In a case with relatively complicated facts, the California Court of Appeal, Second Appellate District, ruled in Khavarian Enterprises, Inc. v. Commline, Inc. (2013) 216 Cal.App.4th 310 ("Khavarian") that, where an action has been settled by way of a mediated settlement, but the Settlement Agreement permits the Plaintiff, which received settlement moneys, to seek costs and to file a Motion for Attorneys' Fees, the Trial Court shall consider the terms of the Settlement Agreement in determining what party is a prevailing party and whether that party is entitled to costs and attorney's fees. The Court of Appeal also ruled that, because the Defendants in that case had agreed to pay compensation as part of the settlement, the Defendants could not be considered to be the prevailing party.
The facts of Khavarian are common enough. In that case, Khavarian Enterprises, Inc. doing business as Vision Communications, Co. ("Vision") filed an action in August 2010 against Commline, Inc. and certain individuals ("Commline Defendants") seeking damages, restitution, and injunctive relief. The Commline Defendants filed a timely answer and one of them filed a cross-complaint alleging failure to pay commissions. In April 2012, the parties engaged in Mediation to resolve the matter, entering into a confidential Settlement Agreement. The Settlement Agreement provided in pertinent part:
“This Settlement Sum is exclusive of attorneys' fees and costs.... [¶] [Vision] shall apply to the Court by way of a motion for such attorney's fees and costs incurred in the Action pursuant to Cal. Civ.Code § 3426.4, and for costs incurred in the Action pursuant to Memorandum of Costs under Cal.Civ.Proc.Code § 1033.5, and Defendants reserve their right to oppose and tax same. No duplicate recovery will be allowed.”
The Settlement Agreement noted that “the Parties understand and agree that nothing in this Settlement Agreement is intended, or should be construed as an admission of any liability, misconduct, or wrongdoing by any Party herein.”
The parties then filed a Joint Notice of Complete Settlement. A Dismissal of the Complaint was also filed with the Trial Court.
Vision then filed a Cost Bill and also filed its Motion for Attorneys' Fees, which was opposed by the Commline Defendants. The Trial Court heard the matter on July 11, 2012 and denied the Motion for attorneys' fees as well as the request for costs on the basis that the matter had been settled and a dismissal had been filed.
On appeal, the Court of Appeal ruled that Vision was entitled to seek costs under Civil Code § 1033.5 and both costs and attorneys' fees under Civil Code § 3426.4 based upon the language of the Settlement Agreement. In that regard, the Court of Appeal concluded that parties to a settlement agreement can validly specify that one party is potentially a prevailing party and reserve for later determination by the Trial Court whether that party did prevail, as well as other factual matters involved in making an award of statutory attorney fees. The Court of Appeal also ruled that only Vision (in that case) could have been determined to be a prevailing party because it alone received compensation.
The Khavarian case is important in that it provides authority for the proposition that compensation paid in settlement can be considered in a determination as to whether costs and fees may be awarded to a prevailing party. In that regard, if there are, for example, multiple plaintiffs and defendants, and an agreement is made to permit the Trial Court to award costs and fees to a prevailing party, it is imperative that it be documented as to who is paying and who is receiving compensation.
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