57 Cal.App.5th 521
Cal. Ct. App.2020Background
- Trevor Jones, Paul Goodman, and Griffin Thall were college friends who worked on separate ventures (OUTnSD, Flex Watches) and discussed an "equity swap" giving Jones a 5% interest in Pura Vida in exchange for 5% of OUTnSD; Jones produced a written "Equity Exchange Proposal."
- Creative Genius, Inc. (d/b/a Pura Vida) had been incorporated and Goodman and Thall held stock; Jones was never a stockholder and admitted he made no capital contribution to Pura Vida.
- Jones sued Goodman and Thall asserting a partnership (and related claims) and seeking a buyout under Corporations Code § 16701; after a bench trial the court found no partnership and entered judgment for defendants.
- Defendants timely filed a fee motion under § 16701(i) (attorney fees for parties who acted "arbitrarily, vexatiously, or not in good faith"); they later filed an amended motion adding expert fees after the rule 3.1702 deadline.
- The trial court denied the amended motion as untimely and, alternatively, on the merits, finding Jones did not act arbitrarily, vexatiously, or in bad faith. Defendants appealed; the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court abused its discretion by denying fees under Corporations Code § 16701(i) | Jones: he had probable cause and litigated in good faith; fee award not justified | Defs: Jones pursued baseless partnership/buyout claims and fees are equitable under §16701(i) | Affirmed — denial was within trial court's broad discretion; substantial evidence supported finding of subjective good faith |
| Meaning and application of "arbitrarily, vexatiously, or not in good faith" in §16701(i) | Jones: his conduct was in good faith; fee statute requires subjective bad faith | Defs: "arbitrarily" established as matter of law because claims lacked evidentiary support | Court: terms are disjunctive; both objective and subjective standards apply; fee relief discretionary |
| Timeliness of amended fee motion under Cal. Rules of Court rule 3.1702 | Jones: amended motion untimely; no stipulation or good cause shown | Defs: initial motion timely; amended motion should relate back or waiver by Jones | Court: amended motion untimely; even if timeliness error, harmless because court denied fees on merits |
| Whether §16701 fees can be awarded when no partnership is found | Jones: absence of partnership undercuts fee claim | Defs: §16701 can support fees where buyout claim was pursued | Court: assumed §16701 could apply even if partnership not proved but held fee award still discretionary and not warranted here |
Key Cases Cited
- Trope v. Katz, 11 Cal.4th 274 (establishes American rule that fees are statutory or contractual)
- Gemini Aluminum Corp. v. California Custom Shapes, 95 Cal.App.4th 1249 (interprets "bad faith" to include objective speciousness plus subjective bad faith)
- Powell v. Tagami, 26 Cal.App.5th 219 (distinguishes objective reasonable-cause inquiry from subjective bad-faith inquiry for fee awards)
- Smith v. Selma Cmty. Hosp., 188 Cal.App.4th 1 (treats standards like "without foundation" as objective and discusses appellate review where fees are mandatory)
- Halaco Eng’g Co. v. S. Cent. Coast Reg’l Com., 42 Cal.3d 52 (discusses "arbitrary or capricious" conduct and discretion in fee/sanction contexts)
- Hsu v. Abbara, 9 Cal.4th 863 (permits fee recovery under a contractual fee clause even when contract is held inapplicable)