Opinion
NOT TO BE PUBLISHED
Superior Court County of Ventura No. 218426, Kent Killegrew, Judge
Richard C. Gilman, for Appellants.
Hawthaway, Perrett, Webster, Powers, Christian & Gutierrez, Alejandro P, Gutierrez; Lascher & Lascher, Wendy C. Lascher and Aris E. Karakalos, for Respondents.
YEGAN, J.
After a lengthy trial, a jury found that appellants Hales Engineering Co., Ray A. Hales, R. A. Hales, Inc., Jeremy Jenkins, Ducworks Inc., and Mountain West Attachments misappropriated the trade secrets of respondent ATECO, also known as American Tractor Equipment Co., and converted its property. It further found that R.A. Hales, Inc. breached a licensing agreement with ATECO. The jury awarded ATECO compensatory damages totaling $333,743. It also found that, although appellants acted fraudulently toward ATECO, they did not act with malice or oppression. On the parties' stipulation, the trial court decided ATECO's punitive damages claim, awarding ATECO $159,000. The trial court later awarded ATECO attorneys' fees totaling $534,276.50.
Appellants challenge only the attorneys' fee award. They contend the trial court failed to specify whether it was awarding fees under the fee-shifting provision of the licensing agreement or under Civil Code section 3426.4, which provides that if a "willful and malicious misappropriation exists, the court may award reasonable attorney's fees to the prevailing party." Appellants further contend that ATECO was not entitled to recover its fees on either theory, that the trial court erred in failing to apportion the fee award between statutory and contractual fees, and that the amount of the award was unreasonable and excessive. Appellants also contend the trial court erred in awarding $40,918.50 in expert witness fees and that certain appellants are entitled to recover their own attorney fees and costs under Code of Civil Procedure section 998 and Civil Code section 3426.4. We affirm.
Facts
ATECO owns technical drawings and other trade secret materials relating to the manufacture of heavy earthmoving equipment accessories such as slope boards, rippers, blades and pipe-laying attachments. In the early 1990s, ATECO, acting through its principle, Peter Petrovsky, entered into a licensing agreement with Roy and Nancy Hales, who owned a metal fabrication shop. Mr. Hales agreed to form ATECO West, a new company that would manufacture and repair ATECO attachments. The new company agreed to pay ATECO a royalty for its use of ATECO's drawings and other trade secrets.
For a time, Petrovsky and Hales worked well together. By 1999, however, the relationship had soured. Hales moved to Utah and declared that the contract had been breached. Appellants made their last royalty payment to ATECO in February 2000, representing sales during December 1999. After that point, appellants used the ATECO technical drawings and other trade secret materials to manufacture new products. Appellants returned the documents to ATECO only after this litigation began.
ATECO filed its complaint in November 2002. Trial commenced two years later, in December 2004. In the interim, the parties conducted extensive discovery, including a large number of document productions, more than 25 depositions and consultations with numerous expert witnesses. The case also generated extensive briefing. Prior to trial, appellant's counsel filed 10 separate trial briefs and approximately 15 motions in limine. Respondent filed four separate trial briefs and seven motions in limine. The trial lasted two weeks and included hundreds of documentary exhibits.
After the lengthy trial, the jury found that respondent ATECO had performed its obligations under the licensing agreement, and that R.A. Hales, Inc. had breached it. The jury further found that each of the appellants misappropriated ATECO's trade secrets and converted its property. Its special verdicts include findings that the appellants did not act with malice or oppression, but that each appellant "committed fraud in the conduct upon which [the jury based its] finding of liability for defendant's conversion of Ateco Inc.'s property[.]"
The litigation did not, however, end with the verdict. All parties filed extensive post-trial briefs on the punitive damages question. ATECO's motion for injunctive relief was opposed by appellants who themselves filed several post trial motions, including motions for new trial and for judgment not withstanding the verdict.
During the litigation, respondent ATECO was represented by two lawyers, John Hebb and Alejandro Gutierrez. The lawyers filed separate motions for attorney fees, with Mr. Gutierrez seeking $334,276.50 in fees and Mr. Hebb requesting $510,873. The trial court awarded Mr. Gutierrez all of the fees he sought; Mr. Hebb's fee award was reduced to $200,000. The trial court based its fee awards on both the licensing agreement between ATECO and appellant R.A. Hales, Inc., which contains an attorney's fees provision, and on Civil Code section 3426.4, the attorney fee-shifting section of the Uniform Trade Secrets Act (UTSA).
Standard of Review
Our Supreme Court recently clarified that, " 'On review of an award of attorney fees after trial, the normal standard of review is abuse of discretion. However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory construction and a question of law.' " (Connerly v. State Personnel Board (2006) 37 Cal.4th 1169, 1175, quoting Carver v. Chevron USA, Inc. (2002) 97 Cal.App.4th 132, 142, 118 Cal.Rtpr.2d 569.) Thus, we exercise independent review on the narrow question of whether ATECO is entitled to fees under Civil Code section 3426.4.
We review for abuse of discretion the trial court's determination that ATECO is the prevailing party on the breach of contract claim and its determination of the amount of the fee award. (Zuehlsdorf v. Simi Valley Unified School Dist. (2007) 148 Cal.App.4th 249, 257.) "The trial court is the best judge of the value of professional services rendered in its court, and while its judgment is subject to our review, we will not disturb that determination unless we are convinced that it is clearly wrong. (Serrano v. Priest (1977) 20 Cal.3d 25, 49 [141 Cal.Rptr. 315, 569 P.2d 1303]; Reveles v. Toyota by the Bay (1997) 57 Cal.App.4th 1139, 1153 [67 Cal.Rptr.2d 543].) The only proper basis of reversal of the amount of an attorney fees award is if the amount awarded is so large or small that it shocks the conscience and suggests that passion and prejudice influenced the determination. (Reveles v. Toyota by the Bay, supra, at p. 1153.)" (Akins v. Enterprise Rent-A- Car Co. (2000) 79 Cal.App.4th 1127, 1134.)
Discussion
Inadequate Findings
Appellants first contend that the trial court erred because it did not specify whether it was awarding fees under the licensing agreement or under the UTSA, and did not make factual findings to support the amount of the fee award. There was no error. As respondent points out, appellants waived this contention because they did not request a statement of decision. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) In the absence of a request, the trial court is not obligated to provide a statement of decision when ruling on a motion for attorneys fees. (Maria P. v. Riles (1987) 43 Cal.3d 1281, 1294.) Moreover, the trial court's comments during the hearing on the fee motions demonstrate that it based its award on both the parties' contract and on the UTSA.
The trial court also made the factual findings concerning the reasonableness of the fees requested. It found, for example, that the fees incurred by Mr. Gutierrez were reasonable, based on counsel's performance, the complexity of the case and the amount of damages at issue. Based on its consideration of these same factors, the trial court found that a reasonable fee award for Mr. Hebb's services was $200,000. To arrive at that amount, the trial court indicated it would review Mr. Hebb's work during the first 18 months of the litigation, before Mr. Gutierrez was retained, and that it would eliminate duplication between the two attorneys. These findings, together with the extensive documentation provided by counsel, are a sufficient basis for the fee award.
Statutory Attorneys Fees
The trial court awarded ATECO its attorneys fees under both the licensing agreement and the fee-shifting provision of the UTSA, Civil Code section 3426.4. This statute provides, "If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney's fees to the prevailing party." To justify a fee award under this statute, the trial court must find that the party to whom fees are awarded is the prevailing party and that a willful and malicious misappropriation occurred. (Vacco Industries, Inc. v. Van Den Berg (1992) 5 Cal.App.4th 34, 54, 55, fn. 23.) Appellants contend fees were not properly awarded under the statute because it is not possible to determine whether the jury awarded damages for misappropriation, and there is no substantial evidence of a "willful and malicious" misappropriation. We are not persuaded.
First, the jury clearly awarded compensatory damages for misappropriation. In its special verdicts, the jury found that each appellant misappropriated ATECO's trade secrets, and that ATECO was entitled to damages from each appellant for that misappropriation. These findings are not diminished by the finding that appellants also converted ATECO's property, or by the fact that the damages awarded for conversion were the same as those awarded for misappropriation.
Second, the jury's findings on the punitive damages questions were not conclusive on the question of whether a willful and malicious misappropriation occurred for purposes of section 3426.4. In its special verdict, the jury found by clear and convincing evidence that appellants acted fraudulently toward ATECO. Employing the same "clear and convincing evidence" standard of proof, the jury further found that appellants did not act with malice or oppression. The trial court, on the other hand, employed the less stringent preponderance of the evidence standard to determine that ATECO was entitled to recover its attorney fees because appellants' misappropriation was willful and malicious within the meaning of section 3426.4. (See, e.g., Evid. Code, § 115 ["Except as otherwise provided by law, the burden of proof requires proof by a preponderance of the evidence."].) Because the standards of proof were different, the jury's findings concerning malice and oppression for purposes of punitive damages were not binding on the trial court's determination of ATECO's motion for attorney fees.
Third, substantial evidence supports the trial court's finding of willful and malicious misappropriation. To reach its verdict on the misappropriation claims, the jury had to find that appellants intentionally used "improper means" to acquire, disclose or use ATECO's trade secrets without its consent. Those "improper means" could include "theft, bribery, misrepresentation, breach or inducement of breach of a duty to maintain secrecy or espionage through electronic or other means." The jury also found, by clear and convincing evidence, that each appellant committed fraud in exercising control over and intentionally possessing the same property. Finally, in deciding the punitive damages claims, the trial court found, by a preponderance of the evidence, that appellants retained and continued to use ATECO's trade secrets even after the jury rendered its verdict. "[M]any boxes of physical drawings have not even been removed from storage and reviewed, let alone returned to plaintiff[.] MOUNTAIN WEST has continued to advertise on the Internet that it carries ATECO products even after the jury rendered its verdict. [ATECO] is rendered incapable of licensing another manufacturer to make and distribute its products while defendants continue to retain ATECO's materials."
Appellants concede all of these findings are supported by substantial evidence. Thus, they concede that they each intentionally used improper means, including fraud, to acquire ATECO's trade secrets and use those secrets to ATECO's damage and their own unjust enrichment. They further concede that this conduct continued even after the jury reached its verdict. These facts constitute substantial evidence of a willful and malicious misappropriation for purposes of the attorney fees award. The trial court did not err.
Contractual Attorney Fees
The licensing agreement between ATECO and R.A. Hales, Inc. provided, "In the event of any dispute under this Agreement, or if it becomes necessary for a party to bring legal action to enforce its rights under this Agreement, the prevailing party in any such dispute or legal action or other proceeding shall be entitled to recover its reasonable legal fees, costs and expenses from the other party, including any expert witness fees." Appellants contend the trial court erred when it awarded contractual attorney fees against non-parties to the contract. They further contend respondent was not the prevailing party on the cause of action for breach of contract and that the contract language will not support an award of attorney fees for the conversion claim. There was no error.
First, the trial court did not award contractual attorney fees against non-parties to the contract. Each motion for attorney's fees sought to recover "fees based upon contractual agreement for Defendant R.A. Hales, Inc's conversion of ATECO property." The trial court's orders state that each motion is granted. Although the syntax is somewhat tortured, we read the motions to seek contractual attorney's fees only against R.A. Hales, Inc. The trial court's orders are similarly limited. They grant the relief sought: contractual attorney fees against R.A. Hales, Inc. based, at least in part, on its conversion of ATECO property.
The trial court has broad discretion to determine who is the prevailing party for purposes of an award of attorney fees. (Jackson v. Homeowners Assn. Monte Vista Estates-East (2001) 93 Cal.App.4th 773, 786-787; Hill v. Fahnestock (1990) 220 Cal.App.3d 628, 633.) Civil Code section 1717, subdivision (b)(1) defines the prevailing party as "the party who recovered a greater relief in the action on the contract." As our Supreme Court noted in Hsu v. Abbara (1995) 9 Cal.4th 863, "[I]n deciding whether there is a 'party prevailing on the contract,' the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives . . . . The prevailing party determination is to be made . . . only by 'a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.' (Bank of Idaho v. Pine Avenue Associates (1982) 137 Cal.App.3d 5, 15 [186 Cal.Rptr. 695].)" (Hsu v. Abbara, supra 9 Cal.4th at p. 876.)
By this standard, the trial court did not abuse its discretion when it determined that ATECO is the party prevailing on the contract. ATECO had a "simple, unqualified win" on the breach of contract claim. (Jackson v. Homeowners Assn. Monte Vista Estates-East, supra, 93 Cal.App.4th at p. 789.) The jury found that R.A. Hales, Inc. breached the licensing agreement, that it converted ATECO's property and that it misappropriated ATECO's trade secrets. It further found that ATECO performed its obligations under the contract. Although the jury awarded only $1.00 in compensatory damages for breach of the licensing agreement, it awarded compensatory damages for the non-contract claims and the trial court ordered R.A. Hales, Inc. to pay $3,000 in punitive damages. R.A. Hales Inc. was also permanently enjoined from using ATECO's drawings and other trade secret materials and required to return that property to ATECO. Thus, even though its monetary recovery against R.A. Hales, Inc. was minimal, ATECO achieved its litigation objectives because it established that appellants misappropriated its trade secrets. ATECO obtained the return of that property and prevent appellants' future use of it.
Appellants contend the attorney fee provision of the contract will not support an award of fees incurred on the non-contract claims for misappropriation and conversion. We disagree. The contract provides, "In the event of any dispute under this Agreement, or if it becomes necessary for a party to bring legal action to enforce its rights under this Agreement, the prevailing party in any such dispute or legal action or other proceeding shall be entitled to recover its reasonable legal fees, costs and expenses from the other party, including any expert witness fees." R.A. Hales, Inc. had access to ATECO's drawings, specifications and other trade secrets only because it entered into the licensing agreement. The agreement limits appellant's use of ATECO's trade secret materials and specifies the conditions under which the property must be returned to ATECO. ATECO's tort and contract claims enforced those property rights. Thus, the trial court could properly conclude that ATECO's claims arose "under" the licensing agreement and that ATECO brought this action to enforce its rights under that agreement.
Gil v. Mansano (2004) 121 Cal.App.4th 739, does not require a different result. In that case, one owner of a business sued another owner of the business for fraud. The defendant alleged an affirmative defense based on a release the parties had previously signed. The release contained an attorney's fee provision that stated, "In the event action is brought to enforce the terms of this [Release], the prevailing party shall be paid his reasonable attorney [] fees and costs incurred therein." (Id. at p. 742.) Attorneys fees were awarded to the defendant after he prevailed on summary judgment and the court of appeal reversed, holding that the attorney's fees clause did not apply to fees incurred in defending against a tort claim. (Id. at p. 743.) It reasoned, "Where a contract authorizes an award of attorney fees in an action to enforce any provision of the contract, a defense to a tort action based on a provision of the contract may have the effect of enforcing the provisions of the contract. [Citations.] However, the assertion of a defense does not constitute the bringing of an action to accomplish that goal. [Citations.] Raising a defense may not be equated with bringing an action. [Citation.] The language 'brings an action to enforce the contract' is quite narrow. [Citation.]" (Id. at pp. 743-744.)
In the present case, the licensing agreement allows for an award of attorney fees, "In the event of any dispute under this Agreement, or if it becomes necessary for a party to bring legal action to enforce its rights under this Agreement . . . ." Unlike the plaintiff in Gil v. Mansano, supra, ATECO did not assert the licensing agreement as a defense to a tort claim filed against it by appellants. Instead, it brought this action to enforce its ownership rights to the materials disclosed pursuant to the licensing agreement. The trial court properly concluded that the attorney's fee provision extends to fees incurred in connection with both the contract and the non-contract claims.
Apportionment of Fees
Appellants contend the trial court erred because it did not apportion the fee award between fees awarded pursuant to the statute and fees awarded pursuant to the licensing agreement. There was no error. "When a cause of action for which attorney fees are provided by statute is joined with other causes of action for which attorney fees are not permitted, the prevailing party may recover only on the statutory cause of action. However, the joinder of causes of action should not dilute the right to attorney fees. Such fees need not be apportioned when incurred for representation of an issue common to both a cause of action for which fees are permitted and one for which they are not. All expenses incurred on the common issues qualify for an award. (See Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130 [158 Cal.Rptr. 1, 599 P.2d 83] [contractual right to fee case].) When the liability issues are so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not, then allocation is not required. (See Litton Gen. Engineering Contractor, Inc. v. United Pacific Insurance (1993) 16 Cal.App.4th 577, 588 [20 Cal.Rptr.2d 200] [no allocation of two parties' liability required].)" (Akins v. Enterprise Rent-A-Car Co., supra, 79 Cal.App.4th at p. 1133.)
The facts at issue on ATECO's claims for breach of the licensing agreement were substantially the same as those at issue on its claims for misappropriation of trade secrets and conversion. Stated very broadly, ATECO's basic claim was that appellants obtained ATECO's drawings, specifications, designs and similar proprietary materials pursuant to the licensing agreement. They used the materials to manufacture and sell their own competing products, without paying the fees due under the licensing agreement. The conduct that ATECO alleged breached the licensing agreement was the same conduct that amounted to conversion and misappropriation. ATECO prevailed on all of these claims. Because the contract and non-contract claims shared so much common factual and legal ground, the trial court had no duty to apportion fees. (Wilshire Westwod Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732, 747.)
Amount of Fees
Appellants contend the attorney's fee award was unreasonable and an abuse of discretion because it exceeded the compensatory damages award, because ATECO's achieved a "relative lack of success" and because ATECO's counsel billed an excessive number of hours and engaged in unnecessary activity. They acknowledge, however, that "the trial court has broad authority to determine the amount of a reasonable fee. [Citations.] As we have explained, 'The "experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong" ' – meaning that it abused its discretion. (Seranno v. Priest (1977) 20 Cal.3d 25, 49 [141 Cal.Rptr. 315, 569 P.2d 1303] . . . .)" (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095.)
There was no abuse. The same trial court judge who presided over the trial made the fee awards. He reviewed the attorneys' extensive billing records and trimmed $300,000 from the award requested by one of the attorneys. True, the award is very large, but this litigation was complex, lengthy and vigorously contested. Discovery involved thousands of documents and many expert and lay witnesses. There were numerous pretrial hearings and conferences. Both sides filed extensive trial briefs, motions in limine and other documents. Given the nature, complexity and length of this litigation, we cannot say the fee award was unreasonable or excessive.
Remaining Contentions
Appellants contend the trial court erred in awarding $40,918.50 in expert witness fees as costs. Civil Code section 3426.4 permits an award of expert witness fees where the trial court finds a willful and malicious misappropriation of trade secrets. As we noted above, the trial court's finding of a willful and malicious misappropriation of trade secrets was supported by substantial evidence. The award of expert witness fees was correct.
ATECO rejected a settlement offer of $52,250 made by appellants R.A. Hales, Inc. and Mountain West Attachments pursuant to Code of Civil Procedure section 998. Those appellants now contend the trial court erred in denying their request for fees because ATECO's recovery was lower than the amount of the settlement offer. There was no error. Appellants' settlement offer did not include the injunctive relief that ATECO was seeking and that it obtained in the final judgment. As a result, the trial court properly exercised its discretion to declare ATECO the prevailing party and deny appellants' motion for fees under Code of Civil Procedure section 998. (People ex rel. Lockyer v. Fremont General Corp. (2001) 89 Cal.App.4th 1260, 1265.)
Appellant Nancy Hales contends she was entitled to recover her fees pursuant to Civil Code section 3426.4 because ATECO acted in bad faith when it made a misappropriation claim against her. The trial court denied the motion, noting that although Ms. Hales was not running the corporations or making engineering or design decisions, she was a "critical face person" whose involvement in making bids for government contracts was essential to appellants' successful bids for those contracts. The trial court concluded that, because Nancy Hales was involved in the operation of the business, ATECO's decision to name her as a party was not specious or in bad faith. That finding was not an abuse of discretion.
Conclusion
The judgment and orders awarding attorneys' fees are affirmed. Respondent shall recover its costs and attorneys' fees on appeal from appellants. The amount of which shall be determined on noticed motion in the trial court.
We concur: GILBERT, P.J. PERREN, J.