Case Name: In re: Apple, Inc. Derivative Litigation
Case No.: 2014-1-CV-262174 (consolidated with 2014-1-CV-266403 and
2014-1-CV-267237)

This consolidated derivative action arises from Apple’s alleged participation in an anticompetitive agreement among several companies to avoid recruiting each other’s employees. On December 11, 2018, judgment was entered in favor of defendants following the Court’s order sustaining Apple’s demurrer to the Third Amended Complaint without leave to amend, based on failure to plead demand futility. Plaintiff John Krawczyk, II filed a notice of appeal, while the other plaintiffs did not.

Apple filed a memorandum of costs on December 27, 2018. Pursuant to a stipulated order, it filed an amended memorandum of costs on January 16, 2019. At issue are separate motions to strike or tax costs by plaintiffs Krawczyk and The Police Retirement System of St. Louis (“St. Louis Police”), which are opposed by Apple.

I. Legal Standard

“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).) Items explicitly allowed as costs are set forth in Code of Civil Procedure section 1033.5, subdivision (a). Items expressly disallowed as costs are set forth in section 1033.5, subdivision (b). Other costs may be allowed or denied in the court’s discretion. (Code Civ. Proc., § 1033.5, subd. (c)(4).) “Any award of costs shall be subject to the following: [¶] (1) Costs are allowable if incurred, whether or not paid. [¶] (2) Allowable costs shall be reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation. [¶] (3) Allowable costs shall be reasonable in amount.” (Code Civ. Proc., § 1033.5, subd. (c)(1)-(3).)

A party seeking costs need only submit a memorandum of costs with a statement by the attorney verifying that, to the best of his or her knowledge, the costs claimed are correct and were necessarily incurred in the case. (See Cal. Rules of Court, rule 3.1700(a)(1).) The party need not attach copies of bills, invoices, and so forth. (See Jones v. Dumrichob (1998) 63 Cal.App.4th 1258, 1267.) “[T]he verified memorandum of costs is prima facie evidence of their propriety, and the burden is on the party seeking to tax costs to show they were not reasonable or necessary.” (Id. at p. 1266.)

[T]he mere filing of a motion to tax costs may be a proper objection to an item, the necessity of which appears doubtful, or which does not appear to be proper on its face. However, [i]f the items appear to be proper charges the verified memorandum is prima facie evidence that the costs, expenses and services therein listed were necessarily incurred by the defendant, and the burden of showing that an item is not properly chargeable or is unreasonable is upon the [objecting party].

The court’s first determination, therefore, is whether the statute expressly allows the particular item, and whether it appears proper on its face. If so, the burden is on the objecting party to show them to be unnecessary or unreasonable.

(Nelson v. Anderson (1999) 72 Cal.App.4th 111, 131, internal citations and quotations omitted.)

II. St. Louis Police’s Motion

St. Louis Police urges the Court to defer addressing issues related to costs pending the resolution of plaintiff Krawczyk’s appeal. Although it concedes that the appeal does not impact the Court’s power to award costs, it urges that the time limits governing the filing of a memorandum of costs are not jurisdictional and that a reversal on appeal would impact the Court’s prevailing party determination and result in further litigation. Krawczyk does not join in St. Louis Police’s request to defer the resolution of issues related to costs, and the Court finds no reason to depart in this case from the normal process of addressing costs while an appeal proceeds. (See Bankes v. Lucas (1992) 9 Cal.App.4th 365, 369 [filing of a notice of appeal does not stay any proceedings to determine the matter of costs and does not prevent the trial court from determining a proper award of costs].) The only circumstance unique to this case that the St. Louis Police raises is the fact that it did not also file an appeal; this hardly supports deferring the issue of costs at its sole request.

On the merits, St. Louis Police seems to indicate in its reply brief that it no longer challenges the specific costs claimed by Apple in light of the substantiating materials filed with Apple’s opposition. The Court will accordingly consider its substantive challenge to Apple’s costs to be withdrawn, and will deny its motion.

III. Krawczyk’s Motion

Krawczyk moves to strike Apple’s entire memorandum rather than to tax costs. He contends that there is no legal basis for a corporation to claim costs in a derivative lawsuit because a corporation “may not defend a derivative action filed on its behalf.” (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1005.) As held by Patrick, this principle is limited to a corporation’s defense of an action on the merits, versus by raising a defense like plaintiffs’ lack of standing; it was the latter approach that Apple took here. Nevertheless, Krawczyk contends that Apple is not a prevailing party under these circumstances, and the costs it incurred should be apportioned to the defense of the individual defendants. Presumably, this would mean that the defendants could not recover their costs at all because they elected that Apple, rather than the individual defendants, file the memoranda of costs on behalf of the group.

There is no support for this outcome. Patrick, which did not address a prevailing party determination or cost award, does not suggest that a corporation that successfully defends against a derivative action in its own name based on the plaintiffs’ lack of standing is not a prevailing party. To the contrary, “full adjudication on the merits is not necessary to achieving prevailing party status for purposes of a fee award,” and the statue specifically includes “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” as prevailing parties, with no exception for nominal defendants. (State of California ex rel. Standard Elevator Co., Inc. v. West Bay Builders, Inc. (2011) 197 Cal.App.4th 963, 980, quoting Code Civ. Proc., § 1032, subd. (a)(4).) Apple is such a prevailing defendant here, a conclusion fully consistent with the principles governing shareholder derivative standing outlined in Patrick. Apple succeeded in showing that plaintiffs could not file suit on its behalf because they did not permit Apple to evaluate a demand to bring the litigation itself or show that such demand would be futile. With regard to this threshold issue, Apple and plaintiffs were in an adverse relationship, and Apple prevailed. (See Patrick v. Alacer Corp., supra, 167 Cal.App.4th at p.1004 [there is a “limited adverse relationship between the shareholder plaintiff and the corporation”;“[i]n a real sense, the only claim a shareholder plaintiff asserts against” the corporation “is the claim the corporation has failed to pursue the litigation”].)

As to apportionment, Krawczyk cites Fennessy v. Deleuw-Cather Corp. (1990) 218 Cal.App.3d 1192, which held that costs must be apportioned among defendants “where a prevailing party incurs costs jointly with one or more parties who remain in the litigation, during the pendency of the litigation.” (At p. 1196, italics original.) As urged by Apple, Fennessy distinguished Kramer v. Ferguson (1964) 230 Cal.App.2d 237, which affirmed a joint award of costs to two defendants on behalf of several others following trial. Fennessy explained that in Kramer, “there was no chance of additional successful defendants subsequently seeking costs from plaintiffs who already had paid for some of those costs.” (Fennessy v. Deleuw-Cather Corp., supra, 218 Cal.App.3d at p. 1196.) That is true in the present action as well. There is no need to apportion costs jointly incurred by the defendants where all defendants prevailed and the action has concluded.

Krawczyk thus does not establish that Apple’s memorandum of costs should be struck, and he does not challenge any of the specific costs claimed by Apple. His motion will accordingly be denied.

IV. Conclusion and Order

Plaintiffs’ motions to strike or tax costs are DENIED in their entireties. Apple shall recover the costs claimed in its amended memorandum of costs filed on January 16, 2019.

The Court will prepare the order.