judgment and take possession of property

will face an “insurmountable dilemma,” wherein they must

carefully deduce which projects are “repairs and

maintenance” on the propertyand which are “improvements.” 

But this argument is based on a false premise that it was

Defendants or the district court, not PSM, that opted to

execute on the judgment while an appeal remained pending. 

It was this affirmative choice that put PSM in the position

that it has now, with hindsight, discovered to be unenviable.

C. The award of post-reversal attorneys’ fees to

Defendants under § 1717 (No. 15-55941)

1. Standard of Review

We “review[] de novo questions of law concerning

entitlement to attorney’s fees.” Lagstein v. Certain

Underwriters at Lloyd’s of London, 725 F.3d 1050, 1056 (9th

Cir. 2013) (citation omitted). “State law governs whether a

party is entitled to attorney’s fees in diversity cases such as

this one.” Id. (citation omitted). However, “[w]e review [the

amount of] attorney fees awarded under state law for abuse of

discretion.” Muniz v. United Parcel Serv., Inc., 738 F.3d 214,
PSM HOLDING V. NAT’L FARM FINANCIAL 37

218–19 (citing 389 Orange St. Partners v. Arnold, 179 F.3d

656, 661 (9th Cir. 1999)).

For this inquiry, because we review a diversity case,

“[d]ecisions of the California Supreme Court, including

reasoned dicta, are binding on us as to California law.” Id. at

219 (citation omitted). “Decisions of the six district appellate

courts are persuasive but do not bind each other or us.” Id.

(citation omitted). But “[w]e should nevertheless follow a

published intermediate state court decision regarding

California law unless we are convinced that the California

Supreme Court would reject it.” Id. (citation omitted).

PSM’s appeal challenges whether the district court erred

in awarding fees under California Civil Code § 1717. This is

a legal challenge and is thus reviewed de novo. Defendants’

appeal challenges the district court’s decision to reduce their

fee award by thirty percent on grounds that they achieved

only limited success. Because this is a challenge to the

amount of fees awarded by the district court, we review for

abuse of discretion.

2. Analysis

The district court’s May 19, 2015 order granted in part

and denied in part Defendants’ motion to recover post-appeal

attorneys’ fees. Although the district court denied as

untimely Defendants’ request for fees pursuant to California

Code of Civil Procedure § 685.040, it awarded fees under

§ 1717. Reviewing de novo, we reverse.
38 PSM HOLDING V. NAT’L FARM FINANCIAL

California Civil Code § 1717 states that:

(a) 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. . . .

(b)(1) The court . . . shall determine who is

the party prevailing on the contract for

purposes of this section, whether or not the

suit proceeds to final judgment.

Cal. Civ. Code § 1717(a)–(b).

In Carnes v. Zamani, 488 F.3d 1057 (9th Cir. 2007), we

held that “[i]n California, the contractual right to attorney

fees contemplated by section 1717 is extinguished upon

satisfaction of the judgment.” Id. at 1061 (citing Berti v.

Santa Barbara Beach Props., 145 Cal. Rptr. 3d 364, 369 (Ct.

App. 2006)).

Here, the district court determined that PSM had satisfied

the judgment in full prior to Defendants’ request for postreversal fees, and that this is true irrespective of which order

Defendants’ take as the operative “judgment.” See PSM

Holding Corp. v. Nat’l Farm Fin. Corp., No. CV 05-08891

MMM, 2015 WL 11652518, at *8 (C.D. Cal. May 19, 2015)

(“Defendants did not file their motion for attorneys’ fees and
PSM HOLDING V. NAT’L FARM FINANCIAL 39

costs under § 865.040 until December 31, 2014, several years

after PSM’s obligations under the mandate, i.e., return of

BAIC shares and payment of attorneys’ fees and costs, had

been satisfied.”); id. at * 9 (“More fundamentally, even if the

fees sought by defendants could be characterized as fees

incurred to enforce the December 17, 2014 judgment,

§ 685.040 provides no basis for awarding the fees because

PSM’s obligations under the December 17 judgment were

fully satisfied prior to the date defendants filed their motion

for attorneys’ fees.”). Notwithstanding these intermediate

conclusions, the district court then proceeded to award

Defendants attorneys’ fees under § 1717, without addressing

why, consistent with Carnes, Defendants’ right to these fees

was not extinguished upon PSM’s satisfaction of the

judgment. Id. at *10–14.

Because the district court erred when it awarded

attorneys’ fees to Defendants under § 1717, while

simultaneously concluding that PSM had fully satisfied the

obligations stemming from the operative judgments, we

reverse.8 Under Carnes, any right to attorneys’ fees under

§ 1717 “is extinguished upon satisfaction of the judgment.” 

488 F.3d at 1061 (citation omitted).

8 Our decision to reverse the district court’s award of post-reversal

fees to Defendants under § 1717 renders moot Defendants’ challenge to

the district court’s thirty percent reduction of the lodestar amount.
40 PSM HOLDING V. NAT’L FARM FINANCIAL

D. The denial of costs to Defendants for court-appointed

experts. (No. 15-56184)

1. Standard of Review

We review a district court’s application of Federal Rule

of Civil Procedure 54(d)(1) and its denial of costs for abuse

of discretion. See Berkla, 302 F.3d at 917.

2. Analysis

Following the district court’s entry of judgment on

December 17, 2014, Defendants filed an application with the

Clerk to tax costs. After a hearing, the Clerk taxed deposition

costs in the amount of $3,622.22 against PSM, but denied

Defendants’ remaining requests to tax a $455 filing fee and

$150,967.91 in costs attributable to the court-appointed

experts. Defendants then filed a motion to retax costs. On

July 14, 2015, the district court denied the motion. The

district court’s decision rested on Defendants’ “limited

success and partial recovery, the benefit to both parties of the

court-appointed experts’ reports, and the necessity of

retaining such experts to assist in analyzing the complex

issued raised by the post-appeal restitution proceedings.” 

Because we reverse the district court’s restitution award to

PSM, the district court’s rationale for denying Defendants’

motion to retax is undermined, at least in part. Accordingly,

we vacate the district court’s denial and remand for further

consideration in light of today’s opinion.
PSM HOLDING V. NAT’L FARM FINANCIAL 41

III.

For the reasons set forth above:

1. In No. 15-55026 & 15-55087, we reverse the district

court’s December 17, 2014, order with respect to the order’s

award of $1.1 million in restitution to PSM.9 We dismiss as

moot PSM’s appeal of the district court’s denial of

prejudgment interest. We affirm the December 17 order in all

other respects, including as to the issue of QSA rescission.

2. In No. 15-55941, we reverse the district court’s May

19, 2015, order awarding attorneys’ fees to Defendants. In

No. 15-55943, Defendants’ appeal of the district court’s

reduction of the lodestar fee amount is dismissed as moot.

3. In No. 15-56184, because we reverse PSM’s

restitution award, we vacate the district court’s July 14, 2015,

order denying Defendants’ motion to retax costs and remand

for reconsideration in light of the changed circumstances.

4. In each of these five appeals, each party shall bear its

own costs on appeal.

AFFIRMED in part, REVERSED in part, VACATED

and REMANDED in part, and DISMISSED in part.

9 We recognize that, in awarding PSM a $700,000 offset, the district

court also required PSM to return the account receivable to BAIC. This

$700,000 formed a part of the award to PSM that we now reverse, and so

we also reverse that aspect of the district court’s order that required PSM

to return the receivable to BAIC.