Gottlieb v. Chawla et al

OCR transcription for search; preserved printed pages are authoritative

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AUG 28 206
“isan U8 BANKRUPTCY COUR?

ofthe SRT CRAPO

ENTERED
AG 28 28
AOD

PATRAL “STRICT OF en
i Denuty Cert

UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA

In re . BK. No. SA 02-16187 TA
OPS, Inc. Adv. No. SA 04-01628 TA
Chapter 11
Debtor.

DAVID GOTTLIEB, Disbursing Agent for MEMORANDUM OF DECISION

the Estate of QPS, Inc., AFTER TRIAL

Plaintiff,
v. Date: August 15, 2006

Time: 10:00 a.m.

DIGITAL PERIPHERAL SOLUTIONS, Place: Courtroom 5B
INC., RAJEEV SHARMA AND PRITI
SHARMA

Defendants

Trial of this matter was conducted August 15, 2006. All proffered exhibits were
received in evidence. The direct testimony of the witnesses was received in evidence by
declaration, although certain paragraphs were received for the limited purposes as
described on the record. Cross examination and re-direct testimony during the trial was

also received from each of the four witnesses. The Court was also aided by the “Joint Pre-

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trial Order” entered March 1, 2006, the “Opposition to Plaintiff's Motion for Partial Summary
Judgment...” filed December 21, 2005, the “Order Granting in Part and Denying in Part
Plaintiffs Motion for Partial Summary Judgment” entered February 13, 2006, the
“Stipulation to Extend Deadline...” filed November 3, 2004 and as well by the post trial
briefs submitted by both sides.

1. Background Facts

A brief recital of the pertinent facts, most of which are not disputed, might be helpful.
Plaintiff David Gottlieb is the disbursing agent on behalf of the estate of the Debtor (‘the
disbursing agent”). On January 14, 2003 the Court entered its order approving the sale of
substantially all of Debtor's assets to defendant Digital Peripheral Solutions, Inc. (‘DPS’).
As part of the sale agreement DPS agreed to pay $150,000 to the Committee of Creditors
memorialized by a Note and Security Agreement signed by DPS. [Exhibits 1 and 2,
respectively] The Note has a schedule of payments attached which provides for monthly
payments of $12,500 starting February 15, 2004. The Note has no attorney’s fees clause
and does not bear interest. The Committee is also the “secured party” under the terms of
the Security Agreement. The Security Agreement at its paragraph 7.8 does contain an
attorney's fees clause. Under the plan of liquidation confirmed December 1, 2003, the
Note and Security agreement were assigned to the disbursing agent.

DPS breached its obligations under the Note and Security Agreement by failing to
make the payments due there under for any of the months commencing February 2004
through November 1, 2004. The disbursing agent commenced this action for collection of
the obligation by complaint filed September 9, 2004. [Exhibit B] DPS as well as individual

defendants Bhuvan Chawla, Rajeev Sharma and Pritti Sharma are all named in the

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+] complaint. Pritti Sharma is the president of DPS and Mr. Chawla is apparently the 100%
shareholder of DPS. Bhuvan Chawla was dismissed without prejudice prior to trial.
However defendants DPS and the Sharmas remained as defendants as of the trial on all
counts except the Sixth Claim for Relief , Breach of Fiduciary Duty, in which only the
Sharmas are named. The Disbursing Agent through counsel announced after trial had

7 || Commenced that he would not be proceeding against the Sharmas on any of the claims.

8 2. Disputed Communications Between October 19 through November 8, 2004

This case comes down to a determination of what occurred between the parties ina

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series of oral, written and e-mail communications between October 19 and November 19,
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12 | 2004, and of what legal significance each of those events assumes as a matter of law. It is

13 || admitted that defendant Pritti Sharma spoke by telephone with attorney Laura Portillo of
141 Brinkman & Portillo, P.C., counsel for the plaintiff, on October 19. The exact dialogue

*? | between the parties is disputed. The version as appears in Ms. Portillo's direct testimony

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by declaration follows:

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| 7. | had a telephone conference with defendant Priti Sharma on October

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19 19, 2004. 8. During that telephone conference | discussed with Priti

20 Sharma procedural matters, including the deadline to file an answer or other
21 responsive pleading, and substantive matters, including the factual basis for
7 the adversary action. 99. Priti Sharma told me that she did not have the

; ability to pay the money owed under the contract and that she would need to
25 obtain funding. 10. | told her to cail back when she would be able to pay
26 the amounts owing. 911 | did not make an offer of settlement during the

27 telephone call.”

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Although Ms. Portillo denies that settlement was offered, apparently it is conceded that at
least the issue of inability to make payment did come up.

The version of the conversation as reported in Ms. Sharma’s declaration specifically
incorporates the issue of settlement: “| spoke to Laura Portillo on Oct. 19, 2004 and she
and | agreed that if DPS paid the payment due through 10/15/04 that she would withdraw
the complaint for collection...” Declaration of Pritti Sharma, J 8

Apparently another conversation occurred the next day, October 20, this time
between Ms. Sharma and Ms Erickson, another lawyer at Brinkman Portillo. Ms. Sharma's
version of that conversation was as follows: “On 10/20/04 | called Tina Erickson to discuss
the payments and terms of settlement of the collection action. | state [sic] that Portillo and
| had agreed that DPS would pay 125,000 and perhaps the full $150,000 if that would
settle the case. She stated she had discussed the settlement with Portillo and would
prepare the document." Declaration of Pritti Sharma, 9 9. No counterpart of this alleged
conversation appears in Ms. Erickson's declaration. However, the Court does note that a
time entry for October 20, 2004 appears in the billing records of Brinkman Portillo P.C.
[Exhibits C and 6] under the initials of Ms Erickson, as follows:

Telephone conference with Pritti Sharma regarding revised payment
schedule; draft letter to Sharma regarding arrangement of payments and
terms of settlement of suit. (emphasis added)
Although the cross examination of Ms. Erickson did not elicit any admission that a
discussion of settlement had indeed occurred on October 20, despite the description in the
billing entry, it seems to the Court very likely that, given the preceding alleged discussion
between Ms. Portillo and Ms. Sharma, and given that admittedly something was discussed

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between Ms Erickson and Ms. Sharma the very next day, that the issue of settlement
probably did come up, particularly given that the time entry from Ms Erickson was for half
an hour.

The parties apparently agree that a further telephone discussion occurred between
Ms. Erickson and Ms. Sharma on October 26 regarding an extension of time to file an
answer. See, Declaration of Sharma 10; Declaration of Erickson. Js 4 and 5: time entries
for October 26, Exhibits C and 6. The Court has also reviewed the “Stipulation to Extend
Deadline for Filing an Answer; and Order Thereon’” filed November 3, 2004. This shows a
signature of Ms Sharma on behalf of DPS dated October 27, 2004, and an undated
signature of Ms. Erickson, but given that the document was prepared by Brinkman Portillo,
PC, we can infer that it was in fact prepared on or about October 26. The penultimate
sentence of the Stipulation is illustrative: “The Parties seek the foregoing extension of time
in order to afford the Parties an opportunity to resolve this matter consensually and avoid
incurring unnecessary costs of litigation.” Therefore, while the material details may not
have been agreed, the Court finds that the issue of settlement was already in discussion
between the parties as of October 27, 2004. The extension to respond per the stipulation
was to November 5, 2004.

Another telephone conference occurred on November 4, 2004. Ms Sharma reports
that she called Ms. Erickson to “tell her | had the full $150,000 ready to wire but needed
wire instruction and a letter of release. Erickson said she would get the instructions and
release. At no time did she say to me there was no deal of $150,000 payment for a
release of all claims.” Declaration of Pritti Sharma, J 11. Ms. Erickson’s version of the cail

appears in her declaration: “Pritti Sharma called BP's office and spoke with me on

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November 4, 2004. Pritti Sharma told me she had obtained a loan to pay $150,000 to the
Disbursing Agent and asked me for the wire transfer information to BP’s trust account so
that she could make a payment of $150,000. | did not have the wire transfer information
and told her that | would email the information to her at a later time.” Declaration of
Christina Erickson, § 7 Ms Erickson testified that she did not tell Ms. Sharma during the
November 4 conference the action had been settled. Declaration of Christina Erickson, J
10. However, the time entry for Ms. Erickson shows that she had a “conference with TE
and LJP regarding negotiations of DPS note payment” on November 4 and another entry of
1 hour twenty minutes that same date reads: “Draft stipulation to settle; phone call from
Pritti Sharma.” Emphasis added [Exhibits “C” and “6"] The testimony was unclear as to
whether the “conference with TE and LJP (Ms. Portillo)” occurred before or after the call on
the same date from Ms. Sharma. What is reasonably clear is that at least at some point on
Nov. 4, Ms. Erickson felt a settlement was enough in prospect that she spent over an hour
that day preparing a settlement document. According to her direct testimony, Ms Erickson
presented the draft stipulation to Ms. Portillo on Nov. 4", but she was instructed “to keep
the drafted stipulation in the file for future use.” Declaration of Christina Erickson, § 12;
Declaration of L. Portillo, § 14. Importantly, there is no testimony that Ms. Erickson was
instructed on Nov. 4" (or indeed at any time) to inform Ms. Sharma that a deal had not
been reached nor, apparently, did Ms. Erickson ever contact Ms. Sharma to that effect.
Ms Sharma then sends an email to Ms. Erickson on Nov. 5":

| called you yesterday November 4" to inform you that | am ready to wire the

funds to you, were [sic] suppose to send me the letter of release and wire

transfer instruction and today is the 5" of November last day for us to make

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the payment according to the court papers, we have arranged the funds to be
transferred to you as promised however we do need some kind of release
letter from you that you will withdraw the complain [sic] and the wire
instruction so we can send the wire transfer. Exhibit "9".

Ms. Erickson acknowledges receipt but testifies she did not respond to this email.

Declaration of Christina Erickson. 914. Nor is there any indication from any of the other

declarations or testimony that anyone from Brinkman Portillo, PC responded to the

November 5 email. This silence is significant because the email makes clear that Ms.

Sharma was under the impression that a settlement had been reached and that a release

was expected in return for payment.

Ms Sharma testified she again spoke to Ms. Erickson by telephone on November 8:

...and told her that since | did not receive the wire instructions and release
that | would send the check with a letter explaining that the $150,000 was
payment in full. She stated to me that was fine and apologized for not
sending the instructions and release. Erickson stated | was not to be
concerned about the lack of a response form Portillo and to send the letter
and check, that she would let Portillo know it was coming.” Sharma
Declaration, J 12.

No reference is made to this November 8" conversation in Ms. Erickson’s declaration but,

interestingly, a time entry does appear on the billing records “Telephone conference with

Pritti Sharma regarding negotiation and settlement.” Exhibits “6”and “C.”

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3. The November 9 letter

The foregoing represents, in the main, disputed versions of what occurred in various
telephone conversations. The Court believes that it is unnecessary to make factual
findings regarding the specifics beyond the general findings that (a) the issue of settlement
had come up; (b) DPS had mentioned a specific amount, $150,000 as full settlement and
in return for $150,000 DPS expected a release; and (c) at the critical juncture there was
only silence from counsel! for the Disbursing Agent. These findings serve as background.
The reason specifics are unnecessary Is that the following largely speaks for itself.

On November 9 DPS through Ms. Sharma sent a letter to Brinkman Portillo, PC
which apparently enclosed a check for $150,000. Exhibits “7" and “8.” There is no
dispute that the letter was received and read by all of Daren Brinkman, Laura Portillo and,
at some point, by Christina Erickson , each of whom is indicated as an addressee. The
letter provides in pertinent part:

Enclosed please find Check No, 2234 for $150,000 as payment in full
to the bankruptcy estate of QPS, Inc. arising from the purchase of assets on
January 14, 2003....During our phone conversation on October 19, 2004, Ms.
Laura Portillo agreed that if DPS, Inc. would pay all the payments due
through October 15, 2004, you would then withdraw the complaint...

On November 4, | had arranged to make payment as promised and | called
your office and asked to speak to Laura Portillo to get wire instructions so
that | might transfer the funds in a timely manner. Tina told me that she
would email me the bank wire instruction but | have still not received any

such instructions from her. Since then | have | have [sic] sent an email and

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made multiple phone calls requesting to talk to Laura Portillo. Each time |
was told that she would call me back. | have left my office number as well as
my cell phone number, but | have still not heard back from her.

Even though | was told by Tina that Brinkman Associates [sic] will not
take any further action and not to worry about not having received a response
from Laura, we are concerned and have therefore decided to send the
enclosed check for $150,000 as payment in full of all amounts due in the past
as weil as prepayment of all amounts due in the future, to include the final
payment due on January 25, 2004.

As per our phone agreement on October 19, 2004, | have complied by
making payment. / would appreciate your compliance with our agreement by
withdrawing your case immediately, and notifying me that you have done

so... (emphasis added) Exhibit “7.”

According to Ms. Sharma, the $150,000 was not available at the time in the assets
of DPS, but had to be borrowed from her family which still has not been repaid.
Declaration of Pritti Sharma, J 14. Significantly, there is no evidence that anyone from
Brinkman Portillo, PC contacted Ms. Sharma in response to the November 9 letter to tell
her that an agreement had not been reached. Instead, the check was immediately
deposited in Brinkman Portillo's trust account and cleared the bank November 15, 2004.
Sharma declaration 915 and 16. Apparently, the first communication in reply to the
November 9 letter is a November 19 email from Daren Brinkman to counsel for DPS
wherein acknowledgment of the payment is made but citation is also made to the attorneys

fees clause in the Security Agreement. Exhibit “4".

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4. Legal Issues
A. The Affirmative Defense of Accord and Satisfaction
Plaintiff argues in his concluding brief that as a matter of procedure the affirmative
defense of accord and satisfaction cannot be raised or considered because the Joint
Pretrial Order confines the issues to the affirmative defenses of release, waiver and
estoppel, as appear at its page 10. The Court disagrees that “release” is a “completely
different legal theory” from that of “accord and satisfaction.” Nor does the Court believe
that attaching formalistic legal labels to affirmative defenses is appropriate or helpful under
these circumstances.
The Court finds that “accord and satisfaction” is a form of “release” which borrows
from the doctrines of both estoppel and waiver. See, Jersey Island Dredging Co. v.
Whitney, 149 Cal. 269, 86 P. 509, 511 (1905); McAllister v. Drapeau, 14 Cal.2d 102, 111
(1939); Landis v. Morissey, 69 Cal. 83, 86 (1886). However, even if that were not true,
Plaintiff cannot succeed in keeping the legal doctrine of accord and satisfaction away from
consideration here, particularly considering that the Joint Pretrial Order specifically lays out
the elements of accord and satisfaction when describing those disputes which remain to be
tried at its page 9:
qE. Whether Priti Sharma and counsel for the Plaintiff had an agreement
that the Plaintiff would waive or release its right to collect anything more than
$150,000 for all claims contained in the adversary complaint. J. Did Plaintiff
endorse and deposit the $150,000 check which accompanied the November
9 letter. [ L. Whether BP responded to Ms. Sharma from November 9, 2004

to November 18, 2004.

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See, Russell v. Riley & Peterson, ef al., 82 Cal. App. 728, 736 (1927). The fact that the
label “accord and satisfaction” was not used is of no consequence.

Plaintiff cannot seriously argue surprise since the same facts and evidence as
underly all of the waiver, estoppel and release defenses likewise apply to accord and
satisfaction. Moreover, the pleadings can and should be liberally amended to conform to
proof, absent a showing of prejudice. Fed. Rule Bankr. Proc. 7015; See e.g. Consolidated
Data Terminals v. Applied Digital Data Systems, Inc., 708 F. 2d 385, 396 (9" Cir. 1983).
Lastly, Defendant correctly points out that “accord and satisfaction” was presented in
opposition to the Summary Judgment motion filed December 21, 2005 by reference not
only to the label “accord and satisfaction” but also to Cal. Civ. Code §1526 (c), the
California statute that governs the accord and satisfaction defense. See, Defendants’
Opposition to Plaintiffs Motion For Partial Summary Judgment, p. 5:28 to 6:4. The
Summary Judgment was denied in part by the “Order Granting in Part and Denying in
Part...” entered February 13, 2006 specifically so the defenses raised by the facts and
circumstances as outlined above could be presented at trial. The Court finds that there is
no showing of prejudice and the Answer can and should be amended to conform to proof,
if that step is even necessary since the underlying elements of accord and satisfaction, if
not the label, are so interwoven within the paragraphs of the Joint Pretrial Order as cited
above.

B. Was an Accord and Satisfaction Proved?

Cal. Civ. Code § 1521 defines an “accord and satisfaction” as follows:

An accord is an agreement to accept, in extinction of an obligation,

something different from or less than that to which the person agreeing to

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accept is entitled.

Cal. Civ. Code § 1526{a) and (c) provide:

(a) Where a claim is disputed or unliquidated and a check is tendered by the
debtor in settlement thereof in full discharge of the claim, and the words
“oayment in full” or other words of similar meaning are notated on the check
or draft, the acceptance of the check or draft does not constitute an accord
and satisfaction if the creditor protests against accepting the tender in full
payment by striking out or otherwise deleting that notation or if the
acceptance of the check or draft was inadvertent or without knowledge of the
notation...

(c) Notwithstanding subdivision (a), the acceptance of a check or draft by a
creditor constitutes an accord and satisfaction when the check or draft is

issued pursuant to or in conjunction with a release of claim.

Cal. Civ. Code § 1526 has been held to have been superseded, as to discharge of an

unliquidated claim or a claim subject to bona fide dispute by tendering a negotiable

instrument as full satisfaction of the claim, by Cal. Com. Code § 3311. See, Woodridge v.

JLF.L. Electric, inc., 117 Cal. Rptr. 2d 771, 96 Cal, App. 4" Supp. 52 (2002). Section 3311

provides:

(a) If a person against whom a claim is asserted proves that (1) that person in
good faith tendered an instrument to the claimant as full satisfaction of the
claim (2) the amount of the claim was unliquidated or subject to a bona fide
dispute and (3) the claimant obtained payment of the instrument, the

following subdivisions apply:

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(b) Unless subdivision (c) applies, the claim is discharged if the person

against whom the claim is asserted proves that the instrument or an

accompanying written communication contained a conspicuous statement to

the effect that the instrument was tendered as full satisfaction of the claim.

(c) Subject to subdivision (d), a claim is not discharged under subdivision (b)

if either of the following applies:

(1) The claimant , if an organization, proves that (A) within a
reasonable time before the tender, the claimant sent a conspicuous
statement to the person against whom the claim is asserted that
communications concerning disputed debts, including an instrument
tendered as full satisfaction of a debt, are to be sent to a designated
person, office, or place, and (B) the instrument or accompanying
communication was not received by the designated person, office, or
place.

(2) The claimant, whether or not an organization, proves that within 90
days after payment of the instrument, the claimant tendered
repayment of the amount of the instrument to the person against
whom the claim is asserted. This paragraph does not apply if the
claimant is an organization that sent a statement complying with

subparagraph (A) of paragraph (1).

(d) A claim is discharged if the person against whom the claim is asserted
proves that within a reasonable time before collection of the instrument was

initiated, the claimant, or an agent of the claimant having direct responsibility

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with respect to the disputed obligation, knew that the instrument was
tendered in full satisfaction of the claim. (emphasis added).

The elements of Cal. Com. Code § 3311 (as weil as of Cal. Civ. Code § 1526(a)
and (c)) are all met here. Certainly it was proved that the amount of the total obligation
was unliquidated or disputed as of Nov. 9, 2004; if not true of the principal of the obligation
this was clearly so as to any claim for fees. An instrument [Exhibits “A” and “8”"] was
tendered to the claimant in full satisfaction, by “accompanying written communication’, i.e.
a cover letter [Exhibit “7"] in which the tender was expressly and conspicuously conditioned
as full satisfaction of aff obligations. Moreover, the Court has seen no evidence suggesting
that Cal. Com. Code § 3311 subsection (d) should not apply, i.e. the agents for the
claimant, Brinkman Portillo, PC knew that the tender was in full satisfaction of the claim.
This is the only reasonable interpretation of the language of the November 9 letter wherein
it is mentioned twice that the payment of $150,000 was intended as “payment in full” and in
the second reference it is made even more clear that “in full” includes “of all amounts due
in past as well as prepayment of all amounts due in the future...” Moreover, it was also
made clear in the November 9 letter that withdrawal of the complaint was expected in
return. Nor can it be reasonably said that the communication was not made “within a
reasonable time before the collection of the instrument was initiated..." Similarly, the
provisions of Cal. Civ. Code § 1526(a) and (c) are also met since the check was tendered
in full satisfaction of a disputed or unliquidated claim, or in conjunction with a release, and
there is no evidence of the requisite striking out of language or protest against same before

the check was cashed.

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Plaintiff argues that he was privileged to remain silent, cash the check
notwithstanding the clear terms of the conditional tender outlined above and then only raise
the further issue of fees after collection was in hand. Argument was also offered to the
effect that the Brinkman Portillo lawyers owed no “duty” to the Defendants to articulate to
them that, in Plaintiff's view, no settlement had been reached. Plaintiff's assumptions were
grievously in error. While it might be true that Plaintiff's lawyers owe no duty to educate
Defendants, it does not follow that Plaintiff was privileged to simply ignore the conditional
nature of the tender and cash the check. This is an almost classic case of an accord and
satisfaction. Where it is made clear that a tender is made in full satisfaction of a disputed
or unliquidated claim, if the obligee receiving the tender cashes the check he is presumed
in law to have “accepted”, an accord is reached thereby and the obligation is extinguished
upon payment of the check. Thompson v. Williams, 211 Cal. App. 3d 566, 571-74 (1989);
Potter v. Pacific Coast Lumber Co., 37 Cal. 2d 592 (1951); Robertson v. Robertson, 34
Cal. App. 2d 113 (1939); Edgar v. Hitch, 46 Cal. 2d. 309 (1956).

Plaintiff may argue that there was no “bona fide” dispute since the terms of the Note
are very straightforward, and/or that no consideration was received for extinguishment of
the debt. The dispute does not need a solid foundation to be “bona fide”; it is enough if the
dispute is honest and not fraudulent. Thompson, 211 Cal. App. 3d at 573. Ms. Sharma
testified as to the precarious financial condition of DPS and that it did not have nearly this
kind of money to make the payments due under the Note. Moreover, there is evidence in
the record to suggest that this shaky financial condition was made known to Ms. Portillo, as
is reflected in paragraphs 9 and 10 of the Portillo declaration and to Ms. Erickson as well,

as reflected in paragraph 7 of the Erickson Declaration. Further, fees of an additional

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$35,000+ would certainly not have been a “liquidated” obligation nor an agreed amount as
of November 9, 2004. While it is doubtful that consideration even needs to be separately
proven in order for an accord and satisfaction based on a writing to occur [Cal. Civ. Code
§1524], there would be such consideration here since the insolvency of the obligor can
provide consideration for an accord and satisfaction. See, Cloyne v. Levy, 26 Cal. App.
637 (1915); Baird v. Smith, 7 Cal. App. 2d 597 (1935).

C. Attorneys’ Fees

DPS is a party to the Security Agreement and, since it is also the prevailing party
hereunder, it is entitled to its reasonable attorneys’ fees incurred in the breach of contract
cause of action. Cal. Civ. Code § 1717. Although Priti and Rajeev Sharma are not parties
to the contract, inexplicably they were named as defendants in the Second Claim for Relief
and remained so until after trial had begun. Moreover, as a “prevailing party” a non-
signatory can be entitled to attorneys’ fees even if the decision rests on the finding that no
contract exists. Hsu v. Abbara, 9 Cal. 4" 863, 870 (1995); Manier v. Anaheim Business
Center, Co., 161 Cal.App.3d 503, 506-509 (1984). The Joint Pre-Trial Order at J G, page
9, makes clear that total attorneys fees and costs incurred by counsel for Defendants on
behalf of Defendants from September 9, 2004 through trial remained as a triable issue.
See also, 7 F, page 10.

Plaintiff's citation to Bradley v. Hortonville Vigilantes, 66 F.R.D. 605 (E.D. Wis. 1975)
is wholly inapposite. That was not a case involving either a contract nor attorneys fees, but
only involved a sheriff who was dismissed at the pleading stage and denied costs.

Moreover, since the Plaintiff chose to put the Sharmas through all of the worry and

inconvenience of having to go to trial, it might appear just and proper that the Sharmas

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recover their fees, and that a dismissal after trial had commenced should not deprive them
of “prevailing party” status. Fortunately for Plaintiff, California has a strong policy favoring
settlement precluding an award of fees and costs where there has been a voluntary
dismissal of a claim. See, Inti. Industries, Inc. v. Olen, 21 Cal.3d 218, 223 (1978). The
Olen holding was later codified by the addition of (b)(2) to Cal. Civ. Code § 1717, which
provides:

Where an action has been voluntarily dismissed or dismissed pursuant to

settlement of the case, there shall be no prevailing party for purposes of this

section.
Subsection (b)(2) does not require that the dismissal be entered before trial. D&J, inc. v.
Ferro Corp., 176 Cal.App.3d 1191, 1194 (1986). Even though Cal. Civ. Proc. § 581(d)
allows a dismissal “by the court” after the trial but before submission of the case if the
plaintiff abandons the claim, the court in D&J did not focus on technicalities but instead
regarded the dismissal as voluntary upon a clear, unequivocal and express intention to
abandon an action, which could be demonstrated to the court by way of a motion to
dismiss, stipulation of the parties, “or some other form of express intent on the record.” /d.
at 1195, citing, Kaufman & Broad Bidg. Co. v. City & Suburban Mortg. Co., 10 Cal.App.3d
206, 213 (1970). The D&J court found that a mere oral request to the judge on the record
was sufficient to make the dismissal “voluntary” for purposes of Cal. Civ. Code § 1717.

In the case at bar, at the commencement of trial, counsel for Plaintiff announced on

the record to the effect that Plaintiff would not be proceeding on any of the claims as
against the Sharmas. Although technically a court order of dismissal would have been

necessary at that point to effect a dismissal under Fed. Rule Civ. Proc. 41(a)(2) as adopted

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under Fed. Rule Bankr. Proc. 7041, like the California procedure discussed in D&J, this
Court will not exalt technicalities over substance in view of the clear public policy underiying
Cal. Civ. Code § 1717(b) as expressed by California courts. Therefore, the Court finds that
the Sharmas were voluntarily dismissed and the Court is without authority under Cal. Civ.
Code § 1717(b)} to find a “prevailing party’ as between Piaintiff and the Sharma
defendants. Therefore, attorneys’ fees as a part of costs recoverable by them will be
denied.

Defendants may (1) submit a form of judgment consistent with this opinion and (2)
schedule a separate hearing to determine DPS’s costs and attorneys’ fees, and costs only

as to the Sharmas. This memorandum shall serve as findings in the case.

DATED: AUG 28 2006 ficeebe CHL _|

HONORABLE THEODOR C. ALBERT
United States Bankruptcy Judge

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
411 West Fourth St., Ste. #2074, Santa Ana, CA 92701-4593

In re Case No.: SA 02-16187 TA
OPS, INC, Adv. No. SA 04-01628 TA

Debtor | Chapter 11

NOTICE OF ENTRY OF JUDGMENT OR ORDER
AND CERTIFICATE OF MAILING

TO ALL PARTIES IN INTEREST ON THE ATTACHED SERVICE LIST:

1. You are hereby notified, pursuant to Local Bankruptcy Rule 9021-1(1 )(a)(v), that
a judgment or order entitled: MEMORANDUM OF DECISION AFTER TRIAL

was entered on: AUG 2 8 2006

2. | hereby certify that | mailed a copy of this notice and a true copy of the order or
judgment to the persons and entities on the attached service list ON-ALG og ONE

Dated: AUG 28 2006 JON D. CERETTO

Clerk of the Bankruptcy Court

By: Susan L. Kent
Deputy Clerk

NACHONG service lists\OPS Adv.SA0401628-TA.wpd
T2000

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SERVICE LIST

Attorneys for David Gottlieb, Disbursing Agent for the Estate of QPS. Inc.
Daren R. Brinkman, Esq.

Laura J. Portillo, Esq.

Christina Erickson, Esq.

Brinkman Portillo, PC

4333 Park Terrace Drive, Suite 205

Westlake, Village, CA 91361

Attorneys for Defendants Digital Peripheral Solutions, Inc., Rajeev Sharma and

Priti Sharma

Kenneth J. Catanzarite, Esq.
Richard Verge de Dios, Esq.
Catanzarite Law Corporation |
2331 West Lincoln Avenue
Anaheim, CA 92801

United States Trustee

Michael Hauser, Esq.

Office of the U.S. Trustee

411 West Fourth Street, Suite 9041
Santa Ana, CA 92701