US Horticulture Farmland, LLC, v. Laurel Servin, et al

Case Number

22CV02720

Case Type

Hearing Date / Time

Wed, 11/08/2023 - 10:00

Nature of Proceedings

Plaintiff’s Motion To Strike Costs

Tentative Ruling

For Plaintiff US Horticulture Farmland, LLC: Robert J. Noriega, Mark R. Bateman,

Brett A. Stroud, Lauren N. Naworski, Law Offices of Young Wooldridge, LLP

                                   

For Defendants Laurel Servin, Gwyn Goodman, Jennifer Foster, Josh Waters, and

John Wise: James E. Sell, Mitchell B. Malachowski, Matthew G. Tang, Tyson &

Mendes, LLP

                                   

For Defendant Berylwood Heights Mutual Water Company: Joseph A. Salazar, Jr.,

Lewis Brisbois Bisgaard & Smith LLP

                                   

For Amici Curiae Las Posas Farming Group: Matt Kline, Barton (Buzz) Thompson,

Russell McGlothlin, Heather Welles, O’Melveny & Myers LLP    

RULING

For all reasons discussed herein, the motion of Plaintiff US Horticulture Farmland, LLC, to strike costs is denied. The Court confirms an award of costs in the amount of $14,572.74 in favor of Defendants and prevailing parties Laurel Servin, Gwyn Goodman, Jennifer Foster, Josh Waters, and John Wise, and against Plaintiff US Horticulture Farmland, LLC.

Background

This derivative action was filed on March 7, 2022, by Plaintiff US Horticulture Farmland, LLC (“USHF”) as a shareholder in Berylwood Heights Mutual Water Company (“Berylwood”). Defendants Laurel Servin, Jennifer Foster, Gwyn Goodman, Josh Waters, and John Wise (“Director Defendants”) are the Board of Directors of Berylwood. Berylwood is also named as a nominal Defendant.

The case arises out of the coordinated action, Las Posas Valley Water Rights Coalition, et al. v. Fox Canyon Groundwater Management Agency, et al., Santa Barbara County Case No. VENCI00509700 (“Adjudication”), an action to adjudicate groundwater rights in the Las Posas Valley Groundwater Basin (“Basin”). USHF alleges that the Director Defendants breached their fiduciary duty to represent Berylwood’s interests rather than those of individual directors or other individual shareholders with respect to a settlement executed in the Adjudication. The complaint asserts four corporate derivative action claims against the Director Defendants and against Berylwood as a nominal Defendant: (1) breach of fiduciary duty by directors and officers; (2) breach of fiduciary duty by shareholders; (3) breach of written contract; and (4) declaratory relief. Director Defendants and Berylwood have each filed answers to the complaint.

Following a Court trial, judgment was entered on September 1, 2023, in favor of Director Defendants and against Plaintiff (the judgment). Among other things, the judgment provides that Director Defendants shall recover from USHF their litigation costs under Code of Civil Procedure section 1032. The judgment further provides that, after its entry, Director Defendants may take appropriate actions to recover the sum of $50,000 posted by USHF pursuant to Corporations Code section 800, subdivision (c) (the bond), per this Court’s order of January 11, 2023, (the Minute Order).

On September 8, 2023, Director Defendants filed a memorandum of costs (the memorandum) claiming costs in the amount of $14,572.74. On September 26, 2023, USHF filed a motion to strike the costs claimed by Director Defendants which Director Defendants oppose.

Analysis

“[Civil Code section] 1032 is the fundamental authority for awarding costs in civil actions. It establishes the general rule that ‘[e]xcept as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.’ [Citation.]” (Scott Co. of California v. Blount, Inc. (1999) 20 Cal.4th 1103, 1108.) “ ‘Prevailing party’ includes the party with a net monetary recovery. . . 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 pursuant to rules adopted under Section 1034.” (Code Civ. Proc., § 1032, subd. (a)(4).) Unless otherwise provided by statute, “the Court has no discretion to deny costs to the prevailing party.” (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 128-129.)

Code of Civil Procedure section 1033.5, subdivision (a), sets forth items categorically allowable as costs, if incurred. (See Segal v. ASICS America Corp. (2022) 12 Cal.5th 651, 667 (Segal).) Costs not mentioned in section 1033.5 which are claimed under subdivision (c)(4), are allowable in the Court’s discretion. (Ibid.) “Costs are allowable . . . whether or not paid[,]”, and must be “reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation” and “reasonable in amount.” (Code Civ. Proc., § 1033.5, subd. (c)(1)-(3); see also Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 856 (Benach) [verified memorandum is prima facie evidence that costs were necessarily incurred].) “If the items appearing in a cost bill appear to be proper charges, the burden is on the party seeking to tax costs to show that were not reasonable or necessary. On the other hand, if the items are properly objected to, they are put in issue and the burden of proof is on the party claiming them as costs.” (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 774; see also Benach, supra, 149 Cal.App.4th at p. 855 [trial Court’s first determination is whether the statute expressly allows item and if it appears proper on its face].)

In the memorandum, Director Defendants claim filing and motion fees in the amount of $4,910, deposition costs in the amount of $5,012.09, Court reporter fees as established by statute in the amount of $2,272, and fees for electronic filing or service in the amount of $2,378.65. (Memorandum items 1, 4, 11 & 14.) The total costs claimed by Director Defendants is $14,572.74.

Code of Civil Procedure section 1033.5 expressly allows costs relating to filing and motion fees and to the taking and transcribing of necessary depositions including travel expenses to attend any necessary depositions. (Code Civ. Proc., § 1033.5, subds. (a)(1), (3) & (14).) In addition, the costs claimed by Director Defendants appear proper on their face. Accordingly, the burden is on USHF to show that the costs claimed by Director Defendants in the memorandum were not reasonable or necessary or to otherwise properly object to these costs.

USHF does not dispute that Director Defendants are the prevailing parties in this litigation. USHF also does not offer information or argument to demonstrate that the costs claimed in the memorandum are not allowable, reasonable, or necessary. USHF contends that under Corporations Code section 800, the recovery of fees and costs by a Defendant prevailing in a shareholder derivative action is expressly limited to the amount of the posted security and requires Director Defendants to seek recourse under the security by USHF. Therefore, USHF argues, the Court should strike the memorandum in its entirety because the amount of costs claimed therein exceeds and is in addition to the security posted by USHF.

In the Minute Order, the Court granted the motion of Director Defendants to require USHF to furnish a bond pursuant to Corporations Code section 800 and ordered USHF to file an undertaking in the amount of $50,000 on or before January 23, 2023. Court records reflect that on January 23, 2023, USHF filed a Deposit In Lieu Of Bond under Code of Civil Procedure section 995.710 (the deposit) in which USHF asserted, through its counsel, that it was delivering to the clerk of this Court a cashier’s check in the amount of $50,000. In the deposit, which was executed by the principal of USHF, USHF authorized the clerk to enforce USHF’s liability on the deposit. Accordingly, USHF has deposited the sum of $50,000 in lieu of the bond required under Corporations Code section 800.

“A deposit given instead of a bond has the same force and effect, is treated the same, and is subject to the same conditions, liability, and statutory provisions, including provisions for increase and decrease of amount, as the bond.” (Code Civ. Proc., § 995.730.) For these reasons, the deposit by USHF of security in the amount of $50,000 as further discussed above has the same force and effect, and is treated the same, as a bond furnished under Corporations Code section 800.

Corporations Code section 800 provides a statutory basis for recovery of attorney fees and costs in a shareholder derivative action by allowing a prevailing Defendant in the action to seek recourse to the bond which a derivative Plaintiff must furnish under subdivision (e) of section 800, until the amount of the bond has been exhausted. (Donner Management Co. v. Schaffer (2006) 142 Cal.App.4th 1296, 1303; West Hills Farms, Inc. v. RCO Ag Credit, Inc. (2009) 170 Cal.App.4th 710, 715, 719 (West Hills).) (Note: Undesignated statutory references shall be to the Corporations Code unless otherwise designated.) To the extent that a Plaintiff in a shareholder derivative suit fails to furnish a bond or undertaking under section 800, the prevailing Defendants are generally not entitled to recover their attorney fees incurred in successfully defending the derivative suit. (Freeman v. Goldberg (1961) 55 Cal.2d 622, 625-626; West Hills, supra, 170 Cal.App.4th at pp. 717-718.) “ ‘[T]he essential purpose of the section 800 bond statute is to create a deterrent to unwarranted shareholder derivative lawsuits by providing a mechanism for securing a prevailing Defendant’s expenses up to $50,000.’ [Citation.]” (West Hills, supra, 170 Cal.App.4th at p. 715.)

However, because its security provision “is discretionary and not sufficiently comprehensive”, section 800 does not have exclusive jurisdiction over the rights of the parties to recover fees and costs in a shareholder derivative action. (Brusso v. Running Springs Country Club, Inc. (1991) 228 Cal.App.3d 92, 102.) For example, unlike Code of Civil Procedure section 1032 which mandates an award of allowable costs to a prevailing party in “any” action or proceeding “as a matter of right” subject to exceptions, a Court has discretion, but is not required, to require the Plaintiff to furnish a bond under section 800. (Ibid. [unlike Civil Code provisions that mandate an award of attorney’s fees in some circumstances, the right to a bond under section 800 is not “absolute”]; see also Corp. Code, § 800, subd. (d) [requiring the moving party to establish “a probability in support of any of the grounds upon which the motion is based”].) Therefore, if a prevailing Defendant seeks to recover attorney fees or costs independent of the bond, or in an amount that exceeds the amount of the bond furnished by the Plaintiff, it may “look to legal or statutory authority other than section 800.” (West Hills, supra, 170 Cal.App.4th at p. 719, fn. 11.) To the extent attorney fees or costs are independently recoverable under a contract or another statute, “liability for such fees or costs would not be limited by the amount of the bond.” (Id. at p. 713, fn. 3.)

For all reasons discussed above, section 800 is not the sole ground on which the Court may award costs to Director Defendants. Here, Code of Civil Procedure sections 1032 and 1033.5 provide independent statutory authority for the recovery of costs claimed by Director Defendants which, for reasons further discussed above, are allowable and appear proper on their face. Apart from the contentions discussed herein with regard to whether section 800 limits the recovery of costs by Director Defendants, USHF offers no information or evidence to demonstrate that the costs claimed by Director Defendants are not allowable, reasonable, or necessary to the litigation and asserts no further grounds for objecting to the costs claimed in the memorandum. For all reasons discussed herein, USHF has not met its burden to place the costs claimed by Director Defendants in issue by demonstrating that the costs are not allowable, reasonable, or necessary. Therefore, the Court will deny the motion of USHF to strike the memorandum and the costs claimed therein.