Weco Supply Company, Inc. v. The Sherwin-Williams Company

Filing 81

ORDER DENYING 74 Defendants' Motion for Attorney Fees; JUDGMENT AND COSTS signed by District Judge Anthony W. Ishii on 1/2/2013. CASE CLOSED. (Jessen, A)

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IN THE UNITED STATES DISTRICT COURT FOR THE

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EASTERN DISTRICT OF CALIFORNIA

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WECO SUPPLY COMPANY, INC., a
California corporation

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Plaintiff,
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v.
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THE SHERWIN-WILLIAMS
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COMPANY,
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Defendant.
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____________________________________)
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AND RELATED CROSS-ACTION
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____________________________________)

1:10-CV-00171 AWI BAM
ORDER DENYING
DEFENDANT’S MOTION FOR
ATTORNEY FEES
(Doc. 74)
JUDGMENT AND COSTS

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On December 22, 2009, Plaintiff Weco Supply Company, Inc. (“Weco”), initiated the
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instant action against Defendant The Sherwin-Williams Company (“Sherwin-Williams”) for
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claims related to a business dispute, including a claim for misappropriation of trade secrets. On
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May 25, 2012, the Court granted summary judgment in favor of Sherwin-Williams on the
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misappropriation of trade secrets claim. See Court’s Docket, Doc. No. 73. Sherwin-Williams
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now moves for attorney’s fees and costs, including expert fees, for the trade secrets claim
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pursuant to California Civil Code § 3426.4. For the reasons stated herein, the motion is denied.
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The Court will enter judgment in favor of Sherwin-Williams and will award costs of suit as
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detailed below.
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BACKGROUND
The background of this action has been described in the Court’s prior orders. Id. at Doc.

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Nos. 66, 73. In sum, the parties’ dispute centered around a written agreement for the distribution

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of Sherwin-Williams paint products by Weco (the “Jobber Agreement”). Weco alleged that

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Sherwin-Williams breached the Jobber Agreement by discontinuing a certain product line and by

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selling directly to two end users who were Weco’s customers. In addition to the breach of

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contract claims, Weco also asserted claims for unfair competition, unfair trade practices, and

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misappropriation of trade secrets in violation of California law. Sherwin-Williams filed a cross-

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complaint alleging, among other things, that Weco breached the Jobber Agreement by refusing to

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pay for an order of paint totaling $135,083.27.
The parties filed cross-motions for summary judgment. In two orders dated May 25,

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2012, and August 7, 2012, the Court granted summary judgment in favor of Sherwin-Williams as

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to all causes of action in Weco’s First Amended Complaint, and on the breach of contract claim

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in Sherwin-Williams’ First Amended Cross-Complaint. Id. at Doc, Nos. 66, 73. The Court

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ordered Sherwin-Williams to file proof of its damages, fees, costs, and interest at the legal rate

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under Ohio law. See id. at Doc. No. 73 ¶ 3. On August 27, 2012, Sherwin-Williams filed the

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instant motion for attorney’s fees and costs, along with the required proof. Id. at Doc. No. 74.

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Weco opposes the motion and objects to Sherwin-Williams’ bill of costs. Id. at Doc. Nos. 77,

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77-3. Sherwin-Williams filed a reply and a response to Weco’s objections. Id. at 78, 79.

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LEGAL STANDARDS

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A.

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California Civil Code § 3426.4 provides:

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Attorney’s Fees

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is
made or resisted in bad faith, or willful and malicious misappropriation exists, the court may
award reasonable attorney's fees and costs to the prevailing party. Recoverable costs
hereunder shall include a reasonable sum to cover the services of expert witnesses, who are
not regular employees of any party, actually incurred and reasonably necessary in either, or
both, preparation for trial or arbitration, or during trial or arbitration, of the case by the
prevailing party.

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Because there is no statutory definition of “bad faith” in the context of trade secret

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misappropriation, California courts have developed a two-pronged standard for the evaluation of

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such claims. The party seeking an award of attorney's fees and expert fees under section 3426.4

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must show (1) the objective speciousness of the opposing party's claim, and (2) the subjective

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bad faith of the opposing party in bringing or maintaining the action, that is, an improper

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purpose. Gemini Aluminium Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249,

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1261, 116 Cal.Rptr.2d 358 (2002). “Objective speciousness exists where the action superficially

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appears to have merit but there is a complete lack of evidence to support the claim.” FLIR

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Systems, Inc. v. Parrish, 174 Cal.App.4th 1270, 1276, 95 Cal.Rptr.3d 307 (2009). Objective

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speciousness may be shown by, among other factors, demonstrating that there was no

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misappropriation or threatened misappropriation or that the opposing party could not have

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suffered any economic harm. Id. As for the second prong:

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Subjective bad faith may be inferred by evidence that [a party bringing an action for trade
secret infringement] intended to cause unnecessary delay, filed the action to harass [the
opposing party], or harbored improper motive. [....] The timing of the action may raise an
inference of bad faith. [....] Similar inferences may be made where the plaintiff proceeds to
trial after the actions's fatal shortcomings are revealed by opposing counsel.

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Id. at 1278, 95 Cal.Rptr.3d 307 (internal citations omitted).
B.

Costs

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Federal Rule of Civil Procedure 54(d)(1) provides, in pertinent part, that “costs—other
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than attorney’s fees—should be allowed to the prevailing party.” Fed. R. Civ. P. 54(d)(1). “By
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its terms, the rule creates a presumption in favor of awarding costs to a prevailing party, but vests
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in the district court discretion to refuse to award costs.” Ass'n of Mexican Am. Educators v.
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California, 231 F.3d 572, 591 (9th Cir. 2000) (citing National Info. Servs., Inc. v. TRW, Inc., 51
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F.3d 1470, 1471 (9th Cir. 1995)). The court's discretion is not unlimited; it must “specify
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reasons” for denying costs. Id. at 591-92 (citing Subscription Television, Inc. v. Southern Cal.
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Theater Owners Ass'n, 576 F.2d 230, 234 (9th Cir.1978)). “Proper grounds for denying costs
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include (1) a losing party's limited financial resources; (2) misconduct by the prevailing party;

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and (3) the chilling effect of imposing ... high costs on future civil rights litigants, as well as (4)

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whether the issues in the case were close and difficult; (5) whether the prevailing party's recovery

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was nominal or partial; (6) whether the losing party litigated in good faith; and (7) whether the

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case presented a landmark issue of national importance.” Quan v. Computer Sciences Corp., 623

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F.3d 870, 888 (9th Cir. 2010) (quoting Champion Produce, Inc. v. Ruby Robinson Co., 342 F.3d

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1016, 1022 (9th Cir. 2003) (omission in original) (internal quotation marks omitted)).

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Rule 54(d) does not authorize a court to award costs beyond those authorized by statute or

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contract. See Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441-45, 107 S. Ct. 2494,

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96 L.Ed.2d 385 (1987). In this District, “[c]osts shall be taxed in conformity with the provisions

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of 28 U.S.C. § 1920, and such other provisions of law as may be applicable.” L.R. 292(a).

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DISCUSSION
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Attorney’s Fees

Sherwin-Williams contends it is entitled to attorney's fees and expert fees because Weco
brought the trade secret claim against it in bad faith. Sherwin-Williams points out that the Court
granted Sherwin-Williams’ motion for summary judgment on the trade secret claim due to lack
of evidence. Sherwin-Williams further argues that the evidence submitted in support of its
motion demonstrates that Weco filed and maintained the action due to personal hostility of its
principal John Sorensen toward Sherwin-Williams. Weco disputes this, arguing that the
deposition testimony cited by Sherwin-Williams merely shows that Mr. Sorensen decided not to
buy more paint from Sherwin-Williams because he was “mad at them,” and that he intended to
sue Sherwin-Williams. See Decl. of Joseph Owens, Ex. A, 188:4-14. Weco argues this
testimony does not demonstrate that it initiated or maintained the trade secrets claim in bad faith.

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The first prong of the test for bad faith under California Civil Code § 3426.4, objective
speciousness, requires a showing of a complete lack of evidence to support the trade secrets
claim. To prove a claim for misappropriation of trade secrets under California’s Uniform Trade
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Secrets Act, a plaintiff must first show “the existence of subject matter which is capable of

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protection as a trade secret.” Globespan, Inc. v. O’Neill, 151 F.Supp.2d 1229, 1235 (C.D. Cal.

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2001) (quoting Cal Francisco Corp. v. Vrionis, 14 Cal.App.3d 318, 321-22, 92 Cal.Rptr. 201

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(Cal. App. 1971)). A trade secret must be either not generally known to the public or to

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competitors, or, if the information is disclosed to others, they must be obligated to keep that

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information confidential. See In re Providian Credit Card Cases, 96 Cal. App.4th 292, 304 (Cal.

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App. 2002). In its order on the motion for summary judgment, the Court found that “[t]he

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undisputed facts show that Weco’s pricing to end users and costs of acquisition were not trade

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secrets within the meaning of the Uniform Trade Secrets Act.” Court’s Docket, Doc. No. 66 at

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13. Thus, there was no misappropriation. Accordingly, the objective speciousness prong of the

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test for bad faith appears to be met in this case.

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Under California Civil Code § 3426.4, however, bad faith means more than the simple

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inability to prove the necessary elements of a cause of action. The second prong of the test

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requires a showing of subjective bad faith. Sherwin-Williams cites several portions of John

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Sorensen’s deposition testimony suggesting that Mr. Sorensen became angry after Sherwin-

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Williams began selling paint directly to Mastercraft and Color Glow, two of Weco’s customers.

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See Owens Decl., Ex. A at 155:16-22. Mr. Sorensen refused to pay Sherwin-Williams for a large

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paint order because he “was mad at them.” Id. at 188:4-14. Mr. Sorensen also testified that he

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hadn’t paid $60,000 or $70,000 that he got from Mastercraft back to Sherwin-Williams because

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he “was going to use that money to sue [Sherwin-Williams] with.” Id. at 197:8-11. Mr.

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Sorensen’s testimony further reveals that he “was trying to hurt [Sherwin-Williams]” by sending

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a letter to other end users informing them of the pricing offered by Sherwin-Williams to their

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competitors. Id. at 243:18-19. While this deposition testimony plainly demonstrates there was

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no love lost between Mr. Sorensen and Sherwin-Williams, it does not support a finding that

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Weco brought the trade secrets claim in bad faith. Civil litigation is frequently engendered by

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animosity. This is not the same as bad faith. The Court finds that even if Sherwin-Williams has

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proved that Weco’s trade secrets claim was objectively specious, there is no evidence that the

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claim was raised to “cause unnecessary delay,” “to harass,” or due to “improper motive.” See

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FLIR Systems, Inc., 174 Cal.App.4th at 1278, 95 Cal.Rptr.3d 307. Accordingly, Sherwin-

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Williams’ motion for attorneys’ fees and expert fees pursuant to California Civil Code § 3426.4

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is denied.

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B.

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Costs

As the prevailing party, Sherwin-Williams seeks costs in the amount of $7,907.07. Weco
objects to the Bill of Costs on the grounds that $3,707.80 sought by Sherwin-Williams for
deposition transcripts, $1,252.00 for a videotaped deposition, and $2,152.27 in copying costs are
either not allowed by statute, were not “necessarily obtained,” or are unreasonable.

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1.

Deposition Transcript Costs

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Title 28 U.S.C. § 1920(2) provides that “[f]ees for printed or electronically recorded

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transcripts necessarily obtained for use in the case” are taxable costs. 28 U.S.C. § 1920(2)

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(emphasis added). Sherwin-Williams seeks costs for the printed deposition transcripts of John

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Sorensen, Larry Barcellos, Matt Barcellos, and Barry Desai. Mr. Sorensen is the owner of Weco.

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Larry Barcellos, Matt Barcellos, and Barry Desai are the principals of the two automotive body

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shops at issue in this case. Weco contends that in order to recover the costs of these transcripts,

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Sherwin-Williams must show that the costs incurred were reasonably necessary and the

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depositions were not merely investigative in nature. This is incorrect. The strong presumption in

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favor of awarding costs enumerated in 28 U.S.C. § 1920 effectively places the burden on the

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losing party to establish proper grounds for denying statutorily authorized costs. See National

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Information Servs. v. TRW, Inc., 51 F.3d 1470, 1472 (9th Cir. 1995), overruled in part on other

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grounds, 231 F.3d 572 (9th Cir. 2000)). The deposition transcripts at issue could reasonably

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have been expected to be used for trial preparation, and thus were necessarily obtained for use in

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the case. Indeed, both parties cited to those transcripts in the cross motions for summary

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judgment. Thus, Weco’s objections as to these deposition transcripts are overruled and Sherwin-

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Williams shall be awarded the costs.
Weco further objects that Sherwin-Williams cannot recover the costs for the original and

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certified copies of the deposition transcripts. This objection is also overruled. The court

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reporter’s invoices show that the charges were calculated for the cost of an original transcript,

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and the certified copies were considered complimentary. See Decl. of Rosemary Roper, Court’s

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Docket, Doc. No. 78-1. Accordingly, Sherwin-Williams is entitled to recover the amounts

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requested in the bill of costs for the printed copies of each deposition transcript.

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Videotaped Deposition Costs

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Sherwin-Williams also seeks costs for the videotaped deposition of John Sorensen.
Weco objects that Sherwin-Williams cannot recover the costs for both the printed deposition
transcript and the videotape services, as such costs are duplicative. Title 28 U.S.C. § 1920(2)
provides that “[f]ees for printed or electronically recorded transcripts” are taxable costs if they
are “necessarily obtained for use in the case.” 28 U.S.C. § 1920(2) (emphasis added). The cost
of only one method of recording the deposition is allowable. Federal Rule of Civil Procedure 30
authorizes videotaped depositions as an alternative to traditional stenographic depositions. See
Fed. R. Civ. P. 30(b)(3)(A)-(B). Thus, in the present case, Sherwin-Williams is statutorily
authorized to recover the cost of an original transcript or the cost of a videotape, but not the cost
of both a printed transcript and videotape services.

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While actual use of the videotaped deposition is not required to recover costs, the

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prevailing party must demonstrate that a videotaped copy of the deposition was necessary. See

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Cargill v. Progressive Dairy Solutions, Inc., No. CV-F-07-0349-LJO-SMS, 2008 WL 5135826,

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*5 (E.D.Cal., Dec. 8, 2008). For example, if there is an indication that the deponent will be

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unable to testify at trial, a videotaped deposition may be necessary. Id. In this case, Sherwin-

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Williams argues the videotaped deposition “more clearly shows Sorensen’s personality and

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spitefulness” and it intended to use the videotape at trial “so that the jury would be able to

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perceive his true motive.” See Court’s Docket, Doc. No. 78 at 4. In support of its motion for

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attorney’s fees Sherwin-Williams quotes extensively from Mr. Sorensen’s deposition transcript.

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Based on the coarse language and candid expressions of anger in the transcript, the Court finds it

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unlikely that a jury would have needed assistance in the form of a videotape to perceive Mr.

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Sorensen’s “personality and spitefulness.” Moreover, there is no indication that Mr. Sorensen

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would have been unavailable to testify at trial.

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Accordingly, the costs of videotaping Mr. Sorensen’s deposition will not be taxed to

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Weco. Sherwin-Williams submitted an invoice in the amount of $1,252.00 for videotaping

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services for the deposition of John Sorensen. The bill of costs shall be reduced by that amount.

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3.

Copying Costs

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Sherwin-Williams seeks copying costs in the amount of $2,152.27. Weco objects to this
amount as “unreasonable,” arguing that the records submitted by Sherwin-Williams do not
specify the number of copies made, the nature of the documents copied, or why they were
“necessarily obtained.” Weco contends Sherwin-Williams may not recover copying costs for
copies made for the convenience, preparation, research, or records of counsel.
Under 28 U.S.C. § 1920(4), “[f]ees for exemplification and the costs of making copies of

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any materials where the copies are necessarily obtained for use in the case” are taxable as costs.

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28 U.S.C. § 1920(4). Similarly, under Local Rule 292(f)(5), “[f]ees for exemplification and

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copies of papers necessarily obtained for use in the action” are taxable costs. The Ninth Circuit

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has held that 28 U.S.C. § 1920(4) does not specifically require that the copied document be

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introduced into the record to be an allowable cost. See Haagen-Dazs Co., Inc. v. Double

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Rainbow Gourmet Ice Cream, Inc., 920 F.3d 587, 588 (9th Cir. 1990).

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Sherwin-Williams argues that the disbursement diary submitted specifies the number of

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copies made for each job, the rate per page or per job, as well as the dates of each copying

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charge. Sherwin-Williams also notes that the majority of such duplication costs were limited to

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10 cents per page. The Court finds this is a reasonable cost per page. See, e.g., Padula v.

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Morris, No. 2:05-cv-00411-MCE-EFB, 2012 WL 525575, at *4 (E.D. Cal., Feb. 16, 2012)

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(taxing costs at 20 cents per page). The Court finds that Sherwin-Williams has submitted

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sufficient documentation to support an award of copying costs, and the burden is on Weco to

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show why such costs should not be awarded. Both parties submitted voluminous cross motions

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for summary judgment. In light of this, the copying costs submitted do not appear unreasonable,

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and Weco has failed to demonstrate otherwise. Accordingly, the Court will credit Sherwin-

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Williams’ assertion that the copying costs were “necessarily obtained for use in the case,” and

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will award the amount requested in the bill of costs.

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CONCLUSION AND ORDER

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Accordingly, IT IS HEREBY ORDERED THAT:

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1.

Defendants’ motion for attorney’s fees is DENIED;

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2.

Judgment shall be entered in favor of The Sherwin-Williams Company and

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against Weco Supply Company, Inc., as follows:

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A.

The Sherwin Williams Company shall be awarded costs of suit herein in

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the amount of $6,655.07,
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B.

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damages pursuant to its First Amended Cross-Complaint, plus pre-

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judgment interest commencing from March 20, 2007, at an annual rate

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established by Ohio law of 4% in the amount of $29,094.86.

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The Sherwin Williams Company shall be awarded $135,083.27 in

IT IS SO ORDERED.

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Dated:
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January 2, 2013
UNITED STATES DISTRICT JUDGE

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