DCI Solutions, Inc. v. Urban Outfitters, Inc. et al

Filing 157

ORDER denying Defendant Urban Outfitters, Inc's 153 Motion for Re-Taxation of Costs. Signed by Judge Irma E. Gonzalez on 4/23/2012. (jah)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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DCI SOLUTIONS INC., a California
corporation,

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vs.

[Doc. No. 153]

URBAN OUTFITTERS, INC., a
Pennsylvania corporation, and Does 1-20,
Defendants.

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ORDER DENYING MOTION TO
RE-TAX COSTS

Plaintiff,

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CASE NO. 10cv0369 - IEG (BGS)

AND RELATED COUNTER CLAIMS.

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Presently before the Court is Defendant and Counterclaimant Urban Outfitters (“Urban”)’s

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motion to re-tax costs. [Doc. No. 153.] For the reasons below, the Court DENIES Urban’s

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motion.

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BACKGROUND
This case arises out of a contract dispute between Plaintiff and Counterdefendant DCI

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Solutions Inc. (“DCI”) and Urban. The factual background of this action is set forth in detail in

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this Court’s prior order granting in part and denying in part Urban’s motion for summary judgment

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and need not be repeated herein. [See Doc. No. 60.]

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On January 25, 2010, DCI filed this action in San Diego County superior court. [Doc. No.
1, Compl.] On February 16, 2010, Urban removed the action to this Court on the basis of diversity

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jurisdiction. [Doc. No. 1, Notice of Removal.] In its complaint, DCI asserted four causes of

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action against Urban for (1) fraud in the inducement, (2) breach of contract, (3) breach of the

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implied covenant of good faith and fair dealing, and (4) quantum meruit. [Compl.] In its

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complaint, DCI alleged that it had suffered damages in excess of $500,000. [Id. ¶¶ 29, 33.] On

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May 25, 2010, Urban filed an amended answer and counterclaims against DCI asserting causes of

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action for (1) fraud in the inducement; (2) fraud; (3) breach of contract; (4) violation of California

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Business and Professions Code § 17200 et. seq.; (5) declaratory relief; and (6) rescission. [Doc.

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No. 25.] In its counterclaims, Urban alleged that it had suffered damages in excess of $700,000.

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[Id. ¶¶ 18, 23, 28.]

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Beginning on September 6, 2011, the Court held a jury trial on all of DCI’s claims and on

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Urban’s fraud and breach of contract counterclaims. On September 16, 2011, the jury returned a

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verdict in favor of Urban on all of DCI’s claims and in favor of DCI on Urban’s fraud and breach

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of contract counterclaims. [Doc. No. 116.] Following the verdict, the Court granted Urban’s

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motion to dismiss without prejudice its remaining counterclaims for violation of California

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Business and Professions Code §§ 17200 et. seq., declaratory relief, and rescission. [Doc. No.

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129.] Subsequently, the Court entered judgment on all of the parties’ claims. [Doc. Nos. 130,

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131.]

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After the Court entered judgment, the parties filed cross motions for attorneys’ fees and

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submitted their bill of costs to the Clerk. [Doc. Nos. 132, 133, 136, 140.] On January 30, 2012,

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the Court denied the parties’ cross motions for attorneys’ fees and declined to award either party

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attorneys’ fees. [Doc. No. 151.] The Court, exercising its discretion under California Civil Code

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§ 1717, determined that because neither party obtained any relief on its breach of contract

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claim/counterclaim, there was no prevailing party in this action. [Id. at 5.] On March 12, 2012,

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the Clerk declined to award costs to either party because it was unable to determine the prevailing

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party. [Doc. No. 152.] By the present motion, Urban moves to have the costs re-taxed and

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requests an award of costs in the amount of $7,241.98. [Doc. No. 153.]

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DISCUSSION
I.

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Whether Federal Law or State Law Governs the Award of Costs in a Diversity Case
As an initial matter, Urban argues that state law not federal law governs the award of costs

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in a diversity case. [Doc. No. 153 at 2.] In support of this position, Urban cites to three

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out-of-circuit Court of Appeals cases holding that state law governs the award of attorneys’ fees.

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[Id. (citing In re Sheridan, 105 F.3d 1164, 1167 (7th Cir. 1997); Mathis v. Exxon Corp., 302 F.3d

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448, 461 (5th Cir. 2002); Garca v. Wal-Mart Stores, Inc., 209 F.3d 1170, 1177 (10th Cir. 2000)).]

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Urban also cites to this Court’s prior decision applying California law in determining whether the

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parties were entitled to attorneys’ fees. However, in making this argument, Urban fails to

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recognize that there is a difference between attorneys’ fees and costs in a diversity case. Although

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state law governs the award of attorneys’ fees in a diversity action, see Sec. Mortg. Co. v. Powers,

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278 U.S. 149, 153 (1928); Mangold v. Cal. Pub. Utils. Comm’n, 67 F.3d 1470, 1478 (9th Cir.

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1995), federal law governs the award of costs in a diversity action. See Aceves v. Allstate Ins.

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Co., 68 F.3d 1160, 1167 (9th Cir. 1995); Van Horn v. Dhillon, 2011 U.S. Dist. LEXIS 3577, at

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*17-21 (E.D. Cal. Jan. 10, 2011); see also 10 CHARLES WRIGHT ET AL., FEDERAL PRACTICE AND

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PROCEDURE § 2669 (3d ed. 2011). Accordingly, the Court will apply federal law in determining

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whether Urban is entitled to an award of costs.

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II.

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Whether Urban is Entitled to Costs Under Federal Law
Federal Rule of Civil Procedure 54(d)(1) provides: “costs–other than attorney’s fees–

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should be allowed to the prevailing party.” A party in whose favor judgment is rendered is

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generally the prevailing party for purposes of awarding costs under Rule 54(d). Amarel v.

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Connell, 102 F.3d 1494, 1523 (9th Cir. 1996).

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“Although the rule creates a presumption in favor of awarding costs to a prevailing party, it

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also vests discretion in the district court to refuse to do so. In exercising that discretion, a district

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court must ‘specify reasons’ for its refusal to award costs.” Berkla v. Corel Corp., 302 F.3d 909,

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921 (9th Cir. 2002) (citation omitted) (citing Ass’n of Mexican-American Educators v. Cal., 231

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F.3d 572, 591 (9th Cir. 2000) (en banc)). Factors to consider in denying costs to the prevailing

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party include whether: (1) the issues in the case were close and difficult; (2) the prevailing party’s
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recovery was nominal or partial; and (3) the losing party litigated in good faith.

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Mexican-American Educators, 231 F.3d at 592 n.15; see Quan v. Computer Sciences Corp., 623

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F.3d 870, 889 (9th Cir. 2010). In addition, where “‘a defendant counterclaims for affirmative

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relief and neither party prevails on its claim, it is quite appropriate to deny costs to both parties.’

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Under such circumstances, each party arguably prevailed on the claim against it, but none of the

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parties prevailed in the litigation.” Exxon Mobil Corp. v. New W. Petroleum L.P., 2008 U.S. Dist.

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LEXIS 91709, at *7-8 (E.D. Cal. Nov. 4, 2008) (citation omitted); see also Amarel, 102 F.3d at

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1523 (“In the event of a mixed judgment, . . . it is within the discretion of a district court to require

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each party to bear its own costs.”).

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Here, both parties brought several claims based on the agreement at issue. DCI brought

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four claims in its complaint alleging that it had suffered damages in excess of $500,000. [Compl.

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¶ 29.] Urban brought three counterclaims for damages alleging that it had suffered damages in

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excess of $700,000. [Doc. No. 25 ¶ 28.] Both sets of claims were tried before a jury, and the jury

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found neither party liable. [Doc. No. 116.] Therefore, the Court entered judgment against both

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parties on their claims. [Doc. No. 131.] In this situation, the Court finds it appropriate to exercise

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its discretion and decline to award costs to either party. See Amarel, 102 F.3d at 1523; Exxon

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Mobil, 2008 U.S. Dist. LEXIS 91709, at *7-8. In addition, the Court also notes that the issues in

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this case were close and difficult, and both parties litigated their claims in good faith.

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In its reply, Urban argues that it should be awarded costs because it made two separate

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offers of judgment to DCI pursuant to Federal Rule of Civil Procedure 68 that DCI rejected. [Doc.

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No. 155 at 3-4.] “Under Rule 68, if a plaintiff rejects a defendant’s offer of judgment, and the

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judgment finally obtained by plaintiff is not more favorable than the offer, the plaintiff must pay

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the costs incurred subsequent to the offer.” United States v. Trident Seafoods Corp., 92 F.3d 855,

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859 (9th Cir. 1996). The award of costs pursuant to Rule 68 is mandatory, and Rule 68 leaves no

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room for the court’s discretion. Id. However, Rule 68 does not apply in the present case because

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DCI did not obtain a judgment on its claims. The Supreme Court has explained Rule 68 “applies

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only to offers made by the defendant and only to judgments obtained by the plaintiff,” and

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“therefore is simply inapplicable [where] it was the defendant that obtained the judgment.” Delta
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Air Lines, Inc. v. August, 450 U.S. 346, 352 (1981); accord. UMG Recordings, Inc. v. Shelter

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Capital Partners, LLC, 667 F.3d 1022, 1050 (9th Cir. 2011). Because Urban obtained a judgment

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against DCI on DCI’s claims, Rule 68 is inapplicable. See id.

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Urban also argues that its offers of judgment make it the prevailing party under Civil Local
Rule 54.1(d), which provides:
If the defendant offers a judgment in a certain sum which is rejected by the plaintiff,
and the case thereafter goes to trial with the resulting recovery (plus any authorized
pre-offer costs and attorney’s fees) of only the amount previously offered by the
defendant, or less, then the defendant is the prevailing party.

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However, even if Urban should be considered the “prevailing party” under Local Civil Rule
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54.1(d), this does not change the Court’s conclusion. A district court may exercise its discretion
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and decline to award costs to a prevailing party. Berkla, 302 F.3d at 921. For the reasons
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explained above, based on the circumstances in this case, the Court finds it appropriate to exercise
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its discretion and decline to award costs to either party.
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CONCLUSION
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For the reasons above, the Court DENIES Urban’s motion to re-tax costs.
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IT IS SO ORDERED.
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DATED: April 23, 2012

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IRMA E. GONZALEZ
United States District Judge

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