Charton v. Harkey
247 Cal. App. 4th 730
| Cal. Ct. App. | 2016Background
- Plaintiffs (84 investors) sued National Financial, Point Center, Diane Harkey, and others for investment-related claims; Harkey faced only aiding-and-abetting, fraudulent conveyance, and declaratory-relief claims.
- Plaintiffs dismissed the aiding-and-abetting claim against Harkey; bench and jury proceedings resulted in judgment for Plaintiffs against Point Center and Harkey’s husband for more than $12.5 million, and judgment for Harkey on all claims against her.
- Harkey, jointly represented with Point Center and Harkey’s husband, filed a memorandum of costs seeking nearly $329,000; parties later stipulated recoverable costs of $150,504.99.
- The trial court found Harkey was a prevailing party under CCP §1032 and awarded her 25% of the recoverable costs (i.e., $37,626.25), reasoning she was one of four jointly represented defendants.
- Plaintiffs appealed, arguing (1) the unity-of-interest exception justified denying or reducing costs to Harkey because she shared counsel and defenses with nonprevailing co-defendants, and (2) the court should not award costs incurred for the benefit of nonprevailing defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a prevailing defendant who is jointly represented with nonprevailing co-defendants can be denied prevailing-party status under the "unity of interest" exception | Unity-of-interest exception allows denial of prevailing-party costs where defendants shared counsel/defenses so nonprevailing co-defendants shouldn’t shift costs | Section 1032’s four-category definition (as amended in 1986) gives no discretion: a defendant meeting a listed category is a prevailing party entitled to costs as a matter of right | Court held unity-of-interest exception no longer valid to deny prevailing-party status; Harkey is a prevailing party entitled to costs as a matter of right |
| Whether the trial court permissibly allocated costs by dividing total recoverable costs equally among the number of jointly represented defendants | Across-the-board pro rata reduction based on number of jointly represented defendants is appropriate to prevent shifting nonprevailing defendants’ costs to plaintiffs | Allocation must be based on which costs were incurred by and reasonably necessary for the prevailing defendant’s defense (statutory §1033.5 limits) | Court held the across-the-board 25% award was error; remanded for apportionment by item based on necessity, benefit, and reasonableness |
| Whether jointly-incurred costs may be awarded in whole to a prevailing defendant | Plaintiffs: jointly-incurred costs that primarily benefited nonprevailing defendants should be disallowed or apportioned away | Harkey: may recover costs she incurred or that were reasonably necessary to her defense; jointly-beneficial costs may be discretionary | Court: prevailing defendant may recover only costs incurred by/for her and reasonably necessary to her litigation; court has discretion to award jointly-beneficial costs after examining purpose and necessity |
Key Cases Cited
- Wakefield v. Bohlin, 145 Cal.App.4th 963 (explains statutory prevailing-party categories under amended §1032)
- Nelson v. Anderson, 72 Cal.App.4th 111 (discusses limits on trial court discretion under §1032)
- Zintel Holdings, LLC v. McLean, 209 Cal.App.4th 431 (analyzes unity-of-interest doctrine and its doubtful vitality post-1986 §1032 reenactment)
- Fennessy v. Deleuw-Cather Corp., 218 Cal.App.3d 1192 (prevailing defendant may recover only costs actually incurred by or for that defendant when co-defendants were jointly represented)
- Ducoing Management, Inc. v. Superior Court, 234 Cal.App.4th 306 (apportionment principles for jointly-incurred costs)
- Perko’s Enterprises, Inc. v. RRNS Enterprises, 4 Cal.App.4th 238 (statutory limitations on recoverable costs apply whether costs awarded as of right or in discretion)