Dane-Elec Corp. v. Bodokh ( 2019 )

Filed 5/24/19
*
CERTIFIED FOR PARTIAL PUBLICATON
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
DANE-ELEC CORPORATION, USA,
Plaintiff, Cross-Defendant and G055312
Respondent, (Consol. with G055784)
v. (Super. Ct. No. 30-2015-00789866)
NESSIM BODOKH, OPINION
Defendant, Cross-Complainant and
Appellant.
Appeal from a judgment of the Superior Court of Orange County, Nathan
R. Scott, Judge. Affirmed in part, reversed in part, and remanded. Motion for Judicial
Notice. Granted.
Tira Law APC and Patrick R. Tira for Defendant, Cross-Complainant and
Appellant.
Law Offices of Wade & Lowe and Richard W. Miller for Plaintiff,
Cross-Defendant and Respondent.
* * *
*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of parts I and II of the Discussion section.
INTRODUCTION
Labor Code section 218.5, an attorney fee-shifting statute in actions for
nonpayment of wages, prohibits a prevailing party employer from recovering attorney
fees unless the trial court finds the employee brought the wage claim in bad faith. This
appeal presents an issue regarding the effect of Labor Code section 218.5 on a prevailing
party employer’s right to recover contract-based attorney fees from an employee.
Specifically, we address whether an employer may recover attorney fees incurred in
successfully defending a wage claim, found not to have been brought in bad faith, when
the wage claim was inextricably intertwined with a contract claim for which the employer
would otherwise be contractually entitled to recover attorney fees. We partially publish
our opinion to address this issue of first impression.
We hold that unless the trial court finds the wage claim was brought in bad
faith, Labor Code section 218.5, subdivision (a) (section 218.5(a)) prohibits, as a matter
of law, an award of attorney fees to a nonemployee prevailing party for successfully
defending a wage claim that is inextricably intertwined with a claim subject to a
contractual prevailing party attorney fees provision. To the extent the wage claim and the
contract claim are inextricably intertwined, section 218.5(a)’s prohibition on recovering
attorney fees controls over the contractual attorney fees provision.
In this case, Dane-Elec Corporation USA (Dane Corp.) prevailed against
Nessim Bodokh, its former chief executive officer, on a complaint to recover on a
promissory note and defeated Bodokh’s cross-complaint to recover allegedly unpaid
wages. The trial court granted Dane Corp.’s motion to recover attorney fees based on an
attorney fees provision in the promissory note. The court found that Bodokh had not
brought the wage claim in bad faith and declined to award Dane Corp. attorney fees
incurred solely in connection with the wage claim. But the court awarded Dane Corp.
attorney fees incurred in defending Bodokh’s wage claim that were inextricably
2
intertwined with the contract claim. Bodokh appealed from the judgment and the order
granting Dane Corp.’s motion for attorney fees.
We reverse the order granting Dane Corp.’s motion for attorney fees and
remand. Based on our holding, we conclude that under section 218.5(a) Dane Corp. may
not recover attorney fees to the extent the wage claim and the breach of contract claim
were inextricably intertwined. We remand for the trial court to recalculate the amount of
attorney fees to be awarded to Dane Corp.
For reasons explained in the unpublished portions of the opinion, we affirm
the judgment in favor of Dane Corp. The trial court did not err by denying Bodokh’s
request for a statement of decision and substantial evidence supported findings necessary
to uphold the judgment.
FACTS
I.
Background
In the 1980’s, Bodokh and David Haccoun founded Dane-Elec Memory
(Dane Memory), a business that produced and sold computer memory and data storage.
Bodokh and Haccoun later formed Dane Corp., which is a Delaware corporation based in
Irvine. Before June 18, 2013, Dane Memory wholly owned Dane Corp. Bodokh and
Haccoun jointly owned more than 50 percent of Dane Memory’s outstanding shares.
Bodokh served as Dane Memory’s chief executive officer, and Bodokh and Haccoun
constituted Dane Memory’s board of directors.
Bodokh is a citizen of, and resides in, France. He did not have a United
States work visa. Bodokh was not on Dane Corp.’s payroll; instead, Dane Corp. treated
him as an independent contractor and paid him “executive compensation” by wire
transfer directly to his personal business account. Nothing was withheld from his
compensation for federal, state, or French income taxes.
3
II.
The Promissory Notes
Sometime in late 2007 or early 2008, Bodokh learned of an investment
opportunity in a financial institution called Cross River Bank. The investment called for
Bodokh and Haccoun each to purchase $500,000 in shares of Cross River Bank stock.
Jeffrey Jacobs, Dane Corp.’s corporate counsel, looked into “the best way” for Bodokh
and Haccoun to make the investment. Jacobs considered, and ultimately recommended,
that Dane Corp. make corporate loans to Bodokh and Haccoun and to document the loans
with promissory notes.
On January 12, 2008, Dane Corp.’s board of directors (which was Bodokh
and Haccoun) approved making loans of $500,000 each to Bodokh and Haccoun. The
minutes of the board of directors meeting includes a resolution authorizing the loans. On
January 16, 2008, Bodokh signed a promissory note for $500,000 in favor of Dane Corp.
(the Promissory Note). The Promissory Note had an interest rate of 5 percent annually
and required repayment in monthly installments of $10,000 for 50 consecutive months
beginning on February 1, 2009. The Promissory Note had a term stating the note may be
amended, discharged, modified, changed or terminated only by an instrument in writing
signed by both parties.
The Promissory Note was maintained in Dane Corp.’s financial records as a
personal loan to Bodokh from Dane Corp. Bodokh used the $500,000 in loan proceeds to
purchase common stock in Cross River Bank. The value of the shares at the time of trial
was $3.5 million. In May 2009, the Promissory Note was amended to extend the time for
repayment to October 1, 2009.
In December 2009, Dane Corp. received an initial distribution of over $13.9
million from settlement in a class action called In re Dynamic Random Access Memory
(DRAM) Antitrust Litigation (DRAM Settlement). At a meeting on December 28, 2009,
the Dane Corp. board of directors agreed to compensate Bodokh with a one-time bonus
4
of $1 million, from which $400,000 was used to pay down the Promissory Note. The
minutes of the meeting state: “Mr. Bodokh and Mr. Haccoun have agreed to respectively
repay the amount of $400,000.00 US dollars to [Dane] Corp[.] for each respective
promissory note[], leaving a remaining balance of $100,000.00 US dollars. It has been
agreed that the remaining balance of $100,000.00 US dollars will be reflected in an
amendment to the written promissory notes that will be executed by Mr. Bodokh and Mr.
Haccoun. It is further agreed that Mr. Bodokh and Mr. Haccoun will be required to repay
the remaining $100,000.00 balance starting on the 1st day of September 2010 in equal
monthly installments of $5,000.00 US dollars for a total of forty consecutive months.”
Bodokh made none of the payments toward the balance remaining on the
Promissory Note. On April 25, 2012, a renewed promissory note (the Renewed
Promissory Note) was made to reflect the $100,000 balance owed by Bodokh. The
Renewed Promissory Note extended the due date to January 1, 2013 and required Bodokh
to pay $2,500 for 36 consecutive months and the remaining balance on the 37th month.
Bodokh made none of the payments required under the Renewed
Promissory Note. On April 18, 2013, another renewed promissory note (the Second
Renewed Promissory Note) was made. It had a principal sum of $100,000, extended the
payment due date to January 1, 2014, and had the same term as in the prior notes
requiring all amendments, modifications, and changes to be in writing. The $100,000
balance remained unpaid.
III.
Reduction in Bodokh’s Compensation
Beginning in 2009, Dane Corp., as well as Dane Memory, suffered
financial difficulties. As a consequence, Dane Corp., at Bodokh’s direction, implemented
a payment reduction plan (the PRP) requiring all salaried employees to accept a pay
reduction until the company returned to making a profit, at which time the employees
would be paid retroactively. In 2009 or 2010, Bodokh’s monthly compensation was
5
reduced from $10,000 to $8,500, and in June 2011, his monthly compensation was
reduced to $6,700.
Dane Memory sought protection under the Commercial Code of France
through a proceeding in the French Commercial Court. In September 2011, Dane
Memory entered into a Memorandum of Understanding Concerning Conciliation (the
Conciliation Agreement) with its creditors in order to restructure its debts. Bodokh
signed the Conciliation Agreement individually and on behalf of Dane Memory. The
Conciliation Agreement stated Bodokh “agree[s] to reduce [his] monthly compensation
received from [Dane Corp.] to $6,700 gross . . . as of June 1, 2011.”
In October 2011, Dane Memory asked James Sinkewicz, Dane Corp.’s then
chief financial officer, to determine Bodokh’s compensation net after taxes. Sinkewicz
proposed adding Bodokh to Dane Corp.’s payroll effective October 1, 2011 and paying
his compensation net after taxes. But after receiving a copy of the Conciliation
Agreement from Dane Memory, Sinkewicz told Mohammed Yaqub, then Dane Corp.’s
controller, that Dane Corp. had to comply with that agreement.
On November 28, 2011, Dane Memory’s general counsel, Valerie Atlan,
wrote to Jacobs, Haccoun, and Bodokh: “Please be informed, from now and until new
information, the remunerations from David [Haccoun] and Nessim [Bodokh] will be at
6700 USD on DANE CORP.” A few days later, Sinkewicz asked Atlan whether “this is
net after taxes, or before deduction of taxes?” Atlan replied, “The remuneration is net
after taxes.” Dane Corp. did not follow Atlan’s instruction to adjust (gross up) Bodokh’s
compensation to account for taxes because doing so would conflict with the Conciliation
Agreement. Neither the Dane Corp. board of directors nor its chief financial officer ever
authorized “gross[ing] up” Bodokh’s compensation to account for withheld taxes.
Although Dane Corp. had not received the additional DRAM Settlement
payment by the end of 2011, Dane Corp. recorded income of $285,000 for its share of
6
that settlement. Dane Corp. treated the $285,000 as accrued income in order to avoid a
default with a creditor bank.
In early 2013, Dane Memory entered formal reorganization proceedings in
France. In June 2013, Dane Memory liquidated its assets. Gigastone, S.A., acquired all
of the shares of Dane Corp. stock, and Bodokh resigned from his positions at Dane Corp.
In May 2014, Dane Corp. received an additional payment from the DRAM
Settlement of over $247,000. Dane Corp. recovered financially and became profitable
again in 2014. Dane Corp. paid its remaining employees their withheld wages, plus 10
percent interest, and restored their salaries to pre-PRP levels. Employees who had
voluntarily left Dane Corp. were not paid.
PROCEDURAL HISTORY
Dane Corp.’s complaint against Bodokh asserted one cause of action—for
breach of the Second Renewed Promissory Note. Bodokh’s amended cross-complaint
asserted causes of action for failure to pay wages, waiting time penalties under Labor
Code section 203, and unfair competition. On appeal, Bodokh does not make any
argument or cite legal authority directed to the claim for unfair competition.
Following a bench trial, the trial court found in favor of Dane Corp. and
against Bodokh on both the complaint and the cross-complaint. After the trial court made
its decision, Bodokh requested a statement of decision. The court denied the request on
the ground the trial had lasted less than eight hours. Judgment was entered in favor of
Dane Corp.
Dane Corp. brought a motion for attorney fees in the amount of $59,637
based on an attorney fees provision in the Second Renewed Promissory Note. Bodokh
opposed the motion. The trial court granted Dane Corp.’s motion and awarded Dane
Corp. $50,959.50. The court disallowed $8,677.50 in attorney fees incurred solely in
7
defending Bodokh’s wage claim. An amended judgment incorporating the attorney fees
award was entered.
Bodokh filed two notices of appeal: one from the judgment and the other
from the order granting Dane Corp.’s motion for attorney fees and the amended
judgment. We ordered the two appeals consolidated for all purposes.
DISCUSSION
I.
Bodokh Failed to Make a Timely Request for
a Statement of Decision.
A. Trial Was Under Eight Hours in Length
Bodokh contends the trial court erred by denying his request for a statement
of decision. We conclude trial court did not err because the request was untimely.
A request for a statement of decision “must be made within 10 days after
the court announces a tentative decision unless the trial is concluded within one calendar
day or in less than eight hours over more than one day in which event the request must be
made prior to the submission of the matter for decision.” (Code Civ. Proc., § 632.) If
counsel do not present opening statements, trial is deemed to commence “at the time of
the administering of the oath or affirmation to the first witness, or of the introduction of
any evidence.” (Id., § 581, subd. (a)(6).)
“[T]he eight-hour rule in section 632 requires a simple and obvious mode
of timekeeping that everyone, including attorneys, can keep track of. This means that, for
purposes of keeping time of trial under section 632 in civil proceedings other than
administrative mandamus . . . , the time of trial means the time that the court is in session,
in open court, and also includes ordinary morning and afternoon recesses when the
parties remain at the courthouse.” (In re Marriage of Gray (2002) 103 Cal.App.4th 974,
979-980.)
8
The trial court calculated the trial to have lasted seven hours and 40
minutes. Bodokh calculates trial to have lasted eight hours and 15 minutes. He contends
the discrepancy arises because the trial court did not include closing arguments in
calculating the length of trial. The discrepancy arises because Bodokh’s calculation is
based on trial commencing at 10:25 a.m. Our review of the record leads us to conclude
the trial commenced at 11:07 a.m., not 10:25 a.m.
The court clerk kept track of commencement times and lunch breaks and
recorded them in the court minutes. The court reporter kept track of the adjournment
times. The minutes of the first day of trial include the entry that trial commenced at
10:25 a.m. when the parties appeared, argued motions in limine, and discussed exhibits
and time estimates. But the court minutes also record that the first witness, Yaqub, was
sworn at 11:07 a.m. Because counsel did not give opening statements, and no exhibits
were admitted before Yaqub was sworn, trial is deemed to have commenced at
11:07 a.m., not at 10:25 a.m. (Code Civ. Proc., § 581, subd. (a)(6).)
As a consequence, trial lasted seven hours and 33 minutes. The trial court’s
calculation of seven hours and 40 minutes was remarkably close to the actual trial time.
Trial was under eight hours, and Bodokh did not request a statement of decision before
the matter was submitted; therefore, the trial court did not err by denying Bodokh’s
request for a statement of decision.
Bodokh argues the trial court should have included the entire morning
session in calculating the length of trial. He cites Miller v. Marina Mercy Hospital
(1984) 157 Cal.App.3d 765 for the proposition that trial may start earlier than the events
listed in Code of Civil Procedure section 581, subdivision (a)(6). Miller is inapposite. In
that case, the plaintiff attempted to voluntarily dismiss the complaint without prejudice
after the defendant filed a motion for summary judgment based on requests for admission
that had been deemed admitted. (Miller v. Marina Mercy Hospital, supra, 157
Cal.App.3d at p. 767.) The Court of Appeal affirmed summary judgment on the ground
9
the plaintiff’s right to dismiss without prejudice terminated upon notification the requests
for admission had been deemed admitted because, at the time, trial was deemed to have
commenced. (Id. at pp. 768-770.)
Miller addressed the issue whether a proceeding other than a trial may
constitute a “trial” for purposes of determining whether a plaintiff has the right to
voluntarily dismiss a complaint without prejudice. When, as in this case, court has
convened, a formal bench trial has been conducted, and no opening statements were
made, the trial is deemed to have commenced when the first witness was sworn. (Code
Civ. Proc., § 581, subd. (a)(6).)
B. Effect on Standard of Review
“A party’s failure to request a statement of decision when one is available
has two consequences. First, the party waives any objection to the trial court’s failure to
make all findings necessary to support its decision. Second, the appellate court applies
the doctrine of implied findings and presumes the trial court made all necessary findings
supported by substantial evidence.” (Acquire II, Ltd. v. Colton Real Estate Group (2013)
213 Cal.App.4th 959, 970.)
In applying the substantial evidence standard, our task is to examine the
entire record in the light most favorable to the judgment and determine whether there is
evidence that is reasonable, credible, and of solid value to support the judgment.
(Ferguson v. Yaspan (2014) 233 Cal.App.4th 676, 682.) We resolve all conflicts in the
evidence in favor of the judgment, do not reweigh the evidence, and are bound by the fact
finder’s credibility determinations. (Citizens Business Bank v. Gevorgian (2013) 218
Cal.App.4th 602, 613.) As a general rule, therefore, we will look only at the evidence
and reasonable inferences supporting the judgment and disregard contrary evidence and
inferences. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 631.) The test is
whether the record contains substantial evidence in favor of the respondent, and “[i]f this
10
‘substantial’ evidence is present, no matter how slight it may appear in comparison with
the contradictory evidence, the judgment must be upheld.” (Ibid.)
II.
Substantial Evidence Supports the Judgment on Dane
Corp.’s Claim to Enforce the Second Renewed
Promissory Note.
Bodokh argues a condition to enforcing the Second Renewed Promissory
Note was Dane Corp.’s failure to receive additional DRAM settlement proceeds.
According to Bodokh, that condition, though not stated in the note, was proven by
extrinsic evidence of a parol term. He argues the trial court erred by failing to consider
this extrinsic evidence and by failing to address whether the $500,000 loan consisted of
advanced wages.
As Bodokh did not request a statement of decision, we presume the trial
court made any and all findings necessary to support the judgment. As a consequence,
we infer the trial court found there was no condition to enforcing the Second Renewed
Promissory Note. Substantial evidence supported that finding. None of the promissory
notes included the term that enforcement was conditioned on receipt of DRAM
settlement proceeds. Such a condition is not mentioned in any of the minutes of Dane
Corp. board of directors meetings or in any of the e-mail communications received into
evidence. Yaqub testified he was not aware of any agreement, “written or otherwise,”
that the balance of the Renewed Promissory Note or Second Renewed Promissory Note
would be paid from future DRAM settlement proceeds. Haccoun made promissory notes
with same terms and paid them back in full.
Bodokh asserts the parol condition was established by his own testimony
that Haccoun, Michel Hassan, and Jacobs told him they agreed, on behalf of Dane Corp.,
that DRAM settlement proceeds would be applied to the Second Renewed Promissory
Note. The trial court found the parol evidence was “just not persuasive.” The trial court
11
was the judge of witness credibility and impliedly found Bodokh was not credible in his
testimony that there was an agreement to repay the loan out of the DRAM settlement
proceeds. We are bound by the trial court’s credibility determinations. (Citizens
Business Bank v. Gevorgian, supra, 218 Cal.App.4th at p. 613.)
Bodokh also points to evidence of the parties’ course of dealing, in
particular, that $1 million from the first DRAM settlement proceeds were paid to him as a
bonus and, from that bonus, $400,000 was applied to the note. An inference might be
drawn from that evidence that the Second Renewed Promissory Note was to be paid from
future DRAM settlement proceeds. The trial court rejected that inference and found “the
notion that Mr. Bodokh doesn’t have to repay the $100,000 and Dane[ Corp.] will get it
from somewhere else just isn’t credible.” The standard of review would compel us to
reject that inference, even if reasonable, and accept only inferences favorable to the
judgment.
III.
Substantial Evidence Supports the Judgment on
Bodokh’s Wage Claim.
On his claim for unpaid wages, Bodokh contends: (1) Under the terms of
the PRP and state law, Dane Corp. was required to compensate him retroactively for the
reduction in his salary; and (2) the reduction in his salary to $6,700 was net after taxes
and Dane Corp. failed to pay him the gross amount. Bodokh argues the trial court
ignored undisputed evidence and failed to correctly interpret the PRP.
The PRP required all salaried Dane Corp. employees to accept a pay cut
until the company returned to making a profit, at which time the employees would be
paid retroactively. The trial court commented there was “no persuasive evidence” of an
employment contract between Dane Corp. and Bodokh. Absent that comment, we would
infer the trial court made an implied finding that Bodokh was not a salaried employee of
12
Dane Corp. (Acquire II, Ltd. v. Colton Real Estate Group, supra, 213 Cal.App.4th at
p. 970.)
Substantial evidence supported a finding that Bodokh was not a salaried
employee of Dane Corp. Bodokh is a citizen of, and resides in, France. He did not have
a United States work visa. He was not considered a Dane Corp. employee and was not
on its payroll. Yaqub testified Dane Corp. treated Bodokh as an independent contractor
and paid him “executive compensation” by wire transfer directly to his personal business
account. Nothing was withheld from this compensation for federal, state, or French
income taxes. No employment contract between Bodokh and Dane Corp. appears in the
appellate record. The Conciliation Agreement referred to a reduction in Bodokh’s
compensation, not salary.
Bodokh points to evidence that Dane Corp. referred to his compensation as
“salary” and that he was physically present at Dane Corp.’s offices one to two weeks
every two months. There are e-mails received into evidence that refer to Bodokh’s
salary, and he testified about working at Dane Corp.’s offices. But “[w]e emphasize that
the test is not the presence or absence of a substantial conflict in the evidence. Rather, it
is simply whether there is substantial evidence in favor of the respondent.” (Howard v.
Owens Corning, supra, 72 Cal.App.4th at p. 631.) There is substantial evidence in the
record that Bodokh was not a salaried employee of Dane Corp. The PRP applied only to
salaried employees of Dane Corp.; therefore, Bodokh was not entitled to be paid
retroactively pursuant to it.
Substantial evidence also supported a finding that Bodokh’s reduced
compensation of $6,700 was gross, not net after taxes. Yaqub testified Dane Corp. never
withheld taxes from Bodokh’s compensation. The Conciliation Agreement, which
Bodokh signed, stated he agreed to reduce his monthly compensation from Dane Corp. to
“6,700 gross.” After receiving a copy of the Conciliation Agreement, Sinkewicz told
13
Yaqub that Dane Corp. had to comply with that agreement and could not pay Bodokh his
compensation net after taxes.
Bodokh argues the trial court refused to enforce an agreement between
Dane Corp. and Dane Memory to pay him $6,700 net after taxes. According to Bodokh,
this agreement was memorialized by the written exchanges in November 2011 between
Atlan and Sinkewicz. Atlan sent an e-mail stating that Bodokh’s monthly remuneration
would be $6,700. Sinkewicz asked whether that amount was net after taxes or gross.
Atlan replied it was net after taxes. No evidence was presented that Atlan had authority
to bind Dane Memory or instructed Dane Corp. on how to compensate Bodokh. No
evidence was presented that Sinkewicz could bind Dane Corp. or that Dane Corp.’s board
of directors authorized “gross[ing up]” Bodokh’s salary. The trial court was free to reject
evidence of an agreement and rely instead, as did Dane Corp., on the Conciliation
Agreement, which required Bodokh’s compensation to be gross.
IV.
Section 218.5(a) Prohibited Dane Corp. from Recovering
Attorney Fees for the Breach of Contract Claim to the
Extent It Was Inextricably Intertwined with
the Wage Claim.
Bodokh also appeals from the order granting, in part, Dane Corp.’s motion
for attorney fees and from the amended judgment, which incorporates the attorney fees
award.
The Second Renewed Promissory Note provides that “[i]n any action or
proceeding arising out of or related to this Note, . . . the prevailing party therein shall be
entitled to recover from the other party the reasonable attorneys’ . . . fees . . . [and] costs
. . . incurred by the prevailing party.” Pursuant to this provision, Dane Corp. brought a
motion under Civil Code section 1717 to recover attorney fees and costs.
The trial court found that Dane Corp. was the prevailing party because it
had obtained a net monetary recovery and awarded Dane Corp. $50,959.50 in attorney
14
fees out of $59,637 sought. The court found “[Dane Corp.] has shown the awarded fees
were incurred on the contract or were so inextricably intertwined with its contract claim
that the court will exercise its discretion to award them.” The court found Bodokh had
not brought his wage claim in bad faith and, therefore, Labor Code section 218.5 barred
Dane Corp. from recovering $8,677.50 of attorney fees incurred solely in defending the
his wage claim.
Labor Code section 218.5 is a fee-shifting statute in actions for nonpayment
of wages. The first sentence of section 218.5(a) states: “In any action brought for the
nonpayment of wages, fringe benefits, or health and welfare or pension fund
contributions, the court shall award reasonable attorney’s fees and costs to the prevailing
party if any party to the action requests attorney’s fees and costs upon the initiation of the
action.” There is a significant limitation if the prevailing party is not an employee. The
second sentence of section 218.5 (a) states: “However, if the prevailing party in the court
action is not an employee, attorney’s fees and costs shall be awarded pursuant to this
section only if the court finds that the employee brought the court action in bad faith.”
The parties do not dispute that Dane Corp. is statutorily prohibited from
recovering attorney fees incurred in defending Bodokh’s wage claim because the trial
court found it was not brought in bad faith. (§ 218.5(a).) The parties do not dispute that
Dane Corp., as prevailing party, has a contractual right to attorney fees and costs incurred
in enforcing the Second Renewed Promissory Note. (Code Civ. Proc., §§ 1021, 1032,
subd. (b), 1033.5, subd. (a)(10); Civ. Code, § 1717.) But what of the attorney fees
incurred in defending Bodokh’s wage claim to the extent it was inextricably intertwined
with the contract claim?
When a claim for which attorney fees are recoverable is joined with a claim
for which they are not recoverable, the usual apportionment rule was stated in Reynolds
Metals Co. v. Alperson (1979) 25 Cal.3d 124: “Attorney’s fees need not be apportioned
when incurred for representation on an issue common to both a cause of action in which
15
fees are proper and one in which they are not allowed.” (Id. at pp. 129-130.) Thus,
“[a]pportionment is not required when the claims for relief are so intertwined that it
would be impracticable, if not impossible, to separate the attorney’s time into
compensable and noncompensable units.” (Calvo Fisher & Jacob LLP v. Lujan (2015)
234 Cal.App.4th 608, 625-626.)
Reynolds addressed whether the defendants, as prevailing parties, were
entitled to fees incurred on a single issue that arose out of a contract containing an
attorney fees clause and another contract containing no such clause. (Reynolds Metals
Co. v. Alperson, supra, 25 Cal.3d at p. 130.) This case presents a different situation,
however, because it involves a conflict between a contractual right to attorney fees and an
express statutory prohibition against awarding such fees.
The Court of Appeal, in Carver v. Chevron U.S.A., Inc. (2004) 119
Cal.App.4th 498 (Carver), addressed a situation in which a contractual right to attorney
fees conflicted with a statutory prohibition against awarding fees to a prevailing
defendant in an action under the Cartwright Act (Bus. & Prof. Code, § 16720 et seq.).
The defendant in Carver prevailed in an action for antitrust violations under the
Cartwright Act, breach of contract, and other torts. (Carver, supra, at p. 501.) The trial
court awarded the defendant attorney fees based on a fee provision in the contract, but
deleted 65 percent of the award on the ground those fees related exclusively or by
“inextricable overlap” to the Cartwright Act issues. (Ibid.) The attorney fees provision
in the Cartwright Act (Bus. & Prof. Code, § 16750, subd. (a)) is a unilateral fee-shifting
provision that allows an award to a prevailing plaintiff but prohibits an award to a
prevailing defendant. (Carver, supra, at p. 503.)
The Court of Appeal, affirming the trial court’s apportionment order,
determined the public policy for the Cartwright Act’s unilateral fee shifting was “to
encourage injured parties to broadly and effectively enforce the Cartwright Act ‘in
situations where they otherwise would not find it economical to sue.’” (Carver, supra,
16
119 Cal.App.4th at p. 504.) The court stated: “The Legislature clearly intended to give
special treatment to antitrust claims under the Cartwright Act by creating this one-way
fee-shifting right for a successful plaintiff but not for a defendant who successfully
defends such a claim.” (Ibid.) In light of that public policy, the court concluded as a
matter of law “the unilateral fee-shifting provision of section 16750, subdivision (a)
prohibits an award of attorney fees for successfully defending Cartwright Act and non-
Cartwright Act claims that overlap.” (Id. at pp. 501, 504.) “To allow [the defendant] to
recover fees for work on Cartwright Act issues simply because the statutory claims have
some arguable benefit to other aspects of the case would superimpose a judicially
declared principle of reciprocity on the statute’s fee provision, a result unintended by the
Legislature, and would thereby frustrate the legislative intent to ‘encourage improved
enforcement of public policy.’” (Id. at p. 504.)
Although section 218.5(a) is a two-way fee-shifting statute (Shames v.
Utility Consumers’ Action Network (2017) 13 Cal.App.5th 29, 38), it has the potential to
become a one-way or unilateral fee-shifting provision if, as here, the trial court finds a
plaintiff did not bring the wage claim in bad faith. Courts have uniformly recognized that
such unilateral fee-shifting statutes “reflect a considered legislative judgment that
prevailing defendants should not receive fees.” (Turner v. Association of American
Medical Colleges (2011) 193 Cal.App.4th 1047, 1061 (Turner).)
The sentence in section 218.5(a) permitting a prevailing nonemployee to
recover attorney fees only if the trial court finds the wage claim was brought in bad faith
was added by Senate Bill No. 462 (2013-2014 Reg. Sess.). (Stats. 2013, ch. 142, § 1; see
Historical and Statutory Notes, 44 West’s Ann. Lab. Code (2019 supp.) foll. § 218.5,
p. 204.) Bodokh has filed a motion for judicial notice of seven analyses of Senate Bill
No. 462 prepared by or for several Senate and Assembly committees. Reports and
analyses of legislative committees are part of a statute’s legislative history and may be
17
considered in construing a statute. (Hutnick v. United States Fidelity & Guaranty Co.
(1988) 47 Cal.3d 456, 465, fn. 7; People v. Patterson (1999) 72 Cal.App.4th 438, 443.)
The analysis by the Assembly Committee on the Judiciary sets forth the
following policy for the legislation: “This bill would clarify the existing two-way
fee[-]shifting provision of section 218.5 by expressly providing that where the prevailing
party is a non-employee (e.g., the employer), fees are to be awarded upon a judicial
finding that the employee brought the action in bad faith. The reason for a higher
standard of course is that wage laws reflect a fundamental policy of the state, the
vindication of which is largely left to employees. The premise of this bill is that the great
expense and unpredictability of exposure to attorney’s fees liability is likely to chill the
pursuit of potentially valid claims by employees of limited means, contrary to the
important policy objectives of the statutory scheme.” (Assem. Com. on Judiciary,
Analysis of Sen. Bill No. 462 (2013-2014 Reg. Sess.) July 1, 2013, p. 3.) An analysis
prepared by the Senate Committee on Appropriations commented: “Because this bill
would restrict an employer’s award of attorney’s fees if it prevailed in an action for
contractually agreed-upon wages, fringe benefits, or health and welfare or pension fund
contributions, this bill could alter the contracting parties’ agreement on attorney’s fees
awards and could create uncertainty for the contracting parties.” (Sen. Com. on
Appropriations, Analysis of Sen. Bill No. 462 (2013-2014 Reg. Sess) May 28, 2013,
p. 2.)
The policy expressed by the Assembly Committee on the Judiciary—to
encourage employees to effectively enforce the wage laws—is described as both
“fundamental” and “important.” It is also remarkably similar to the policy behind the
unilateral fee-shifting provision of the Cartwright Act, which the Carver court concluded
was strong enough to overcome a contractual attorney fees provision. Following the
reasoning of Carver, we believe that to permit a prevailing defendant (here, Dane Corp.)
to recover attorney fees incurred in defending a wage claim, which the trial court has
18
determined not to have been brought in bad faith, would frustrate the Legislature’s intent
by turning a unilateral fee-shifting statute into a reciprocal one.
We hold, therefore, that unless the trial court finds the wage claim was
brought in bad faith, section 218.5(a) prohibits, as a matter of law, an award of attorney
fees to a prevailing party for successfully defending a wage claim that overlaps with
claims subject to a contractual prevailing party attorney fees provision. In light of our
conclusion, Dane Corp. may not recover attorney fees in defending Bodokh’s wage claim
even if that claim overlaps or is inextricably intertwined with fees the breach of contract
claim.
Two other decisions, though not as analogous as Carver, support our
interpretation of section 218.5(a). In Turner, supra, 193 Cal.App.4th 1047, the Court of
Appeal concluded a prevailing defendant is not entitled to attorney fees under a bilateral
prevailing party statute for fees that were inextricably intertwined with successfully
defending claims subject to a unilateral fee-shifting statute. The defendant prevailed in
claims asserted under the Unruh Civil Rights Act (Civ. Code, § 51) and claims asserted
under the Disabled Person Act (DPA) (id., § 54 et seq.). Civil Code section 55 allows the
“prevailing party” in an action for injunctive relief under the DPA to recover attorney
fees. Civil Code section 52 authorizes attorney fee awards only to prevailing plaintiffs on
Unruh Act claims, and Civil Code section 54.3 authorizes fee awards only to prevailing
plaintiffs on claims for DPA violations. (Turner, supra, at pp. 1053-1054, 1057-1059.)
The Court of Appeal recognized a conflict among those attorney fees
statutes when “a prevailing defendant has incurred attorney fees defending claims arising
under [Civil Code] sections 52, 54.3, and 55, and those fees are inextricably intertwined.”
(Turner, supra, 193 Cal.App.4th at p. 1059.) The court resolved the conflict by holding
that when the Legislature enacted the unilateral prevailing plaintiff fee-shifting provisions
in Civil Code sections 52 and 54.3, it created an exception to Civil Code section 55 by
implication. That exception prohibited awarding fees to a prevailing defendant for time
19
devoted to defending claims for which fees were not recoverable under Civil Code
sections 52 and 54.3. (Turner, supra, at p. 1054.)
In Roman v. BRE Properties, Inc. (2015) 237 Cal.App.4th 1040 (Roman),
the court addressed a conflict between Government Code section 12965, subdivision (b),
which is the cost-shifting provision of the Fair Employment and Housing Act (FEHA)
and Code of Civil Procedure section 1032, subdivision (b), which is the general cost
recovery provision in civil cases. A recent California Supreme Court opinion had
interpreted Government Code section 12965, subdivision (b) as vesting discretion in the
trial court to award costs to the prevailing party. (Roman, supra, at p. 1057.) In contrast,
under Code of Civil Procedure section 1032, subdivision (b), a prevailing party is entitled
to costs of suit as a matter of right. (Roman, supra, at p. 1057, fn. 15.)
Following “the path marked in Turner,” the Roman court held:
“Government Code section 12965, subdivision (b)’s exception to the mandatory award of
litigation costs under [Code of Civil Procedure] section 1032, subdivision (b),
implements a clear legislative goal of encouraging potentially meritorious FEHA suits.
[Citation.] Although [Code of Civil Procedure] section 1032, subdivision (b), also serves
an important purpose, relieving a party whose position was vindicated in court of the
basic costs of litigation, when those costs have not been increased by the inclusion of
additional theories of liability to the primary FEHA claim asserted, the express public
policy of Government Code section 12965, subdivision (b), controls. Unless the FEHA
claim was frivolous, only those costs properly allocated to non-FEHA claims may be
recovered by the prevailing defendant.” (Roman, supra, 237 Cal.App.4th at p. 1062,
fn. omitted.)
A fair reading of Turner and Roman is that, when necessary to vindicate an
express public policy, a specific fee-shifting statute will control over a general statutory
provision awarding attorney fees or costs to a prevailing party. When attorney fees or
costs have been incurred on claims subject to both statutes, the more specific fee-shifting
20
statute will govern the entire award of fees or costs. In Turner, the statutes awarding fees
only to the prevailing plaintiff controlled over the statute awarding fees to the prevailing
party, and in Roman the statute granting the trial court discretion to award the prevailing
party costs controlled over the statute granting the prevailing party costs as a matter of
right. Thus, section 218.5(a), a specific fee-shifting statute vindicating an express public
policy, controls over general statutes governing contract-based attorney fees.
In a recently filed opinion, Richmond Compassionate Care Collective v. 7
Stars Holistic Foundation (2019) 33 Cal.App.5th 38 (Richmond), the Court of Appeal
concluded the defendant in a Cartwright Act case could recover attorney fees under Code
of Civil Procedure section 425.16, subdivision (c) after winning a special motion to strike
under the anti-SLAPP statute. The court rejected the plaintiff’s argument that the
fee-shifting provision of the Cartwright Act, as interpreted by Carver, overrides the
attorney fees provision of the anti-SLAPP statute and prohibited the defendant from
recovering any attorney fees in a Cartwright Act case. (Richmond, supra, 33 Cal.App.5th
at pp. 46-48.) “Although the Legislature’s purpose in enacting the Cartwright Act was to
encourage enforcement of the act, nothing in the law ‘“suggests this legislative purpose
should override the Legislature’s desire,”’ expressed in the later-enacted [Code of Civil
Procedure] section 425.16, to discourage SLAPPs.” (Id. at p. 47.) The court concluded
there was no conflict between the Cartwright Act and the anti-SLAPP statute, and “both
can be applied.” (Id. at p. 48.)
Section 218.5(a) and statutory provisions permitting recovery of contractual
attorney fees cannot both be applied without creating a conflict between them. Awarding
Dane Corp. prevailing party attorney fees for a contract claim that is inextricably
intertwined with Labor Code claims for which section 218.5(a) prohibits recovery of the
same fees would of necessity create a conflict. Moreover, in Richmond, the Court of
Appeal addressed two statutes—the Cartwright Act and the anti-SLAPP statute—both
having express and strongly-worded legislative purposes. That is not the case here. Both
21
section 218.5(a) and the statutes permitting recovery of attorney fees when provided by
contract have a legislative purpose. But that of section 218.5(a) is expressly described as
“fundamental” and necessary to advance an “important policy.” (Assem. Com. on
Judiciary, Analysis of Sen. Bill No. 462 (2013-2014 Reg. Sess.) July 1, 2013, p. 3.)
Dane Corp. requests that we award it attorney fees and costs on appeal.
Dane Corp. is entitled to recover attorney fees incurred in connection with enforcing the
Second Renewed Promissory Note. (Morcos v. Board of Retirement (1990) 51 Cal.3d
924, 927 [“‘[I]t is established that fees, if recoverable at all—pursuant either to statute or
parties’ agreement—are available for services at trial and on appeal’”].) The better
practice, and the one which we follow here, is to remand the case to the trial court to
determine the appropriate amount of fees. (Bernardi v. County of Monterey (2008) 167
Cal.App.4th 1379, 1399; Amtower v. Photon Dynamics, Inc. (2008) 158 Cal.App.4th
1582, 1610.) As for costs, the disposition will state that no party may recover costs on
appeal.
DISPOSITION
The order granting Dane Corp.’s motion for attorney fees and the portion of
the amended judgment awarding attorney fees are reversed. The matter is remanded to
the trial court to recalculate, in accordance with this opinion, the amount of attorney fees
incurred at trial and on appeal to be awarded to Dane Corp. in connection with the claim
22
for breach of promissory note only. In all other respects, the judgment and the amended
judgment are affirmed. Because each party prevailed in part, in the interest of justice, no
party may recover costs on appeal.
FYBEL, ACTING P. J.
WE CONCUR:
IKOLA, J.
THOMPSON, J.
23