XEO Int'l, Ltd.
v.
Fantasia Distribution, Inc.

This case is not covered by Casetext's citator
COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREENov 6, 2018
G055170 (Cal. Ct. App. Nov. 6, 2018)

G055170

11-06-2018

XEO INTERNATIONAL, LTD., Plaintiff, Cross-defendant and Respondent, v. FANTASIA DISTRIBUTION, INC., Defendant, Cross-complainant and Appellant.

James W. Denison for Defendant, Cross-complainant and Appellant. Law Offices of Howard S. Fisher, Howard S. Fisher and Alexander J. Fisher for Plaintiff, Cross-defendant and Respondent.


NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2014-00739867) OPINION Appeal from a judgment of the Superior Court of Orange County, Michael Brenner, Judge. (Retired Judge of the Orange Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed. James W. Denison for Defendant, Cross-complainant and Appellant. Law Offices of Howard S. Fisher, Howard S. Fisher and Alexander J. Fisher for Plaintiff, Cross-defendant and Respondent.

Fantasia Distribution, Inc. (Fantasia), appeals from an amended judgment awarding certain costs to XEO International, Ltd. (XEO), in accordance with the court's ruling on a motion to tax costs brought by Fantasia after a bench trial in which XEO prevailed. It claims the court erred in awarding XEO a few thousand dollars in costs related to three depositions XEO took because the depositions were not reasonably necessary to the litigation. We disagree and affirm the judgment.

FACTS

We provide only an abbreviated version of the background facts. A more detailed version can be found in the related opinion addressing the underlying merits in this case. (XEO International, Ltd. v. Fantasia Distribution, Inc. (Nov. 6, 2018, G054615) [nonpub. opn.].) --------

At one point in time, XEO and Fantasia had a business relationship. Both were involved in the electronic cigarette and electronic hookah (e-hookah) industry and met at a trade show. Germany-based XEO agreed to work with Anaheim, California-based Fantasia to develop and manufacture e-hookah products with flavors similar to those Fantasia used in its traditional hookah tobacco products. Fantasia placed several orders using written purchase orders, which indicated the quantities of each flavor it desired, the agreed upon price per unit, and the total price. On each occasion, XEO responded with an invoice, confirming the amount ordered and the cost.

As the e-hookah market started to boom, both XEO and Fantasia became aware of products made by others who were potentially infringing on XEO's United States patent. Fantasia urged XEO to take enforcement action so Fantasia could remain competitive in the market, and XEO worked to determine if there was infringement and, if so, the appropriate steps to take in response.

To discuss and attempt to resolve the patent infringement issue as well as other issues important to their future business relationship, representatives from the two companies had a meeting at Fantasia's headquarters. Among the people in attendance were XEO's president, Fantasia's vice-president and executive director, and Fantasia's corporate secretary, James Denison, who also served as Fantasia's legal counsel.

A few days after the meeting, Fantasia placed two separate orders for one and one-half million items each—a total of approximately $8 million worth of product. A week later, Denison sent an email to XEO "memorializ[ing] [the] points the parties addressed" during the August 30th meeting. One of the items listed was "Fantasia-XEO terms that were discussed, to be included in a further written agreement." Among the terms was that "XEO will have cease and desist letters out to infringers within 30 days of our meeting," and if enforcement is not successful, "XEO will give Fantasia a price break to ensure Fantasia is competitive with infringers." XEO later provided a draft agreement for comment by Fantasia, but Fantasia never responded.

Eventually the parties' relationship broke down. Believing Fantasia had received products for which it never paid, XEO sued Fantasia alleging breach of contract, fraud and a common count for goods received. Fantasia filed a cross-complaint for intentional and negligent misrepresentation, as well as unfair business practices. Its primary allegations concerned XEO's failure timely to enforce its patent against infringers, or offer a reduced interim price—terms which Fantasia alleged the parties agreed to at the above-described meeting.

Following a bench trial, the court found in favor of XEO on its breach of contract cause of action and on Fantasia's entire cross-complaint. The ensuing judgment awarded XEO roughly $587,000 in damages, but denied XEO's request for punitive damages. Fantasia appealed from that judgment.

Thereafter, in response to a memorandum of costs filed by XEO, Fantasia filed a motion to tax costs, which challenged XEO's right to the large majority of the costs sought. The court ultimately granted in part, and denied in part, Fantasia's motion. Among the contested costs it allowed XEO to recover were approximately $4,200 related to depositions taken by XEO of Denison and other Fantasia corporate officers. An amended judgment was entered, incorporating the costs award. Fantasia timely appealed from the amended judgment.

DISCUSSION

Fantasia's appeal is limited to the roughly $4,200 of deposition related costs to which the court found XEO was entitled. It contends the award of such costs was error because XEO failed to demonstrate the costs were reasonably necessary to the litigation. We disagree.

"Under Code of Civil Procedure section 1032, the prevailing party is entitled as a matter of right to recover costs. Section 1033.5 identifies cost items that are allowable under section 1032 [citation]; identifies items that are not allowable [citation]; and further provides that '[i]tems not mentioned in this section . . . may be allowed or denied in the court's discretion.' [Citation.] Any allowable costs must be 'reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation,' and reasonable in amount." (Bender v. County of Los Angeles (2013) 217 Cal.App.4th 968, 989-990.)

In ruling on a motion to tax costs, "[t]he [trial] court's first determination . . . is whether the statute expressly allows the particular item, and whether it appears proper on its face. [Citation.] If so, the burden is on the objecting party to show [the costs] to be unnecessary or unreasonable." (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 131.) "Whether a cost item was reasonably necessary to the litigation presents a question of fact for the trial court and its decision is reviewed for abuse of discretion." (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 774; see Seever v. Copley Press, Inc. (2006) 141 Cal.App.4th 1550, 1556-1557.)

It is undisputed that deposition related costs are allowable. (Code Civ. Proc., § 1033.5, subd. (a)(3)(A).) Thus, the question before us is whether the court abused its discretion in finding the challenged deposition costs were reasonably necessary to the underlying litigation in this case. (County of Kern v. Ginn (1983) 146 Cal.App.3d 1107, 1113 ["The necessity for a deposition and for the related expenditures is a question for the trial court's sound discretion"].) The answer is, "No."

Denison was a potential key witness for both sides. He was at the meeting during which, according to Fantasia, the parties agreed that XEO would take patent enforcement action or give Fantasia a reduced interim price. In addition, he authored the e-mail sent to XEO roughly 10 days later which Fantasia characterized as summarizing terms orally agreed to by the parties. Those events, among others, were at the core of the causes of action in Fantasia's cross-complaint, as well as Fantasia's defenses to XEO's claims.

Fantasia makes much ado of the fact that XEO never called Denison to testify. But, "[i]t is frequently proper and necessary for a party to have depositions taken, although afterwards the case may take such course as to make it unnecessary to use them." (Lindy v. McChesney (1903) 141 Cal. 351, 353.) Thus, "[t]he recovery of deposition costs does not depend on whether the deponent ultimately testifies at trial." (Chaaban v. Wet Seal, Inc. (2012) 203 Cal.App.4th 49, 57.)

Denison's status as counsel of record for Fantasia in this case is similarly not dispositive of the issue at hand. He was deposed in his capacity as Fantasia's corporate secretary, not as its legal counsel, and the primary topics of inquiry—the meeting at Fantasia's headquarters and Denison's follow-up e-mail to XEO—were neither privileged nor confidential. Although others attended the infamous meeting, XEO had the right under the circumstances to explore the knowledge and recollection of each person who was there to determine what light they could shed on the controverted issues. The trial court impliedly agreed as much when, over Fantasia's objection, it granted a motion by XEO to compel Denison's deposition during the discovery phase of the litigation.

We similarly find no abuse of discretion in the court's determination that the depositions of other Fantasia officers were reasonably necessary to the underlying litigation. The two officers—Noreik Zadah, Fantasia's chief operating officer, and Khalil "Charlie" Wakileh, Fantasia's co-owner—were involved in the business dealings between XEO and Fantasia. At minimum, Wakileh knew about the receipt of foreign goods and Fantasia's processes related thereto, including goods shipped by XEO, and Zadah had knowledge of Fantasia's attempts to address the counterfeiting of its products. In addition, given their roles at Fantasia, it was reasonable for XEO to believe they might have information relevant to XEO's alter ego claim. Due to this knowledge and involvement, XEO and Fantasia ultimately each listed them as witnesses they intended to call at trial. Accordingly, the court acted well within its discretion to allow XEO to recover costs associated with their depositions.

DISPOSITION

The judgment is affirmed. Respondent is entitled to its costs on appeal.

IKOLA, J. WE CONCUR: FYBEL, ACTING P. J. THOMPSON, J.