Transact Inc et al v. Frank D'Errico Living Trust et al

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SANTA ANA DIVISION
In re:
TRANSACT, INC.,
Debtor.
Case No. 8:07-bk-11443-ES
Chapter: 7
Lead Adversary No. 8:08-ap-01001-ES
(Related Bk. No. 8:07-bk-14433-ES, Debtor:
Transact, Inc.)
Jointly Administered with:
Adversary No. 8:11-ap-01327-ES,
(Related Bk. No. 8:11-bk-15584-ES, Debtor:
Robert Allen Hall)
ORDER GRANTING MOTION FOR
ATTORNEYS’ FEES AND EXPENSES
TRANSACT, INC., a Nevada corporation,
ALLAN REUMONT, an individual,
Plaintiffs,
v.
FRANK D’ERRICO, individually and in his
capacity as trustee of the FRANK D’ERRICO
LIVING TRUST DATED 1/15/1998, RHFD
PEBBLE, INC., ANTHONY D’ERRICO,
ROBERT HALL, and DEBORA MEDEIROS,
Defendants.
FRANK D’ERRICO, individually and in his
capacity as trustee of the FRANK D’ERRICO
LIVING TRUST DATED 1/15/1998, RHFD
PEBBLE, INC., and ANTHONY D’ERRICO,
Cross-Plaintiffs,
v.
TRANSACT, INC., a Nevada corporation,
ALLAN REUMONT, an individual,
Cross-Defendants.
Hearing:
Date: November 7, 2013
Time: 11:00 a.m.
Ctrm: 5C
Place: Ronald Reagan Federal Building
and United States Courthouse
411 West Fourth Street
Santa Ana, California 92701
FILED & ENTERED
NOV 07 2013
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	nbolte
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This matter is before the Court on the Motion for Attorneys’ Fees and Expenses (the
“Transact Fee Motion”) [Adv. Dk. 419] 1 filed by Transact, Inc. (“Transact”). This matter was
originally set for hearing on October 3, 2013; however, the Court continued this matter from
October 3, 2013 to November 7, 2013 to allow Transact to file a supplemental declaration. In
its October 3, 2013 tentative, the Court required Transact to submit a supplemental
declaration, which separated out non-contractual claims, including RICO claims and claims
against Medeiros (all of which were non-contractual). Transact filed its supplemental
declaration (the “Supplemental Declaration”) [Adv. Dk. 446] on October 11, 2013. The D’Errico
Parties (as defined below) filed a response to the Supplemental Declaration (the
“Supplemental Opposition”) on October 18, 2013. [Adv. Dk. 448]. As discussed more fully
below, Transact’s Assignment Motion is GRANTED.
I. LAW
Bankruptcy courts apply state law when awarding a “prevailing party” attorney fees and
costs regarding “actions on the contract.” See In re Baroff, 105 F.3d 439, 441 (9th Cir. 1997)
(“[A] prevailing party in a bankruptcy proceeding may be entitled to an award of attorney fees
in accordance with applicable state law if state law governs the substantive issues raised in the
proceedings. . . . Because state law necessarily controls an action on a contract, a party to
such an action is entitled to an award of fees if the contract provides for an award and state
law authorizes fee shifting agreements.”) (citing Johnson v. Righetti (In re Johnson), 756 F.2d
738, 741 (9th Cir. 1985); Collingwood Grain v. Coast Trading Co. (In re Coast Trading Co.),
744 F.2d 686, 693 (9th Cir. 1984)).
California Civil Code section 1717(a) provides, in pertinent part, that “[i]n any action on
a contract, where the contract specifically provides that attorney’s fees and costs, which are
incurred to enforce that contract, shall be awarded either to one of the parties or to the
prevailing party, then the party who is determined to be the party prevailing on the contract . . .
1 Unless otherwise specified, all citations to “Adv. Dk.” refer to the CM/ECF adversary docket for adversary
proceeding number 8:08-ap-01001.
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shall be entitled to reasonable attorney’s fees in addition to other costs.” Cal. Civ. Code §
1717(a).
In determining the reasonableness of attorney fees, the bankruptcy court looks to state
law, which accords the trial court broad discretion. The California Supreme Court in PLCM
Grp. v. Drexler held that “[i]t is well established that the determination of what constitutes
reasonable attorney fees is committed to the discretion of the trial court. . . . The value of legal
services performed in a case is a matter in which the trial court has its own expertise. The trial
court may make its own determination of the value of the services contrary to, or without the
necessity for, expert testimony. The trial court makes its determination after consideration of a
number of factors, including the nature of the litigation, its difficulty, the amount involved, the
skill required in its handling, the skill employed, the attention given, the success or failure, and
other circumstances in the case.” PLCM Grp. v. Drexler, 22 Cal. 4th 1084, 1096 (2000) (citing
Melnyk v. Robledo, 64 Cal. App. 3d 618, 623–24 (1976) (internal citations omitted)).
II. ANALYSIS
ATTORNEY FEES INCURRED
Transact, through its Motion for Attorney Fees and Litigation Expenses (the “Transact
Fee Motion”), originally sought attorney fees and litigation expenses in the total amount of
$1,122,644.72, as the “prevailing party on the contract” for the purposes of California Civil
Code section 1717. Transact Fee Motion, Adv. Dk. 419, 1:17.
Frank D’Errico (“D’Errico”), RHFD Pebble, Inc. (“Pebble Corp.”), Frank D’Errico Living
Trust (“D’Errico Living Trust”), and Anthony D’Errico (“Anthony D’Errico”) (together the
“D’Errico Parties”) filed an opposition to the Transact Fee Motion (the “D’Errico Opposition”)
[Adv. Dk. 431], objecting to, in relevant part, four categories of compensation in the Transact
Fee Motion:
1. D’Errico’s ability to fund the Construction Loan;
2. Transact’s claims against Debora Medeiros (“Medeiros”);
3. Transact’s RICO claims against D’Errico; and
4. Transact’s obtaining a preliminary injunction.
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In addition, the D’Errico Opposition sets forth that Transact has not submitted a
separate bill of costs with a proper certification pursuant to LBR 7054-1(c).
Transact filed a Reply to the D’Errico Opposition (the “Transact Reply”), which
addresses each of the objections raised in the D’Errico Objection. Transact Reply, Adv. Dk.
436. Transact also filed the Supplemental Declaration [Adv. Dk. 446], which addressed this
Court’s tentative of October 3, 2013.
The analysis, below, focuses on differentiating between work performed “on the
contract” and work not performed “on the contract.” Each relevant objection to a fee category
is addressed below.
1. D’Errico’s Ability to Fund the Construction Loan
The first issue is whether Transact’s work concerning D’Errico’s ability to fund the
Construction Loan compensable as being work performed “on the contract,” or if such work
was otherwise common to both compensable and noncompensable work performed.
Transact argues that such work was “on the contract” because Transact “suspected that
Defendant D’Errico Living Trust did not have sufficient funds to perform under the construction
loan” [Transact Reply, Adv. Dk. 436, 4:5-7], and because “Transact initiated discovery to
obtain the finances of both Defendants as additional evidence to support the breach and
related claims.” Transact Reply, Adv. Dk. 436, 4:7-8.
The Court agrees that Transact’s work concerning D’Errico’s ability to fund the
Construction Loan is “on the contract” because it relates to Transact’s enforcing the
Construction Loan Agreement against the D’Errico or the D’Errico Living Trust.
Therefore, all fees and expenses incurred by Transact relating to work performed in
determining D’Errico’s ability to fund the Construction Loan ($172,874.50) are “on the contract”
and are compensable.
2. Transact’s Claims Against Medeiros
The second issue is whether Transact’s work concerning Medeiros is compensable as
being work performed “on the contract,” or if such work was otherwise common to both
compensable and noncompensable work performed.
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Transact argues, among other things, that Medeiros was a “key adverse witness whose
testimony support[ed] Defendants in connection with their position that Transact had breached
the construction loan by submitting false invoices.” Transact Reply, Adv. Dk. 436, 5:18-19.
Hence, Transact argues that its work concerning Medeiros was “on the contract” because it
was necessary to defend against the breach of contract counterclaims brought by the D’Errico
Parties concerning the D’Errico Parties’ counterclaims for breach of the Construction Loan
Agreement.
The D’Errico Parties argue that, because they are unable to decipher which billing
entries are related to the prosecution of RICO claims against Medeiros, all billing entries that
relate to Medeiros should be stricken from the fee application. See Supplemental Opposition,
Adv. Dk. 448, 2:5-9 (“The billing entries themselves do not easily lend themselves to allowing
anyone to determine whether an entry relates to a RICO claim (and should therefore be
excluded) or whether an entry relates to something else for which fees might be recoverable.
In the absence of such clarity, the fees should simply be stricken as non-recoverable.”).
The Court disagrees that all time entries relating to Medeiros should be stricken.
Indeed, time entries related to the prosecution of RICO claims against Medeiros are not “on
the contract” and are therefore not compensable; however, time entries related to the defense
of breach of contract counterclaims, including time entries related to Medeiros’s adverse
testimony concerning the D’Errico Parties’ breach of contract counterclaims, are “on the
contract” and are compensable.
Nonetheless, Transact’s work related to prosecuting non-contractual claims against
Medeiros or in responding to non-contractual claims by Medeiros ($4,640.50), as well as
responding to Medeiros’s California State Bar complaint and U.S. Trustee inquiry ($9,320.00)
are not “on the contract,” and therefore are not compensable. See Supplemental Declaration,
Adv. Dk. 446, 4-5.
Accordingly, the total award of attorney fees sought by Transact shall be reduced by
$13,960.50.
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3. Transact’s RICO and Other Non-Contractual Claims
The third issue is whether Transact’s work concerning RICO and other non-contractual
claims is compensable as being work performed “on the contract,” or if such work was
otherwise common to both compensable and noncompensable work performed.
RICO claims are not “on the contract”; however, Transact asserts that the work
Transact performed in defending the D’Errico Parties’ two Rule 12(b)(6) motions to dismiss
was common to both the contract claims and the RICO claims, and therefore compensable
because it would be “literally impossible to separate them. . . .” Transact Reply, Adv. Dk. 436,
7:7.
Transact’s work related to prosecuting RICO claims against Medeiros are not
compensable because they are not “on the contract.” To the extent that such claims are
severable from otherwise compensable “on the contract” work, such time should be stricken.
Exhibit B to Transact’s Supplemental Declaration [Adv. Dk. 446], lists all time entries
related to RICO claims, totaling $73,882.50. Some of these time entries relate to work on
amending the complaint or defending Rule 12(b)(6) motions to dismiss. Therefore, to the
extent that these time entries relate to the defense or prosecution of claims that are not “on the
contract,” they are stricken.
The Court has reviewed the relevant pleadings and time entries in question, including
the motion to amend complaint dated September 10, 2008 [Adv. Dk. 71] (the “Motion to Amend
Complaint”); the second amended complaint dated October 17, 2008 [Adv. Dk. 101] (the
“Second Amended Complaint”); the motion to dismiss dated December 19, 2008 [Adv. Dk.
112] (the “First Motion to Dismiss”); the third amended complaint dated March 2, 2009 [Adv.
Dk. 130] (the “Third Amended Complaint”); and the motion to dismiss dated April 3, 2009 [Adv.
Dk. 138] (the “Second Motion to Dismiss”).
The Court finds that the work performed on the following matters are not “on the
contract”:
1. the Motion to Amend Complaint ($6,893.50);
2. the Second Amended Complaint ($10,251.50);
3. the First Motion to Dismiss ($24,034.50); and
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4. the Third Amended Complaint ($4,470.50).
The Court finds that of the $26,994.00 incurred by Transact in connection with the
Second Motion to Dismiss, only 75% is compensable as being “on the contract.” The Court
reasons that none of the grounds for the First Motion to Dismiss were “on the contract.”
Rather, the First Motion to Dismiss only sought to dismiss claims sounding in tort. Moreover,
the Second Amended Complaint was amended to add only non-contractual claims. The same
goes for the Third Amended Complaint. However, the Second Motion to Dismiss sought, in
part, to dismiss the two, central contractual claims by Transact for breach of the Purchase and
Sale Agreement and the Construction Loan Agreement. As a result, based on this Court’s
experience and judgment, 75% of the work performed by Transact in defending the Second
Motion to Dismiss was “on the contract” under California law.
Accordingly, the total award of attorney fees sought by Transact shall be reduced by
$53,636.50.
4. Transact’s Obtaining a Preliminary Injunction
The fourth issue is whether Transact’s work concerning obtaining a preliminary
injunction is compensable as being work performed “on the contract,” or if such work was
otherwise common to both compensable and noncompensable work performed. The Court
believes that Transact’s work concerning obtaining a preliminary injunction is not compensable
because it is not “on the contract.”
Accordingly, the total award of attorney fees sought by Transact shall be reduced by
$95,793.50.
EXPENSES INCURRED
The D’Errico Parties objected to Transact’s expenses totaling $43,940.72—set forth in
Exhibit A to the Supplemental Declaration. As grounds, the D’Errico Parties object to
$2,353.31 in messenger costs; $22,256 in photocopy costs; postage entries of $1,316.33 and
$917.31 respectively; and $1,292.63 of “Other Expenses, including audio records.” D’Errico
Reply, Adv. Dk. 448, 2:16-21.
Local Bankruptcy Rule 7054-1(d) provides that a prevailing party may recover costs, as
set forth in the Court Manual. The Court Manual section 2.8(e) provides a list of 14
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recoverable categories of costs. Messenger fees and postage are not listed as recoverable
costs in the Court Manual. Therefore, these fees are stricken.
With respect to photocopying costs, based upon the lengthy and complex nature of this
litigation, the Court believes that Transact is entitled to recover 50% of its photocopying costs,
or $11,128.00.
With respect to “Other Expenses, including audio records,” the Court notes that these
entries largely appear to be audio transcripts of court hearings. Court Manual section 2.8(e)(5)
allows digital transcripts to be taxed as costs “if requested by the court or obtained pursuant to
stipulation.” The Court is unable to find any such order or stipulation. These costs of
$1,292.63 for “Other Expenses, including audio records” are therefore stricken.
In sum, Transact’s Supplemental Declaration sought $43,940.72 in costs, but the Court
is reducing that amount by $17,007.58, which results in total costs of $26,933.14 to be
awarded to Transact.
TRANSACT’S ANTICIPATED FEES AND COSTS
Transact also sought reimbursement of anticipated fees of $10,625.00 and costs of
$1,000.00 for the prosecution of the Transact Fee Motion. See Supplemental Declaration, Adv.
Dk. 446, 8:16-17. The D’Errico Parties have not objected to these anticipated fees or costs.
The Court finds that anticipated fees of $7,000.00 and costs of $0.00 are reasonable and
compensable.
APPORTIONMENT OF TOTAL FEES AND COSTS
Transact requested that the total award be apportioned 60% against Pebble Corp. and
40% against the D’Errico Living Trust. The D’Errico Parties have not objected to this
apportionment request. The Court finds that this apportionment is appropriate.
III. CONCLUSION
In accordance with the discussion above, Transact is entitled to total fees of
$930,809.35 and total costs of $17,007.58, for a total award of $957,742.49, which includes
$7,000.00 in anticipated fees and $0.00 in anticipated costs for prosecuting the Transact Fee
Motion. The total amount of the attorney’s fees awarded shall be apportioned 60% against
///
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Pebble Corp. and 40% against the D’Errico Living Trust. The Court’s calculations are
summarized in the attached chart, referenced as Appendix A.
IT IS SO ORDERED.
###
Date: November 7, 2013
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APPENDIX A
Amount
Sought or
Disputed Reduction Approved
Total Sought $1,122,664.72
Disputed Fees $390,075.00
Disputed Expenses $62,398.01
Total Disputed $452,473.01
Total Undisputed $670,191.71 $0.00 $670,191.71
Disputed Fees $390,075.00
1. D'Errico's Ability to Fund CL $172,874.50 $0.00 $172,874.50
2. Claims against Medeiros $47,571.50 $13,960.50 $33,611.00
3. RICO and Unfair Business Prac. $73,835.50 $53,636.50 $20,199.00
4. Preliminary Injunction $95,793.50 $95,793.50 $0.00
Disputed Expenses $62,398.01 $35,464.87 $26,933.14
Anticipated Fees $10,625.00 $3,625.00 $7,000.00
Anticipated Expenses $1,000.00 $1,000.00 $0.00
TOTAL FEES AWARDED $930,809.35
TOTAL EXPENSES AWARDED $26,933.14
TOTAL $957,742.49
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NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify):
ORDER GRANTING MOTION FOR ATTORNEYS’ FEES AND EXPENSES
was entered on the date indicated as “Entered” on the first page of this judgment or order and will be served in the
manner stated below:
1. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF) Pursuant to controlling General
Orders and LBRs, the foregoing document was served on the following persons by the court via NEF and
hyperlink to the judgment or order. As of 11/7/2013, the following persons are currently on the Electronic Mail
Notice List for this bankruptcy case or adversary proceeding to receive NEF transmission at the email addresses
stated below.
Robert E Huttenhoff, rhuttenhoff@shbllp.com
Michael W Johnson, mike@jojolaw.com
Daniel J Kessler, moberbeck@bkcglaw.com
David B Lally, davidlallylaw@gmail.com
Martha E Romero, Romero@mromerolawfirm.com
Donald Segretti, dsegretti@aol.com
Leonard M Shulman, lshulman@shbllp.com
United States Trustee (SA), ustpregion16.sa.ecf@usdoj.gov
John M Wolfe, john.wolfe1@earthlink.net, CA83@ecfcbis.com
Service information continued on attached page
2. SERVED BY THE COURT VIA UNITED STATES MAIL: A copy of this notice and a true copy of this
judgment or order was sent by United States mail, first class, postage prepaid, to the following persons and/or
entities at the addresses indicated below:
Allan W. Reumont
c/o Robert N. Ives
105 Avenida de la Estrella, Ste 2B
San Clemente, CA 92672-3985
Service information continued on attached page
3. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment or order
which bears an “Entered” stamp, the party lodging the judgment or order will serve a complete copy bearing an
“Entered" stamp by United States mail, overnight mail, facsimile transmission or email and file a proof of service
of the entered order on the following persons and/or entities at the addresses, facsimile transmission numbers,
and/or email addresses stated below:
Service information continued on attached page
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