Cachet Financial Services v. C&J Associates, Inc.

Filing 282

Order Granting in Part and Denying in Part #258 Motion for Attorneys' Fees and Costs. Signed by Judge Edward J. Davila on 8/4/2020. (ejdlc3S, COURT STAFF) (Filed on 8/4/2020)Any non-CM/ECF Participants have been served by First Class Mail to the addresses of record listed on the Notice of Electronic Filing (NEF)

Case 5:16-cv-06862-EJD Document 282 Filed 08/04/20 Page 1 of 4

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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CACHET FINANCIAL SERVICES,

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Case No. 5:16-cv-06862-EJD

Plaintiff,
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v.
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C&J ASSOCIATES, INC., et al.,

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Defendants.

ORDER GRANTING IN PART AND
DENYING IN PART CACHET’S
MOTION FOR ATTORNEYS’ FEES
AND COSTS
Dkt. No. 258

United States District Court
Northern District of California

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Plaintiff-in-Interpleader Cachet Financial Services (“Cachet”) seeks reimbursement of its

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attorneys’ fees and costs. Dkt. No. 258. Specifically, Cachet seeks $170,455.17 in attorneys’

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fees1 and $17,493.74 in costs for a total of $187,948.91. Defendant and counterclaimant Pacific

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Diversified Insurance Services, Inc. (“Pacific”) filed an opposition. Dkt. No. 261. Pacific

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contends that (1) Cachet is not a disinterested stakeholder, (2) the amount Cachet seeks is

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excessive and (3) Cachet has not adequately documented its request. Id. Cachet filed a reply.

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Dkt. No. 277. By order dated July 15, 2020, the Court directed Cachet to submit its billing records

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for in camera review. Dkt. No. 280. The Court finds it appropriate to take the matter under

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submission for decision without oral argument pursuant to Civil Local Rule 7-1(b) and General

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Order 72-5. For the reasons stated below, the Court will grant in part and deny in part Cachet’s

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motion.

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I.

Cachet initiated this interpleader action to resolve conflicting claims to $1,886,546.43 (the

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Background

“Interpleaded Funds”). Cachet is a third party Automated Clearing House (“ACH”) service

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Cachet does not seek fees incurred in connection with its summary judgment motion.
Case No.: 5:16-cv-06862-EJD
ORDER GRANTING IN PART AND DENYING IN PART CACHET’S MOTION FOR
ATTORNEYS’ FEES AND COSTS
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Case 5:16-cv-06862-EJD Document 282 Filed 08/04/20 Page 2 of 4

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provider that processes payroll and related electronic funds transfers (“EFT”) transactions to the

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payroll industry. The Interpleaded Funds came into Cachet’s possession as a result of its

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contractual relationship with Pinnacle Workforce Solutions (“Pinnacle”). Cachet debited and

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credited funds at Pinnacle’s direction.
In late 2016, Cachet determined that there were insufficient funds to complete the payroll

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transfers directed by Pinnacle. When Pinnacle failed to cure the deficiency and ceased all

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communication with Cachet, Cachet froze Pinnacle’s funds and alerted the authorities. Upon

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further investigation, Cachet concluded that Pinnacle had been engaging in fraud.
Cachet initiated this suit in November of 2016 naming as defendants Pinnacle and each of

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Pinnacle’s approximately 81 customers with potential claims to the Interpleaded Funds. Many

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United States District Court
Northern District of California

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potential claimants notified Cachet’s counsel that they did not want to be involved in this action

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and disclaimed any interest in the Interpleaded Funds; those potential claimants have been

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dismissed. With interest, the Interpleaded Funds now total approximately $1,978,849.86.

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II.

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Standards
Title 28 United States Code section 2361 provides that “in any civil action of interpleader,”

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the district court “shall hear and determine the case, and may discharge the plaintiff from further

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liability. . . and make all appropriate orders to enforce its judgment.” 28 U.S.C. § 2361. Under

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this provision, courts have allowed attorneys’ fees to the interpleading plaintiff. Schirmer

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Stevedoring Co., Ltd. v. Seaboard Stevedoring Corp., 306 F.2d 188, 193 (9th Cir. 1962). “The

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reasons are that the plaintiff has benefited the claimants by promoting early litigation on

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ownership of the fund, thus preventing dissipation [citation] and that the plaintiff should not have

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to pay attorney fees in order to guard himself against the harassment of multiple litigation.” Id.

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Thus, the plaintiff “should be awarded attorney fees for the services of his attorneys

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interpleading.” Id. at 194.

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The test for awarding fees in an interpleader action is “less rigorous” than the test used in
other contexts. Fidelity Nat. Title Co. v. U.S. Small Business Admin., No. 13-2030 KJM, 2014
Case No.: 5:16-cv-06862-EJD
ORDER GRANTING IN PART AND DENYING IN PART CACHET’S MOTION FOR
ATTORNEYS’ FEES AND COSTS
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Case 5:16-cv-06862-EJD Document 282 Filed 08/04/20 Page 3 of 4

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WL 6390275, at *4 (E.D. Cal. Nov. 13, 2014). An award of attorneys’ fees is usually appropriate

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when: (1) the party seeking the fees is a disinterested stakeholder, (2) who has conceded liability,

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(3) has deposited the disputed funds into court, and (4) has sought discharge from liability. Id.

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“[I]f there is a contest between plaintiff and the interpleaded parties, either as to the correctness of

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the amount deposited or as to any interest of plaintiff in the fund, the court may not, in the absence

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of special circumstances, award attorney fees for the services of his attorneys in connection with

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such contest.” Schirmer, 306 F.2d at 194. The amount of fees to be awarded to a plaintiff in

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interpleader is “committed to the sound discretion of the district court.” Trustees of Directors

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Guild of Am.-Producer Pension Benefits Plans v. Tise, 234 F.3d 415, 426 as amended on denial of
reh’g, 255 F.3d 661 (9th Cir. 2000) (citing Schirmer, 306 F.2d at 194). “Examples of

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United States District Court
Northern District of California

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compensable fees include for preparation of a complaint, for service of process on the claimants,

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and for preparing an order for discharge and dismissal.” Fidelity Nat. Title Co, 2014 WL

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6390275, at *4 (citing Tise at 426-27).

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III.

Discussion

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As the plaintiff in this interpleader action, Cachet is entitled to an award of attorneys’ fees.

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Schirmer, 306 F.2d at 194. The test for awarding fees to Cachet is also satisfied, notwithstanding

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Pacific’s arguments to the contrary: Cachet initiated suit as a disinterested stakeholder as to

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$1,050,761.60, conceded it has no claim to this amount and deposited additional funds in

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accordance with the Court’s order. Furthermore, soon after initiating the lawsuit Cachet

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researched, located and nominated Hon. Richard Flier as Special Master, and he was appointed by

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this Court to oversee distribution of the Interpleaded Funds. Cachet’s initiative in securing the

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services of the Special Master benefited the claimants. On July 1, 2020, the Court discharged

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Cachet from liability as to the Interpleaded Funds. Dkt. No. 265.

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Although Cachet is entitled to attorneys’ fees, the Court finds that the requested amount is

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excessive for two reasons. First, the fee request is excessive in that it includes fees expended in

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connection with Cachet’s bankruptcy. Dkt. No. 258-2, ¶ 13. An award of fees in an interpleader

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Case No.: 5:16-cv-06862-EJD
ORDER GRANTING IN PART AND DENYING IN PART CACHET’S MOTION FOR
ATTORNEYS’ FEES AND COSTS
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Case 5:16-cv-06862-EJD Document 282 Filed 08/04/20 Page 4 of 4

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action “are ‘properly limited’ to those ‘incurred in filing the action and pursuing the

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[stakeholder’s] release from liability.’” Fidelity Nat. Title Co., 2014 WL 6390275, at *4 (quoting

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Tise, 234 F.3d at 426). The bankruptcy fees ($9,598.50) and costs ($1,891.95) will therefore be

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deducted from Cachet’s request.
Second, as Pacific points out, at the outset of the case, Cachet asserted it was entitled to an

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offset to recover its losses caused by Pinnacle’s fraud. Pacific and others objected and the Court

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directed Cachet to deposit the amount Cachet had withheld as an offset, $835,748.83. Dkt. No.

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181. Cachet is not entitled to recover any attorneys’ fees incurred in connection with the contested

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offset issue. See Fidelity Nat. Title Co., 2014 WL 6390275, at *4 (citing Hoover, Inc. v.
McCullough Indus., Inc., 351 F. Supp. 1023, 1031 (D. Ala. 1972) (limiting the fee award in light

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United States District Court
Northern District of California

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of a contest between the interpleader plaintiff and the claimants over the correctness of the amount

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deposited in an interpleader action)). The Court, however, rejects Pacific’s argument that Cachet

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is not entitled to any fees whatsoever. Cachet made the initial deposit of $1,050,761.60 as a

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disinterested stakeholder, and Cachet had a reasonable basis for asserting the offset for

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$835,748.83 because it had been victimized by Pinnacle along with all of Pinnacle’s customers.

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To account for the fees incurred in connection with the contested offset issue, the Court

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will reduce Cachet’s non-bankruptcy fee request by 20%, i.e. $32,171.33. (The fee request of

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$170,455.17 minus the bankruptcy fees of $9,598.50 equals $160,856.67, and this amount

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multiplied by .20 equals $32,171.33).

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IV.

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Conclusion
For the reasons set forth above, Cachet’s motion is granted in part and denied in part.

Cachet is awarded $128,685.34 in attorneys’ fees and $15,601.79 in costs.
IT IS SO ORDERED.
Dated: August 4, 2020
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EDWARD J. DAVILA
United States District Judge
Case No.: 5:16-cv-06862-EJD
ORDER GRANTING IN PART AND DENYING IN PART CACHET’S MOTION FOR
ATTORNEYS’ FEES AND COSTS
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