Case Number: BC579623 Hearing Date: May 31, 2019 Dept: 1

TENTATIVE RULING

HEARING DATE: May 31, 2019

CASE NUMBER: BC579623

CASE NAME: Schrage v. Schrage

MOVING PARTY: Defendants Joseph Schrage and Michael Schrage

RESPONDING PARTY: Plaintiff

MOTION: Motion to Tax Costs

I. General Standards Regarding Recovery of Costs

The right to recover costs of suit is determined entirely by statute. Code Civ. Proc., § 1032 et seq. “It is axiomatic that the right to recover costs is purely statutory, and, in the absence of an authorizing statute, no costs can be recovered by either party.” Davis v. KGO-T.V., Inc. (1998) 17 Cal.4th 436, 439. “The court’s first determination, therefore, is whether the statute expressly allows the particular item, and whether it appears proper on its face.” Nelson v. Anderson (1999) 72 Cal.App.4th 111, 131, as modified on denial of reh’g June 14, 1999 (Nelson).

“Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.” Code Civ. Proc., § 1032, subd. (b).

“Prevailing party” includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant. If any party recovers other than monetary relief and in situations other than as specified, the “prevailing party” shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed, may apportion costs between the parties on the same or adverse sides[.]

Code Civ. Proc. § 1032, subd. (a)(4). “[T]he trial court has no discretion to deny prevailing party status to a litigant who falls within one of the four statutory categories in the first prong of the provision.” Wakefield v. Bohlin (2006) 145 Cal.App.4th 963, 975, disapproved of on other grounds by Goodman v. Lozano (2010) 47 Cal.4th 1327 (Goodman).

Allowable costs are enumerated in Code of Civil Procedure section 1033.5, subdivision (a). In addition, costs are allowed only if they are “reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation” and are “reasonable in amount.” Code Civ. Proc., § 1033.5, subd. (c). A court has discretion to allow or disallow requested costs not enumerated in subdivision (a). Code Civ. Proc., § 1033.5, subd. (c)(4).

Generally, “the burden is on the objecting party to show [costs] to be unnecessary or unreasonable.” Nelson, supra, 72 Cal.App.4th at p. 131. “If the items in a cost memorandum appear proper, the verified memorandum is prima facie evidence the expenses were necessarily incurred by the [party].” Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 858 (Benach). “To controvert this evidence, the burden is on the objecting party to present evidence showing the contrary.” Whatley-Miller v. Cooper (2013) 212 Cal.App.4th 1103, 1115, as modified Feb. 6, 2013 (emphasis in original).

However, “[w]here costs are not expressly allowed by the statute, the burden is on the party claiming the costs to show that the charges were reasonable and necessary.” Foothill-De Anza Community College Dist. v. Emerich (2007) 158 Cal.App.4th 11, 29 (Foothill-De Anza). “Whether a cost item was reasonably necessary to the litigation presents a question of fact for the trial court and its decision is reviewed for abuse of discretion.” Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 774.
II. Discussion
A. The Court’s prior rulings on the motions to vacate judgment/motions for new trial

In their pending motion, Michael and Joseph advance arguments that (1) the Court lacked subject matter jurisdiction to order the dissolution of the five non-party entities; (2) the September 27, 2017 judgment supplanted and extinguished Leonard’s breach of fiduciary duty claim and the cross-complaint; (3) res judicata and the primary rights doctrine bar Leonard’s breach of fiduciary duty claim. On May 9, 2019, the Court rejected these same arguments in denying Michael and Joseph’s motions to vacate judgment and motions for new trial. Accordingly, the Court will not revisit them here.
B. Receivership costs

Michael and Joseph argue that the Court should strike or tax item 16 of Leonard’s memorandum of costs, which seeks $3,588,370.20 in costs for the receiver and his accountant. The Court agrees.

California Rules of Court, rule 3.1184(d) provides:

If any allowance of compensation for the receiver or for an attorney employed by the receiver is claimed in an account, it must state in detail what services have been performed by the receiver or the attorney and whether previous allowances have been made to the receiver or attorney and the amounts.

The trial court has discretion over the amount of compensation allowed to the receiver and his or her counsel. People v. Riverside Univ. (1973) 35 Cal.App.3d 572 (amount of fees awarded to receiver is “in the sound discretion of the trial court and in the absence of a clear showing of an abuse of discretion, a reviewing court is not justified in setting aside an order fixing fees”). See also Venza v. Venza (1951) 101 Cal.App.2d 678, 680 (trial court has discretion to determine compensation for receiver and his or her counsel because trial court can assess need for services performed by receiver and his or her attorney and reasonable value of such services). The court may also authorize reimbursement of a receiver’s costs if they are approved by the court. Hozz v. Varga (1958) 166 Cal.App.2d 539, 542.

Generally, compensation for the receiver and his or her professionals is paid from receivership property. See McCarthy v Poulsen (1985) 173 Cal.App.3d 1212, 1219. Courts also have discretion, however, to allocate payment of receivership expenses to the applicant for the receivership or the party whose conduct made the receivership necessary, or to apportion the costs among the parties. Baldwin v Baldwin (1947) 82 Cal.App.2d 851, 855.

In Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910 (Banyan), the Court of Appeal held that receivership costs were recoverable as costs under Code of Civil Procedure, section 1033.5, subdivision (c)(4).

We conclude the legal rationale permitting cost awards for referees and private mediators should also apply to court-appointed receivers. The receiver is similarly situated with other court-appointed assistants. The receiver’s services help the court fashion a temporary remedy necessary for the litigation to continue. Like the costs for other court-appointed assistants discussed above, the costs of receivership are not specifically allowed or prohibited by section 1033.5. If the Legislature had intended to exclude receivership costs from items allowable as cost, it would have been a simple matter to have listed them in subdivision (b) of section 1033.5. And as is the case with other court-appointed experts, the court can first charge the estate (claimed to be owned by both parties) and later shift the burden as an item of costs. [Citation.]

In conclusion, section 1033.5, subdivision (c)(4), confers upon the trial court the broad authority to consider awarding receivership costs if appropriate under the circumstances of the case. We recognize receivership costs are unique in that the designation of a prevailing party is but one of many factors the court must consider in exercising its discretion.

Id., at pp. 933–934.

Banyan gives courts discretion to award receivership fees under Section 1033.5, subdivision (c)(4). Here, however, in his memorandum of costs, Leonard has simply requested $3,588,370.20 in costs for the receiver and his accountant without providing any evidence of how such costs were incurred.

Rule 3.1184(d) requires that any account claiming compensation for a receiver or his professionals “must state in detail what services have been performed by the receiver or the attorney and whether previous allowances have been made to the receiver or attorney and the amounts.” Requesting receivership costs under Section 1033.5 without providing supporting documentation skirts the express requirements of Rule 3.1184(d). Without such documentation, the Court cannot determine how much money is in the receivership estate, whether the receiver and his accountant have previously received compensation, whether their services were reasonably necessary to the conduct of the litigation pursuant to Section 1033.5, subdivision (c)(2), or whether such costs are reasonable in amount pursuant to Section 1033.5, subdivision (c)(3). In addition, because the Court has no evidence showing how much money is currently in the receivership estate, the Court cannot determine whether there is sufficient money in the estate to pay the receiver and his accountant, and thus whether receivership costs should be equitably apportioned among the parties.

Accordingly, the Court finds that Leonard’s request for costs associated with the receivership is premature. The Court will strike item 16 in the memorandum of costs without prejudice to the receiver, his professionals, or any party later filing a motion for compensation of receivership fees and costs.
C. Other disputed costs

Here, Michael and Joseph object to the following costs: (1) $2,573.96 in filing and motion fees; (2) $15,951.64 in service of process costs; and (3) $15,706.19 for trial exhibits.
1. Filing and motion fees (item 1)

In Exhibit 1 to Mr. Shuck’s declaration, Michael and Joseph itemize the objectionable filing and motion fees and indicated that either no such fee exists, or that such fee was excessive. As Michael and Joseph correctly note, Mr. Shuck’s declaration is not simply argument, but is evidence that the fees are not properly claimed. In his opposition, Leonard concedes that the $2,573.96 under “filing and motion fees” are in fact fees for messenger services. Messenger fees are not explicitly authorized by statute. Accordingly, it is Leonard’s burden to show that the charges were reasonable and necessary. Foothill-De Anza, supra, 158 Cal.App.4th at p. 29.

In his opposition, Leonard asserts that such messenger fees were reasonably necessary to the conduct of the litigation. Opposition, at p. 6. However, Leonard has provided no corresponding declaration attesting to this assertion.

Accordingly, the Court finds that Michael and Joseph have provided sufficient evidence to rebut the prima facie propriety of such messenger fees. Because Leonard has not met his burden of providing evidence that the messenger fees were properly claimed, the Court will tax $2,573.96 in costs under item 1 of the memorandum of costs.
2. Service of process costs (item 5)

In Exhibit 2 to Mr. Shuck’s declaration motion, Michael and Joseph itemize the objectionable service of process fees and offer a brief explanation of why each is objectionable. Here, as above, Mr. Shuck’s declaration is evidence that the claimed costs were not necessarily incurred by Leonard. As such, it is now Leonard’s burden to show that the costs were reasonably necessary to the conduct of the litigation. However, Leonard has provided no countervailing evidence to allow the Court to determine whether the service of process costs were proper.

Accordingly, the Court finds that Michael and Joseph have provided sufficient evidence to rebut the prima facie propriety of the service of process costs. Because Leonard has not met his evidentiary burden, the Court will tax $15,951.64 in costs under item 5 of the memorandum of costs.

3. Trial exhibit costs (item 11)

Michael and Joseph object to $15,706.19 claimed by Leonard for trial exhibits under item 11 of the memorandum of costs. They argue that the statement “Trial Exhibits (Keystone Invoice – 3/30/18)” does not allow them to decipher whether the invoice cited contains models, enlargements, or photocopies of exhibits. According to Michael and Joseph, Leonard did not use any models or enlargements at trial. They further argue that exhibits not actually used at trial were not reasonably helpful to the trier of fact and are therefore not recoverable under Section 1033.5(a)(13). See Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 775 (Ladas)

In Benach, the objecting party also argued that the cost of exhibits not used at trial were not recoverable by the prevailing party. Benach, supra, 149 Cal.App.4th at p. 855–856. However, the Benach court noted:

Although the [defendant] did not use the majority of its exhibits at trial, nothing indicates it could have anticipated that they would not be used. An experienced trial judge would recognize that it would be inequitable to deny as allowable costs exhibits any prudent counsel would prepare in advance of trial.

Id., at p. 856. Accordingly, the Benach court declined to tax costs for exhibits not used at trial.

Here, Michael and Joseph have not submitted any evidence to rebut the prima facie propriety of the fees claimed under item 11. In addition, in Ladas, the case at issue was dismissed before trial. Accordingly, because the exhibits in Ladas were never used at trial, those costs were not recoverable. The Court finds the Benach court’s reasoning more applicable here. At the time of trial, Leonard prepared exhibits without knowing which exhibits would be used at trial. Under Benach, and absent any evidence that such costs were improper, it would be inequitable to deny such costs for preparing trial exhibits.

Accordingly, the Court declines to tax $15,706.19 under item 11 in the memorandum of costs.
III. Conclusion

In light of the foregoing, the motion to strike or tax costs is GRANTED in part and DENIED in part. The Court will strike item 16 in the memorandum of costs without prejudice to the receiver, his professionals, or any party later filing a motion for compensation of receivership fees and costs. The Court will also tax $2,573.96 in messenger fees under item 1 of the memorandum of costs. The Court will further tax $15,951.64 in service of process costs under item 5 of the memorandum of costs. However, the Court will not tax $15,706.19 in trial exhibit costs under item 11 of the memorandum of costs.