Citrix Systems, Inc. v. Atm Shafiqul Khalid And Xencare Software, Inc.

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
ATM SHAFIQUL KHALID, an No. 79143-5-I
individual, and XENCARE consolidated with No. 79405-1-I
SOFTWARE, INC., a Washington
corporation, No. 79145-1-I
consolidated with No. 79305-5-I
Appellants,
DIVISION ONE
v.
UNPUBLISHED OPINION
CITRIX SYSTEMS, INC., a Delaware
corporation,
Respondent.
CITRIX SYSTEMS, INC.,
Appellant,
v.
ATM SHAFIQUL KHALID, and
XENCARE SOFTWARE, INC.,
Respondents.
ANDRUS, A.C.J. — Software engineer ATM Shafiqul Khalid 1 sued his former
employer, Citrix Systems, Inc., raising numerous claims, including breach of an
employment agreement relating to the ownership of intellectual property Khalid
1“ATM” does not stand for any specific name and, according to Khalid, in Bangladesh,
where Khalid was born, the letters are commonly used as part of people's names.
Citations and pin cites are based on the Westlaw online version of the cited material.
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developed during his employment. Citrix countersued Khalid for breaching the same
agreement and for trademark infringement under the Lanham Act, 15 U.S.C. §1114et seq. based on Khalid’s use of Citrix’s “Xen” trademarks for his startup businesses.
On summary judgment, the trial court dismissed several of Khalid’s claims and
also found Khalid had infringed Citrix’s trademarks. A jury subsequently found Citrix
breached Khalid’s employment agreement and severance agreement and awarded
him over $3 million in damages. The jury found Khalid had not breached his
employment agreement and awarded Citrix no damages on its trademark
infringement claim.
In post-trial motions, the trial court awarded Khalid over $2.6 million in attorney
fees and costs. It awarded Citrix $117,816 in legal fees and costs for prevailing in
part on summary judgment on its trademark infringement counterclaim. The trial
court also concluded, based on the jury’s verdicts, that Citrix has no ownership
interest in two of Khalid’s patents and entered a declaratory judgment to that effect
in Khalid’s favor.
On appeal, Citrix and Khalid challenge a number of pretrial, trial, and post-
trial decisions. 2 We conclude that the trial court erred in denying Khalid’s request
for prejudgment interest on the jury’s $3 million damages award and erred in
awarding attorney fees to Citrix on its trademark infringement claim. We remand
with instructions to vacate the attorney fee award in favor of Citrix, to award
prejudgment interest to Khalid as set out in this opinion, and to adjust Khalid’s
2
Although Xencare Software, Inc. was identified as an appellant in the notice of appeal,
only Khalid assigned errors for our review in this appeal.
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attorney fee award to eliminate compensation for work that does not relate to a
common core of facts. In all other regards, we affirm the decisions of the trial court
and the judgment entered on the jury's verdicts.
FACTS
Khalid’s Education and Employment History
Khalid completed his undergraduate studies in computer science and
engineering in Bangladesh, his country of origin, in 1995. After publishing multiple
research papers in computer science journals and winning a national computer
programming competition from the Bangladesh Computer Council, Khalid began
graduate studies in the United States, completing a master’s degree in computer
engineering in 1998. That same year, he began working at Microsoft as a software
design engineer, in its “kernel and architecture group,” working on the nucleus of its
Windows operating system.
In 2006, Khalid left Microsoft to join Citrix, an international technology
company that provides desktop virtualization and networking services. Citrix hired
Khalid to work in “Citrix Labs,” the company’s research and development group that
functioned as a think tank responsible for the creation and development of new
products.
Khalid’s Inventions
Khalid has a lengthy history of developing patentable inventions, both for his
employers and for his own, separate, business endeavors. The litigation with Citrix
involves two such inventions.
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The ‘637 Patent for the Mini-Cloud System
On July 15, 2014, the United States Patent & Trademark Office (USPTO)
issued patent number 8,782,637 (the ‘637 Patent). This patent, entitled “Mini-
Cloud System for Enabling User Subscription to Cloud Service in Residential
Environment,” is described as a system “to enable subscription or service model
for computing infrastructure, software, and digital content.”
Khalid described the ‘637 Patent as a system comprised of multiple
components, including what Khalid called a “thin terminal” device, which is a small
piece of computer hardware, similar to a Roku or an Apple TV USB device, paired
with a software system to manage digital content subscription services. Khalid
began developing the software subscription component of this system as early as in
1996 while still a graduate student. This component involved compressing software
to allow users to download it from an online source, so the software seller could
eliminate retail in-store sales. He filed a provisional patent application for the system
to support a software subscription service in 2001. 3
In 2007, he broadened the provisional patent application to include a
framework and platform for incorporating a digital content subscription. In November
2009, Khalid filed yet another provisional patent application for a system and process
to consolidate a DSL modem and small computer into an “access gateway,” which
3 Since 1995, the USPTO has offered inventors the option of filing a “provisional” patent
application, designed as a lower-cost first patent filing. The application has a pendency lasting 12
months and an applicant must file a corresponding nonprovisional application or convert the
provisional into a nonprovisional application during the 12-month pendency period to benefit from
the earlier filing date. See USPTO, Provisional Application For Patent,
https://www.uspto.gov/patents-getting-started/patent-basics/types-patent-applications/provisional-
application-patent (last visited Nov. 5, 2020).
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could connect to services to host a remote desktop. This home gateway system was,
as Khalid described it, a method of combining and centrally managing one’s cell
phone, movie rentals, and internet services.
In January 2010, Khalid filed his next provisional patent application for “thin
devices to deliver computing power.” The thin device, described as like a Roku stick,
was the hardware needed to control his prior software system inventions.
On November 22, 2010, he filed a nonprovisional patent application
combining each of the components for which he had previously filed provisional
applications. This application is what culminated in the issuance of the ‘637 Patent.
Khalid initially formed a company he called KrisanTech in 2000 to develop
and market the subscription component of what later became his mini-cloud system.
He prepared a business plan for KrisanTech in 2006 when he began exploring how
to attract venture capital for his startup company outside of Microsoft. He later began
using the name “PCXen” as the name of the startup he intended to use to develop
and market the mini-cloud system.
The ‘219 Patent for Softlock Antivirus Software
On October 9, 2012, the United States Patent & Trademark Office (USPTO)
issued patent number 8,286,219 (the ‘219 Patent) to Khalid. This patent, entitled
“Safe and Secure Program Execution Framework,” is described as a system and
method for ensuring that any instructions executing on a computer are certified and
secure. Khalid testified that the patent covers a type of antivirus software based on
“whitelisting,” a process of certifying secure applications permitted access to a
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computer, as compared to “blacklisting,” the then-prevalent antivirus methodology of
maintaining a list of unsecure applications to be blocked.
Khalid filed a provisional patent application for this invention in 2005, prior to
working for Citrix. He allowed the application to lapse, but after working on the
software code and testing it on his own time and using his own resources, he filed a
second, nonprovisional patent application for the invention on February 16, 2008.
The 2008 application was identical to the 2005 provisional one he had filed, with the
exception of one additional improvement.
By 2008, Khalid had a functional software security product that he named
“Softlock.” Khalid founded a company he called “XenCare Software,” purchased the
expired domain name of www.xencare.com, and developed a website for the
company. In September 2008, he issued a press release announcing the release of
Softlock 2.0, described as a “lightweight and powerful protection [system] for
Windows computers.” Khalid testified that thousands of users downloaded free trial
copies of Softlock 2.0. He later assigned the ‘219 Patent to Xencare, a company he
formally incorporated in late 2011.
Khalid’s Employment Agreement with Citrix.
When Khalid began working for Citrix in 2006, it asked him to execute a
document entitled “Non-Solicitation, Non-Compete and Confidentiality and Employee
Non-Disclosure Agreement” (Employment Agreement). Section 7 of the
Employment Agreement, entitled “Disclosure and Assignment of Inventions”
(“Invention Assignment Clause”), provides:
If at any time during the term of my employment by Citrix, I . . . make,
conceive, discover or reduce to practice any invention, . . . or
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intellectual property right . . . (hereinafter called “Developments”) that
(i) relate to the business of Citrix . . .; (ii) result, directly or indirectly,
from tasks, duties and/or responsibilities assigned to me by Citrix; or
(iii) result, directly or indirectly, from the use of premises or personal
property (whether tangible or intangible) owned, leased or contracted
for by Citrix, such Developments and the benefits thereof shall be
considered work made for hire4 and shall immediately become the sole
and absolute property of Citrix and its assigns. . . .
If any of the Developments may not, by operation of law or otherwise,
be considered work made for hire by me for Citrix, or if ownership of all
right, title, and interest of the intellectual property rights therein shall
not otherwise vest exclusively in Citrix, I hereby assign to Citrix, and
upon the future creation thereof automatically assign to Citrix, without
further consideration, the ownership of all such Developments. . . .
Upon disclosure of each of such Developments to Citrix, I agree during
the term of my employment and at any time thereafter, at the request
and cost of Citrix, to sign, execute, make and do all such deeds,
documents, acts and things as Citrix may reasonably require to perfect
and protect all interests therein. (Emphasis added).
The Invention Assignment Clause required Khalid to disclose all
developments “made or conceived” prior to employment by Citrix on “Exhibit B” to
the Employment Agreement. Developments identified in Exhibit B were “excluded
from and shall not be assigned to Citrix.”
Khalid listed twelve works he claimed to have conceived before joining Citrix
in his Exhibit B. These included:
7. Safe and secure program execution framework.
8. A home communication Gate Way to combine different
consumers[] needs like cell phone, movie rental, internet
services etc.
9. A method and system to support subscription based
software service.
10. A method and system to support software distribution
replacing existing retail distribution network.
4 A “work made for hire” is a term defined in the Copyright Act of 1976, 17 U.S.C. § 101 as
“a work prepared by an employee within the scope of his or her employment.” Warren v. Fox Family
Worldwide, Inc., 328 F.3d 1136, 1140 (9th Cir. 2003).
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Khalid testified that number 7 referred to the antivirus software system he
invented and later patented in the ‘219 Patent. Number 8 was intended to cover the
invention he submitted for patent protection in his 2009 provisional application. And
the invention set out in number 9 is what Khalid described in his 2001 provisional
patent application. The work described in number 10 was described in the
KrisanTech business plan from 2006 and included in Khalid’s extended 2007
provisional patent application.
According to Khalid, both the software system covered by the ‘219 Patent and
all four components of the mini-cloud system covered by the ‘637 Patent—the thin
terminal, the access gateway, the digital content, and the subscription service—were
disclosed to Citrix before he began working for the company.
Khalid also added an additional paragraph to the Invention Assignment
Clause:
This covenant not to complete is not applicable for working for
Microsoft corp. or any company that develops the similar product
Microsoft has developed or continuation work of the items listed in
Exhibit B. (Emphasis added).
Khalid added this language to make it clear that he was allowed to continue
working on his own inventions while employed with Citrix.
Khalid signed and returned the modified Employment Agreement, with the
accompanying Exhibit B, to Abolfazl Sirjani, his supervisor at the time he began
working at Citrix, on September 11, 2006. According to Khalid, he called out to
Sirjani the inventions he listed in Exhibit B and the additional language he added to
the Invention Assignment Clause and indicated via email that he intended to continue
developing his inventions. Khalid testified he would not have accepted the offer from
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Citrix if it meant he could no longer work on his outside research projects. Sirjani
acknowledged receipt of the Exhibit B and informed Khalid that the company legal
department would contact him if they had questions about his invention disclosure.
No one from Citrix’s legal department ever raised questions or concerns to Khalid
about the inventions he disclosed in the Employment Agreement.
The work Khalid did for Citrix was unrelated to any of the inventions he
disclosed in Exhibit B. The first project he worked on was to work out bugs in
Windows Vista to allow it to operate audio remote technology. Citrix never asked
him to work on any of his personal inventions. And none of the work he did on his
own inventions interfered with his ability to perform up to Citrix’s expectations.
Khalid received above average to extraordinary performance reviews and, at
times, received discretionary bonuses based on the quality of his work.
Khalid’s Search for Investors, including Citrix
Between 2006 and 2008, Khalid continued to work on completing the coding
for his Softlock antivirus software and developing the various components to the mini-
cloud system. He retained the services of coders in Bangladesh to assist him with
this work. He transferred approximately $70,000 to a bank account in Bangladesh
to fund his startup’s work there. He built a prototype thin terminal device for the mini-
cloud System. Khalid testified he used his own resources, worked on these
independent projects on his own time, and did not allow the work to interfere with any
of his assigned duties for Citrix.
After Khalid succeeded in completing a beta release of Softlock and once he
had his mini-cloud prototype in hand, he knew he needed more capital to take the
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product to the next phase. One of the companies he approached was Citrix. In
March 2008, he asked Sirjani to lunch to discuss his inventions. Khalid showed
Sirjani his KrisanTech business plan and described his idea of distributing software
via subscriptions rather than through retail purchases. Sirjani testified these projects
were “sort of related to Citrix,” but he clearly understood Khalid had worked on them
independently, and the projects were “something that he was doing outside his work.”
Sirjani told Khalid he would speak to Martin Duursma, the Vice President of Citrix
Labs, but he also told Khalid that Citrix was unlikely to be interested in the security
software. To Khalid’s understanding, that ended the discussion.
The next interaction Khalid had with Citrix regarding his inventions occurred
in November 2009, when Khalid spoke directly with Duursma regarding his
independent startups. When Khalid described to Duursma his idea for a home
virtualization system, Duursma asked Sirjani to review Khalid’s intellectual property.
Sirjani reported to Duursma that it had potential and was something he
recommended Duursma discuss with Khalid.
Duursma invited Khalid to give him a presentation about his business ideas.
Khalid prepared a set of slides to describe his mini-cloud system to Duursma, and
carried computers from his home office to the Citrix conference room to use for this
presentation. On November 16, 2009, Khalid presented the system under the name
“XenDesk.” He described the idea as a “virtual mobile desk” that a residential user
could access in multiple ways. He proposed the idea as a possible joint venture
between him and Citrix. He made it clear he was looking for venture capital for his
startup company. At Duursma’s request, Khalid forwarded his slides to Bill
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DeForeest, Khalid’s supervisor at that time, and gave DeForeest a separate
presentation on November 23, 2009. Khalid was then asked to give his presentation
to a Citrix product team lead by Michael Harries. At this meeting, Khalid testified he
received “mixed feedback.” Harries stated Citrix was uninterested in getting into any
hardware product development. Brad Pedersen, Citrix’s chief architect, also told
Khalid that Citrix had previously looked at hardware proposals and had never been
interested in investing in the past. At the end of these meetings, Duursma told Khalid
he could continue to work on these inventions on his own time, at his own expense,
and if he could subsequently prove that they worked, Citrix might be interested at that
point.
Khalid assumed Citrix had no interest in his antivirus software, and he began
soliciting investments from other colleagues and friends. In January of 2010, Khalid
met with Quamrul Mina, a fellow engineer from Bangladesh who had been his college
mentor. Mina was the co-founder of Pragma Systems, an Austin-based technology
company that developed secure applications to connect computer terminals. Khalid
demonstrated Softlock for Mina. Mina tested the software and believed it showed a
lot of promise, as it was a new and different technology from anything else on the
market. Mina concluded the software was “very mature” and “something we could
take it to the marketplace.” Based on this meeting, Mina testified that Pragma
planned to invest $100,000 in Softlock, and would have purchased 50,000 copies of
the software to sell to its customers.
Khalid continued to pursue an investment from Citrix for his mini-cloud
system. In January 2010, Khalid prepared a video of the progress he had made to
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share with Duursma. The video lead to a follow up presentation on March 1, 2010,
to ask Citrix to invest. After the presentation, Harries indicated Citrix was not
interested in making Khalid an offer. The following month, he approached Duursma
again because he was running out of funding and was looking for an alternative
source of funding. Duursma told Khalid, via email, that he was in the process of
setting up an accelerator program the purpose of which would be to fund new
ventures. Khalid met again with Duursma in July 2010 and Duursma recommended
that Khalid set up a management team and to develop a budget and a timeframe for
going to market with his mini-cloud system in anticipation of possible participation in
the Citrix startup accelerator program.
Based on Duursma’s recommendations, in July 2010, Khalid attempted to
retain the services of Robert Kapela, an experienced software executive, to serve as
CEO for the startup company for the mini-cloud system that Khalid was now calling
PCXen. Kapela expressed interest in investing in the business, but stated that his
willingness to become involved and to invest was contingent on Khalid having clear
title to his developments.
Citrix launched its accelerator startup program at the end of 2010. The
purpose was to provide funding to outside companies, so Citrix employees could not
participate. If a Citrix employee wanted funding through the program, he or she
would have to first stop working at Citrix. Duursma suggested to Khalid that he
should apply to the program. Khalid arranged to meet with John McIntyre, the
program director, in February 2011. McIntyre told Khalid that if he applied to the
program, Citrix would be willing to invest $400,000 in his startup.
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Shortly after this meeting occurred, Duursma told Khalid that because he was
disclosing intellectual property to Citrix representatives, he should document his
personal inventions to protect his intellectual property if he did in fact choose to leave
Citrix. As Duursma requested, Khalid sent him an email in which he wrote:
I just wanted to formally disclose few items I’m working on
outside my Citrix work to pursue some funding through Citrix start-up
accelerator program that would fund new ideas up to 400k to create a
new business. I typically work at night and weekend to engage myself
in those activities that doesn’t affect my Citrix work in any way. Here
are the areas I’m working on:
1. Mobile Application delivery – The idea was to build a
solution that can help customer deploy mobile apps and manage
mobile end points. There are many approaches to target that problem.
My primary approach is to solve the issue using mobile device
simulator/emulator. . . .
2. Thin terminal, composite devices to combine few
computing functionalities in consumer H/W like Modem, PC, TV, etc. –
I started this project in 2008 as an extension of my earlier project to
enable rental based computing like sales force. I build some demo
using open source projects and explored different related areas like
some devices developed by N-computing and pano logic. This also
targets many software pieces to make those devices and services
practically achievable. I showed demo and progress to Bill/Martin/Brad
P at different times in 2009 and 2010 for possible sponsorship/funding
through Citrix.
Khalid testified that the intellectual property described in paragraph 2 of this email
related to the mini-cloud system that he had demonstrated to Duursma and
DeForeest. Duursma confirmed that he recognized this email as a disclosure by
Khalid of product ideas he wanted to have considered for the accelerator program.
Yet, Duursma never informed Khalid that these ideas could not be developed
independently or that he believed they were products being developed by Citrix.
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In June 2011, Khalid sent an email again to Pedersen making a second pitch
regarding his antivirus software. At the bottom of this email, Khalid added a
paragraph that read: “Disclosure: I have personal investment security company,
XenCare, which is not in competition to Citrix . . . XenCare has few pending patents
. . .” No one at Citrix objected to Khalid’s use of the name XenCare.
Khalid’s Termination and Severance Agreement
Citrix terminated Khalid’s employment on October 3, 2011. According to
DeForeest, Khalid was terminated for two reasons. First, the work on Microsoft-
related projects that Khalid had been hired to perform was complete. Second,
Khalid’s job performance on other projects had declined and Khalid had increasing
difficulty collaborating with other engineers or taking direction.
Citrix offered Khalid a severance package of $30,757, equivalent to eleven
weeks of base pay. To receive the severance payment, Citrix required Khalid to sign
a Severance and General Release Agreement (“Severance Agreement”), which
stated: “the Company desires to extend certain separation benefits to Employee to
assist Employee with the transition to new employment, and in return, Employee
has agreed to release the Company from any claims arising from or related to the
employment relationship.” The Severance Agreement imposed on Khalid
continuing obligations related to his employment at Citrix. For example, Khalid
was required to keep the terms of the Severance Agreement confidential, to
comply with all of the terms of the Employment Agreement, and to return all
company property to Citrix. It also contained a broad release of claims against
Citrix.
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Accompanying the Severance Agreement was a “Termination Certificate,”
requiring Khalid to certify that he had disclosed to Citrix any and all intellectual
property he had conceived or made under the Employment Agreement. Before
executing the document, Khalid sent an email to Lisa Barney, a human resources
representative at Citrix, certifying that he had previously disclosed all of his
intellectual property as a part of his request to participate in the accelerator program.
By email dated October 19, 2011, Khalid sent Barney a list of disclosures of all of the
intellectual property he developed while employed with Citrix but which he believed
remained his property. This included “XenCare Software,” which he described as an
entity he founded in 2007 or 2008, which had two pending patents. He also identified
a “HomeCloud” system, which he described as the software and product ideas he
had demonstrated to Duursma and Pedersen. Khalid told Barney that, based on his
termination, he assumed Citrix had no interest in funding any of his inventions and
would find alternative funding.
Khalid signed and returned the Severance Agreement on October 21, 2011.
At the same time, he informed Citrix that the “HomeCloud” system he had mentioned
was the same as the mini-cloud system he had demonstrated to Duursma, and that
it was derivative of what he had excluded from the Invention Assignment Clause by
way of Exhibit B to the Employment Agreement.
On October 25, 2011, Khalid received a letter from Kellan Ponikiewicz, Citrix’s
in-house intellectual property counsel. Ponikiewicz informed Khalid that Citrix
believed it owned any intellectual property he created while employed at Citrix, as
well as the xencare.com domain name and the XenCare company name. She
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sought additional information regarding the intellectual property he claimed to own in
his email to Barney. Khalid sent Ponikiewicz a detailed email explaining how he had
listed all of the patented inventions owned by XenCare in Exhibit B of his Employment
Agreement, and provided her with URL links to the patent applications for her to
review. He further explained how he had purchased the xencare.com domain and
felt that “XenCare” was not a trademark owned by Citrix. He explained how he had
purchased the Xencare domain name before joining Citrix, that he had disclosed his
use of this company name to several managers within Citrix as early as 2008. Khalid
also provided Ponikiewicz with a copy of RCW 49.44.140, Washington’s statute on
assignment of employee invention rights, and asked her to evaluate Citrix’s claim of
ownership in light of this law. On October 30, 2011, Khalid provided Ponikiewicz with
further information regarding the PCXen patent applications for the mini-cloud
system and provided additional URL links to these applications.
At some point thereafter, Khalid spoke with Ponikiewicz on the phone and she
told him he had to assign all of his inventions to Citrix. On November 13, 2011,
Ponikiewicz demanded that Khalid cease using the name XenCare and PCXen and
assign the XenCare domain name to Citrix. She also demanded that Khalid assign
his patent applications to Citrix. She informed him that Citrix would not release any
severance payment until he had done so.
On December 8, 2011, Rob Feldman, associate general counsel for litigation
and employment at Citrix, sent Khalid an email re-asserting Citrix’s right to Khalid’s
patent applications and again demanding that Khalid cease using the “Xen” family of
names, including Xencare and PCXen. He told informed Khalid that if he did not
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agree, Citrix would take legal action. He stated that Khalid’s failure to assign the
property to Citrix constituted a breach of the Severance Agreement, and Citrix would
not release his severance payment. 5
Citrix’s demands impacted Khalid’s ability to retain investment and
management services for his startup companies. Citrix’s claim of ownership to
Softlock led Mina to pull Pragma’s purchase offer. Kapela also declined involvement
in PcXen and invested elsewhere.
The Lawsuit
In 2015, Khalid filed this lawsuit against Citrix. Khalid alleged violations of
Washington’s Consumer Protection Act (CPA), breach of contract, tortious
interference, and breach of the duty of good faith and fair dealing. Khalid also sought
a declaratory judgment that the Invention Assignment Clause was unenforceable
under RCW 49.44.140 and that Citrix had no ownership rights to the ‘219 or ‘637
Patents. He also sought punitive damages under Florida law. 6
Citrix filed a counterclaim against Khalid and a third-party complaint against
Khalid’s company, XenCare Software, Inc., alleging they were infringing Citrix’s
“Xen” trademark in violation of the Lanham Act, 15 U.S.C. §1114(1). Citrix also
filed counterclaims against Khalid for breach of contract and unjust enrichment.
5 Khalid returned to work for Microsoft in December of 2011. In 2015, when his employment
at Microsoft was terminated, Microsoft requested Khalid assign his rights in the ‘219 and ‘637 patents
to Microsoft. Khalid subsequently sued Microsoft to clear its claim of ownership to this intellectual
property. That lawsuit remains pending.
6
The Employment Agreement contained a choice of law provision providing that Florida
law governed its construction and enforcement. The parties do not dispute that Florida law governs
the breach of contract (and associated covenants) claims and the award of attorney fees, while
Washington law governs violations of Washington law (the CPA claim, the wage claim, and the
violation of the Invention Assignment Statute, chapter 49.44 RCW).
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Pretrial Motions
Khalid moved for partial summary judgment claiming, among other things,
that the Invention Assignment Clause was unenforceable because it violated RCW
49.44.140. Khalid also claimed that Citrix’s actions violated the CPA because they
constituted an unfair or deceptive act under RCW 19.86.020 and an unlawful
restraint of trade under RCW 19.86.030.
Citrix filed a cross motion for summary judgment seeking the dismissal of all
of Khalid’s claims, including his request for punitive damages. Citrix also moved
for partial summary judgment on its infringement claim, seeking a ruling that Khalid
infringed its trademark in marketing his Softlock software.
The trial court granted in part Khalid’s motion for summary judgment with
regard to his CPA claim under RCW 19.86.020, finding as a matter of law that the
Employment Agreement violated RCW 49.44.140 and was unfair in violation of RCW
19.86.020. However, it concluded that the “remedy for th[e] violation is to strike
the offending language and amend the language to conform to the requirements
of the statute.” The trial court denied the remainder of Khalid’s summary judgment
motion, including ownership of the patents.
The trial court granted partial summary judgment in favor of Citrix on its
Lanham Act claim, finding that Khalid had infringed on Citrix’s trademarks. It
reserved for trial the issue of whether Citrix had any recoverable damages. The
trial court otherwise denied Citrix’s motion for summary judgment.
Citrix later renewed its summary judgment motion, arguing that Khalid’s
restraint of trade claim should be dismissed because Khalid had no evidence that
- 18 -
No. 79143-5-I/19
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Citrix had conspired with any other entity to harm competition. The trial court
agreed and dismissed Khalid’s RCW 19.86.030 claim. It also dismissed Khalid’s
request for punitive damages.
Trial
Khalid’s and Xencare’s remaining claims and Citrix’s counterclaims
proceeded to a jury trial in July 2018. The court summarized these claims for the
jury:
• Khalid claimed Citrix breached the Employment and Severance Agreements
• Khalid claimed Citrix breached the covenant of good faith and fair dealing
relating to these two agreements.
• Khalid claimed Citrix violated the CPA.
• Khalid and Xencare claimed Citrix tortuously interfere with their respective
business expectancies.
• Citrix claimed Khalid breached both the Employment and Severance
Agreements.
• Citrix claimed Khalid was unjustly enriched.
• Citrix claimed Khalid had infringed its trademark.
Jury Verdict
On August 1, 2018, the jury found Citrix breached the Employment Agreement
and awarded Khalid $3 million in damages. The jury also found Citrix breached the
Severance Agreement and awarded Khalid $67,994 in damages. The jury rejected
the remainder of Khalid’s and Xencare’s claims. The jury also found against Citrix
on every one of its counterclaims and awarded it no damages.
Post-Trial Motions
Both Citrix and Khalid filed post-trial motions regarding the jury’s damage
award. Citrix moved for remittitur pursuant to CR 59(a)(6) and (7) and RCW
4.76.030, arguing that both jury awards improperly included a prejudgment interest
of twelve percent. Citrix contended that, under Florida law, the court, and not the
- 19 -
No. 79143-5-I/20
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
jury, must award the appropriate amount of interest. The trial court denied Citrix’s
motion for remittitur except as to Khalid’s claim for breach of the Severance
Agreement, for which it remitted damages to $30,757, the undisputed amount Citrix
agreed to pay as severance.
Khalid requested prejudgment interest on the $3 million award starting on
November 1, 2011, at a rate of twelve percent. The trial court denied Khalid’s
request, finding it could not ascertain a date of actual loss of lost profits. The trial
court awarded prejudgment interest on the $30,757 award for breach of the
Severance Agreement, from the date of that agreement, October 28, 2011, through
the date of judgment. It awarded prejudgment interest at Florida’s interest rate of
4.75 percent, rather than Washington’s interest rate of 12 percent. The trial court
also granted Khalid’s requested declaratory relief, concluding that “Citrix has no
ownership or other rights to or arising under US Patent No. 8,286,219 and
8,782,637.”
The trial court awarded attorney fees and costs to Khalid under the
Employment Agreement and RCW 49.48.030. Because the contingency case
demanded “a high level of specialized skill and experience by Khalid’s lawyers,” and
involved complex intellectual property law, employment law, and Florida contract law,
it applied a multiplier of 1.75. The trial court awarded Khalid $2,642,972.67 in
attorney fees and $170,743.19 in costs. The trial court awarded Citrix $110,608.50
in attorney fees and $7,207.49 in costs for prevailing on its Lanham Act claim.
- 20 -
No. 79143-5-I/21
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
ANALYSIS
Khalid and Citrix have raised multiple issues on appeal. Given the
complexity of the issues, we will address them as they arose chronologically in the
trial court, regardless of the party assigning error to the issue here.
1. Dismissal of Khalid’s Restraint of Trade Claim
Khalid argues the trial court erred in dismissing his restraint of trade claim
under RCW 19.86.030 on summary judgment. We disagree.
We review summary judgment de novo, engaging in the same inquiry as
the trial court. Torgerson v. One Lincoln Tower, LLC, 166 Wn.2d 510, 517, 210
P.3d 318 (2009); Lybbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000).
Summary judgment is appropriate only if the pleadings, affidavits, depositions, and
admissions on file demonstrate the absence of any genuine issue of material fact,
and the moving party is entitled to judgment as a matter of law. CR 56(c); Lybbert,
141 Wn.2d at 34. Whether a particular action gives rise to a CPA violation is
reviewable as a question of law. Leingang v. Pierce County Med. Bureau, 131
Wn.2d 133, 150, 930 P.2d 288 (1997); State v. Living Essentials, LLC, 8 Wn. App.
2d 1, 14, 436 P.3d 857, 864, review denied, 193 Wn.2d 1040, 449 P.3d 658 (2019),
and cert. denied, No. 19-988, 2020 WL 5882220 (U.S. Oct. 5, 2020).
RCW 19.86.030 provides that “[e]very contract, combination, in the form of
trust or otherwise, or conspiracy in restraint of trade or commerce is hereby
declared unlawful.” Our Supreme Court has interpreted RCW 19.86.030 as
- 21 -
No. 79143-5-I/22
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Washington’s equivalent of section 1 of the Sherman Antitrust Act, 15 U.S.C. 7
State v. Black, 100 Wn.2d 793, 799, 676 P.2d 963 (1984). Federal courts have
applied two tests to evaluate claims under section 1 of the Sherman Act, and
Washington courts have adopted those tests to evaluate claims under 19.86.030. 8
Ballo v. James S. Black Co., Inc., 39 Wn. App. 21, 26, 692 P.2d 182 (1984). The
first approach, the “rule of reason” test, “requires the factfinder to decide whether
under all the circumstances of the case, the restricted practice imposes a
reasonable restraint on competition.” Id. Under this test, the court examines “facts
peculiar to the business, the history of the restraint, and the reasons why it was
imposed to determine the effect on competition in the relevant product market.” In
re Nat'l Football League's Sunday Ticket Antitrust Litig., 933 F.3d 1136, 1150 (9th
Cir. 2019), cert. denied sub nom. Nat’l Football League v. Ninth Inning, Inc., 19-
1098, 2020 WL 6385695 (U.S. Nov. 2, 2020) (internal quotation marks omitted)
(quoting Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 692, 98 S. Ct.
1355, 55 L. Ed. 2d 637 (1978)).
The second approach, the “per se” test, is premised on the principle that
certain agreements or practices are so plainly anti-competitive and so lacking in
any redeeming virtue that they are conclusively presumed illegal without further
examination under the rule of reason test. Ballo, 39 Wn. App. at 26. The practices
typically deemed unlawful per se are price fixing, group boycotts and tying
7 15 U.S.C. §1 provides: “Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is
declared to be illegal.”
8
The legislature expressly instructed courts to be guided by federal law in interpreting
RCW 19.86.030. RCW 19.86.920.
- 22 -
No. 79143-5-I/23
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
arrangements. Id. When an agreement falls under one of these categories, “any
explanation of why the act was done or what its effect might be in a particular case
is of no consequence or materiality.” Id. The Ninth Circuit currently still applies
both tests to section 1 claims. See Fed. Trade Comm'n v. Qualcomm Inc., 969
F.3d 974, 989 (9th Cir. 2020).
Khalid did not argue below or here that the Invention Assignment Clause
violates the rule of reason test by being an unreasonable restraint on competition.
Instead, Khalid argues that because the Invention Assignment Clause violated
RCW 49.44.140, it is a per se unlawful restraint of trade. But nothing in the plain
language of RCW 49.44.140 indicates that this was the legislature’s intent. In
Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778,
786, 719 P.2d 531 (1986), our Supreme Court noted that the legislature has
repeatedly identified conduct it deems to be per se CPA violations. It concluded
that “the Legislature, not this court, is the appropriate body to . . . [declare] a
statutory violation to be a per se unfair trade practice.” 9 Id. at 787.
Citing Sheppard v. Blackstock Lumber Co., 85 Wn.2d 929, 540 P.2d 1373(1975), Khalid argues that an unlawful invention assignment provision in an
employment contract is analogous to an unlawful non-competition agreement,
which constitutes a per se restraint of trade in violation of RCW 19.86.030. But
Sheppard does not control here. In that case, an employee of Blackstock Lumber
9 The legislature has made explicit CPA findings, for example, in the context of deeds of
trust, Lyons v. U.S. Bank Nat’l Ass’n, 181 Wn.2d 775, 786 n. 5, 336 P.3d 1142 (2014) (RCW
61.24.135 lists some per se violations of the Deed of Trust Act that automatically constitute unfair
or deceptive practices); and claims-handling regulations by insurers. St. Paul Fire & Marine Ins.
Co. v. Onvia, Inc., 165 Wn.2d 122, 129, 196 P.3d 664 (2008) (a violation of insurance regulations
in chapter 284-30 WAC establish per se violation of CPA).
- 23 -
No. 79143-5-I/24
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
established a custom woodworking business and began directly competing with
Blackstock. Id. at 930. Blackstock notified Sheppard that his business activities
violated a provision of his retirement plan. Id. The plan provided that any equity
vested in the plan would be forfeited “if the former Participant . . . engages in or
enters the employment of any person . . . engaged in any business . . . in
competition with . . . the business of [the] Company.” Id. Sheppard contended this
forfeiture provision was unenforceable as an impermissible restraint on trade. Id.
The court framed the question as whether the contractual provision was an
illegal restraint of trade under article 12, section 22 of the state constitution and
RCW 19.86.030. Id. at 931. It recognized that under the common law of contracts,
“while contracts in general restraint of trade are void and unenforceable, contracts
in partial restraint of trade may be enforced if reasonable.” Id. at 931-32. The
court adopted the approach of the Oregon Supreme Court, drawing an analogy
between forfeiture provisions in profit-sharing retirement plans to non-competition
clauses in employment agreements. Id. at 932 (citing Lavey v. Edwards, 264 Or.
331, 505 P.2d 342 (1973)). It held that the forfeiture clause in the Blackstock
retirement plan was not void or invalid per se but had to be evaluated under
Washington’s well-established three-part reasonableness test applicable to non-
competition agreements. 85 Wn.2d at 932-33. Under this test, a non-competition
covenant is reasonable if it (1) is no greater than is required for the protection of
the employer; (2) does not impose undue hardship on the employee; and (3) is not
injurious to the public. Id. at 933.
- 24 -
No. 79143-5-I/25
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
The court deemed the Blackstock provision unreasonable as written
because the clause prohibited any competitive activity anywhere, at any time, and
the company presented no evidence to explain the precise factors that went into
the company’s decision that such an unlimited non-competition prevision was
necessary to protect its business interests. Id. at 933.
Sheppard does not support Khalid’s statutory claim under RCW 19.86.030
claim for several reasons. First, the Sheppard court did not conclude that an
invention assignment agreement that violates RCW 49.44.140 is a per se violation
of RCW 19.86.030, entitling an employee to treble damages under RCW 19.86.090
or civil penalties under RCW 19.86.140. The Sheppard court remanded the case
for a trial to determine “what extent, if any, the forfeiture provision provides a
reasonable restraint and to what extent it may be enforceable.” Id. at 934.
Second, if, as Sheppard holds, a contract that unlawfully restrains trade can
be reformed judicially to remove this unlawful restraint, then once reformation
occurs, the agreement would no longer violate RCW 19.86.030. Relying on Wood
v. May, 73 Wn.2d 307, 438 P.2d 587 (1968), the Sheppard court concluded the
appropriate remedy was a remand to the trial court to determine whether it could
modify the forfeiture provision to provide for a reasonable restraint on Sheppard’s
right to compete against his former employer. 85 Wn.2d at 933. Khalid obtained
this remedy. The trial court explicitly ruled that under RCW 49.44.140, the remedy
was reformation of the Assignment Clause to make it consistent with the statute.
Khalid does not challenge on appeal the trial court’s reformation of the Invention
Assignment Clause. This conclusion is supported by federal antitrust case law
- 25 -
No. 79143-5-I/26
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
which holds that an overbroad non-competition provision in an employment
contract, later modified by the court to be enforceable, does not give rise to an
antitrust claim. See Baker's Aid, a Div. of M. Raubvogel Co., Inc. v. Hussmann
Foodservice Co., 730 F. Supp. 1209, 1211 (E.D.N.Y. 1990) (per se rule does not
apply to employee covenants not to compete).
The language of RCW 49.44.140 and corresponding case law indicate that
the exclusive remedy for an overbroad invention assignment clause is reformation
of the agreement, not a cause of action for unlawful restraint of trade. RCW
49.44.140(1) provides:
A provision in an employment agreement which provides that an
employee shall assign or offer to assign any of the employee's rights
in an invention to the employer does not apply to an invention for
which no equipment, supplies, facilities, or trade secret information
of the employer was used and which was developed entirely on the
employee's own time, unless (a) the invention relates (i) directly to
the business of the employer, or (ii) to the employer's actual or
demonstrably anticipated research or development, or (b) the
invention results from any work performed by the employee for the
employer. Any provision which purports to apply to such an invention
is to that extent against the public policy of this state and is to that
extent void and unenforceable (Emphasis added).
The trial court found Citrix’s Invention Assignment Clause did not comply with this
statutory provision, and concluded that the remedy for this violation was “to strike
the offending language and amend the language to conform to the requirements
of the statute.”
The trial court’s ruling followed the Supreme Court’s decision in Waterjet
Tech., Inc. v. Flow Int’l. Corp., 140 Wn.2d 313, 321-22, 996 P.2d 598 (2000). In
that case, an employee sought to invalidate an employment agreement based on
the employer’s violation of RCW 49.44.140(3), the provision requiring the employer
- 26 -
No. 79143-5-I/27
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
to give notice to the employees of their rights under the statute. Id. at 315. The
Supreme Court rejected the employee’s argument that the agreement was void in
its entirety. Id. at 322. It held that the overreaching portions of the agreement
should be stricken as against public policy but the remaining portions of the
agreement could still be enforced. Id. Khalid obtained the relief the legislature
provided—a reformation of the offending provision in the Employment Agreement.
The trial court did not err in dismissing Khalid’s restraint of trade claim under
RCW 19.86.030.
2. Dismissal of Khalid’s Request for Punitive Damages
Khalid next argues the trial court erred in dismissing his request for punitive
damages under Fla. Stat. Ann. § 768.72 for his claims of breach of contract and
breach of the implied covenant of good faith and fair dealing. Both parties agree
Florida law governs this issue.
A trial court’s summary judgment ruling interpreting a statute of another
state presents a question of law, reviewed by this court de novo. Osborn v. Mason
County, 157 Wn.2d 18, 22, 134 P.3d 197 (2006) (summary judgment legal rulings
reviewed de novo); Anthis v. Copland, 173 Wn.2d 752, 755, 270 P.3d 574 (2012)
(construction of statute is question of law reviewed de novo); Byrne v. Cooper, 11
Wn. App. 549, 554, 523 P.2d 1216 (1974) (substance of foreign law is issue of law
reviewed de novo). See also RCW 5.24.030 (determination of the laws of another
state is be determined by court and is subject to appellate review).
- 27 -
No. 79143-5-I/28
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Title XLV of the Florida Statutes, entitled “Torts,” includes a provision in
chapter 768, entitled “Negligence,” allowing the recovery of punitive damages for
certain claims:
(2) A defendant may be held liable for punitive damages only if the
trier of fact, based on clear and convincing evidence, finds that the
defendant was personally guilty of intentional misconduct or gross
negligence. As used in this section, the term:
(a) “Intentional misconduct” means that the defendant had actual
knowledge of the wrongfulness of the conduct and the high
probability that injury or damage to the claimant would result and,
despite that knowledge, intentionally pursued that course of conduct,
resulting in injury or damage.
(b) “Gross negligence” means that the defendant’s conduct was so
reckless or wanting in care that it constituted a conscious disregard
or indifference to the life, safety, or rights of persons exposed to such
conduct.
Fla. Stat. Ann. § 768.72(2). This statutory provision is explicitly limited to claims
that arise in tort. Punitive damages for breach of contract are barred by Florida
law. John Brown Automation, Inc. v. Nobles, 537 So. 2d 614, 617 (Fla. Dist. Ct.
App. 1988). If a party pleads and proves a separate and independent tort, that tort
would support a claim for punitive damages. Id.The trial court relied on John Brown to support the dismissal of Khalid’s
punitive damage claim. In John Brown, the Florida Supreme Court considered
whether punitive damages were available to a company claiming a supplier
committed negligent misrepresentation during the performance of its supply
contract. Id. at 616-17. The court vacated the punitive damage award because it
determined that the company’s misrepresentation claims were “inherent in and
extricable from the events constituting the breach of the contract.” Id. at 617-18.
- 28 -
No. 79143-5-I/29
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
And without “some conduct resulting in personal injury or property damage, there
can be no independent tort flowing from a contractual breach which would justify
a tort claim solely for economic losses.” Id. at 617 (quoting AFM Corp. v. S. Bell
Tel. & Tel. Co., 515 So. 2d 180, 181-82 (Fla. 1987)). John Brown supports the trial
court’s legal ruling.
Ghodrati v. Miami Paneling Corp., 770 So. 2d 181 (Fla. Dist. Ct. App. 2000),
also cited by Citrix, similarly supports the dismissal of Khalid’s punitive damages
request. In that case, a buyer of ceiling tiles sued the seller for breach of contract,
fraudulent inducement, deceit and negligent misrepresentation, seeking
compensatory and punitive damages. Id. at 182. The appellate court affirmed the
dismissal of the buyer’s punitive damages claim because she was not entitled to
recover damages in tort that duplicated the damages the court awarded for breach
of contract. Id. at 183. Because the buyer suffered no damages other than the
breach-of-contract damages, she could not rely on the alleged tort claims to
recover punitive damages. Id.We agree with the trial court that John Brown and Ghodrati preclude
Khalid’s request for punitive damages based on Citrix’s breach of contract. 10
Although the trial court concluded the Invention Assignment Clause violated RCW
49.44.140, it denied Khalid’s request to deem the agreement unconscionable. It
remedied the defect in the Invention Assignment Clause by striking the offending
language and conforming it to the statute. Id. And there was no evidence that
10 Khalid alleged only two independent tort claims: wrongful termination, which he
voluntarily dismissed before trial, and a claim of tortious interference with business expectancy,
which the trial court ruled arose under Washington and not Florida law.
- 29 -
No. 79143-5-I/30
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Citrix’s endeavors to enforce an invalid provision of the Invention Assignment
Clause caused Khalid any personal injury or property damage under Florida’s
economic loss rule. Although Khalid initially sought damages for “emotional
distress, loss of enjoyment of life, humiliation, personal indignity, embarrassment,
fear, anxiety, and/or anguish,” he voluntarily dismissed that claim in January 2018,
and the parties agreed no evidence of any personal injury damages would be
presented at trial. The only damages Khalid sought at trial were economic losses
and he recovered $3 million in compensatory damages for the breach of contract.
Thus, any loss he may have sustained has been fully compensated.
Khalid’s reliance on Adams v. Whitfield, 290 So. 2d 49 (Fla. 1974) and
Griffith v. Shamrock Vill., Inc., 94 So. 2d 854 (Fla. 1957) is misplaced. In Adams,
a petitioner prevailed on a claim of malicious prosecution. 290 So. 2d at 50-51.
The sole issue on appeal was whether there was sufficient evidence of actual
malice to support a punitive damage award. Id. The Florida Supreme Court held
that an award of punitive damages only required proof of “legal malice,” not actual
malice. Id. at 51. Legal malice, it concluded, can be inferred from gross negligence
indicating a wanton disregard for the rights of others. Id. The court noted that “this
is true whether the cause of action is for malicious prosecution, for some other tort,
or for a breach of contract.” Id. But the statement relating to contract claims is
clearly dicta as the case did not involve any allegation of a breach of contract.
In Griffith, a tenant sued his landlord for gross negligence in failing to deliver
a telephone message from his brother that the location of the brother’s wedding
had changed, resulting in the tenant—the best man—missing the wedding. Id. at
- 30 -
No. 79143-5-I/31
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
855. On appeal, the tenant contended the trial court should have allowed him to
pursue punitive damages against the landlord. Id. at 857. In concluding that the
evidence supported a punitive damage request, the court noted that the evidence
showed the landlord undertook to accept telephone calls and messages for its
tenants, thereby assuming a duty to the tenant. Id. at 857-88. But “[t]he complaint
on which this case was tried sounds in tort, not in contract.” Id. at 858. And it
further noted that while punitive damages are not recoverable for breach of
contract,
[w]here the acts constituting a breach of contract also amount to a
cause of action in tort there may be a recovery of exemplary
damages upon proper allegations and proof. In order to permit a
recovery, however, the breach must be attended by some intentional
wrong, insult, abuse or gross negligence which amounts to an
independent tort.
Id. at 858. Because the evidence of the landlord’s gross negligence was sufficient
to demonstrate “an entire want of care,” the court held that the jury should have
been allowed to determine whether a punitive damages award was warranted. Id.
at 858.
John Brown is consistent with Griffith. Even if the parties are in a contractual
relationship, if a party pleads and proves the other party engaged in tortious
conduct, punitive damages may be awarded for that tortious conduct. Unlike the
plaintiff in Griffith, Khalid had no underlying tort-based claims arising under Florida
law and he did not prove that any tortious conduct occurred. 11 Because Khalid did
11 As Citrix correctly points out, the other cases on which Khalid relies all involved
independent tort claims. See Aero Int’l Corp. v. Florida Nat’l Bank, 437 So. 2d 156 (Fla. Dist. Ct.
App. 1983) (airplane repair company sued bank for breach of fiduciary duty for failing to pay client
interest owed to client under escrow agreement); Hogan v. Provident Life & Acc. Ins. Co., 665 F.
Supp. 2d 1273, 1279, 1289 (M.D. Fla. 2009) (insured pleaded sufficient facts on claims for breach
- 31 -
No. 79143-5-I/32
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
not prove Citrix engaged in any tortious conduct under Florida law, prevailed only
on contract-based claims, and sustained neither personal injuries nor property
damage, Khalid was not entitled to recover punitive damages. The trial court did
not err in dismissing this claim.
3. Khalid’s Challenge to Jury Instruction No. 31
Khalid contends that Jury Instruction 31 incorrectly stated Florida law on his
claim of breach of the implied covenant of good faith and fair dealing. Jury
Instruction 31 read:
To establish that Citrix breached the implied covenant of good faith
and fair dealing, Khalid must show that Citrix failed to comply with
contractual responsibilities through a conscious and deliberate act,
and not by an honest mistake, bad judgment, or negligence.
Khalid argues that an instruction requiring him to prove that Citrix acted
“consciously and deliberately and not through an honest mistake, bad judgment or
negligence,” imposed a higher standard than is warranted under Florida law. We
disagree.
Appellate courts review jury instructions to determine whether they properly
informed the jury of the applicable law, whether they were misleading, and whether
they allowed each party to argue their theory of the case. Spivey v. City of
Bellevue, 187 Wn.2d 716, 738, 389 P.3d 504 (2017). We review a trial court’s
of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, and negligence, to withstand
insurers’ Fed. R. Civ. P. 12(b)(6) motion to dismiss claim for punitive damages under Fla. Stat.
Ann. §768.72); Massey-Ferguson, Inc. v. Santa Rosa Tractor Co., 415 So. 2d 865, 866-67 (Fla.
Dist. Ct. App. 1982) (dealer action against manufacturer for trespass and tortious interference with
business; evidence supported punitive damage award for unlawful and unreasonable seizure of
collateral); Gregg v. U.S. Indus., Inc., 887 F.2d 1462, 1476 (11th Cir. 1989): seller of corporation
sued buyer for fraud and tortious interference with business relationships; punitive damages award
affirmed because evidence supported jury finding of tortious interference).
- 32 -
No. 79143-5-I/33
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
decision to give a jury instruction de novo when based on a matter of law.
Hendrickson v. Moses Lake School Dist., 192 Wn.2d 269, 274, 428 P.3d 1197(2018).
Khalid first argues the trial court erred in giving an instruction not included
in Florida’s standard jury instructions. Florida, like Washington, publishes a set of
pattern jury instructions. In re Standard Jury Instructions in Contract & Bus. Cases,
2018 Report, 260 So. 3d 87 (Fla. 2018). The trial court provided the jury with a
modified version of Standard Instruction 416.24, entitled “Breach of Implied
Covenant of Good Faith and Fair Dealing,” for each of Khalid’s implied covenant
claims. 12
Although the trial court added Jury Instruction 31 at Citrix’s request, there is
no basis for contending that supplementing Florida’s standard instructions is
erroneous. The Florida Supreme Court has indicated that trial courts may add
instructions not included in its standard set. When it adopted the latest version of
the standard contract instructions, it reminded “all interested parties that this
12 Florida’s Standard Instruction 416.24 provides:
An implied covenant of good faith and fair dealing exists in all contracts. (Claimant)
contends that (defendant) violated the implied covenant of good faith and fair dealing in
the contract in this case. To establish this claim, (claimant) must prove all of the following:
1. (Claimant) and (defendant) entered into a contract;
2. (Claimant) did all, or substantially all, of the significant things that the contract
required [him] [her] [it] to do [or that [he] [she] [it] was excused from having to do those
things];
3. All conditions required for (defendant’s) performance had occurred;
4. (Defendant’s) conduct was not consistent with (parties’) reasonable expectations
under [identify specific provision(s) of the contract]; and
5. (Claimant) was damaged by (defendant’s) conduct.
Florida Standard Jury Instructions, Contract & Business Instructions,
https://jury.flcourts.org/contract-business-cases-4/contract-business-cases-instructions (last
visited Nov. 5, 2020).
- 33 -
No. 79143-5-I/34
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
authorization forecloses neither requesting additional or alternative instructions ....”
In re Standard Jury Instructions in Contract & Bus. Cases-2018 Report, 260 So.
3d at 88.
As long as Jury Instruction 31 clearly and accurately stated the applicable
law, the trial court did not err in including an instruction that is not included in
Florida’s standard contract instructions.
Khalid next contends Jury Instruction 31 is not an accurate statement of
Florida law. Florida courts recognize an implied covenant of good faith and fair
dealing in every contract. County of Brevard v. Miorelli Eng’g, Inc., 703 So. 2d
1049, 1050 (Fla. 1997); Snow v. Ruden, McClosky, Smith, Schuster & Russell,
P.A., 896 So. 2d 787, 791 (Fla. Dist. Ct. App. 2005). The rights conferred by the
implied covenant of good faith and fair dealing, however, are limited. QBE Ins.
Corp. v. Chalfonte Condo. Apt. Ass’n, Inc., 94 So. 3d 541, 548 (Fla. 2012). An
action for such a breach cannot be maintained in the absence of a breach of an
express contract provision. Hosp.l Corp. of Am. v. Florida Med. Ctr., Inc., 710 So.
2d 573, 575 (Fla. Dist. Ct. App. 1998); Snow, 896 So. 2d at 792. The “duty of good
faith performance does not exist until a plaintiff can establish a term of the contract
the other party was obligated to perform and did not.” 896 So. 2d at 792 (quoting
Avatar Dev. Corp. v. De Pani Constr., Inc., 834 So. 2d 873, 976 (Fla. Dist. Ct. App.
2002)).
Under Florida law, the implied covenant has been described as serving
merely as a “gap-filling default rule.” Publix Super Markets, Inc. v. Wilder Corp. of
Delaware, 876 So. 2d 652, 654 (Fla. Dist. Ct. App. 2004). The claim is usually
- 34 -
No. 79143-5-I/35
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
raised when a question is not resolved by the terms of the contract or when one
party has the power to make a discretionary decision without defined standards.
Publix, 876 So. 2d at 654. A claim for breach of the implied covenant of good faith
may be dismissed as redundant if based on the same allegations as those
underlying the breach of contract claim. Alvarez v. Royal Carribean Cruises, Ltd.,
905 F. Supp. 2d 1334, 1341 (S.D. Fla. 2012).
The trial court based Jury Instruction 31 on Tiara Condo. Ass’n, Inc. v. Mash
& McLennan Cos., Inc., 607 F.3d 742 (11th Cir. 2010). In that case, a
condominium homeowners association sued their insurance broker for failing to
procure adequate insurance after the condominium tower suffered extensive wind
damage in two hurricanes in 2004. Id. at 745. The Eleventh Circuit Court of
Appeals held:
Under Florida law, a party breaches [the implied covenant of good
faith and fair dealing] by “a failure or refusal to discharge contractual
responsibilities, prompted not by an honest mistake, bad judgment,
or negligence; but, rather by a conscious and deliberate act, which
unfairly frustrates the agreed common purpose and disappoints the
reasonable expectations of the other party.”
Id. at 747 (quoting Shibata v. Lim, 133 F. Supp. 2d 1311, 1319 (M.D. Fla. 2000)).
Instruction 31 is an accurate statement of Florida law as set out in Tiara and the
case on which it relied, Shibata.
Khalid contends Tiara and Shibata are based on a misunderstanding of
Florida law. He argues that under Cox v. CSX Intermodal, Inc., 732 So. 2d 1092(Fla. Dist. Ct. App. 1999), conduct may violate an implied covenant of good faith
and fair dealing if it is found to be merely “arbitrary” or “unreasonable.” While the
- 35 -
No. 79143-5-I/36
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
“arbitrary” or “unreasonable” test may apply to certain types of implied covenant
claims, the trial court correctly determined that it is inapplicable here.
In Cox, the court was interpreting written contracts that were silent on the
methodology or standard a rail transport company was to use in exercising its
contractual discretion to assign loads for transport. 732 So. 2d at 1098. The Cox
court held that when a contract grants discretion to one party “to promote that
party’s self-interest, the duty to act in good faith . . . limits that party’s ability to act
capriciously to contravene the reasonable contractual expectations of the other
party.” Id. at 1097-98. This “discretion” concept, however, applies only where
there is an express contractual duty or obligation over which one party has sole
discretion. Meruelo v. Mark Andrew of Palm Beaches, Ltd., 12 So. 3d 247, 251
(Fla. Dist. Ct. App. 2009). See also Speedway SuperAmerica, LLC v. Tropic
Enterprises, Inc., 966 So. 2d 1, 3-5 (Fla. Dist. Ct. App. 2007) (when contract
contains no provision detailing when landlord may withhold consent to an
assignment, court will imply a covenant of good faith to limit landlord’s ability to act
capriciously); Overseas Inv. Grp. v. Wall Street Electronica, Inc., 181 So. 3d 1288,
1291 (Fla. Dist. Ct. App. 2016) (customer agreement lacked defined standards for
exercise of discretion in liquidating brokerage account; implied covenant filled that
gap).
Khalid’s implied covenant claim was not based on the contention that Citrix
had the sole contractual discretion to take some action and exercised that
discretion arbitrarily or unreasonably. In his closing argument to the jury, Khalid
maintained that Citrix violated an implied covenant of good faith and fair dealing in
- 36 -
No. 79143-5-I/37
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
the Employment and Severance Agreements by refusing, after his termination, to
acknowledge that Khalid had explicitly excluded his security software and mini-
cloud inventions from the scope of the Inventions Assignment Clause. Because
Khalid’s claim was not premised on an express contractual provision granting Citrix
the sole discretion to take some action, the “arbitrary” or “unreasonable” standard
from Cox does not apply.
The Shibata court recognized a second circumstance in which Florida
courts have implied a covenant of good faith and fair dealing – when a contract is
ambiguous about the permissibility of one party’s conduct. 133 F. Supp. 2d at
1318. Shibata and Tiara are not the only cases setting out this legal standard. A
plethora of federal courts, applying Florida law, have held that a plaintiff must prove
that the defendant’s conduct was “prompted not by an honest mistake, bad
judgment or negligence, but, rather by a conscious and deliberate act, which
unfairly frustrates the agreed common purpose and disappoints the reasonable
expectations of the other party.” Resnick v. AvMed, Inc., 693 F.3d 1317, 1329
(11th Cir. 2012); Doe v. Lynn University, 235 F. Supp. 3d 1336, 1343 (S.D. Fla.
2017); JDI Holdings, LLC v. Jet Management, Inc., 732 F. Supp. 2d 1205, 1226
(N.D. Fla. 2010); Bookworld Trade, Inc. v. Daughters of St. Paul, Inc., 532 F. Supp.
2d 1350, 1359 (M.D. Fla. 2007). See also 11 Fla. Jur. 2d Contracts § 272 (2020)
(recognizing “conscious and deliberate act” standard from Resnick and
Bookworld).
It follows logically from these cases that if a plaintiff and defendant disagree
over a defendant’s obligations under the terms of an ambiguous contract, the
- 37 -
No. 79143-5-I/38
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
defendant may be exposed to liability for a breach of a covenant of good faith and
fair dealing only if the plaintiff can prove the defendant was not merely mistaken in
its interpretation of the contract (which would nevertheless constitute a breach of
the agreement) but also deliberately refused to perform with the intent to deny the
plaintiff the benefits he would otherwise be due.
Khalid argues that these federal cases are not authoritative determinations
of state law. But federal courts applying Florida law are required to apply the law
as declared by that state’s Supreme Court, CSX Transp., Inc. v. Trism Specialized
Carriers, Inc., 182 F.3d 788, 790 (11th Cir. 1999), or in the absence of authority on
point, must follow relevant decisions of Florida’s intermediate appellate courts and
attempt to determine state law as they believe the Florida Supreme Court would.
State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226, 1231 (11th Cir. 2004).
And Florida appellate courts have routinely cited federal cases when discussing
state law on the implied covenant of good faith and fair dealing. See Ins. Concepts
& Designs, Inc. v. Health Plan Services, Inc., 785 So. 2d 1232, 1234 (Fla. Dist. Ct.
App. 2001); Snow, 896 So. 2d at 792.
Khalid cites no Florida appellate case rejecting the holding of Shibata, Tiara
and their progeny. We assume that where no such authority is cited, counsel has
searched and found none. State v. Young, 89 Wn.2d 613, 625, 574 P.2d 1171(1978). The trial court did not err in relying on federal courts’ determinations of
Florida state law.
- 38 -
No. 79143-5-I/39
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
4. Citrix’s Challenge to Jury Instruction No. 35
Citrix argues the trial court erred in instructing the jury that Khalid could
recover lost profits on his breach of contract claim. The trial court gave a jury
instruction on lost profits based on Florida Standard Jury Instruction 504.3.
Instruction 35 read in relevant part:
Mr. Khalid alleges he suffered lost profits as a consequence of Citrix's
breaches of the Employment Agreement and the covenants of good
faith and fair dealing. Lost profits are a type of compensatory
damages. To be entitled to recover lost profits, Mr. Khalid must prove
both of the following:
(1) Citrix's breaches caused Mr. Khalid to lose profits; and
(2) Mr. Khalid can establish the amount of his lost profits with
reasonable certainty.
For Khalid to establish the amount of his lost profits with reasonable
certainty, he must prove that a reasonable person would be satisfied
that the amount of lost profits which he may be entitled to recover is
not simply the result of speculation or guessing. Instead, he must prove
that there is some standard by which the amount of lost profits may be
established. Mr. Khalid does not have to be able to prove that the
amount of lost profits can be calculated with mathematical precision as
long as he has shown there is a reasonable basis for determining the
amount of the loss.
Even though Mr. Khalid's business is not established or does not have
a "track record," he still may be able to establish the amount of lost
profits which they may be entitled to recover if they prove that there is
some standard by which the amount of lost profits may be established.
In its opening brief, Citrix did not contend that Jury Instruction 35 is an incorrect
statement of Florida law. Instead, it maintained that only Xencare, and not Khalid,
could have experienced lost profits because “[t]here is no evidence in this record that
. . . Khalid could lose profits from a company he hadn’t even formed at the time the
[Employment Agreement] was entered into.”
- 39 -
No. 79143-5-I/40
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
As Khalid correctly pointed out in his responsive brief, this argument is a
challenge to the sufficiency of the evidence, not to the language of the instruction
itself. And a defendant waives a challenge to the sufficiency of a plaintiff’s evidence
by presenting evidence in defense of a claim. Hector v. Martin, 51 Wn.2d 707,
709, 321 P.2d 555 (1958); NW Wholesale v. Pac Organic Fruit, LLC, 184 Wn.2d
176, 182-83, 357 P.3d 650 (2015). Citrix did not challenge the sufficiency of the
evidence as to Khalid’s claim of lost profits before it began presenting evidence in
its case in chief and thus waived the issue.
In reply, Citrix argued for the first time that the jury instruction was legally
erroneous, because under Florida law, a plaintiff is required to prove that the loss
was in the “reasonable contemplation” of the parties at the time of the contract. See
Frenz Enterprises v. Port Everglades, 746 So. 2d 498, 504 (Fla. Dist. Ct.
App.1999); see also Hardwick Props., Inc. v. Newbern, 711 So. 2d 35, 40 (Fla.
Dist. Ct. App.1998) (consequential damages “stem from losses incurred by the
non-breaching party in its dealings, often with third parties, which were a proximate
result of the breach, and which were reasonably foreseeable by the breaching
party at the time of contracting.”). It contends Khalid presented no evidence that
Citrix knew or should have known that Khalid could lose profits from a company he
had not formed at the time of the contract. But because this argument was raised
for the first time in a reply brief, it too has been waived. See Cowiche Canyon
Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 P.2d 549 (1992) (“An issue
raised and argued for the first time in a reply brief is too late to warrant
consideration.”).
- 40 -
No. 79143-5-I/41
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Moreover, Citrix did not adequately preserve its objection to Jury Instruction
35 at trial. CR 51(f) requires a party objecting to a jury instruction to “state distinctly
the matter to which he objects and the grounds of his objection.” Washburn v. City
of Fed. Way, 178 Wn.2d 732, 746, 310 P.3d 1275 (2013). “The pertinent inquiry
on review is whether the exception was sufficient to apprise the trial judge of the
nature and substance of the objection.” Walker v. State, 121 Wn.2d 214, 217, 848
P.2d 721 (1993) (quoting Crossen v. Skagit County, 100 Wn.2d 355, 358, 669 P.2d
1244 (1983)). This court will consider a claimed error only if the appellant raised
the specific issue at trial. Galvan v. Prosser Packers, Inc., 83 Wn.2d 690, 692,
521 P.2d 929 (1974) (noting that consideration of errors in instructions on appeal
“is limited to those issues specifically raised” at trial).
Here, Citrix did not adequately preserve the error as required by CR 51(f).
When the parties discussed jury instructions, Citrix’s argument as to Instruction 35
was limited to one sentence: “We except to 35, lost profits. Considered a type of
damage for breach of contract.” This exception is insufficient to inform the trial
court or counsel that Citrix considered the instruction legally deficient because it
lacked a foreseeability element. A review of the record shows that at no point other
than this did Citrix object to Instruction 35. 13
Citrix also challenges the instruction on the grounds that it instructed the jury
to determine Khalid’s, and not Xencare’s, lost profits. Citrix argues that because
Khalid assigned both patents to Xencare, only Xencare could recover lost profits.
13
In its reply brief, Citrix argues merely that “[i]t is undisputed that the parties discussed
and argued jury instructions at length.”
- 41 -
No. 79143-5-I/42
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Again, this argument is a challenge to the sufficiency of the evidence, an issue Citrix
waived below. And Citrix did not alert the trial court that an instruction allowing the
jury to award lost profits to Khalid, rather than only to Xencare, was legally
erroneous. Indeed, Citrix itself proposed an instruction which would have
permitted the jury to award lost profits to Khalid. Citrix’s failure to raise this specific
objection below constitutes a waiver of any error. 14 We therefore reject Citrix’s
challenge to Jury Instruction 35.
5. Citrix’s Post-Trial Motion for Judgment as Matter of Law
Citrix argues the trial court erred in denying its CR 50 motion for judgment as
a matter of law on three specific grounds: (1) Khalid’s failure to perform all the
essential terms of his Employment Agreement precluded his claim against Citrix for
breach; (2) Khalid could not establish causation between Citrix’s breach and Khalid’s
damages because Microsoft had a preexisting claim to the same intellectual property;
and (3) the Severance Agreement, if enforceable against Citrix, barred Khalid from
prosecuting a breach of Employment Agreement claim. We conclude Citrix failed to
preserve the first and third arguments. And the trial court did not err in rejecting its
second argument because the evidence, taken in the light most favorable to Khalid,
supports the jury’s verdict in his favor.
CR 50 permits a court to enter judgment as a matter of law if “during a trial
by jury, a party has been fully heard with respect to an issue and there is no legally
14 Citrix cites no authority to support its argument that the sole owner of a corporate entity
cannot recover lost profits arising from the breach of a contract he signed in his individual capacity.
In reply, Citrix cites Grayson v. Nordic Const. Co, Inc., 92 Wn.2d 548, 552, 599 P.2d 1271 (1979), for
the unremarkable proposition that “[a] corporation exists as an organization distinct from the personality
of its shareholders.” But, as Khalid notes, his expert at trial presented damages reflecting amounts
that could be allocated to Khalid through his ownership interest in his company.
- 42 -
No. 79143-5-I/43
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
sufficient evidentiary basis for a reasonable jury to find or have found for that party
with respect to that issue.” CR 50(a)(1).
We conclude Citrix failed to preserve two of the three arguments it raises
here. Citrix did not seek judgment as a matter of law on the ground that Khalid
failed to perform his obligations under the Employment Agreement or on the
ground that the Severance Agreement contained a release of claims before the
case was submitted to the jury. “A motion for judgment as a matter of law may be
made at any time before submission of the case to the jury.” CR 50(a)(2)
(emphasis added). CR 50(a) “makes clear that a party must move for judgment
as a matter of law before the trial court submits the case to the jury to preserve
any opportunity to renew its motion after the case is submitted.” Hanks v. Grace,
167 Wn. App. 542, 552-53, 273 P.3d 1029 (2012). See also Millies v. LandAmerica
Transnation, 185 Wn.2d 302, 315, 372 P.3d 111 (2016) (a party is required to
move for judgment as a matter of law before the case is submitted to the jury to
preserve any opportunity to renew the motion after the verdict). CR 50(b) allows
a party to renew a request for judgment as a matter of law by filing a motion within
10 days of judgment but it does not allow a party to raise such arguments for the
first time at that stage of the proceedings.
Here, following the close of Khalid’s case in chief, Citrix orally moved for
judgment as a matter of law on only four grounds: (1) the Severance Agreement
payment was not “wages” under Washington’s wage law; (2) Microsoft’s ownership
claim to Khalid’s inventions prevented Khalid from establishing causation between
Citrix’s actions and his claimed damages; (3) Citrix did not breach the Severance
- 43 -
No. 79143-5-I/44
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Agreement because Khalid had revoked it; and (4) Khalid failed to prove a CPA
violation. The trial court reserved ruling on the wage claim and denied the remainder
of Citrix’s motion.
After the jury rendered its verdict, Citrix renewed its motion, reiterating the four
arguments it made before it began its case in chief, and raising three new arguments:
(1) any lost profits awarded to Khalid must be disgorged and paid to Citrix for his
trademark infringement; (2) the Severance Agreement release barred Khalid’s claim
for breach of the Employment Agreement; and (3) lost profit damages are not proper
damages for breach of the Employment Agreement. The trial court denied Citrix’s
motion.
Citrix never sought judgment as a matter of law based on the argument that
Khalid had failed to perform all the essential terms of his Employment Agreement.
Nor did it argue, before the case went to the jury, that the Severance Agreement
barred Khalid from prosecuting his contract claim. While it raised the Severance
Agreement release post-verdict, this was insufficient to preserve the error under CR
50. Citrix did not preserve these claims for appeal.
Citing Morningstar v. Worthy, 454 F. App’x. 391, 398-99 (6th Cir. 2011),
Citrix argues that an “almost fleeting” reference to the issues should suffice to
preserve them for appeal. But the trial court in Morningstar entered a finding of
fact that the defendant had raised testimonial immunity as a basis for judgment as
a matter of law before the claim for malicious prosecution was submitted to the
jury. Id. at 398. The reference was, as the trial court described it, “almost fleeting,”
but it was sufficient to preserve the defense for the officer’s post-verdict CR 50(b)
- 44 -
No. 79143-5-I/45
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
motion. Id. The Sixth Circuit held that the trial court’s finding that the defense was
raised prior to the verdict was not an abuse of discretion, and “preservation for
appellate purposes is not at issue here.” Id.Unlike Morningstar, we have no finding by the trial court that Citrix’s counsel
made any pre-verdict reference, let alone a “fleeting” one, to the argument that
Khalid could not, as a matter of law, prove Citrix breached the Employment
Agreement because Khalid breached it first. Nor did the trial court find that Citrix
argued, pre-verdict, that the release in the Severance Agreement barred Khalid’s
claim for breach of the Employment Agreement. Although Citrix sought the dismissal
of both contract-based claims, it did so on completely different grounds.
As to Citrix’s second claim regarding the causal link between Citrix’s claim
of ownership to Khalid’s patents and Khalid’s lost profits, the trial court did not err in
rejecting this argument. A motion for judgment as a matter of law admits the truth
of the evidence of the nonmoving party and all inferences that reasonably can be
drawn from that evidence. Ramey v. Knorr, 130 Wn. App. 672, 675-76, 124 P.3d
314 (2005). The trial court may grant such a motion only if there is no legally
sufficient evidentiary basis for a reasonable fact finder to find for the nonmoving
party with respect to that issue. CR 50(a)(1). We review orders denying judgment
as a matter of law de novo. Leren v. Kaiser Gypsum Co., 9 Wn. App. 2d 55, 70, 442
P.3d 273 (2019), as amended on denial of reconsideration (Aug. 8, 2019), review
denied sub nom. Leren v. Elementis Chemicals, Inc., 194 Wn.2d 1017, 455 P.3d
133 (2020).
- 45 -
No. 79143-5-I/46
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Citrix argues that because Microsoft also claimed an ownership interest in the
‘219 and ‘637 Patents, Khalid could not prove his losses were caused by Citrix’s
assertion of ownership to the same inventions. But Citrix’s argument ignores the
applicable standard for reviewing the evidence at trial. When viewed in the light most
favorable to Khalid, there was more than sufficient evidence of causation to submit
Khalid’s contract claims to the jury.
Citrix presented evidence that when Khalid joined Microsoft in 1998, he signed
an employment agreement containing an invention assignment clause. Khalid
admitted he did not carve out, from the scope of this clause, any preexisting
inventions. After Khalid left Microsoft in 2006 to join Citrix, Khalid received an email
from an intellectual property attorney at Microsoft, asserting that Microsoft owned
Khalid’s patents and inventions. The email stated as follows:
I’m disappointed to now hear that you not only filed one, but several,
independent patent applications during your employment with
Microsoft. With respect to each of those inventions, unless you can
prove each of the exclusion criteria set forth in paragraph 4 of your
Employment Agreement, you have a legal obligation to assign your
ownership to Microsoft.
The email demanded that Khalid prove that his inventions qualified as excluded
subject matter, and informed him that if he refused to cooperate, “Microsoft is the
rightful owner of the inventions and applications.”
But we must accept as true Khalid’s testimony that he began developing the
mini-cloud system before he began working for Microsoft. No one from Microsoft
ever followed up with him about this invention, and Khalid did not believe at the
time that Microsoft actually planned to assert ownership of the invention. And
- 46 -
No. 79143-5-I/47
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Khalid had subsequent conversations with Microsoft that led him to believe
Microsoft did not have any interest in the market sector of his developments.
Khalid’s damage claim against Citrix was based on lost profits between
November 2011 and December 2016. We again must accept as true Khalid’s
testimony that Microsoft’s 2006 email did not lead him to lose investors because by
the time he left Citrix in 2011, Microsoft had taken no action on any claim of ownership
and he felt no need to disclose the email to any prospective investors.
Although Citrix also presented evidence that when Khalid was rehired by
Microsoft in December 2011, he signed another invention assignment agreement
with that company, and that when Khalid was terminated by Microsoft in 2015,
Microsoft again claimed to own Khalid’s intellectual property. Khalid testified he
had done the vast majority of the development work on the mini-cloud invention in
2008, after leaving Microsoft. He disclosed to Citrix in the Employment Agreement
that he had offered his intellectual property to Microsoft but he later learned his
prior employer had no interest in it. And the Softlock antivirus software was not a
part of any work he had done at Microsoft. Finally, when Khalid was rehired by
Microsoft in 2011, he explicitly disclosed to Microsoft a complete list of his personal
inventions, including both the antivirus software and the mini-cloud invention. This
evidence, if accepted as true, is sufficient to undermine Citrix’s causation
argument.
Citrix next contends that Mina, who offered to purchase 50,000 copies of the
Softlock antivirus software in 2011, provided Khalid a letter in 2015 in which he stated
that Microsoft’s alleged interest in Khalid’s inventions interfered with his decision to
- 47 -
No. 79143-5-I/48
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
invest. Mina indeed acknowledged that in 2015, he undertook business discussions
with Khalid but “decided not to proceed with our investment commitment” after
learning about Microsoft’s claim of ownership to one of Khalid’s patents. But Khalid
contends Mina’s testimony related to a completely different business venture “built
around an IP portfolio, not to Xencare in 2011 which would have been built around a
product.” The record supports Khalid’s characterization of Mina’s testimony:
Q: .... Going down to the bottom paragraph, Mr. Khalid tells you why
he needs the letter, correct, Mr. Mina? He needs it because he’s
meeting with an IP . . . He’s meeting with an IP lawyer due to Microsoft
IP issue. And he says, “I have your email that we discussed around
$350,000 investment in IP that didn’t materialize because of Microsoft,”
right? That’s what he was asking you to write about. You would have
also invested $350,000, but Microsoft interfered with your decision,
correct?
A. It was meant for a different venture called IP portfolio, rather than
product; you go with IP portfolio.
Q. Understood. A different business venture. But whatever it was,
according to Mr. Khalid and the letter you wrote, you didn’t follow
through on that because of Microsoft, not because of Citrix, right?
A. We were interested in IP portfolio. . . . I don’t know if Citrix side was
involved or not.
Khalid also presented evidence that Microsoft subsequently offered to relinquish
any ownership interest in his ‘637 Patent in exchange for a licensing arrangement.
In closing, Khalid argued if Microsoft had asserted any ownership interest in 2011,
he could have negotiated a similar arrangement with Microsoft at the time. 15
The jury was instructed, pursuant to Florida Standard Instructions for
Contracts and Business Instruction 504.2(a), that in order for Khalid to recover
15 The record also suggests the jury’s damage award related to anticipated Softlock
software license sales to Mina at Pragma and Microsoft had not asserted a claim to that antivirus
software.
- 48 -
No. 79143-5-I/49
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
damages for any breach, the damages must have been those that “naturally result
from such breaches.” See Lucas Truck Serv. Co. v. Hargrove, 443 So. 2d 260, 263
(Fla. Dist. Ct. App. 1983) (“In order that a party may recover profits lost by reason of
a breach of contract, the loss must be the natural and proximate result of the breach,
whether as an ordinary consequence thereof, or as a consequence which may, under
the circumstances, be presumed to have been in the contemplation of the parties at
the time they made the contract.”).
Citrix argued to the jury that Microsoft’s assertion of ownership broke the
causal change between Citrix’s actions and Khalid’s damages:
And if Microsoft's assertion of an ownership interest here is
material to an investor, if his argument is that Citrix's assertion of
ownership is material to an investor, Citrix could not have caused
any damage here.
He's already in trouble because he knows that Microsoft is
asserting ownership. He can't pick and choose which companies
assertion of interest is material to an investor. They both are. And if
he is claiming we caused harm, and we prevented him from getting
startup money because we asserted an ownership interest, that's not
right. There is something else that happened first, and that's this at
Microsoft. And you know from Exhibit B that he full well knows it. No
matter how many times on the stand he said it, Microsoft had no
interest. Exhibit B says it all. It's right there.
The jury obviously rejected this causation argument.
Viewing the evidence in the light most favorable to Khalid, a jury could have
found that Khalid’s investors did not know about Microsoft’s 2006 assertion of
ownership, and therefore it could not have interrupted the chain of causation when
Citrix made its unlawful demands to Khalid’s patents in 2011. And it could have also
found that any investment Mina chose not to make in 2015 was related to a different
business venture he was discussing with Khalid and not related to his decision not to
- 49 -
No. 79143-5-I/50
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
purchase Softlock software licenses between 2011 and 2015. For this reason, the
trial court did not err in denying Citrix’s motion for judgment as a matter of law.
6. Khalid’s Request for Declaratory Judgment of Citrix’s Ownership Rights
Citrix next challenges the trial court’s determination that Citrix holds no
ownership interest in the ‘219 or ‘637 Patents. Because the trial court’s declaratory
judgment is based on the jury’s verdict, and that verdict is supported by the evidence,
we find no error in the entry of the declaratory judgment in favor of Khalid.
In a post-trial motion, Khalid sought declaratory relief that Citrix had no
ownership interest in the ‘219 or ‘637 Patents. Prior to trial, Citrix in turn sought
declaratory relief that it owned the patents and that Khalid did not. The trial court
concluded that “[t]he jury’s rejection of [Citrix’s] breach of contract claim and its
decision in favor of Plaintiff Khalid on his breach of contract claim requires the
conclusion that Defendant Citrix did not gain ownership of Plaintiffs’ intellectual
property through the Agreement. Defendant had no other basis for claiming
ownership of the intellectual property.” It granted Khalid his requested declaratory
relief, “declar[ing] that Citrix has no ownership or other rights to or arising under US
Patent No. 8,286,219 and 8,782,637.”
In reviewing a declaratory judgment, we review whether the trial court's
findings of fact are supported by substantial evidence and, if so, whether the
findings support the trial court's conclusions of law. Sunnyside Valley Irrig. Dist. v.
Dickie, 149 Wn.2d 873, 879–80, 73 P.3d 369 (2003). Unchallenged findings of
fact are verities on appeal. Buck Mountain Owners' Ass'n v. Prestwich, 174 Wn.
App. 702, 714, 308 P.3d 644 (2013).
- 50 -
No. 79143-5-I/51
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Citrix first contends the trial court erred in refusing to hold a subsequent
evidentiary hearing on the ownership issue. Citrix argues it “was entitled to a full
equitable proceeding in which evidence and briefing specific to ownership could
be presented.” But it provides no authority for this proposition. Nor is there any
merit to Citrix’s argument that the trial court erred in relying on the jury verdict,
“effectively converting a bench issue into a jury issue.” Generally, a trial court may
not substitute its judgment for the jury’s and in a case in which legal claims are tried
to a jury and equitable claims are tried by a judge, the judge will follow the jury’s
factual determinations unless several different theories support the jury verdict.
Spencer v. Badgley Mullins Turner, PLLC, 6 Wn. App. 2d 762, 797, 432 P.3d 821(2018), citing Teutscher v. Woodson, 835 F.3d 936, 944 (9th Cir. 2016) and L.A.
Police Protective League v. Gates, 995 F.2d 1469, 1473 (9th Cir. 1993).
In this case, Khalid maintained throughout trial that he owned the patents and
the intellectual property contained in the patents because he conceived of the
inventions before he began working for Citrix and he developed them on his own
time, using his own resources. He testified none of the work he did to develop the
‘219 or ‘637 Patent was related in any way to any assignments he had while at Citrix
or related to any products it had under development. He presented evidence that
when he showed his inventions to Citrix, he indicated the ideas were his own
independent work, and that he was approaching Citrix merely to entice the company
to invest in his startup company. But the company rebuffed him and indicated it had
no interest whatsoever in what he had developed. Khalid’s testimony in this regard
- 51 -
No. 79143-5-I/52
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
was corroborated by the testimony of his former supervisor, Sirjani, as well as Citrix
managerial employees, Duursma, Pedersen, and DeForeest.
Khalid’s breach of contract claim was based on one single theory: “[t]he jury
will be asked to decide whether Citrix breached its Employment Agreement with Mr.
Khalid by claiming ownership to and demanding assignment of the inventions
protected by the Employment Agreement . . . .” Jury Instruction 15 required Khalid
to prove that “Citrix failed to do something essential which the contract required it to
do or did something which the contract prohibited it from doing and that prohibition
was essential to the contract.” In closing, Khalid made his theory – and the only theory
– clear:
Citrix failed to do something essential, which the contract required it to
do or did something which the contract prohibited it from doing, and
that [the] prohibition was essential to the contract. And so, ladies and
gentlemen, what that means in the context of [the Employment
Agreement] is did Citrix do something that it was prohibited from doing.
That’s the question you have to answer to consider element four. And
what Citrix was prohibited from doing, according to Ms. Ponikiewicz,
was making a claim to intellectual property that had been disclosed on
Exhibit B. By doing that, by telling Khalid at the time that he was
terminated that it owned his intellectual property, and then threatening
to sue him, Citrix breached this contract. It failed to do something it
was prohibited from doing.
The jury found that Citrix breached the Employment Agreement. Given the
sole theory under which Khalid proceeded at trial, the trial court properly concluded
the jury’s verdict was based on its finding that Citrix had claimed ownership to
intellectual property it did not own. Under Spencer, the trial court did not abuse its
discretion in concluding that the jury verdict resolved the question of Citrix’s claimed
ownership interest in Khalid’s inventions.
- 52 -
No. 79143-5-I/53
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Citrix next argues that the trial court failed to recognize that it “had an
ownership claim to the patents under common law theories that arise from the fact
that Khalid, was ‘hired to invent’ and intellectual property was an integral part of his
work assignment.” But the trial court found that Citrix “claimed ownership interest of
the patents at issue in this litigation on the basis of [the Employment] Agreement and
asserted no other grounds for claiming ownership.” Citrix has not assigned error to
this factual finding.
Moreover, Citrix fails to provide this court with any support for the proposition
that an employer may assert, by common law, an ownership interest in its employee’s
intellectual property when the parties’ rights are clearly governed by a written
invention agreement. Citrix claims it has “shop rights” to Kahlid’s inventions, citing to
Wellington Print Works, Inc. v. Magid, 242 F. Supp. 614, 617 (E.D. Pa. 1965). That
case involved a textile engineer who used the company’s time, resources and
personnel to develop new techniques. Unlike this case, there was no agreement,
either express or implied, between the employer and employee under which the
employee was required to assign any inventions to his employer. Id. at 617.
Because the engineer had used company resources to develop the inventions, the
federal court concluded the employer gained a “shop right” to the inventions, giving
it a non-exclusive license to practice the inventions. Id. at 617.
Citrix’s reliance on Wellington is misplaced. Under federal patent law, the
right to an invention belongs to the inventor. Bd. of Trustees of Leland Stanford
Jr. Univ. v. Roche Molecular Sys. Inc., 563 U.S. 776, 785, 131 S. Ct. 2188, 180 L.
Ed. 2d 1 (2011). An employer has no rights to an employee’s invention absent a
- 53 -
No. 79143-5-I/54
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
written agreement to the contrary. Id. Patent law recognizes that an employer
may obtain “shop rights” in an employee’s invention “where it has contributed to
the development of the invention.” Teets v. Chromalloy Gas Turbine Corp., 83
F.3d 403, 407 (Fed. Cir. 1996). But shop rights do not transfer ownership of an
invention from employee to employer. It merely grants to the employer a non-
transferrable, non-exclusive, royalty-free right permitting the employer to use an
invention developed by its employee on the job. Marley Co. v. FE Petro, Inc., 38
F. Supp. 2d 1070, 1083 (S.D. Iowa 1998). And shop rights attach only when there
is no specific contractual provision providing for the assignment of intellectual
property. U.S. v. Dubilier Condenser Corp., 289 U.S. 178, 187-88, 53 S. Ct. 554,
77 L. Ed. 2d 1114 (1933). The common law “shop right” doctrine is superseded
when parties allocate their rights to inventions by contract. Marley, 38 F. Supp. 2d
at 1083; Jamesbury Corp. v. Worcester Valve Co., 443 F.2d 205, 214 (1st Cir.
1971).
In this case, unlike Wellington, there was an express agreement, as amended
to comply with RCW 49.44.140, setting out under what circumstances Citrix would
obtain ownership to Khalid’s inventions. The existence of this invention assignment
agreement supersedes any common law claim of shop rights. The trial court did not
err in relying on the jury’s verdict to conclude that Citrix has no ownership rights to
the ‘219 or ‘637 Patents.
7. Remittitur of the $3 Million Damages Award
Citrix next argues the trial court should have either remitted the $3 million
damage award or granted it a new trial on damages. It contends the verdict is not
- 54 -
No. 79143-5-I/55
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
supported by the evidence and the jury must have erroneously added interest to
the damages award. We disagree.
The determination of the amount of damages is “primarily and peculiarly
within the province of the jury, under proper instructions, and the courts should be
and are reluctant to interfere with the conclusion of a jury when fairly made.”
Bingaman v. Grays Harbor Community Hosp., 103 Wn.2d 831, 835, 699 P.2d 1230(1985). If a jury’s verdict is tainted by passion or prejudice or is otherwise
excessive, the trial court or the appellate court has the power to reduce the award
or to order a new trial. But there is a strong presumption in favor of a jury’s
determination of damages. Sofie v. Fibreboard Corp., 112 Wn.2d 636, 654, 771
P.2d 711 (1989). “A judge can only reduce a jury’s damages determination when
it is, in light of this strong presumption, wholly unsupported by the evidence,
obviously motivated by passion or prejudice, or shocking to the court’s
conscience.” Id. at 654-55.
We review a trial court’s order denying remittitur or the denial of a motion
for a new trial for abuse of discretion. Bunch v. King County Dep't of Youth Servs.,
155 Wn.2d 165, 176, 116 P.3d 381 (2005); State v. Boyle, 183 Wn. App. 1, 12,
335 P.3d 954 (2014). “A court abuses its discretion when its decision adopts a
view that no reasonable person would take or that is based on untenable grounds
or reasons.” Boyle, 183 Wn. App. at 12-13.
Citrix does not contend the jury’s $3 million award was the result of passion
or prejudice or is so large as to shock the conscience of the court. Instead, it claims
the record does not support this award because no witness testified that $3 million
- 55 -
No. 79143-5-I/56
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
was the proper amount of damages for its breach. While a claimant bears the burden
of proving the amount of damages, this burden does not require mathematical
certainty or precision; there need only be competent evidence in the record to support
the damage award. Fed. Signal Corp. v. Safety Factors, Inc., 125 Wn.2d 413, 443,
886 P.2d 172 (1994).
There is ample evidence in this record to support the jury’s award. Khalid
presented the testimony of two experts regarding the loss of business development
opportunities resulting from Citrix’s assertion of ownership over his intellectual
property. John Forbes, a computer scientist and venture capitalist responsible for
founding several successful startup companies, testified that Softlock, was in “an
advance[d] stage of development,” and Khalid had a commitment from Pragma to
purchase 50,000 licenses to this software. Forbes opined that Citrix’s assertion of
ownership to the intellectual property behind Softlock led Khalid to lose this
business opportunity. He projected that Khalid lost revenue of $35 million based
on Citrix’s claim to the ‘219 and ‘637 Patents.
Lorraine Barrick, a certified forensic accountant specializing in damages
estimates, testified that she valued the lost revenue from the Pragma sale of
50,000 licenses to fall between $1,485,000 and $1,905,381. Barrick further
testified that had Softlock sales continued at a rate of approximately 25,000 per
year, Khalid would have had net sales revenue of $4.24 million over a five-year
period. Barrick testified that Khalid’s combined lost business opportunities for both
the Softlock and mini-cloud inventions between November 2011 and December
- 56 -
No. 79143-5-I/57
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
2016 ranged from $11.9 million and $17.8 million. The jury’s award of $3 million
clearly falls within the range of this evidence.
Citrix argues the jury could only have reached a $3 million award by applying
12 percent prejudgment interest compounded from 2011 to 2018. It notes that
Barrick testified that Khalid’s lost Pragma sales revenue, with 12 percent interest
added in, would total $2,848,821. It suggests the jury erroneously accepted Barrick’s
damages testimony and rounded up to reach the $3 million number. But this
argument is speculative at best. Barrick testified that Khalid’s lost sales of Softlock
would likely have averaged $1,695,191 in the first year and would have reached
$4,237,000 over the first five years. The jury was free to decide that Khalid’s actual
losses were somewhere in between these two numbers. We cannot conclude that
the jury’s award included prejudgment interest.
The trial court did not abuse its discretion in denying Citrix’s motion for
remittitur or in denying its motion for a new trial.
8. Khalid’s Request for Prejudgment Interest on the $3 Million Award
Khalid argues the trial court erred in denying his request for prejudgment
interest on the $3 million jury award for breach of the Employment Agreement. We
agree.
This court reviews a trial court’s order on prejudgment interest for abuse of
discretion. Humphrey Indus., Ltd. V. Clay Street Assocs., 176 Wn.2d 662, 672,
295 P.3d 231 (2013). The court will reverse a trial court’s decision only if it is
manifestly unreasonable, exercised on untenable grounds, or exercised for
untenable reasons. Id. Untenable reasons include errors of law. Id.- 57 -
No. 79143-5-I/58
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
The parties agree Florida law governs Khalid’s entitlement to prejudgment
interest. In Florida, prejudgment interest is an element of pecuniary damages.
Argonaut Ins. Co. v. May Plumbing Co., 474 So. 2d 212, 214 (Fla. 1985). Once a
jury has reached its verdict, the plaintiff’s damages are deemed liquidated and the
plaintiff is legally entitled to an award of prejudgment interest as long as the date
of loss can be ascertained from the evidence. Arizona Chemical Co. v. Mohawk
Indus., Inc., 197 So. 3d 99, 102-103 (Fla. Dist. Ct. App. 2016). Two prerequisites
are required for an award of prejudgment interest: out-of-pocket pecuniary loss
and a fixed date of that loss. Glover Distributing Co., Inc. v. F.T.D.K., Inc., 816 So.
2d 1207, 1213 (Fla. Dist. Ct. App. 2002). There does not have to be a special
verdict determining the actual date of loss when the loss is established by the
verdict and the pertinent date can be ascertained from the evidence. Pace Prop.
Fin. Authority v. Jones, 24 So. 3d 1271, 1272 (Fla. Dist. Ct. App. 2009).
The trial court denied prejudgment interest, finding that Khalid had not
established a precise date of loss.
Under Florida law, a party seeking an award of prejudgment interest
must conclusively establish a date of pecuniary loss before prejudgment
interest can be awarded. Under these facts, the court cannot ascertain
a date of actual loss for the lost profits of the business. Plaintiff argued
the date of loss was based on the testimony of their expert, Lorraine
Barrick, who testified regarding her methodology and calculated
projected future income using November 1, 2011 as a starting date. The
court cannot anchor a 3 million dollar loss five days after Citrix sent its
letter alerting plaintiff to its claim to the patents. Given the facts
presented, it is simply not logical that the plaintiff would have lost 3
million dollars by that date. The court cannot logically ascertain a
different date. Moreover, the plaintiff did not request the jury to ascertain
a date of loss. Given the facts presented, the court cannot ascertain a
specific date of loss; the request for prejudgment interest is denied for
the $3,000,000 award.
- 58 -
No. 79143-5-I/59
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Khalid argues the trial court erred in concluding that his date of loss could not be
ascertained from the evidence at trial. He maintains that his date of loss was
November 1, 2011, the date on which he would have been able to market his
inventions but for Citrix’s assertion of ownership to that intellectual property. He
contends Barrick computed Khalid’s lost profits using a standard methodology of
discounting a total, multi-year profit stream to a present day value. Id. He
contends under Arizona Chemical, when there is expert witness testimony
applying this methodology, the date to which the lost profit stream is discounted is
the actual date of loss. Arizona Chemical does not support this argument.
In that case, a carpet manufacturer, Mohawk, sought damages from a resin
manufacturer, Arizona Chemical, after discovering that the resin Arizona Chemical
supplied and Mohawk applied to its carpet backing was failing. Arizona Chemical,
197 So. 2d at 102. Mohawk used the resin for four years before discovering the
defect. Id. at 101. It experienced a spike in warranty claims for several years and,
after discovering the defect, sold some of the remaining carpet at a discount and
discarded the rest. Id. at 102. The brand suffered as a result of the high level of
warranty claims and ultimately Mohawk had to discontinue it. Id. at 101. It sought
expenses incurred in fulfilling customer warranty claims and lost profits due to the
declining sales of the carpet and the ultimate demise of the brand. Id.
After a jury verdict in Mohawk’s favor, the trial court sought to award
Mohawk prejudgment interest from the date of Arizona Chemical’s breach but
could not determine that date it delivered the defective resin to Mohawk. It instead
chose to start interest from the date Mohawk applied the resin to each roll of carpet
- 59 -
No. 79143-5-I/60
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
subject of a warranty claim, discarded or sold at a lower price. Id. at 102. The
Florida appellate court held that “the beginning date for the accrual of prejudgment
interest depends on the timing of the pecuniary loss for which damages have been
awarded.” Id. at 104. It held:
In the instant case, Mohawk sued to recover for losses that occurred
after the date Arizona breached the parties’ contract and its warranty.
Often, Mohawk sustained these losses years later, when it paid
warranty claims on carpet that had been installed for some time
before the defects surfaced. In some cases, Mohawk may have
realized the losses closer to the time of breach, but still later than the
breach, when it made the decision to dispose of carpet without
receiving full price rather than risk warranty claims on it. Under these
circumstances, Mohawk was not entitled to recover prejudgment
interest from the date the defective resin was delivered or applied to
the carpet. Rather, Mohawk was entitled to recover prejudgment
interest from the date it realized each loss in dollars.
Id. at 105. Because the relevant dates for determining when prejudgment interest
began to accrue were the dates Mohawk paid out on warranty claims, sold carpet
at a discount or discarded carpet, the court remanded the case to the trial court to
determine if these dates could be ascertained from the evidence. Id. at 106. It
also stated, however, that “if the dates of Mohawk’s losses cannot be ascertained
with precision, the court should select, as to each loss, the earliest date by which
the evidence shows the loss must have been sustained.” Id.
There is no discussion in Arizona Chemical about when prejudgment
interest accrues on lost profits incurred over a multi-year period or how accrual
should be analyzed when an expert estimates a lost profit stream over several
years. Arizona Chemical does not support Khalid’s argument for prejudgment
interest commencing on November 1, 2011.
- 60 -
No. 79143-5-I/61
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Nevertheless, Arizona Chemical does support the argument that when
damages accrue at different times, prejudgment interest should be awarded from
the date of each incremental loss. Damages can become fixed on different dates
for purposes of an award of prejudgment interest. Capitol Envt’l Servs., Inc. v.
Earth Tech, Inc., 25 So. 3d 593, 597 (Fla. Dist. Ct. App. 2009). The problem with
this argument, however, is that Khalid presented different damage theories to the
jury and the verdict does not indicate which theory the jury adopted.
Forbes estimated lost revenues of $35 million between 2011 and 2015.
Barrick calculated lost sales to Pragma of between $1.7 million and $4.2 million
between 2011 and 2016. She estimated total lost sales between November 2011
and the end of 2016 to be $15.2 million. It is possible to compute interest on these
lost sales; Barrick provided the court with interest computations associated with
the Pragma sales.
But Barrick also presented evidence as to the diminution in value of Khalid’s
ownership interest in the company he formed to market his inventions of between
$10.8 million and $16 million. The jury’s $3 million award could reflect lost profits
from the anticipated Pragma sale for some portion of the five-year period outlined
by the experts or it could reflect a diminution in value of the company Khalid
formed, or some combination of both. From this record, the trial court was correct
in concluding that it could not ascertain precisely that dates on which Khalid
sustained the losses awarded by the jury.
But the date of loss does not need to be ascertained “with precision.”
Arizona Chemical, 197 So. 3d at 106. Under Florida law, if no other date is
- 61 -
No. 79143-5-I/62
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
discernable from the record, a trial court should award prejudgment interest from
the latest possible date of loss. In Berloni S.p.A. v. Della Casa, LLC, 972 So. 2d
1007 (Fla. Dist. Ct. App. 2008), a supplier of kitchens and bathrooms sued a buyer
for nonpayment. Id. at 1009. A Florida appellate court held that when a contract
dispute relates to the amount of money owing under that contract, the date of loss
for prejudgment interest purposes is the date on which payment becomes due to
the plaintiff and if the plaintiff made no pre-suit demand for payment, that date of
loss should be the date the plaintiff filed its lawsuit. Id. at 1012. Because “the filing
of the complaint unequivocally constituted a demand for payment,” the appellate
court decided prejudgment interest should be calculated from that date. Id. See
also SEB S.A. v. Sunbeam Corp., 148 Fed. Appx. 774, 795 (11th Cir. 2005) (under
Florida law, prejudgment interest can be awarded properly from the latest possible
date of loss); Specialized Transp. of Tampa Bay, Inc. v. Nestle Waters North
America, Inc., 356 Fed. Appx. 221, 231 (11th Cir. 2009) (district court did not abuse
discretion in awarding prejudgment interest as of the latest possible date of loss).
At trial, Khalid presented evidence of damages accruing no later than the
date of Barrick’s December 2016 report. The latest date on which Khalid
presented evidence of loss was the end of December 2016 and the trial court erred
in not awarding prejudgment interest from that date.
Citing Citizens Property Ins. Corp. v. Nunez, 194 So. 3d 1064, 1071 (Fla.
Dist. Ct. App. 2016), Citrix contends that a plaintiff is not entitled to prejudgment
interest when there is no basis for determining a “fixed” date of loss. But Nunez is
distinguishable. In that case, Nunez experienced a sinkhole loss and sought
- 62 -
No. 79143-5-I/63
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
insurance coverage for the costs of making subsurface repairs to the home. Id. at
1066-67. When the parties reached an impasse on the amount it would take to
cover repairs, Nunez sued for breach of contract. The jury was asked to decide
the total cost necessary to properly stabilize the land and building and to repair the
foundation. Id. at 1067. The jury returned a verdict for Nunez and awarded
$100,000 for subsurface repair damages. Id. As to prejudgment interest, the court
held Nunez was not entitled to prejudgment interest because there was no factual
determination establishing a date of loss earlier than the date of the jury’s verdict.
Id. at 1071.
In Nunez, the appellate court noted that Nunez had not contracted for any
subsurface repairs as of the date of trial. Id. at 1069. It is clear from the facts of
that case that the date of loss was the date of the verdict because that was the
date the jury determined the amount it would take for Nunez to repair the damage
to his property at some point in the future. The holding in Nunez is consistent with
other Florida case law holding that prejudgment interest is not available when
damages are based on future anticipated losses. Checkers Drive-In Rests., Inc.
v. Tampa Checkmate Food Serv., 805 So. 2d 941, 945 (Fla. Dist. Ct. App. 2001).
Here, Khalid’s theory of damages was not based on lost future sales or
future profits but was instead based on historical lost sales during a five-year
period between the date Citrix first claimed to own his inventions in late October
2011 and the date of Barrick’s report in December 2016. The jury rendered its
verdict in 2018, some two years after this period of loss. Citrix’s reliance on Nunez
is thus misplaced.
- 63 -
No. 79143-5-I/64
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
The trial court cited to Citizens Prop. Ins. Corp. v. Alvarez, 198 So. 3d 45(Fla. Dist. Ct. App. 2016) and Citizens Prop. Ins. Corp. v. Cabrera, 197 So. 3d 72(Fla. Dist. Ct. App. 2016) for the proposition that the party seeking prejudgment
interest must “conclusively establish a date of pecuniary loss before prejudgment
interest can be awarded.” But both Alvarez and Cabera, like Nunez, related to
insureds’ claims against an insurer for refusing to pay the cost to repair sinkholes.
In both cases, as in Nunez, the courts concluded that there was no indication that
the jury was determining the amount of loss for a date other than the date of the
verdict. Alvarez, 198 So. 3d at 46; Cabera, 197 So. 3d at 73. The court in Alvarez
explicitly noted “[w]e do not rule out the possibility that such a claim could be
presented to a jury in a manner that might allow for prejudgment interest. It simply
was not presented in such a matter in this case.” 198 So. 3d at 46. Because the
jury verdicts in Nunez, Alvarez and Cabrera established the insurer’s future liability
for their insureds’ sinkhole claims, and was not intended to determine the amount
of money needed to reimburse these insureds for out-of-pocket losses, it makes
sense that the insureds were not entitled to prejudgment interest.
But the jury award here was not to establish Citrix’s monetary liability for
future expenses Khalid would incur to develop or market his inventions. It was
instead to compensate Khalid for losses he sustained in the past. The record
demonstrates that Khalid invested years of his life developing these two inventions.
He wrote software code, tested and validated it, prepared provisional and final
patent applications for each, hired computer software engineers in Bangladesh to
assist him in finalizing the coding, and prepared business plans to attempt to attract
- 64 -
No. 79143-5-I/65
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
investors. He estimated he invested thousands of hours of his life to these projects.
He spent thousands of dollars on computer equipment over a period of several
years. His Softlock program was fully functional by the end of 2008 and he made
it available through his company’s website. Thousands of people downloaded trial
copies of the program for free. When he left Citrix’s employ in October 2011,
Softlock remained available in the market in beta form. The mini-cloud system
was in the early stages of prototype development and not ready to release to the
market. But Khalid had a team building the prototype and he had located a
company in California to fabricate the thin terminal.
Once Citrix asserted an ownership interest in these two inventions, Khalid
was unable to continue marketing either product. He could not attract investors in
his startup company with clouds on the title to his patents. Forbes testified that
before October 2011, Khalid had the credentials that investors would find
interesting. He had a master’s degree in computer science and had worked for at
least eight years at Microsoft. He had recruited an experienced chief executive
officer to take over the management of his startup. Forbes also testified that the
market sectors for both computer security software and cloud computing were
particularly good in 2011, with a significant amount of venture capital money
available for the type of software Khalid had developed. But when Citrix asserted
that Khalid’s patents belonged to the company, he lost his prospective CEO,
investors, and his contract with Pragma. His startup essentially collapsed. In
Forbes’s opinion, “[i]t’s extremely hard to assemble all the factors to launch a
- 65 -
No. 79143-5-I/66
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
startup company. For Mr. Khalid to do so given the present time would be
extremely difficult, if not impossible.”
Unlike the insureds in Nunez, Alvarez or Cabera, Khalid presented evidence
of past losses occurring between November 2011 and the date he filed his
complaint in October 2015. Because Khalid’s complaint demanded payment for
lost profits and lost value in his startup companies, and Citrix conceded below that
the date he filed his complaint was the last possible date he incurred loss, the trial
court should have awarded Khalid prejudgment interest based on the evidence
presented at trial, establishing losses through December 2016. We reverse and
remand for an award of prejudgment on the $3 million jury verdict from the date of
Barrick’s report in December 2016 to the date of judgment.
9. Prejudgment Interest Rate
Khalid next contends the trial court erred in applying Florida’s prejudgment
interest rate of 4.75 percent rather than Washington’s rate of 12 percent to the
jury’s award for breach of the Severance Agreement. We disagree.
This court reviews de novo a trial court’s decision regarding its conflict of
law analysis. Williams v. Leone & Keeble, Inc., 170 Wn. App. 696, 704, 285 P.3d
906 (2012). When resolving disputes concerning choice of law, the court must
decide (1) whether there is an actual conflict of laws and, if so, (2) whether the
parties’ agreement’s choice of law provision is effective. Shanghai Commercial
Bank Limited v. Kung Da Chang, 189 Wn.2d 474, 480, 404 P.3d 62 (2017).
Here, there is an actual conflict between Washington and Florida law.
Under RCW 4.56.110(6) and RCW 19.52.020(1), judgments in Washington bear
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interest at the rate of 12 percent. In Florida, however, interest is set quarterly by
the Chief Financial Officer by averaging the discount rate of the Federal Reserve
Bank of New York for the preceding 12 months and then adding 400 basis points
to the averaged federal discount rate. Fla. Stat. Ann. § 55.03(1). The interest rate
is set at the time the judgment is entered and is adjusted annually each January in
accordance with the interest rate in effect on that date until the judgment is paid.
Fla. Stat. Ann. § 55.03(3). The interest rate in October 2015 was 4.75 percent. 16
Given this actual conflict, the analysis turns to whether the parties’
contractual choice of law is effective. Shanghai, 189 Wn.2d at 482. In Shanghai,
the Supreme Court relied on the Restatement (Second) of Conflict of Laws §187
(1971) which provides:
(1) The law of the state chosen by the parties to govern their
contractual rights and duties will be applied if the particular issue is
one which the parties could have resolved by an explicit provision in
their agreement directed to that issue.
Here, the parties expressly provided in Khalid’s Employment Agreement
that “this Agreement will be governed by and construed and enforced in
accordance with the laws of the State of Florida.” (Emphasis added). In Shanghai,
the Supreme Court addressed whether a similar contractual choice of law clause,
designating Hong Kong law, governed whether the judgment debtor’s community
property could be reached to satisfy a judgment entered in that jurisdiction.
Shanghai, 189 Wn.2d at 480. It held that the specific inclusion of the word
16 Florida Department of Financial Services, Historical Judgment Interest Rates,
https://www.myfloridacfo.com/Division/AA/LocalGovernments/Historical.htm (last visited
November 6, 2020).
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“enforcement” in a choice of law provision fulfilled the specificity requirement of
subsection (1) of § 187 and made that choice of law effective. Id. at 484. It affirmed
the trial court’s determination that the debtor’s community property could be
reached to satisfy the foreign judgment.
In Florida, prejudgment interest is considered an element of pecuniary
damages. Argonaut, 474 So. 2d at 214. The Florida Supreme Court has held
“when a verdict liquidates damages on a plaintiff’s out-of-pocket, pecuniary losses,
plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate
from the date of that loss.” Id. at 215. Khalid’s lawsuit sought to vindicate his
contractual rights, one element of which would be compensation for Citrix’s breach.
His lawsuit is no less an effort to “enforce” his contractual rights than was the
judgment creditor’s lawsuit in Shanghai. Under this analysis, there is no basis for
applying any state’s law other than the law of the state chosen by these contracting
parties.
Khalid argues, however, that while entitlement to prejudgment interest is a
matter of substantive law governed by Florida law, the rate to be applied is purely
procedural in nature, governed by the law of the forum state under the
Restatement (Second) Conflicts of Law §122 (1971). This provision provides:
A court usually applies its own local law rules prescribing how
litigation shall be conducted even when it applies to local law rules
of another state to resolve other issues in the case.
Washington courts follow this provision of the Restatement. Boudreaux v.
Weyerhaeuser Co., 10 Wn. App. 2d 289, 313 n. 14, 448 P.3d 121 (2019)
(Washington procedural law governed the mechanism through which company
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No. 79143-5-I/69
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should have asserted immunity in a Washington court); In re Marriage of Ulm, 39
Wn. App. 342, 345, 693 P.2d 181 (1984) (Washington as forum state may apply
its own statute of limitations to actions seeking to enforce foreign judgments). But
there is no reported Washington case applying section 122 to the question of
whether the interest rate to apply to a judgment should be governed by the parties’
contractual choice of law or the law of the forum state.
The cases on which Khalid relies do not support his argument. Khalid cites
Townsend v. R.J. Reynolds Tobacco Co., 192 So. 3d 1223 (Fla. 2016) for the
proposition that the Florida statute granting a judgment creditor the right to
prejudgment interest does not grant a substantive right to any particular interest
rate. He suggests Washington law is consistent with Townsend, citing Paul v. All
Alaskan Seafoods, 106 Wn. App. 406, 24 P.3d 447 (2001). Neither Townsend nor
All Alaskan Seafoods supports Khalid’s argument.
In Townsend, the Florida Supreme Court addressed whether R.J. Reynolds
owed the plaintiff postjugment interest on a judgment at a rate of 6 percent or the
rate of 4.75 percent because of an intervening statutory amendment to Fla. Stat.
Ann. § 55.03. Townsend, 192 So. 3d at 1224. At the time the trial court entered
the judgment, Florida’s statute provided that “the interest rate established at the
time a judgment is obtained shall remain the same until the judgment is paid.” Fla.
Stat. Ann. § 55.03(3) (2010). But after R.J. Reynolds’ appeal, and a remittitur of
the judgment, an amended judgment for $25 million was entered in 2012. Id. at
1224. In the interim, the Florida legislature had amended the statute, effective July
1, 2011, so that the interest rate became subject to annual adjustment on January
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1 of each year. Id. at 1224-25. The court held that the 2010 version of Fla. Stat.
Ann. § 55.03(3) was substantive in nature rather than procedural or remedial. Id.
at 1229. As a result, Townsend’s substantive right to prejudgment interest at a
fixed rate vested in 2010 when the original judgment was entered. Id. at 1230. It
held that once the legislature granted such a substantive right, it could not remove
it through subsequent amendment without violating the Florida Constitution. Id.Khalid relies on a quote from the case in which the Florida Supreme Court
stated that “[t]he substantive right created by the 2010 version of section 55.03(3)
is simply the right to a fixed rate of interest for the life of the judgment, not the right
to interest or to a particular rate of interest.” Id. But this statement, read in context,
does not mean that the applicable statutory interest rate is an issue of procedural,
rather than substantive, law. The Florida statute – both before and after the 2011
amendment – did not set a specific interest rate. The 2010 version of the statute
provided that “the interest rate established at the time a judgment is obtained shall
remain the same until the judgment is paid.” Id. at 1226. The court analyzed
whether this statutory provision created a vested, substantive right. Townsend
actually supports Citrix’s contention that Florida’s statute on calculating interest is
a matter of substantive, not procedural, law. See also Blitz Telecom Consulting,
LLC v. Peerless Network, Inc., 212 F. Supp. 3d 1232, 1240 (M.D. Fla. 2016)
(Florida considers both the entitlement to prejudgment interest and the applicable
rate to be matters of substantive law; parties’ choice of law in contract governs
interest rate).
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In All Alaskan Seafoods, this court addressed whether federal maritime law
preempted Washington wage statutes in a claim of willful withholding of
fishermen’s wages. All Alaskan Seafoods, 106 Wn. App. at 409. The court
concluded that Washington’s statutory double wage provision did not conflict with
federal maritime law and applied. Id. at 422. All Alaskan Seafoods also challenged
the award of prejudgment interest at the state rate of 12 percent. Id. at 427. This
court held Washington law governing prejudgment interest conflicted with maritime
law and was preempted by it. Id. But it also concluded that there was a lack of
uniformity in federal courts regarding the applicable rate, with some federal courts
applying a Treasury bill rate and others leaving it to the discretion of the district
courts to determine the most appropriate rate. Id. at 429-30. Citing Ninth Circuit
maritime precedent, the court held “[i]n the absence of a uniform rule, the rate to
be applied is a matter for the sound discretion of the trial court. Id. at 430. It
concluded the trial court had not abused its discretion in applying Washington’s
statutory rate. Id.
All Alaska Seafoods does not support Khalid’s argument that the
Washington interest rate applies to his breach of contract claim in which the parties
agreed to apply Florida law. Its holding is clearly limited to the context of federal
maritime law.
Because the parties chose Florida as the law to apply in any action to
enforce their contractual rights under the Employment Agreement, and that
provision is effective, prejudgment interest must be awarded at Florida’s interest
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rate. The trial court did not err in rejecting Khalid’s request to apply Washington’s
interest rate to prejudgment interest.
10. Citrix’s Request for Disgorgement of Khalid’s Lost Profits Award
Citrix next argues that this court should order disgorgement of Khalid’s $3
million award because these damages are attributable to his trademark
infringement. We refuse to address this argument on its merits because Citrix did
not properly preserve the issue for appeal.
At trial, Citrix argued that it was entitled to damages, including disgorgement
of profits, for Khalid’s violation of the Lanham Act. The jury was instructed as
follows:
In addition to actual damages, Citrix is entitled to any profits earned
by Khalid that are attributable to the infringement, which Citrix proves
by a preponderance of the evidence.
The jury rejected Citrix’s claim and found Khalid’s infringement caused Citrix no
damages. Citrix did not assign error to the jury’s verdict.
If a respondent seeks affirmative relief on appeal, as distinguished from
urging additional grounds for affirmance, a notice of cross review is required. State
v. Sims, 171 Wn.2d 436, 442-43, 256 P.3d 285 (2011). Citrix filed a notice of
appeal and designated five assignments of error, none of which related to its
request for disgorgement of Khalid’s profits under the Lanham Act.
Citrix contends that it is entitled to raise this issue for the first time in Khalid’s
appeal under RAP 2.4(a). RAP 2.4(a) allows this court to consider a respondent’s
request for affirmative relief when that respondent has failed to file a cross appeal
“if demanded by the necessities of the case.” Washington courts generally apply
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this provision of RAP 2.4(a) only when a petitioner’s claim cannot be considered
adequately from the issues a respondent raises in response. Sims, 171 Wn.2d at
444.
Citrix’s disgorgement argument on appeal could have been considered
separately from any assignments of error Khalid raised in his appeal. As a result,
we decline to consider the argument under RAP 2.4(a).
11. Attorney Fee Award to Khalid
Citrix next contends the trial court erred in awarding any attorney fees to
Khalid because there is no applicable attorney fee provision in the Employment
Agreement and the severance pay awarded under the Severance Agreement does
not constitute “wages” under RCW 49.48.030. We reject both arguments.
A trial court may award attorney fees only when authorized by statute,
contract, or recognized ground of equity. Panorama Vill. Condo. Owners Ass'n
Bd. of Dirs. v. Allstate Ins. Co., 144 Wn.2d 130, 143, 26 P.3d 910 (2001). Whether
a trial court is authorized to award attorney fees is a question of law reviewed de
novo. Gander v. Yeager, 167 Wn. App. 638, 646, 282 P.3d 1100 (2012). When
attorney fees are authorized, we will uphold the attorney fee award absent a
manifest abuse of discretion. Mahler v. Szucs, 135 Wn.2d 398, 435, 957 P.2d 632(1998) (overruled on other grounds by Matsyuk v. State Farm Fire & Cas. Co., 173
Wn.2d 643, 272 P.3d 802 (2012)). A trial court abuses its discretion if its decision
is manifestly unreasonable or based on untenable grounds. Mayer v. Sto Indus.,
Inc., 156 Wn.2d 677, 684, 132 P.3d 115 (2006).
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The trial court concluded Khalid was entitled to attorney fees under section 8
of the Employment Agreement. Section 8, entitled “Notice to Future Employers and
of Future Employment,” provides that, during Khalid’s employment with Citrix and
for a period of 12 months afterwards, Khalid would “notify Citrix in writing of any
subsequent engagement, occupation or employment” and his “duties and
responsibilities with respect to any such position.” Section 8 contained an attorney
fee provision:
I agree and acknowledge that violation of this Section 8 shall entitle
Citrix to bring suit against me for specific performance and, if
appropriate, injunctive relief and damages, without Citrix being
required to show any actual damage or to post an injunction bond.
Should Citrix establish that I have violated the terms of this Section
8 by failing to provide proper notice, Citrix shall be deemed the
prevailing party in any such litigation and entitled to recover its
attorney fees and costs incurred therein.
The trial court concluded that this unilateral fee provision was made bilateral by
operation of Florida law, Fla. Stat. § 57.105(7) and RCW 4.84.330.
Although much of the case involved the Invention Assignment Clause, which
does not contain an attorney fees provision, the trial court concluded that Citrix had
asserted a cause of action for breach of contract, had alleged Khalid failed to notify
Citrix of his involvement with XenCare and PcXen as required by section 8, and
presented evidence to the jury that Khalid could not prevail on his claim of breach of
contract because he had not performed all of the essential terms of the Employment
Agreement, including those required by section 8. It reasoned:
In effect, Citrix made Khalid's compliance with paragraph 8 an element
of his breach of contract claim. Thus, to prevail on his claim for breach
of the Confidentiality Agreement, Khalid had to prove he did not
materially breach the contract to overcome this defense. See Jury
Instruction No. 15. Khalid prevailed on the cause of action and the jury
awarded him damages for Citrix’s breach of the Confidentiality
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Agreement. He is therefore contractually entitled to recover attorneys'
fees and expenses incurred in proving his cause of action for breach
of contract and defeating Citrix's claim of breach of contract.
Citrix contends neither it nor Khalid ever raised section 8 to the jury as a basis for the
breach of contract claim. The record does not support Citrix’s argument. Citrix’s
consistent position was that Khalid breached section 8 of the Employment
Agreement. In its motion for summary judgment, Citrix stated:
Eventually, Xencare assumed the role of PcXen as well. Khalid served
as the sole proprietor and was employed as the chief technology officer
of each business. . . . He did not disclose this information to Citrix
during his employment despite a requirement in the Agreement that he
do so.
Citrix asserted a breach of section 8 in its trial brief:
Khalid violated the Agreement in the following ways: Khalid’s
Agreement required Khalid to disclose in writing the terms of any
employment by a third-party while employed by Citrix. Unbeknownst
to Citrix, while employed by Citrix, Khalid was devoting substantial
amounts of time to developing his own personal businesses, Xencare
and PcXen. He did not disclose this information to Citrix during his
employment despite the Agreement’s requirement that he do so.
And Citrix proposed a jury instruction that provided, in relevant part
The Agreement contained several provisions that Khalid and Citrix
claim the other breached. . . . The Agreement also required Khalid
disclose in writing any outside business interests during his
employment with Citrix and for 12 months following the end of his
employment. That disclosure must include a description of any
subsequent engagement, occupation or employment, whether as
owner, employee, officer, director, agent, consultant, independent
contractors or the like, and the duties and responsibilities with
respect to any such position. . . . Citrix also claims Khalid breached
the Agreement by failing to disclose his outside business interests to
Citrix as required by the Agreement.
Citrix clearly raised section 8 as a basis for defeating Khalid’s claims against it and
for asserting claims against him.
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The trial court also correctly concluded that for Khalid to prevail on his claim
of breach of contract, and defeat Citrix’s counterclaim, Khalid had to prove that he
“did all, or substantially all, of the essential things which the contract required him to
do or that he was excused from doing those things.” Khalid presented evidence that
he had disclosed his outside business activities with Xencare and PcXen to Citrix.
And Khalid argued in closing argument that he had not breached section 8:
Citrix also claims, because they are trying to come up with ways to
avoid what Exhibit B means, that he had failed to disclose the fact
that he worked for another company in violation of another paragraph
of the agreement, paragraph eight, I believe.
And they made much of the fact that he hadn't disclosed the fact that
he worked for other companies but that's not true. Abolfazl Sirjani,
again, . . . says that he was aware that he was working with
KrisanTech, the name Khalid used for his business before he
switched over to XenCare at or about the time that he came to work
at Citrix. Mr. Sirjani testified that he saw Khalid's business plan for
KrisanTech at or about the time Khalid came to work at Citrix.
And you have seen all of these presentations that were made at Citrix
in which Khalid was explaining that he had his company, and he was
getting it going. So to the extent that Citrix wanted him to disclose
the fact that he was involved with another company, he did so. And
he did so repeatedly. . . . Mr. Duursma testified that he was
suggesting managerial types to assist Mr. Khalid with his
businesses. So Citrix's complaints that Khalid didn't disclose his
involvement with another employer are simply an effort by Citrix to
avoid the contract terms it wants to avoid.
Although Citrix did not explicitly refer to section 8 in its arguments to the jury, it
presented evidence from Citrix employees like Pederson that Khalid did not disclose
Xencare, or PcXen to the company. And it argued in closing that Khalid breached the
Employment Agreement by failing to use his best efforts on behalf of Citrix, engaging
in outside business activities that interfered with his job duties, using Citrix
confidential information for his own gain, and refusing to assign developments to
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Citrix. The jury disagreed, finding that Khalid did not breach the Employment
Agreement.
Because Citrix invoked section 8 repeatedly as a basis for defeating Khalid’s
claims and as a basis for its own breach of contract counterclaim, and because Citrix
then argued at trial that Khalid could not prevail on his own claim of breach of contract
because he had not performed all of the essential terms of the Employment
Agreement, the trial court did not err in concluding that Citrix put Khalid in a position
of having to prove his compliance with section 8 as an element of his breach of
contract claim or in concluding that Khalid was entitled to an award of attorney fees
pursuant to section 8.
Nor did the trial court err in concluding that the jury’s severance pay award
triggered the attorney fee provision of RCW 49.48.030. RCW 49.48.030 provides
that: “In any action in which any person is successful in recovering judgment for
wages or salary owed to him or her, reasonable attorney's fees, in an amount to
be determined by the court, shall be assessed against said employer or former
employer.” The trial court concluded that Khalid’s severance pay constitutes “wages
or salary owed to him” under this statute.
Statutory interpretation is a question of law that we review de novo. State
v. Evergreen Freedom Found., 192 Wn.2d 782, 789, 432 P.3d 805 (2019) (plurality
opinion). When engaging in statutory interpretation, we endeavor to determine
and give effect to the legislature's intent. Jametsky v. Olsen, 179 Wn.2d 756, 762,
317 P.3d 1003 (2014). In determining the legislature's intent, we must first
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examine the statute's plain language and ordinary meaning. 17 Id. Legislative
definitions included in the statute are controlling. State v. Econ. Dev. Bd., 9 Wn.
App. 2d 1, 10, 441 P.3d 1269 (2019). “Wages” are defined, for the purposes of
RCW 49.48.030, as “compensation due to an employee by reason of employment.”
RCW 49.46.010(7).
In Durand v. HMC Corp., 151 Wn. App. 818, 214 P.3d 189 (2009), this court
held that severance pay can constitute compensation due to a departing employee
under an employment agreement because the term “compensation” applies to
more than work actually performed. Id. at 831. “[I]t applies to any form of
compensation that is a byproduct of the employment relationship.” Id.
The Severance Agreement provided:
Whereas, Employee’s employment has been terminated due
to Company and Employee determining that terminating the
employment relationship is of mutual benefit.
Whereas, the Company desires to extend certain separation
benefits to Employee to assist Employee with the transition to new
employment, and in return, Employee has agreed to release the
Company from any claims arising from or related to the employment
relationship;
NOW THEREFORE, in consideration of the mutual promises
made herein, the Company and Employee . . . hereby agree as
follows:
1. Final Date of Employment. Employee’s employment with
the Company will end on October 3, 2011 (“Final Date of
Employment”). On the Final Date of Employment, Company will pay
all salary, wages, bonuses, accrued PTO (paid time off), if any, in
accordance with Company Policy, and any and all other benefits due
17 RCW 49.48.030 is a remedial statute and we will construe it liberally in favor of the employee.
McGinnity v. AutoNation, Inc., 149 Wn. App. 277, 284, 202 P.3d 1009 (2009) (citing Int'l Ass'n of
Fire Fighters, Local 46 v. City of Everett, 146 Wn.2d 29, 34, 42 P.3d 1265 (2002)). See also
Schilling v. Radio Holdings, Inc., 136 Wn.2d 152, 159, 961 P.2d 371 (1998) (this court construes
the statute liberally in order to “protect employee wages and assure payment.”)
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to Employee through the Final Date of Employment. To the extent
Employee is owed any incentive compensation payment, such
payment shall be made in accordance with the terms of such
incentive compensation plan.
2. Consideration. Providing Employee has fully complied with
the terms of this Agreement, including but not limited to Section 5
below, within fifteen (15) business days following the latter of the
Final Date of Employment or the Effective Date (as defined in Section
19 below) Company will provide:
a. Employee separation compensation in the form of a
lump sum payment equal to $30,757 (the equivalent of 11 weeks
base salary). Customary payroll taxes and income tax withholdings
will be deducted from the separation compensation lump sum
payment . . ..
Citrix’s company policy provides for a fixed amount of severance pay based on the
reason for termination, the employee’s length of service, and the employee’s salary
range. An employee receives a payment equal to a certain number of weeks of
base pay based on their salary range; they also receive an additional week of pay
per year of employment if the termination was a “mutual separation,” or an
additional two weeks of pay per year of employment if the termination was a “job
elimination.” Citrix employees are not entitled to severance pay if they are
involuntarily terminated.
DeForeest, Khalid’s direct supervisor when he was terminated, testified that
he advocated for a “mutual separation” from the company so Khalid would be
offered severance pay “to ease the transition to [his] next employment.” Khalid’s
salary range entitled him to six weeks of his base pay, and because his termination
was due to a mutual separation, he received an additional five weeks of base pay
– one week for each year he had worked at Citrix. In total, Khalid was offered
$30,757, equaling eleven weeks of base pay. Before he signed the Severance
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Agreement, Khalid sought more severance pay but was told Citrix’s policy is to pay
out based on the fixed formula.
Washington courts addressing when severance is “compensation” turn on
whether the money is intended to replace wages that would otherwise be paid had
the employee remained on the employer’s payroll or is consideration for a
contractual promise unrelated to the employee’s salary or wages. 18 In Barrett v.
Weyerhaeuser Co. Severance Pay Plan, 40 Wn. App. 630, 700 P.2d 338 (1985),
an employee brought an action for severance pay under a written company
severance pay plan. She claimed she was constructively discharged and
remained entitled to severance pay despite the fact that she resigned from
employment. At trial, the court found the employee had not proved her claim. Id.
at 638. On appeal, this court explained the purpose of severance pay:
Severance pay has been defined as terminal compensation
measured by the service given during the subsistence of the
contract, . . . payable on discharge from the employment,
. . . according to the prescribed formula, a means of recompense for
the economic exigencies and privations and detriments resulting
from the permanent separation of the employee from service . . . In
a real sense it is remuneration for the service rendered during the
period covered by the agreement. Owens v. Press Pub. Co., 120
A.2d at 446. “[W]hile one of the objectives of . . . severance pay ‘is
to ease the employee's financial burden while looking for a new job,’
such pay is also ‘partial compensation for loss of seniority rights; loss
of possible pension rights; [and] compensation for retraining or
18 See Gaglidari v. Denny’s Restaurants, Inc., 117 Wn.2d 426, 449-50, 815 P.2d 1362 (1991)
(because “[l]ost wages damages [were] in lieu of compensation for services[,]” the statute included
not only wages for work actually performed but also “money due by reason of employment.”);
McGinnity v. AutoNation, Inc., 149 Wn. App. 277, 284–85, 202 P.3d 1009 (2009) (unpaid vacation
benefits constitute “an entitlement to compensation for services performed.”); and Naches Valley
Sch. Dist. No. JT3 v. Cruzen, 54 Wn. App. 388, 399, 775 P.2d 960 (1989) (unpaid sick leave also
“an entitlement to compensation for services performed.”). Tax liability resulting in a money
judgment in an employment action is not wages. Peiffer v. Pro-Cut Concrete Cutting & Breaking
Inc., 6 Wn. App. 2d 803, 827, 431 P.3d 1018 (2018) (“The increased tax liability that Mr. Peiffer
incurred as a result of recovering his unpaid wages as a lump sum has none of the salient
characteristics of a wage.”)
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acquiring new skills; . . .’” Owens, 120 A.2d at 446, quoting Ackerson
v. Western Union Telegraph Co., 234 Minn. 271, 48 N.W.2d 338, 25
A.L.R.2d 1063 (Sup.Ct.1951).
Id. at 633.
The court held that severance benefits are payable according to the terms
of the parties’ contract regardless whether the employee claimed she was
constructively discharged. Id. at 633-34. Because the plan only required the
company to pay severance if it caused the termination, the plaintiff was not entitled
to severance pay after she resigned. Id. at 638.
Although Barrett did not arise under RCW 49.48.030, this court relied on its
discussion of the purpose of severance pay in ruling on a statutory wage claim in
an unpublished opinion, Prichard v. Index Indus., Inc., noted at 123 Wn. App. 1060(2004). In that case, two managerial employees had “written employment
contracts specifying that notice payment (severance pay) would be paid upon their
discharge, even if their employment contracts had expired, where the discharge
was not for cause.” Id. at *1. After they were fired, they requested notice pay and
when the company refused, they brought suit. This court, citing Barrett, held that
the severance pay was compensation under RCW 49.48.030 because “severance
pay is a means of recompense for the economic exigencies, privations and
detriments resulting from the permanent separation of the employee from service.”
Id. at *9.
We also followed this approach in Brooke v. Robinson, noted at 115 Wn.
App. 1006 (2003), in which a written employment contract required the employer
to provide two weeks’ notice of termination and severance pay of $18,000 unless
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No. 79143-5-I/82
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
the employee left to take work elsewhere. The employer terminated the agreement
after it was signed but before the plaintiff began to work.
This court held that “severance pay is a bargained-for amount to be paid
when employment is terminated through no fault of the employee.” Id. at *2. It
concluded that the plaintiff was entitled to attorney fees under RCW 49.48.030
because the wages she was owed during the two-week notice period was “clearly
for money due by reason of employment.” Id. at *4. Although the $18,000
severance pay was a “closer question,” the court concluded:
RCW 49.48.030 is interpreted broadly, and authorizes attorney fees
when a judgment is obtained for any type of compensation due by
reason of employment, including back pay, front pay, commissions,
reimbursements for sick leave and pensions. Bates v. City of
Richland, 112 Wn. App. 919, 940, 51 P.3d 816 (2002). Federal law
also classifies severance pay as an employee benefit. See Boutillier
v. Libby, McNiell & Libby, Inc., 42 Wn. App. 699, 710, 713 P.2d 1110(1986) (‘Severance pay, although not expressly set out in the
language of 29 U.S.C. sec. 1002(1), also falls within the scope of
ERISA as an employee welfare benefit plan’); Dhayer v. Weirton
Steel Division of Nat'l Steel Corp., 571 F. Supp. 316, 329–30
(D.W.Va.1983). A severance award under an employment contract
is properly characterized as compensation due by reason of
employment. We therefore affirm the award of attorney fees.
In Bates v. City of Richland, 112 Wn. App. 919, 940, 51 P.3d 816 (2002),
cited in Brooke, Division Three of this court held that pensions were “wages” as
defined by RCW 49.48.030 because “awards for attorney fees under RCW
49.48.030 are not limited to judgments for wages or salary earned for work
performed, but, rather, that attorney fees are recoverable under RCW 49.48.030
whenever a judgment is obtained for any type of compensation due by reason of
employment. See also McGinnity v. AutoNation, Inc., 149 Wn. App. 277, 284, 202
P.3d 1009 (2009) (the rule is “if the employee gets the money on account of having
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No. 79143-5-I/83
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
been employed, then the money is wages in the sense of compensation by reason
of employment.”) (quotations omitted).
Finally, in Dice v. City of Montesano, 131 Wn. App. 675, 128 P.3d 1253(2006), a city employee signed an employment contract containing a termination
clause that specified that if the city terminated him without cause it had to pay him
a lump sum payment equal to three months’ salary. Division Two of this court held
that “it derives solely from [plaintiff’s] employment contract with the [defendant],”
which the plaintiff had entered at the beginning of the employment. Id. at 689.
Here, the three months' salary due Dice constitutes “wages” because
it derives solely from Dice's employment contract with the City and
the amount was calculated according to his employment earnings at
the time of discharge. An employee need not be currently employed
to recover statutory attorney fees in a successful action against an
employer for wages or salary. Bates, 112 Wn. App. at 940, 51 P.3d
816. Furthermore, the City's interpretation would suggest that an
employer could refuse to pay bargained-for severance pay with
impunity. The purpose of the attorney fee provision in RCW
49.48.030 is to allow an employee to protect his or her rightful wages
and ensure payment. Bates, 112 Wn. App. at 939, 51 P.3d 816.
Thus, the court did not err when it determined that, as the prevailing
party, Dice was entitled to attorney fees under RCW 49.48.030.
Id. at 689–90.
Our state cases are consistent with federal law. In United States v. Quality
Stores, Inc., 572 U.S. 141, 146, 134 S. Ct. 1395, 188 L. Ed. 2d 413 (2014), the
U.S. Supreme Court held that severance payments were “wages” for the purposes
of the Federal Insurance Contributions Act (FICA), which requires employers to
pay taxes on wages in order to fund the Social Security Act and Medicare. FICA
defines “wages” as “all remuneration for employment, including the cash value of
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No. 79143-5-I/84
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
all remuneration (including benefits) paid in any medium other than cash.” 26
U.S.C. § 3121(a). The court held that:
[u]nder this definition, and as a matter of plain meaning, severance
payments made to terminated employees are “remuneration for
employment.” Severance payments are, of course, “remuneration,”
and common sense dictates that employees receive the payments
“for employment.” Severance payments are made to employees
only. It would be contrary to common usage to describe as a
severance payment remuneration provided to someone who has not
worked for the employer. Severance payments are made in
consideration for employment—for a “service ... performed” by “an
employee for the person employing him,” per FICA's definition of the
term “employment.”
Quality Stores, Inc., 572 U.S. at 146.
Citrix contends no Washington court has examined our wage statutes in the
context of a severance payment provided in a stand-alone agreement entered into
after termination in exchange for new promises by the employee, rather than in
exchange for work. 19 Citrix argues that it was not required to offer Khalid
severance; rather, it suggests that it did so as a favor to Khalid “to assist [him] with
the transition to new employment.” But this argument is undermined by the
language of the Severance Agreement itself and the testimony regarding how the
company policy established the amount to which Khalid was entitled. Moreover,
the company also explicitly informed Khalid that it would deduct payroll taxes and
income tax withholding from the lump sum payment. If the severance pay was not
intended to be “compensation by reason of employment,” there would be no
reason to deduct payroll or income taxes.
19Citrix relies primarily on cases from foreign jurisdictions or analysis of unrelated concepts such
as unemployment compensation. We find none of these cases persuasive.
- 84 -
No. 79143-5-I/85
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Citrix argues that the severance offered to Khalid was not “wages” because
its purpose was to compensate Khalid for a release of liability, not for services he
performed. Paragraph 7 of the Severance Agreement contained a broad release
of claims against Citrix. Relying on Arzola v. Name Intelligence, Inc., 172 Wn. App.
51, 53, 288 P.3d 1154 (2012), Citrix contends where a “payment is designed to
assist with transition and in exchange for a release, not in exchange for the
employee’s services or labor, it does not constitute ‘wages.’” But Arzola did not
involve a payment designed to transition an employee into a new position nor did
it involve payment in exchange for a release.
In Arzola, three employees, when hired, received an allotted number of
shares in the employer’s company and were promised additional shares each
subsequent year in which they received an average or above average performance
rating. Id. at 53. The number of shares they received varied based on their
performance ratings. Id. When the company decided to sell, it was required as a
condition of that sale to buy back all outstanding stock rights the company had
given to its employees. Id. Each employee agreed to execute a stock right
cancellation agreement and to receive three cash payments and the option to
purchase stock in the new company. Id.The employer made the first payment to the employees. The compensation
appeared on their W-2 forms as wages and the employees paid both federal
income tax and Medicare tax on the full amount. Id. at 55. But a dispute then
arose between the seller and buyer and the buyer filed suit to rescind the securities
exchange agreement. Id. The employer did not make the second or third cash
- 85 -
No. 79143-5-I/86
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
payments to its employees, who brought suit for breach of the stock rights
cancellation agreement. Id. The trial court held that the nonpayment constituted
the unlawful withholding of wages under RCW 49.52.050 and awarded the
employees double damages under RCW 49.52.070, and attorney fees under RCW
49.48.030. Id. at 56.
On appeal, this court reversed. It concluded that the cash payments under
the stock rights cancellation agreement were not wages under RCW 49.48.030.
Id. at 60. It reasoned that nothing required the employees to surrender their stock
rights in exchange for the cash payments. Id. Once they agreed voluntarily to do
so,
the employees were in the same position as any other holder of stock
– able to freely sell those rights, regardless of how they were
originally obtained. The consideration the employees provided
under the SRCs was not service or labor but, rather, surrender of
their proprietary interest in the company stock. The monies paid for
the cancellation of the stock rights cannot be said to transform into
wages, simply because the existence of either the stock or the SRC
is a by-product of the employment relationship.
Id. at 59. This court did not find compelling the argument that the employer had
withheld taxes from the first cash payment, concluding that “[n]othing in the record
allow[ed] us to determine whether the tax code was properly applied.” Id. at 60.
Citrix’s reliance on Arzola is misplaced. It is true that Khalid did not have to
sign the Severance Agreement. But Citrix had a company policy of paying
severance pay to departing employees based on the length of the employees’
service. The sole reason the severance was to be paid was because Khalid had
worked for the company as long as he did. And the payment to Khalid was
- 86 -
No. 79143-5-I/87
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
calculated according to his base salary. Thus, the payment is much more akin to
wages than the stock cancellation right payment in Arzola.
While it is also accurate that the Severance Agreement contained a release
of liability to which Citrix would not otherwise have been entitled, the facts of this
case are unique in that Citrix chose not to enforce this release when it chose not
to pay Khalid the compensation it promised to pay under Paragraph 2.
This case is more like Brooke and Bates than Arzola. Citrix offered
severance payments only to employees; they are not available to the greater
public, as was the stock in Arzola. And the nexus between the severance
payments and the employment relationship is made clear by the fact that the
amount of the payments are governed by the base salary Citrix pays the employee
and duration of the employee’s tenure with Citrix. Moreover, the payment offered
to Khalid was akin to “recompense for the economic exigencies and privations and
detriments resulting from the permanent separation of the employee from service.”
Based on this court’s prior cases and the evidence presented at trial, the trial court
did not err in concluding that the severance pay awarded by the jury constituted
wages under RCW 49.48.030, thereby entitling Khalid to an award of attorney fees.
12. Citrix’s Challenges to the Amount of the Attorney Fees
Citrix next challenges the amount of attorney fees the trial court allowed,
arguing the trial court erred in permitting Khalid to recover attorney fees for
unsuccessful claims and erred in applying a lodestar multiplier in this case. We reject
both arguments.
- 87 -
No. 79143-5-I/88
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Under Florida law, when successful and unsuccessful claims share a
“common core” of facts and “related legal theories,” a party entitled to an award of
attorney fees for work on the successful claims is entitled to its fees for work on all
of his claims. Chodorow v. Moore, 947 So. 2d 577, 579 (Fla. Dist. Ct. App. 2007).
Issues involve a common core of facts when “work for one claim cannot be
distinguished from work on other claims.” Miller v. Miller, 107 So. 3d 430, 433 (Fla.
Dist. Ct. App. 2012). Where the claims involve a common core of facts, “a full fee
may be awarded unless it can be shown that the attorneys spent a separate and
distinct amount of time on counts as to which no attorney’s fees were sought."
Anglia Jacs & Co., Inc. v. Dubin, 830 So. 2d 169, 172 (Fla. Dist. Ct. App. 2002). 20
The party seeking fees bears the burden to either allocate fees to the issues for
which fees may be awarded, or to demonstrate “that the issues were so intertwined
that allocation is not feasible.” Lubkey v. Compuvac Sys., Inc., 857 So. 2d 966,
968 (Fla. Dist. Ct. App. 2003). We review the trial court’s common core findings
to determine if they are supported by competent, substantial evidence. Country
Manors Ass’n, Inc. v. Master Antenna Sys., Inc., 534 So. 2d 1187, 1192-93 (Fla.
Dist. Ct. App. 1988).
Khalid prevailed on his two contract claims but the jury rejected the remainder
of Khalid’s claims, including his breach of implied covenant of good faith and fair
dealing claims, CPA claim, and tortious interference claims. In evaluating whether
20Washington also utilizes the common core theory. See, e.g., Bright v. Frank Russell Invs., 191
Wn. App. 73, 79, 361 P.3d 245 (2015) (“when a plaintiff prevails and the claims ‘involve a common
core of facts or . . . related legal theories,’” the fee award need not be reduced because the
prevailing party did not prevail on all claims.) (Quoting Hensley v. Eckerhart, 461 U.S. 424, 435,
103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983).
- 88 -
No. 79143-5-I/89
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Khalid was entitled to attorney fees incurred in prosecuting unsuccessful claims, the
trial court found Khalid’s implied covenant of good faith and fair dealing claim was
“an alternate legal theory applied to the same facts” as his breach of contract claims.
In the case of Xencare's claim for tortious interference with business expectancy, the
trial court found the key element of improper purpose or improper means was based
on the breach of the Confidentiality Agreement, and Xencare's expectancies were
the same business opportunities addressed in Khalid's damage claim. Finally, the
trial court found that Khalid's successful defense against Citrix's counterclaims for
breach of the Employment Agreement was inextricably intertwined with Khalid's
breach of contract claim for breach of the same agreement. 21 Based on these
findings, it awarded Khalid attorney fees incurred to prosecute all of his claims and
to defend all of Citrix’s counterclaims in the lawsuit. We conclude these findings are
supported by substantial evidence in the record.
Citrix contends the trial court incorrectly applied Florida’s common core
theory. Citing Chastain v. Chastain, 119 So. 3d 547, 551 (Fla. Dist. Ct. App. 2013),
Citrix argues that even if claims “involved a common core of facts, a full fee on claims
involving a common set of facts may not be awarded if it can be shown that the
attorneys spent a separate and distinct amount of time on counts as to which no
attorney’s fees were sought or authorized.” Citrix identifies three billing entries that it
asserts are not compensable: (1) a January 21, 2017 entry for “legal research
regarding good faith and fair dealing” (billed at $750); (2) a January 22, 2017 entry
21 According to Khalid, his fee request excluded time spent on (1) Citrix’s Lanham Act claims, (2)
his request for punitive damages, and (3) researching tortious interference. The trial court did not
award fees for the time Khalid’s attorneys spent defending Citrix’s trademark infringement claim.
(“Plaintiffs have deleted all the hours spent on Trademark liability before trial.”).
- 89 -
No. 79143-5-I/90
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
for “legal research pertaining to Florida tortious interference and CPA claims” (billed
at $4150), and (3) a May 12, 2018 entry for time spent responding to Citrix’s
counterclaims (billed at $1050). Citrix argues that these entries were clearly capable
of segregation and that this non-exclusive list of errors demonstrates the trial court
“engaged in only part of the required analysis.”
With regard to the first two entries, we agree with Citrix that these entries
related solely to legal research on unsuccessful claims and do not relate to a common
core of facts. The trial court erred in awarding $4,900 and the attorney fee award
should be adjusted on remand accordingly.
But the trial court did not err in awarding attorney fees for time spent
responding to Citrix’s counterclaims. The trial court found:
Citrix counterclaimed for breach of the Confidentiality Agreement.
Argument and testimony at trial demonstrated that this included
allegations of violation of Section 8, the provision authorizing award
of fees and costs. Khalid's successful defense against that claim
involved proof that he had done all, or substantially all, of the
essential things required of him under the Confidentiality Agreement,
which was also part of his own claim for breach of the Confidentiality
Agreement. See Jury Instruction Nos. 15 and 51. Citrix argued that
it was not required to perform under the Confidentiality Agreement
unless Khalid complied with a condition precedent – assigning the
patents to Citrix – so Khalid's success on this claim also involved the
same common core of facts underlying his claim for breach of the
Confidentiality Agreement. See Jury Instruction No. 19.
....
Citrix counterclaimed for breach of the Severance Agreement.
Khalid’s successful defense against that claim involved proof that he
had done all, or substantially all, of the essential things required of
him under the Agreement, which was also part of his own claim for
breach of the Confidentiality Agreement. See Jury Instruction Nos.
17 and 53.
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No. 79143-5-I/91
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
The trial court held that while Khalid was not entitled to fees on the liability portion of
Citrix’s trademark claim, he was entitled to fees defending Citrix’s request for
trademark infringement damages.
Citrix also counterclaimed for trademark infringement. Citrix sought
damages in the form of disgorged profits. Citrix sought to disgorge
the entirety of Khalid's lost profits damages awarded for breach of
the Confidentiality Agreement. Plaintiffs have deleted all the hours
spent on Trademark liability before trial. But, Khalid's successful
defense of Citrix's damage claim involved a “common core” of facts
that cannot be separated from proof of breach of contract.
Citrix does not specifically challenge any of these findings and we accept them as
verities on appeal. With the exception of the $4,900 identified above, the trial court’s
unchallenged factual findings support its legal conclusions regarding Khalid’s
entitlement to his full attorney fee award under Florida law.
Finally, Citrix contends the trial court erred in applying a lodestar multiplier to
Khalid’s attorney fee award. We conclude the trial court did not abuse its discretion
in applying a 1.75 multiplier in this case.
In calculating attorney fees, Florida uses the lodestar approach, which is
calculated by the number of hours reasonably expended on the litigation multiplied
by a reasonable hourly rate. Florida Patient’s Compensation Fund v. Rowe, 472 So.
2d 1145, 1150-51 (Fla. 1985). Factors to be considered in determining what
constitutes a reasonable attorney fee include:
(1) The time and labor required, the novelty and difficulty of the
question involved, and the skill requisite to perform the legal service
properly.
(2) The likelihood, if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the lawyer.
(3) The fee customarily charged in the locality for similar legal
services.
(4) The amount involved and the results obtained.
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No. 79143-5-I/92
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
(5) The time limitations imposed by the client or by the
circumstances.
(6) The nature and length of the professional relationship with the
client.
(7) The experience, reputation, and ability of the lawyer or lawyers
performing the services.
(8) Whether the fee is fixed or contingent.
Id. at 1150. Florida provides for adjustments to the lodestar in cases in which the
prevailing party’s counsel is employed on a contingency fee basis. 22 Id. at 1151.
Florida courts consider three factors when determining whether a contingency fee
multiplier is appropriate in a breach of contract case:
(1) whether the relevant market requires a contingency fee multiplier
to obtain competent counsel; (2) whether the attorney was able to
mitigate the risk of nonpayment in any way; and (3) whether any of the
factors in Rowe are applicable, especially the amount involved, the
results obtained, and the type of fee arrangement between the attorney
and his client.
Joyce v. Federated Nat’l Ins. Coverage, 228 So. 3d 1122, 1128 (Fla. 2017) (citing
Standard Guar. Ins. Co. v. Quanstrom, 555 So. 2d 828, 834 (Fla. 1990)). “If the trial
court determines that success was more likely than not at the outset, it may apply
a multiplier of 1 to 1.5; if the trial court determines that the likelihood of success
was approximately even at the outset, the trial judge may apply a multiplier of 1.5
to 2.0; and if the trial court determines that success was unlikely at the outset of
the case, it may apply a multiplier of 2.0 to 2.5.” Quanstrom, 555 So. 2d at 834.
This court reviews a trial court's decision to award a multiplier for an abuse
of discretion. Bowers v. Transamerica Title Ins. Co., 100 Wn.2d 581, 599, 675
22 Khalid argues that “[a] multiplier may be awarded under both Washington and Florida law
because Khalid prevailed on fee claims under both states’ laws.” Because the parties do not argue
that there is any difference in methodology under Florida or Washington law, we need not address
this issue.
- 92 -
No. 79143-5-I/93
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
P.2d 193 (1983); Hill v. Garda CL Nw., Inc., 198 Wn. App. 326, 368 P.3d 390(2017); rev’d on other grounds, Hill v. Garda CL Nw., Inc., 191 Wn.2d 553, 424
P.3d 207 (2018).
Here, the trial court applied a contingency fee multiplier of 1.75, in light of the
complexity of the litigation and the questionable probability that Khalid would prevail.
The trial court articulated the basis for its attorney fee award as follows:
There was no clear likelihood of success at the outset of this litigation
and there were substantial risks of nonrecovery. Citrix had asserted
a multitude of affirmative defenses all of which might have resulted
in the dismissal of the case on motions practice or have been
accepted by the jury. There were challenging factual issues
underlying the central claims including the clarity of the disclosures
made by Khalid on Exhibit B to the confidentiality agreement, the
complicated history of Khalid's presentations of his inventions at the
work-site, whether Khalid had complied with the disclosure
requirements of the Confidentiality Agreement regarding his
employment, whether he had adequately preserved for himself the
right to continue working on his inventions while at Citrix, whether his
inventions were based on input of Citrix personnel, whether Citrix's
actions in asserting ownership of the contested patents were
responsible for any damages suffered by Khalid and the extent of
any such damages, a matter which was going to be the subject of
disputed expert testimony. Overlaying these specific challenges
were generalized allegations regarding the credibility of Mr. Khalid
and the likely presumption that a sophisticated corporation such as
Citrix would handle matters such as those at issue in this case
properly.
The likelihood at the outset of this case of the success actually
achieved at trial is appropriately characterized as less than even.
Citrix argues that Khalid failed to establish the first Quanstrom factor – that a
contingency fee multiplier was required to obtain competent counsel. It argues that
Khalid had a pre-existing relationship with one of his attorneys, which “weighs against
the award of a lodestar multiplier.”
- 93 -
No. 79143-5-I/94
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
The record does not support Citrix’s assertion. Khalid filed a declaration from
one of his attorneys, Stephen Connor, which contains a lengthy analysis of the risk
factors his law firm assessed when it decided to represent Khalid on a contingency
fee basis. Connor stated that the case “was a highly risky undertaking” and that “[a]t
the outset of the case it appears that the likelihood of the success was less than
even” because of Citrix’s multitude of affirmative defenses, the challenging factual
issues presented, and “the likely presumption that a sophisticated corporation such
as Citrix would not improperly handle these types of matters.” Connor stated that the
litigation had consumed a substantial portion of his firm’s resources for a year and a
half and had caused the firm to decline other work. According to Connor, his firm
was only willing to the take the case “because of the prospect of receiving a
contingent fee multiplier.”
Khalid also presented the declaration of an expert witness, David Breskin, an
experienced trial lawyer in King County. Breskin stated that “[t]he availability of a risk
multiplier incentivizes firms like those representing Mr. Khalid in this action to accept
cases on a contingency fee basis and provide representation when the case poses
significant risk at the outset of no recovery at all, the issues are complex factually and
legally, and the case is likely to be hotly contested and the resolution of the case is
likely to be far off.” Breskin opined that the risk involved in this case justified the
application of a multiplier.
Substantial evidence demonstrated that the case presented a large amount
of risk to a law firm and the promise of a fee multiplier was necessary in order to find
counsel willing to devote the necessary time and resources to it, in light of the fact
- 94 -
No. 79143-5-I/95
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
that the firm would likely have to decline other work. Consequently, the trial court’s
application of a multiplier was not an abuse of discretion.
13. Attorney Fee Award to Citrix under the Lanham Act, 15 U.S.C. §117(a)
Khalid argues that the trial court erred in awarding Citrix attorney fees under
the Lanham Act because Citrix failed to prove it sustained any damages and
sought no injunctive relief. We agree. Although the trial court entered an order of
partial summary judgment in favor of Citrix, that order did not render Citrix the
prevailing party because it did not award Citrix any concrete relief and thus did not
change the legal relationship of the parties in any material way.
An appellate court reviews a trial court’s decision to award attorney fees
under the Lanham Act for abuse of discretion. Stephen W. Boney, Inc. v. Boney
Servs., Inc., 127 F.3d 821, 825 (9th Cir. 1997). However, whether Citrix was the
prevailing party is a question of law reviewed de novo. Lorillard Tobacco Co. v.
Engida, 611 F.3d 1209, 1214 (10th Cir. 2010).
The attorney fee provision of the Lanham Act states: “[t]he court in
exceptional cases may award reasonable attorney fees to the prevailing party.” 15
U.S.C. § 1117(a)(3). Although the parties disagree who the prevailing party is in
this case, both parties agree the issue is controlled by Buckhannon Bd. and Care
Home, Inc. v. W. Va. Dep’t of Health & Hum. Res., 532 U.S. 598, 121 S. Ct. 1835,
149 L. Ed. 2d 855 (2001).
In Buckhannon, the Supreme Court considered whether a party can be
deemed a “prevailing party” for purposes of a fee award if that party has obtained
neither a judgment on the merits nor a court-ordered consent decree. Id. at 600.
- 95 -
No. 79143-5-I/96
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
In that case, assisted living facilities operated by Buckhannon Board and Care
Home Inc. (“Buckhannon”) failed an inspection by the West Virginia Office of the
State Fire Marshal because some of the residents were “incapable of self-
preservation” under state law. Id. After the state issued a cease-and-desist order
requiring the facilities to close, Buckhannon sued the state in federal court, seeking
declaratory and injunctive relief that the state “self-preservation” inspection
requirement violated the Fair Housing Amendments Act (“FHAA”) of 1988, 42
U.S.C. § 3601, and the American with Disabilities Act (“ADA”) of 1990, 42 U.S.C.
§ 12101. Id. at 600-01.
While the case was pending, the West Virginia legislature eliminated the
“self-preservation” requirement and the State moved to dismiss the case as moot.
Id. at 601. The federal court granted the motion, concluding the legislation
eliminated the allegedly offensive provisions and there was no indication the state
legislature would repeal the amendments. Id.Buckhannon then requested attorney fees as the prevailing party under the
FHAA and ADA. Id. at 601. Buckhannon argued it was the prevailing party
because the lawsuit was the “catalyst” that brought about a voluntary change in
the State’s conduct. Id. The Supreme Court rejected that argument. First, it held
that the term “prevailing party” is a legal term of art, meaning “[a] party in whose
favor judgment is rendered, regardless of the amount of damages awarded.” Id.
at 603 (quoting BLACK’S LAW DICTIONARY 1145 (7th ed. 1999)). Second, it surveyed
prior case law and concluded that the ordinary meaning of the phrase “prevailing
party” means the claimant received “at least some relief on the merits of his claim.”
- 96 -
No. 79143-5-I/97
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Id. The relief can be a judgment on the merits or a consent decree—but needs to
be some type of court order that “chang[es] the legal relationship between [the
plaintiff] and the defendant.” Id. at 604 (quoting Texas State Teachers Ass’n v.
Garland Indep. Sch. Dist., 489 U.S. 782, 792, 109 S. Ct. 1486, 103 L. Ed. 2d 866(1989)). A defendant’s voluntary change in conduct, although accomplishing what
the plaintiff sought to achieve in the lawsuit, “lacks the necessary judicial
imprimatur on the change.” Buckhannon, 532 U.S. at 605. See also Farrar v.
Hobby, 506 U.S. 103, 111-13, 113 S. Ct. 566, 121 L. Ed. 2d 494 (1992) (plaintiff
must obtain either an enforceable judgment against defendant or comparable relief
through consent decree but the relief must “directly benefit” him at the time of the
judgment or consent decree).
The question presented by this appeal is whether a partial summary
judgment order on the merits, in which the court found that Khalid knowingly
infringed Citrix’s trademark in violation of the Lanham Act, is a sufficient judicially
mandated change in the legal relationship between the parties in the absence of a
final judgment on the merits or a permanent injunction in Citrix’s favor. In this case,
Citrix established liability but failed to prove either causation or damages and
sought neither preliminary nor permanent injunctive relief.
The most analogous case we can find is Thomas v. Nat’l Sci. Found., 330
F.3d 486 (D.C. Cir. 2003), in which a federal appellate court considered whether a
preliminary injunction and partial summary judgment changed the legal
relationship in a way that afforded the plaintiffs the relief they sought, as required
by Buckhannon. In that case, internet domain name registrants sued the National
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No. 79143-5-I/98
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Science Foundation (NSF) and a private company that operated NSF’s domain
registration system under a cooperative agreement, alleging that fees collected by
NSF and shared with the private company constituted an illegal tax. Id. at 488.
The district court held on partial summary judgment that a portion of the fees were
a tax not imposed or ratified by Congress in violation of article 1, section 8 of the
Constitution. Id. It issued a preliminary injunction temporarily barring NSF from
spending any money collected. Id.Before final judgment, Congress passed a law legalizing and ratifying the
registration fee, rendering Thomas’s claims moot. Id. The district court vacated
the preliminary injunction and dismissed the case. Id. Thomas then sought an
award of attorney fees under the Equal Access to Justice Act, 28 U.S.C. §
2412(d)(1)(A). The district court granted the motion, concluding that they were
prevailing parties because they had succeeded in obtaining a preliminary
injunction and partial summary judgment. Id.The U.S. Court of Appeals for the District of Columbia reversed and
concluded that neither the preliminary injunction nor the partial summary judgment
changed the relationship between Thomas and NSF “in a way that afforded
[Thomas] the relief that they sought.” Id. at 493. The preliminary injunction at
issue in that case merely preserved the status quo pending final adjudication. And
when NSF moved to dismiss the case as moot, the court vacated that preliminary
injunction. Id. Thus, it did not change the parties’ legal relationship as requested
in the lawsuit.
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No. 79143-5-I/99
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
With regard to the partial summary judgment, the order declared the
disputed assessment was an unconstitutional tax but “did not afford [Thomas] any
concrete relief, beyond this mere legal declaration.” Id. at 493. Under
Backhannon, the court stated, a “judicial decree” is not enough to warrant a fee
award, because it represents “not the end but the means” of the litigation. Id. at
494 (quoting Hewitt v. Helms, 482 U.S. 755, 760, 107 S. Ct. 2672, 96 L. Ed. 2d
654 (1987)). A declaration must require “some action (or cessation of action) by
the defendant that the judgment produces – the payment of damages, or specific
performance or the termination of some conduct.” Id. Because the partial
summary judgment did not achieve such results, it could not justify an award of
fees in the case. Id.The Ninth Circuit, like the D.C. Circuit, requires proof that the claimant
received some type of relief from the court before that claimant becomes a
prevailing party. In Benton v. Oregon Student Assistance Comm’n, 421 F.3d 901,
908 (9th Cir. 2005), the appellate court reversed attorney fees awarded to a college
professor because the district court’s conclusion that the professor’s constitutional
rights had been violated and its award of $1 in nominal damages were insufficient
to justify fees when the professor had not obtained a declaratory judgment in her
favor. In Poland v. Chertoff, 494 F.3d 1174, 1187 (9th Cir. 2007), the court denied
prevailing party status to a plaintiff who had established one of his claims but had
not obtained any relief on the merits of his claims. And in Citizens for Better
Forestry v. U.S. Dep’t of Agric., 567 F.3d 1128 (9th Cir. 2009), the court of appeals
reversed a fee award because, although the appellate court ruled in the plaintiff’s
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No. 79143-5-I/100
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
favor on the merits of a legal claim, it did not order the entry of a declaratory
judgment: “a court is not bound to enter a declaratory judgment when it finds
unlawful action.” Id. at 1133. See also M.L. v. Federal Way Sch. Dist., 401 F.
Supp. 2d 1158, 1163 (W.D. Wash. 2005) (parents entitled to fee award as
prevailing party because the partial summary judgment conferred on parents the
legal right to compel the school district to convene new IEP team, a right they did
not possess before commencing federal action).
In this case, the partial summary judgment order resolved an issue of fact
and decided that Khalid had knowingly infringed Citrix’s mark. Under CR 56(d),
trial courts are authorized to examine the evidence before it and ascertain what
facts appear to be without controversy. It further allows a trial court to reserve
disputed issues for trial. The trial court did so here by identifying the undisputed
material facts regarding Khalid’s knowledge of Citrix’s trademark, its strength, the
likelihood Khalid’s use of the mark was to cause consumer confusion, and Khalid’s
infringement of it. It reserved for trial whether Citrix was entitled to any damages.
Citrix did not seek or obtain a permanent injunction or any court order requiring
Khalid to cease using the mark. Because the trial court’s partial summary
judgment order did not grant Citrix any relief, the partial summary judgment order
was a judicial decree of undisputed facts but not a court order compelling Khalid
to refrain from any use of the mark.
Citrix relies on two cases to support its contention that it was the prevailing
party on the Lanham Act claim. Those cases, however, are distinguishable. In
Leatherman Tool Group, Inc. v. Cooper Indus., Inc., 1998 WL 349554, *2 (D. Or.
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No. 79143-5-I/101
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Mar. 5, 1998), while the jury awarded no damages to the trademark holder, the
court had already entered an injunction against the infringer. Because an
injunction is an enforceable court order, the trademark holder was the prevailing
party entitled to attorney fees. The trial court here entered no injunctive relief.
In Manufacturers Techs., Inc. v. Cams, Inc., 728 F. Supp. 75, 85 (D. Conn.
1989), the district court found the defendant violated the plaintiff’s copyrights and
awarded $348,538 in actual damages. Id. at 83. It had previously found the
defendant violated the Lanham Act by falsely designating the origin of its software.
Id. at 85, citing Manufacturers Techs., Inc. v. Cams, Inc., 706 F. Supp. 984, 1003-
04 (D. Conn. 1989). But it found the plaintiff failed to prove consumers were
deceived by the violation, a prerequisite to an award of damages under a false
advertising claim under the Lanham Act. Id. 85. As to the plaintiff’s second
Lanham Act claim, false designation of origin, the court found the defendant had
deceived or confused at least one consumer. Id. But it found that any damages
incurred as a result of this Lanham Act violation had been “fully accounted for in
the court’s award for damages on account of copyright infringement” and it
declined to award further damages under the Lanham Act. Id. The court reasoned
that “[t]o compensate plaintiff for this claim would be to grant it a double recovery.”
Id.
The plaintiff sought attorney fees under 15 U.S.C. § 1117(a), arguing that
all of its fees, including the fees incurred in prosecuting the copyright claims, were
recoverable under the Lanham Act. Id at 86. The court held that it would award
attorney fees to the plaintiff because the defendant’s actions were willful, making
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No. 79143-5-I/102
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
it an exceptional case under 15 U.S.C. § 1117(a), but it declined to award those
fees attributable to proving the copyright infringement claim. Id. at 85-86. There
was no discussion why the plaintiff was found to be a prevailing party; it is unclear
from the decision if the issue was even litigated by the parties.
Nevertheless, the case is distinguishable because the court would have
awarded damages to the plaintiff but for the fact its damages had already been
compensated through the duplicative award for copyright infringement. Here,
unlike Manufacturers Techs, there is nothing in the record to support the contention
that the jury refused to award Citrix damages on its Lanham Act claim because it
had already awarded compensatory damages to Citrix on a different cause of
action. Citrix failed to prevail on a single claim it asserted against Khalid.
Consequently, the trial court erred in awarding fees. We remand to the trial to
strike the attorney fee award in favor of Citrix.
14. Attorney Fees on Appeal
Khalid requests attorney fees and costs on appeal pursuant to RAP 18.1,
which provides that a party may recover attorney fees on appeal if such fees are
allowed by law and the party devotes a section of its opening brief to the request.
Citrix does not address Khalid’s request for fees. Attorney fees on appeal are
recoverable on the same grounds they were recoverable below. Because Khalid
is the substantially prevailing party on appeal, we award him reasonable attorney
fees and costs incurred on appeal, subject to compliance with RAP 18.1.
Affirmed in substantial part, and reversed in part and remanded to award
prejudgment interest to Khalid on the $3 million jury award from the date of
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No. 79143-5-I/103
(consolidated with 79405-1-I), and No. 79145-1-I (consolidated with 79305-5-I)
Barrick’s December 2016 damages report to the date of judgment, to reduce
Khalid’s attorney fee award by $4,900, and to vacate Citrix’s Lanham Act attorney
fee award.
WE CONCUR:
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