Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC319612, James R. Dunn, Judge.
Latham & Watkins, Kristine L. Wilkes and G. Andrew Lundberg; Blank Rome, James T. Smith, Brian S. Paszamant and Judd A. Serotta; Greenberg Traurig, George M. Belfield and Jordan D. Grotzinger for Plaintiffs and Appellants Unzipped Apparel, LLC, Iconix Brand Group, Inc., Michael Caruso & Co., Inc., and IP Holdings, LLC.
Law Offices of Gary Freedman and Gary Freedman; Browne Woods George, Edwards A. Woods, Peter W. Ross and Michael A. Bowse for Defendants and Respondents Apparel Distribution Services, LLC, Sweet Sportswear, LLC, Azteca Production International, Inc., and Hubert Guez.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
This is one of three appeals arising from protracted litigation, including an 11-week jury trial, over the manufacture, distribution, and sale of Bongo jeans, a brand of jeans for junior girls. The prevailing parties contend in this appeal that the trial court erred in denying their motion to recover non-statutory costs and denying in part their request for attorneys’ fees. We affirm in part, reverse in part, and dismiss in part.
PROCEDURAL BACKGROUND
The factual background of this dispute is set forth in the accompanying appeal, Unzipped Apparel LLC et al. v. Apparel Distribution Services LLC et al. (July 7, 2010, B203995 (Unzipped I)). Unzipped I involves a dispute among Iconix Brand Group, Inc., formerly known as Candie’s, Inc. (Candie’s), Michael Caruso & Co., Inc. (MC), IP Holdings, LLC (IPH), Unzipped Apparel, LLC (Unzipped), and Neil Cole, on one side, and Sweet Sportswear, LLC (Sweet), Azteca Production International, Inc. (Azteca), Apparel Distribution Services, LLC (ADS), and Hubert Guez, on the other side. The parties generally refer to the former group of litigants as the “plaintiffs, ” and the latter group as the “defendants.” We use these denominations in this opinion.
The parties tried the claims and cross-claims that survived demurrer and summary adjudication to the jury, over approximately two and a half months during January to April 2007, including claims for breach of contract, breach of fiduciary duty, trademark infringement/unfair competition, and conversion. The breach of contract claims between the parties were based on three written contracts: the Management Services Agreement (MSA) between Unzipped, Candie’s, and MC, on the one hand, and Sweet, on the other hand; (2) the Amended and Restated Supply Agreement (ARSA) between Unzipped and Azteca; and (3) the Amended and Restated Distribution Agreement (ARDA) between Unzipped and ADS.
On April 9, 2007 the jury returned verdicts in favor of plaintiffs on all of their claims, and against defendants on all of their claims. The jury awarded plaintiffs more than $50 million, although the trial court granted various motions for JNOV and for a new trial, which reduced plaintiffs’ final recovery to approximately $20 million. In the Unzipped I appeal we vacated the trial court’s posttrial rulings.
A. Plaintiffs’ Motions for Costs and Fees
On November 30, 2007 plaintiffs filed a memorandum of costs to recover their statutory costs pursuant to section 1033.5 of the Code of Civil Procedure. The trial court found that plaintiffs were the prevailing parties “on both the complaint and the cross-complaint and therefore under [sections] 1032 and 1033.5, plaintiffs are entitled to their allowable costs under the statute.” After granting in part defendants’ motion to tax costs, the trial court awarded plaintiffs $647,712.69 in statutory costs. Neither side has appealed the trial court’s May 6, 2008 order on defendants’ motion to tax costs, and plaintiffs’ recovery of statutory costs under section 1033.5 is not an issue in this appeal. Plaintiffs also filed on November 30, 2007 a motion for attorneys’ fees, seeking to recover more than $12.8 million in fees.
Statutory references are to the Code of Civil Procedure unless otherwise indicated.
On July 11, 2007 plaintiff filed a motion requesting “a prejudgment evidentiary hearing for a determination of non-statutory costs to which they are entitled pursuant to the fee-shifting provisions of the contracts at issue”; namely, the MSA, the ARSA, and the ARDA. By this motion, plaintiffs sought recovery of $2.5 million in non-statutory costs, primarily expert witness fees paid to their forensic accounting and auditing experts (almost $2.25 million) that were not recoverable under section 1033.5 but that plaintiffs claimed were recoverable under the language of the three contracts in the case. Defendants did not file opposition.
The MSA provided: “In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all reasonable fees, costs and expenses of appeals.” The ARSA provided: “All expenses (including, without limitation, legal fees and expenses) incurred by the prevailing party in any Azteca Lawsuit or Unzipped Lawsuit in connection with, or in prosecuting or defending, any such claim or controversy shall be paid by the other party.” The ARDA similarly provided: “All expenses (including, without limitation, legal fees and expenses) incurred by the prevailing party in any ADS Lawsuit or Unzipped Lawsuit in connection with, or in prosecuting or defending, any such claim or controversy shall be paid by the other party.” Plaintiffs argued that under the language of these contractual provisions and applicable California law, they were entitled to recover all of their non-statutory costs, and that a posttrial, pre-judgment evidentiary hearing was an appropriate procedure for proving and recovering these costs.
The latter two agreements defined an “Unzipped Lawsuit” as “any lawsuit commenced by Unzipped against Azteca [or ADS] in connection with any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby.” The agreement defined an “Azteca Lawsuit” as “any lawsuit commenced by Azteca against Unzipped or any of its affiliates in connection with any dispute arising out of or relating to” the ARSA, and an “ADS Lawsuit” as “any lawsuit commenced by ADS against Unzipped or any of its affiliates in connection with any dispute arising out of or relating to” the ARDA.
B. The July 26, 2007 Stipulation
The reason that the court did not hear the parties’ motions relating to attorneys’ fees and costs until 2008, long after the jury had returned its verdicts, was that the parties stipulated in July 2007 that the motions could be heard after the trial court had entered judgment. The trial court did not enter judgment on the complaint and the cross-complaint until November 16, 2007, and then only as to ADS and Guez. The parties’ July 26, 2007 written stipulation, the “whereas” clauses of which have generated much of the dispute in this appeal, provided: “IT IS HEREBY STIPULATED that any and all parties’ applications or motions for statutory or non-statutory costs and attorneys fees may be filed, heard, and determined, after the Court enters judgment in this action, and that the Court retains and reserves jurisdiction to hear and decide said issues post-judgment, and accordingly to enter an amended judgment on any such issues.”
The introductory “whereas” clauses recited that plaintiffs had filed a motion for a pre-judgment evidentiary hearing on their request for non-statutory costs, that defendants had not yet filed opposition (they never would), that because judgment had not yet been entered there were no prevailing parties, and that because of “the timing and practicalities” of the motions, the parties wanted the court to resolve the fees and costs issues after entry of judgment. The last introductory “whereas” clause states that “the parties and the Court desire and agree to schedule and conduct any motion or evidentiary hearings, and for the Court to decide any party’s applications or motions for a determination of any award of non-statutory costs, including expert witness fees, after the Court decides the pending posttrial motions, enters judgment, and the Court is able to determine which parties are prevailing parties for purposes of an award of statutory or non-statutory costs and attorneys fees.”
C. The Trial Court’s May 6, 2008 and October 31, 2008 Rulings on Plaintiffs’ Motion for a Hearing on Non-statutory Costs
On May 6, 2008 the trial court issued its written ruling on plaintiffs’ motion for an evidentiary hearing on their request for non-statutory costs. Relying on First Nationwide Bank v. Mountain Cascade, Inc. (2000) 77 Cal.App.4th 871 (First Nationwide Bank), the trial court “concluded that plaintiffs have a right to an evidentiary hearing on non-statutory costs based on the contractual fee and cost provisions in the contracts. These are not costs to be recovered under a cost memorandum pursuant to CCP 1033.5, but rather are an element of contract damages that must be pleaded and proved at trial.” The trial court rejected defendants’ argument that “the evidence must be introduced during the actual trial for the jury to decide the expert fees. While that may be one possible option (and to provide in the verdict form for the jury to indicate if such expert fees have been pleaded and proved, and if so how much), just as pre-judgment interest may be heard and determined by the court in a pre-judgment hearing, there is no reason why the court cannot also utilize such a procedure here.” The trial court gave defendants permission “to submit points and authorities and evidence, if they choose to do so, in order to make their position clear as to the scope of recovery, if any, of non-statutory costs; whether there should be any apportionment if the court does award any such costs; and, any other evidence or argument relevant to the issue.”
Although the trial court stated in its May 6, 2008 order that it did “not envision the need for live testimony or further oral argument, ” there ultimately were two days of live testimony on August 7 and 8, 2008. The parties also presented further oral argument and submitted supplemental briefing.
On October 31, 2008 the trial court issued its ruling denying plaintiffs’ request for non-statutory costs. The trial court stated: “While the court ruled that plaintiffs were entitled to an evidentiary hearing on their claim for non-statutory expert witness costs, it did not, however, rule that they were entitled to recover such fees. After hearing evidence on the issue, reviewing the closing briefs of the parties and re-reading the principal cases cited by the parties, the court finds that to the extent parties are ever able to provide by contract for the recovery of non-statutory costs, they must enforce such a provision at trial, before the fact finder hearing the main case, and under [certain] conditions....” After a careful and thoughtful review of the case law, the trial court concluded that although parties “may provide by contract for the recovery of non-statutory costs, ” a prevailing party could not recover such costs “in a post trial evidentiary hearing.” Rather, the trial court concluded, “for a party to recover non-statutory costs of any kind, and in particular expert witness fees, they must be specifically pleaded and proved at trial.”
The trial court also ruled that “the contractual fee and cost shifting provision in a contract must identify the specific non-statutory costs the parties seek to recover, e.g., expert witness fees, ” and that “the complaint must specifically plead and pray for non-statutory costs, including expert witness fees.” We do not reach these issues.
D. The Trial Court’s October 31, 2008 Ruling on Plaintiffs’ Motion for Attorneys’ Fees
On October 31, 2008 the trial court also issued its final order on plaintiffs’ motion for attorneys’ fees. The trial court granted the motion in part, after making deductions for attorneys’ fees charged by Candie’s in-house counsel Deborah Stehr ($762,750), fees incurred in connection with plaintiffs’ unsuccessful (at the time) fraud claims ($400,000), fees for other unsuccessful or abandoned claims ($1,347,465.08), a lodestar multiplier unsuccessfully requested by plaintiffs ($2,561,482.62), and attorney air travel time for multiple attorneys to fly from Philadelphia to Los Angeles to attend hearings ($400,000). The trial court also stated that $100,000 was the “total fee awarded against ADS and is included within the joint and several award against Sweet and Azteca” under the trademark causes of action.
In the in the Unzipped I appeal, we reversed some of the trial court’s pretrial rulings on plaintiffs’ fraud causes of action, so that they no longer can be classified as “unsuccessful” at this time.
JURISDICTION
On December 5, 2008 plaintiffs filed a timely notice of appeal from both October 31, 2008 orders (one for non-statutory costs and one for attorneys’ fees), and the November 16, 2007 judgment “as amended on December 1, 2008 to add the Court’s orders regarding attorneys’ fees and costs....” Defendants did not file a cross-appeal from either of the October 31, 2008 orders. We have jurisdiction to hear plaintiffs’ appeal of the October 31, 2008 orders pursuant to section 904.1, subdivision (a)(2), as to ADS only. Section 904.1, subdivision (a)(2), provides that “an order made after a judgment” is appealable. As we explained in the Unzipped I appeal, there is a final judgment only as to plaintiffs, on the one hand, and ADS and Guez, on the other hand. There is no final judgment between plaintiffs, on the one hand, and Sweet and Azteca, on the other hand. Therefore, this court does not have jurisdiction under section 904.1, subdivision (a)(2), to hear plaintiffs’ appeal from the October 31, 2008 orders as to Sweet and Azteca because the October 31, 2008 orders are not orders “made after a judgment.” Because plaintiffs do not seek non-statutory costs or attorneys’ fees from Guez, and Unzipped is the only contracting party to the ARDA with ADS, we consider in this appeal only Unzipped’s claim for non-statutory costs and attorneys’ fees against ADS under the ARDA.
Plaintiffs’ notice of appeal also states that plaintiffs were appealing from the May 6, 2008 order. The December 5, 2008 notice of appeal from the May 6, 2008 order, however, was untimely. (See Cal. Rules of Court, rule 8.104(a)(3).) Moreover, the trial court in its May 6, 2008 order ruled in plaintiffs’ favor, and plaintiffs were not aggrieved by the order and lack standing to appeal from it. (See § 902.)
In the trial court, plaintiffs sought attorneys’ fees against Guez, who was not a party to any of the contracts, under Delaware breach of fiduciary duty law and federal trademark law. The trial court denied plaintiffs’ motion for attorneys’ fees against Guez on these grounds, and plaintiffs have not pursued these theories on appeal.
DISCUSSION
A. Whether Non-Statutory Costs Are Recoverable
Whether California law allows contracting parties to agree that the prevailing party may recover costs other than the costs listed in section 1033.5 is a legal issue, which we review de novo.
Paragraph 12(d) of the ARDA provides: “All expenses (including, without limitation, legal fees and expenses) incurred by the prevailing party in any ADS Lawsuit or Unzipped Lawsuit in connection with, or in prosecuting or defending, any such claim or controversy shall be paid by the other party.” The Unzipped action was both an “ADS Lawsuit” because ADS “commenced” its cross-complaint against Unzipped for breach of contract, and an “Unzipped Lawsuit” because Unzipped “commenced” its complaint against ADS for trademark infringement and unfair competition, and Unzipped’s trademark and unfair competition claims were part of a “dispute arising out of or relating to” the ARDA “or any of the transactions contemplated” by the ARDA. Unzipped prevailed against ADS in both lawsuits. Therefore, Paragraph 12(d) shifted “all expenses (including, without limitation, legal fees and expenses) incurred by” Unzipped in this litigation from Unzipped to ADS.
Defendants do not argue that the language in Paragraph 12(d) does not encompass plaintiffs’ non-statutory costs. Defendants argue that California law does not allow contracting parties to shift non-statutory costs, or at least that “it is an open question whether parties may by contract provide for the recovery of non-statutory costs.” We first answer this potentially “open question.”
In Fairchild v. Park(2001) 90 Cal.App.4th 919 (Fairchild), an action brought by tenants against a landlord who “failed to maintain a habitable dwelling” that subsequently burned and destroyed the tenants’ personal property, the court held “that litigants cannot expand the definition of ‘costs’ in [Civil Code] section 1717 to include items not permitted under section 1033.5 of the Code of Civil Procedure.” (Id. at pp. 929-930.) The tenants had included in their memorandum of costs the costs of expert witnesses, photocopying, telephone calls, postage, and mileage, all costs which “would not otherwise be allowable under Code of Civil Procedure section 1033.5.” (Id. at p. 928.) The tenants claimed that they were entitled to recover these costs pursuant to a clause in the lease that provided for the recovery of “all costs and expenses... in any action brought by [the landlord] to recover rent due and unpaid hereunder, or for the breach of any of the covenants contained in the lease....” (Id. at pp. 923, 929.) The court stated that assuming that the words “all costs and expenses” included items disallowed by section 1033.5, “the question is whether the scope of the term ‘costs’ as used in Civil Code section 1717 can be enlarged by contract beyond the costs allowable under Code of Civil Procedure section 1033.5. We conclude that it cannot.” (Ibid.)
Other courts of appeal have reached a different conclusion. In Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464 (Arntz), a case which the Fairchild court distinguished (see Fairchild v. Park, supra, 90 Cal.App.4th at p. 930, fn. 2), the court allowed the prevailing party to recover non-statutory costs pursuant to a contractual provision that “authorized a broad award of litigation expenses more expansive than the limited statutory costs routinely recoverable by a prevailing party” under sections 1032 and 1033.5. (Arntz, at p. 490.) The contractual provision authorized the recovery of all “costs, charges and expenses.” The Arntz court stated that it could “not discern any legislative intent to prevent sophisticated parties from freely choosing a broader standard authorizing recovery of reasonable litigation charges and expenses.” (Id. at p. 492.) In First Nationwide Bank, supra, 77 Cal.App.4th 871, the court agreed with Arntz that section 1033.5 did not prevent “sophisticated parties” at least from contracting to shift non-statutory costs to the prevailing party. (Id. at p. 878.)
The California Supreme Court declined to decide this issue in Davis v. KGO-T.V., Inc. (1998) 17 Cal.4th 436, 446, fn. 5.
We agree with Arntz and First Nationwide Bank that contracting parties can agree that the prevailing party in a dispute can recover costs beyond those listed in section 1033.5, at least where, as here, the parties are sophisticated and there is no claim or issue of adhesion, unconscionability, or unequal bargaining power or positions. (See Navellier v. Sletten (2003) 106 Cal.App.4th 763, 777 [“parties are free to contract for recovery of litigation costs beyond those automatically awarded”].) Section 1033.5 provides an exclusive list of those costs that a prevailing party can recover in the absence of a contractual cost-shifting provision. There is no reason that parties cannot agree in a contract to shift additional costs to the prevailing party in any subsequent dispute. (Accord, Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC (June 21, 2010) ___ Cal.App.4th ___, 2010 WL 2473831, at p. *10 (Thrifty Payless).)
The Thrifty Payless opinion was filed on June 21, 2010 and is not yet final. (See Cal. Rules of Court, rule 8.264(b)(1).)
Moreover, Fairchild is distinguishable. The lease in Fairchild contained a one-way attorneys’ fees provision that required the tenants to pay the landlord’s costs, expenses, and reasonable attorneys’ fees. The tenants contended “that the reciprocity provisions of Civil Code section 1717 entitle them, as the prevailing parties, to an award of ‘all costs and expenses.’” (90 Cal.App.4th at 929.) The court concluded in this context “that litigants cannot expand the definition of ‘costs’ in section 1717 to include items not permitted under section 1033.5 of the Code of Civil Procedure.” (Id. at pp. 929-30.) In contrast to the plaintiffs in Fairchild, plaintiffs here rely not on Civil Code section 1717 but on the language of the contract between Unzipped and ADS. Because the language of the ARDA is reciprocal, Civil Code section 1717 is not implicated in this case, and plaintiffs’ request for non-statutory costs does not require an expansion of the scope of recoverable costs under Civil Code section 1717.
B. Whether Non-statutory Costs Must Be Pleaded and Proven at Trial
It is well established that a party seeking to recover costs other than those listed in section 1033.5 cannot request the non-statutory costs by including them in a memorandum of costs. Instead, the party must plead and prove non-statutory costs as an element of the party’s damages. (See Hsu v. Semiconductor Systems, Inc. (2005) 126 Cal.App.4th 1330, 1341 (Hsu) [“Recovery of costs provided by contract must be specially pleaded and proven at trial, and not awarded posttrial as was done here.”]; Carwash of America-PO LLC v. Windswept Ventures No. I (2002) 97 Cal.App.4th 540, 544 (Carwash) [“assuming expert witness fees may be recovered under a contractual provision, they must be specially pleaded and proven at trial rather than included in a memorandum of costs”]; First Nationwide Bank, supra, 77 Cal.App.4th at p. 878 [same]; Arntz, supra, 47 Cal.App.4th at pp. 491-492 [non-statutory costs recoverable where “specially pleaded and proven at trial”]; see also Gorman v. Tassajara Development Co. (2009) 178 Cal.App.4th 44, 79 [“a party seeking to recover attorney fees and costs as tort damages ordinarily should plead and prove them to the fact finder, not in a posttrial or postsettlement cost memo”].)
Plaintiffs did not seek recovery of non-statutory costs in their memorandum of costs. Nor did plaintiffs prove their entitlement to, and the amount of, non-statutory costs at trial. Instead, three months after the trial ended but before the trial court entered judgment, plaintiffs requested an evidentiary hearing to determine their entitlement to non-statutory costs under the cost-shifting provisions of the MSA, the ARSA, and the ARDA, and to prove the amount of non-statutory costs that plaintiffs had incurred. Indeed, it is undisputed that it did not even occur to plaintiffs that defendants might be responsible for non-statutory costs under the three contracts until after the trial. Thus, the issue is whether the posttrial “evidentiary hearing procedure” belatedly requested by plaintiffs qualifies as “specially pleading and proving” non-statutory costs.
We think it does not. Most of the cases rejecting attempts to recover non-statutory costs in a memorandum of costs have stated that non-statutory costs must be pleaded and proven “at trial” or to the “trier of fact” (which in this case was the jury). (See, e.g., Jones v. Union Bank of California (2005) 127 Cal.App.4th 542, 551 [trial]; Carwash, supra, 97 Cal.App.4th at p. 544 [trial]; First Nationwide Bank, supra, 77 Cal.App.4th at p. 879 [trier of fact]; Arntz, supra, 47 Cal.App.4th at pp. 491-492 [trial]; Ripley v. Pappadopoulos (1994) 23 Cal.App.4th 1616, 1627 [trial].) The reason for requiring the prevailing party to prove up non-statutory costs rather than requesting in them in a memorandum of costs is that the “proper interpretation of a contractual agreement for shifting litigation costs is a question of fact that turns on the intentions of the contracting parties.” (Hsu, supra, 126 Cal.App.4th at pp. 1341-1342; First Nationwide Bank, at p. 879.) Non-statutory costs are “special contract damages, ” and, like plaintiffs’ other contract damages claims, should be proven to the jury at trial. (First Nationwide Bank, at p. 877; Ripley, at p. 1627; but see Thrifty Payless, supra, 2010 WL 2473831, at p. *11 [“we deem it unnecessary to specially plead and prove expert witness fees, at least in a case where expert fees are explicitly included in the contract as recoverable costs”].) Just as ADS presented its claim that Unzipped breached Paragraph 5(a) of the ARDA to the jury, Unzipped should have presented its claim that ADS breached Paragraph 12(d) of the ARDA to the jury.
The contract in Thrifty Payless, unlike the ARDA, provided that the prevailing party was entitled to recover “reasonable expenses” including “court costs, witness and expert fees.” Paragraph 12(d) of the ARDA refers only to “all expenses (including, without limitation, legal fees and expenses)”; it does not explicitly reference expert fees. (See Thrifty Payless, supra, 2010 WL 2473831, at p. *10 [“This does not mean--and we do not hold--that expert witness fees are recoverable in every case where ‘costs’ are merely mentioned in a contract.”].)
Plaintiffs place principal reliance on the following sentence in the court’s opinion in First Nationwide Bank: “Adverse parties must be put on notice through the pleadings that this contractual theory will be asserted, and the issue must be submitted to the trier of fact for resolution pursuant to a prejudgment evidentiary proceeding, not a summary post-judgment motion.” (First Nationwide Bank, supra, 77 Cal.App.4th at p. 879, italics added.) Plaintiffs argue that the evidentiary hearing they requested was the kind of “prejudgment evidentiary proceeding” referred to by the First Nationwide Bank court. This language from the First Nationwide Bank opinion, however, is dicta. The prevailing parties in First Nationwide Bank unsuccessfully sought non-statutory costs in a memorandum of costs, not in a posttrial, pre-judgment evidentiary hearing before the trial judge. The First Nationwide Bank court held that the prevailing parties could not recover their non-statutory costs in a memorandum of costs, not that they could recover non-statutory costs in the kind of procedure plaintiffs sought in this case. Indeed, the trial court in this case had initially contemplated hearing the issue of non-statutory costs without any “live testimony or further oral argument, ” a procedure that more closely resembles a hearing on the recoverability of costs in a memorandum of costs than a trial.
Having the jury decide Unzipped’s contract claim for non-statutory costs is particularly appropriate in a case like this one, where there is a potential ambiguity in the contract and the amount of damages is disputed. The vast majority of non-statutory costs sought by plaintiffs were expert witness fees for forensic accountants and auditors. Plaintiffs also sought recovery of non-statutory costs of investigation (including investigation of jurors for voir dire), postage, telephone, photocopying, and transcripts. Paragraph 12(d) does not specifically mention expert witness expenses, nor any other particular cost. It only refers to “all expenses (including, without limitation, legal fees and expenses).” By contrast, the MSA makes specific reference to the cost of accountants, by providing for the recovery by the prevailing party of “all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants.”
Defendants submitted to the court (but did not offer into evidence at the hearing) extrinsic evidence in the form of testimony from Guez to address this ambiguity. Guez stated that the absence of a reference to accountants in the ARDA (and the ARSA), as opposed to the MSA, was “intentional, ” and that during the negotiation of the contracts the parties had discussed and “acknowledged that the fees and expenses that could be shifted under Section 15(d) included only attorneys’ fees and ordinary litigation expenses recoverable by statute.” Plaintiffs argued to the trial court that “Mr. Cole would be called to contradict or offer testimony to contradict any testimony [by Guez] about alleged meetings and discussions.” The trial court overruled plaintiffs’ objection to this extrinsic evidence, stating that “to the extent he [Guez] can testify to the court to determine whether there is an ambiguity, one of the clear potential ambiguities on the face of three documents which constituted the omnibus deal here is that one of them refers to accountants and two of them do not. So certainly as to that aspect, as to whether or not there is an ambiguity.” In the event that the trial court found Paragraph 12(d) reasonably susceptible to defendants’ interpretation, which we believe it was, these evidentiary conflicts are precisely the kinds of issues that should be resolved by the trier of fact. (See Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343; Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 39-40; Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166.) Even to the extent the trial court excluded defendants’ parol evidence, the jury still would have had to determine the amount of non-statutory costs that Unzipped could recover as damages.
Counsel for defendants then immediately restated his objection that “the jury has been dismissed. And I believe we are entitled to a jury trial, and I believe we are entitled to the same jury that heard the case to hear this issue as well.” Of course, given the results of the trial, it is unlikely that defendants would have wanted the same jury, but that is not the issue.
Finally, plaintiffs contend that requiring the parties to prove their claims for non-statutory costs is “unworkable” and will create a host of practical problems. We disagree. For example, plaintiffs argue that having the jury resolve the claims for non-statutory costs will prematurely identify the prevailing party because “the jury’s verdicts on the claims tried may not withstand posttrial motions.” This is true, however, with all contract (and other) claims tried to a jury. If, after posttrial motions, a party is no longer a prevailing party on a contract claim tried to the jury, then the trial court may grant a posttrial motion to vacate or reduce the award on the contract claim for non-statutory costs.
Plaintiffs also argue that trying the non-statutory costs contract claim to the jury will force the jury to identify the prevailing party without knowing whether any claims were dismissed before trial, and will not provide a method for recovering non-statutory costs for claims dismissed before trial. If, however, the jury is hearing a contract claim for non-statutory costs, then the jury must be hearing at least one contract claim (which was not dismissed before trial), and the trial court can instruct the jurors that they may award non-statutory costs incurred in connection with that contract claim (and no other claim). If the sole remaining contract claim is for non-statutory costs, then the party seeking non-statutory costs can present evidence of the costs incurred defeating all of the other contract claims. If the trial court dismissed all contract claims before trial, then by definition the contract claim for non-statutory costs was dismissed as well.
Plaintiffs also argue that the procedure we endorse will create the “potential for conflicting determinations of the prevailing party... if the jury determines the party contractually entitled to non-statutory costs, while the trial court determines the party entitled to attorneys’ fees under [s]ection 1717.” This potential already exists, and it is not problematic. For example, the prevailing party for an award of statutory costs under section 1032 is not necessarily the prevailing party for an award of attorneys’ fees. (Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, 190; Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1142; McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Association (1991) 231 Cal.App.3d 1450, 1456.)
Here, the trial court initially allowed Unzipped to seek recovery of its non-statutory costs pursuant to Paragraph 12(d) of the ARDA in a posttrial nonjury “evidentiary proceeding.” The trial court subsequently reconsidered its initial decision, and ruled that plaintiffs’ request to prove their non-statutory costs was too late because plaintiffs should have presented their claim to the jury. We conclude that the trial court’s second ruling was correct.
C. Whether Defendants Stipulated That the Trial Court Could Determine the Recoverability of Non-statutory Costs after the Trial
Unzipped argues that the trial court’s initial decision on May 6, 2008 to allow plaintiffs to prove their non-statutory costs at a posttrial evidentiary hearing was correct because defendants stipulated on August 7, 2007 that the trial court could decide the issue of non-statutory costs in a posttrial procedure, and that defendants waived their right to object to the posttrial hearing. We disagree.
A stipulation is a contract, and is governed by the rules of construction applicable to other contracts. (Chacon v. Litke (2010) 181 Cal.App.4th 1234, 1252; Winograd v. American Broadcast Co. (1998) 68 Cal.App.4th 624, 632.) “As a contract, a stipulation ‘ ‘“must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” [Citations.] The intention of the parties must be first determined from the language of the contract itself. [Citations.] However, where the language of the contract is ambiguous, it is the duty of the court to resolve the ambiguity by taking into account all the facts, circumstances and conditions surrounding the execution of the contract. [Citations.]” (Chacon, at p. 1252.)
The language of the July 26, 2007 stipulation was fairly innocuous. The parties stipulated “that any and all parties’ applications or motions for statutory or non-statutory costs and attorneys fees may be filed, heard, and determined, after the Court enters judgment in this action, and that the Court retains jurisdiction to hear and decide said issues post-judgment, and accordingly to enter an amended judgment on any such issues.” It was a scheduling order that did not address, and indeed tended to avoid addressing, the merits of any party’s position. It stated that the court can hear after entry of judgment plaintiffs’ “motion for non-statutory costs, ” which was a motion for the court to determine whether plaintiffs were entitled to non-statutory costs. The stipulation did not waive any party’s right to argue for or against the propriety of recovering non-statutory costs in an evidentiary hearing after the jury had been dismissed. The stipulation was not an “intentional relinquishment or abandonment of a known right or privilege.” (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 745; see Cowan v. Superior Court (1996) 14 Cal.4th 367, 371.)
To the extent that there is any ambiguity in the August 7, 2007 stipulation, the extrinsic evidence of the facts, circumstances, and conditions surrounding the execution of the stipulation shows that the parties did not intend that the court could decide the issue of non-statutory costs. When the parties presented the written stipulation to the trial court, counsel for defendants stated: “Before we move on, so that the record is clear, we’re not agreeing that this court is the appropriate trier of fact to hear the issue. We’re just agreeing that the court would retain whatever jurisdiction it has to entertain the motion.” The court then stated: “It should be clear the court isn’t creating jurisdiction here either.... If I sign this and someone persuades me that it’s to the contrary, I haven’t read that case for a while. The First Nationwide Bank [case], I mean, it talks about having introduced evidence during the trial. And so it isn’t clear to me I even have the power to do this. But... the trial’s over, so if that’s an issue, that issue’s gone anyway.” At a later hearing, when counsel for plaintiffs mentioned the motion for non-statutory costs and the stipulation, the trial court recognized that defendants’ position was that the issue of non-statutory costs “had to be submitted to the jury, ” and that the court had reserved jurisdiction “without prejudice to whatever arguments there are to make or that are already passed.” Counsel for plaintiffs stated: “I think that’s right, your honor.” It is clear from the language of the stipulation, the statements of the trial court and counsel, and the circumstances surrounding the stipulation, that the parties were agreeing, with court permission, that the trial court could hear and determine plaintiffs’ motion for an evidentiary hearing after entry of judgment. The parties were not agreeing that plaintiffs had the right to prove their non-statutory costs at a posttrial evidentiary hearing.
D. Whether the Trial Court Abused Its Discretion in Calculating the Amount of Recoverable Attorneys’ Fees
In its October 31, 2008 “final order on plaintiffs’ motion for attorneys’ fees, ” the trial court stated: “ADS was liable under the trademark theory only, and therefore would only be liable for fees, if any, under the Lanham Act.” The trial court estimated that the fees incurred on the trademark claims “including trial and the pretrial motions in connection therewith, at $100,000, ” and awarded that amount against ADS.
The trial court’s order was erroneous and must be reversed. It was erroneous because although the jury found that ADS was liable under plaintiffs’ trademark theory, the jury also found that (1) ADS was liable on Unzipped’s claim for conversion, and, more importantly for the attorneys’ fees issue, (2) Unzipped was not liable on ADS’s claim for breach of the ARDA. As a result of finding (2), plaintiffs were entitled pursuant to Paragraph 12(d) of the ARDA to recover all “expenses (including, without limitation, legal fees and expenses) incurred by” Unzipped “defending” the “ADS Lawsuit.”
The trial court’s order must be reversed because in the Unzipped I appeal, we reversed the denial by operation of law of defendants’ motion for JNOV on plaintiffs’ trademark claims. Unzipped, therefore, did not prevail on its claim for trademark infringement, and Unzipped cannot, as the trial court found, recover attorneys’ fees under the Lanham Act (15 U.S.C. § 1117, subd. (a)), which authorizes attorneys’ fees in “exceptional cases” where “the infringement is malicious, fraudulent, deliberate or willful.” (Rolex Watch, U.S.A., Inc. v. Michel Co. (9th Cir. 1999) 179 F.3d 704, 711; Gracie v. Gracie (9th Cir. 2000) 217 F.3d 1060, 1068.) On remand, Unzipped can only recover attorneys’ fees from ADS pursuant to Paragraph 12(d) of the ARDA.
DISPOSITION
The October 31, 2008 order denying plaintiffs’ motion for a hearing on non-statutory costs against ADS is affirmed. The October 31, 2008 order granting in part and denying in part plaintiffs’ motion for attorneys’ fees is reversed as to ADS. Plaintiffs’ appeal from the May 6, 2008 order is dismissed, and plaintiffs’ appeals from the October 31, 2008 orders are dismissed as to Sweet and Azteca. The case is remanded for further proceedings consistent with this opinion. ADS is to recover its costs in this appeal.
We concur: PERLUSS, P. J., JACKSON, J.