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1 PILLSBURY WINTHROP SHAW PITTMAN LLP
ANDREW D. LANPHERE (CSB NO. 191479)
2 Four Embarcadero Center, 22nd Floor
San Francisco, CA 94111-5998
3 Telephone: 415.983.1000
Facsimile: 415.983.1200
4
Attorneys for Plaintiffs JEFFREY SCHARF
5 and SHERRIL SMITH-SCHARF
6
7
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 COUNTY OF SANTA CRUZ
10
JEFFREY SCHARF, an individual, and Case No. 20CV01388
11 SHERRIL SMITH-SCHARF, an individual,
SUMMARY OF RESPONSE RECEIVED
12 Plaintiffs, TO PLAINTIFF’S PROPOSED ORDER
DENYING DEFENDANTS’ MOTION TO
13 vs. DETERMINE PREVAILING PARTY
AND TO FIX AMOUNT OF
14 SCHARF INVESTMENTS, LLC, a limited ATTORNEY’S FEES
liability company; and BRIAN KRAWEZ, an
15 individual, (Cal. R. Ct. 3.1312(b))
16 Defendants.
17
18
19
20
21
22
23
24
25
26
27
28
SUMMARY OF RESPONSE TO PROPOSED ORDER DENYING MOTION TO DETERMINE PREV. PARTY AND
FIX AMT. OF ATTORNEY’S FEES
CASE NO. 20CV01388
1 Pursuant to Cal. R. Ct. 3.1312(b), Plaintiffs submit this summary of the response provided by
2 Defendants to the proposed order prepared by Plaintiffs denying defendants’ motion to determine
3 prevailing party and fix the amount of attorney’s fees (“Plaintiffs’ Proposed Order”). Plaintiffs’
4 Proposed Order is being filed and served along with this summary.
5 1. On March 9, 2021, Plaintiffs’ counsel pursuant to the Court’s direction provided
6 Plaintiffs’ Proposed Order to Defendants’ counsel via email. (See Ex. A.)
7 2. On March 16 and March 22, 2022, Plaintiffs’ counsel sent follow up emails to
8 Defendants’ counsel seeking their consent to Plaintiffs’ Proposed Order. (See Ex. A.)
9 3. On March 22, 2022, Defendants’ counsel emailed an alternative form of proposed
10 order (“Defendants’ Proposed Order). Defendants’ Proposed Order added language providing for
11 the award of $1,390.20 in non-attorney fee costs to Defendants. (See Ex. B.) Defendants’ counsel’s
12 email explained the basis for this proposed inclusion in the proposed order. (Id.)
13 4. On March 23, 2022, Plaintiffs’ counsel emailed Defendants’ counsel, and declined to
14 agree to Defendants’ Proposed Order. As Plaintiffs’ counsel explained:
15 I don’t agree that this addition should be made to the proposed order. The court instructed
the parties to submit a form of order that removed the language in the tentative ruling that
16 found plaintiffs to be the prevailing party. The form of order we provided did so.
17 The court did not direct the parties to include in the order any language regarding any non-
attorney’s fees costs listed in the memorandum of costs, nor was the subject of those costs or
18 the authorities you cite below raised in defendants’ notice of motion or briefing. Thus, this
issue simply has not been adjudicated by the court and is not properly included in the order.
19 I will, however, raise the question of the non-attorney’s fees costs listed in the memorandum
of costs with my clients, and advise you of their position regarding payment. I would not
20 anticipate that motion practice would be required to resolve that issue, but if a motion is
required it would need to be a separate motion from the attorney’s fees motion.
21
Pursuant to CRC 3.1312, I will provide the court with your correspondence to me and its
22 attachments when we submit the proposed order.
23
(Ex. A.)
24
Dated: March 23, 2022 PILLSBURY WINTHROP SHAW PITTMAN LLP
25
26
27 By: ANDREW D. LANPHERE
28 Attorneys for Plaintiffs
1
SUMMARY OF RESPONSE TO PROPOSED ORDER DENYING MOTION TO DETERMINE PREV. PARTY AND
FIX AMT. OF ATTORNEY’S FEES
CASE NO. 20CV01388
1 PROOF OF SERVICE
2 I, Maria M. Gonzalez, the undersigned, hereby declare as follows:
3 1. I am over the age of 18 years and am not a party to the within cause. I am employed
4 by Pillsbury Winthrop Shaw Pittman LLP in the County of San Francisco, State of California.
5 2. My email and business address are maria.gonzlaez@pillsburylaw.com; Four
6 Embarcadero Center, 22nd Floor, San Francisco, CA 94111-5998.
7 3. My mailing address is P. O. Box 2824, San Francisco, CA 94111-5998.
8 4. On March 23, 2022, I served a true copy of the attached document(s) titled exactly:
9 • SUMMARY OF RESPONSE RECEIVED TO PLAINTIFF’S PROPOSED ORDER
DENYING DEFENDANTS’ MOTION TO DETERMINE PREVAILING PARTY AND
10 TO FIX AMOUNT OF ATTORNEY’S FEES
11
☒ (EMAIL TRANSMISSION) by electronic mail to the persons at the email addresses listed
12 below.
13 ☒ (U.S. MAIL) by causing a true copy to be placed in a sealed envelope addressed as below
and deposited with postage fully prepaid for collection and mailing by the U.S. Postal Service
14 following ordinary business practices.
15 Jennifer Baldocchi, Esq. Attorneys for Defendant Scharf
Jessica E. Mendelson, Esq. Investments, LLC and Brian Krawez
16 PAUL HASTINGS LLP
515 South Flower Street
17 Twenty-Fifth Floor
Los Angeles, California 90071
18 Telephone: (213) 683-6000
Facsimile: (213) 627-0705
19 Email: jenniferbaldocchi@paulhastings.com
jessicamendelson@paulhastings.com
20
David Y. Chun, Esq. Attorney for Defendants Scharf
21 LAW OFFICES OF DAVID Y. CHUN Investments, LLC and Brian Krawez
2005 De La Cruz Blvd., Ste. 245
22 Santa Clara, California 95050-3026
Telephone: (408) 995-0200
23 Facsimile: (408) 228-5033
Email: dchun@chunlaw.com
24
I declare under penalty of perjury that the foregoing is true and correct. Executed on March
25
23, 2022 from my residence at Pittsburg, California.
26
27
Maria M. Gonzalez
28
2
SUMMARY OF RESPONSE TO PROPOSED ORDER DENYING MOTION TO DETERMINE PREV. PARTY AND
FIX AMT. OF ATTORNEY’S FEES
CASE NO. 20CV01388
EXHIBIT A
From: Lanphere, Andrew D.
To: David Y. Chun, Esq.
Cc: "Baldocchi, Jennifer"
Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 --
Fee Motion Notice of Contesting Tentative Ruling -- proposed v2 + costs memorandum
Date: Wednesday, March 23, 2022 11:20:14 AM
David,
I don’t agree that this addition should be made to the proposed order. The court instructed the
parties to submit a form of order that removed the language in the tentative ruling that found
plaintiffs to be the prevailing party. The form of order we provided did so.
The court did not direct the parties to include in the order any language regarding any non-
attorney’s fees costs listed in the memorandum of costs, nor was the subject of those costs or the
authorities you cite below raised in defendants’ notice of motion or briefing. Thus, this issue simply
has not been adjudicated by the court and is not properly included in the order. I will, however,
raise the question of the non-attorney’s fees costs listed in the memorandum of costs with my
clients, and advise you of their position regarding payment. I would not anticipate that motion
practice would be required to resolve that issue, but if a motion is required it would need to be a
separate motion from the attorney’s fees motion.
Pursuant to CRC 3.1312, I will provide the court with your correspondence to me and its
attachments when we submit the proposed order.
Regards,
Drew
From: David Y. Chun, Esq.
Sent: Tuesday, March 22, 2022 6:06 PM
To: Lanphere, Andrew D.
Cc: 'Baldocchi, Jennifer'
Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling -- proposed v2 + costs
memorandum
Copy of the October 25, 2021 costs memorandum is attached From: David Y. Chun, Esq. [mailto:dchun@chunlaw.com] Sent: Tuesday, March 22, 2022 5:52 PMTo: 'Lanphere, Andrew D.' Cc: 'Baldocchi, Jennifer'
Cc: 'Baldocchi, Jennifer'
Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling -- proposed v2
Andrew
Thanks for your follow up email.
In light of the court’s instruction to counsel to meet and confer about the non-attorney costs, we
propose that language be included that plaintiffs pay the $1390.20 in other costs in the costs
memorandum filed October 25, 2021 (see attached) for which no motion to tax was filed within the
15 days, thereby waiving “any objection”). Supporting authority is provided as follows:
“Code of Civil Procedure section 1033 provides in pertinent part: ". . . A party dissatisfied
with the costs claimed may, within 10 days after the service of a copy of the bill of costs, file a
motion to have the same taxed by the court . . . ." (Italics added.) The city's memorandum of
costs was served on plaintiffs' attorney September 29, 1981. Seventeen days later, on
October 16, 1981, plaintiffs filed their motion to tax costs. By not filing said motion within
the period specified in section 1033, plaintiffs waived the right to object to the costs
claimed by the city. ( Oak Grove School Dist. v. City Title Ins. Co. (1963) 217 Cal.App.2d 678,
698 [32 Cal.Rptr. 288]; Eistrat v. Humiston (1958) 160 Cal.App.2d 89, 92 [324 P.2d 957]; S.F.
etc. Sch. Dist. v. Bd. of Nat. Missions (1954) 129 Cal.App.2d 236, 242-243 [276 P.2d 829]; 15
Cal.Jur.3d, Costs, § 83, pp. 696-697.) As expressed in Mojave etc.
R.R. Co. v. Cuddeback (1915) 28 Cal.App. 439 [152 P. 943]: HN6 "[If] a party to an action
against whom cost is awarded neglects within the time specified in section 1033 to apply
to the court to have the same taxed, he is deemed to have assented to the correctness
and lawfulness of the items as claimed in the verified memorandum of costs as filed . . . ."
(Pp. 441-442.)” [bold added]
Jimenez v. City of Oxnard (1982) 134 Cal.App.3d 856, 859; Santos v. Civil Serv. Bd. (1987) 193
Cal.App.3d 1442, 1447 (failure to file a motion to tax costs constitutes a waiver of the right to
object); Douglas v. Willis (1994) 27 CA4th 287, 290 (failure to challenge a costs bill waives any
objection to the costs claimed thereon).
David Chun, Esq.
LAW OFFICES OF DAVID Y. CHUN
2005 De La Cruz Blvd., Suite 245
Santa Clara, California 95050
(408) 995-0200
(408) 228-5033 (fax)
Counsel for Defendants BRIAN KRAWEZ and SCHARF INVESTMENTS, LLC
NOTICE TO RECIPIENT: This email is meant for only the intended recipient of the transmission, and
may be a communication privileged by law. If you received this email in error, please notify us
immediately of the error by return email, and please delete this message from your system. Any
review, use, dissemination, distribution, or copying of this email is strictly prohibited. Thank you in
advance for your cooperation.
From: Lanphere, Andrew D. [mailto:andrew.lanphere@pillsburylaw.com]
Sent: Tuesday, March 22, 2022 9:02 AM
To: David Y. Chun, Esq. ; Baldocchi, Jennifer
Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
Hi David and Jennifer –
My plan is to submit the order to the court tomorrow. If you have any comments/objections please
let me know; otherwise I will advise the court I received no response to the proposed order.
Thanks,
Drew
Andrew D. Lanphere | Partner
Pillsbury Winthrop Shaw Pittman LLP
Four Embarcadero Center, 22nd Floor | San Francisco, CA 94111-5998
t +1.415.983.1321 | m +1.415.290.2183
andrew.lanphere@pillsburylaw.com | website bio
From: Lanphere, Andrew D.
Sent: Wednesday, March 16, 2022 12:22 PM
To: David Y. Chun, Esq. ; 'Baldocchi, Jennifer'
Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
David and Jennifer,
I’m following up to see if you have any comments/objections to the form of proposed order. Please
let me know.
Regards,
Drew
From: Lanphere, Andrew D.
Sent: Wednesday, March 9, 2022 9:26 AM
To: 'David Y. Chun, Esq.'
Cc: 'Baldocchi, Jennifer'
Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
David and Jennifer –
Attached is a form of proposed order for your review, and also a redline showing the edits to the
tentative that are reflected in the proposed order, consistent with the court’s instructions
yesterday. Please let me know if this form of order is acceptable to you.
Regards,
Drew
From: David Y. Chun, Esq.
Sent: Monday, March 7, 2022 2:41 PM
To: Lanphere, Andrew D.
Cc: 'Baldocchi, Jennifer'
Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
Drew – pursuant to Santa Cruz Local Rule 2.10.01(b), this email serves to inform you that
defendant’s side contests the tentative and will appear tomorrow to argue at the hearing scheduled
for tomorrow in this matter on the fee motion – David Chun, Esq.
The contents of this message, together with any attachments, are intended only for the use of
the individual or entity to which they are addressed and may contain information that is legally
privileged, confidential and exempt from disclosure. If you are not the intended recipient, you
are hereby notified that any dissemination, distribution, or copying of this message, or any
attachment, is strictly prohibited. If you have received this message in error, please notify the
original sender or the Pillsbury Winthrop Shaw Pittman Service Desk at Tel: 800-477-0770,
Option 1, immediately by telephone and delete this message, along with any attachments, from
your computer. Nothing in this message may be construed as a digital or electronic signature
of any employee of Pillsbury Winthrop Shaw Pittman. Thank you.
EXHIBIT B
From: David Y. Chun, Esq.
To: Lanphere, Andrew D.
Cc: "Baldocchi, Jennifer"
Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 --
Fee Motion Notice of Contesting Tentative Ruling -- proposed v2
Date: Tuesday, March 22, 2022 5:51:52 PM
Attachments: Order Denying Mtn Attys Fees 4888-0039-6820 v.2_dc edits_redlined.docx
Order Denying Mtn Attys Fees 4888-0039-6820 v2.pdf
Andrew
Thanks for your follow up email.
In light of the court’s instruction to counsel to meet and confer about the non-attorney costs, we
propose that language be included that plaintiffs pay the $1390.20 in other costs in the costs
memorandum filed October 25, 2021 (see attached) for which no motion to tax was filed within the
15 days, thereby waiving “any objection”). Supporting authority is provided as follows:
“Code of Civil Procedure section 1033 provides in pertinent part: ". . . A party dissatisfied
with the costs claimed may, within 10 days after the service of a copy of the bill of costs, file a
motion to have the same taxed by the court . . . ." (Italics added.) The city's memorandum of
costs was served on plaintiffs' attorney September 29, 1981. Seventeen days later, on
October 16, 1981, plaintiffs filed their motion to tax costs. By not filing said motion within
the period specified in section 1033, plaintiffs waived the right to object to the costs
claimed by the city. ( Oak Grove School Dist. v. City Title Ins. Co. (1963) 217 Cal.App.2d 678,
698 [32 Cal.Rptr. 288]; Eistrat v. Humiston (1958) 160 Cal.App.2d 89, 92 [324 P.2d 957]; S.F.
etc. Sch. Dist. v. Bd. of Nat. Missions (1954) 129 Cal.App.2d 236, 242-243 [276 P.2d 829]; 15
Cal.Jur.3d, Costs, § 83, pp. 696-697.) As expressed in Mojave etc.
R.R. Co. v. Cuddeback (1915) 28 Cal.App. 439 [152 P. 943]: HN6 "[If] a party to an action
against whom cost is awarded neglects within the time specified in section 1033 to apply
to the court to have the same taxed, he is deemed to have assented to the correctness
and lawfulness of the items as claimed in the verified memorandum of costs as filed . . . ."
(Pp. 441-442.)” [bold added]
Jimenez v. City of Oxnard (1982) 134 Cal.App.3d 856, 859; Santos v. Civil Serv. Bd. (1987) 193
Cal.App.3d 1442, 1447 (failure to file a motion to tax costs constitutes a waiver of the right to
object); Douglas v. Willis (1994) 27 CA4th 287, 290 (failure to challenge a costs bill waives any
objection to the costs claimed thereon).
David Chun, Esq.
LAW OFFICES OF DAVID Y. CHUN
2005 De La Cruz Blvd., Suite 245
Santa Clara, California 95050
(408) 995-0200
(408) 228-5033 (fax)
Counsel for Defendants BRIAN KRAWEZ and SCHARF INVESTMENTS, LLC
NOTICE TO RECIPIENT: This email is meant for only the intended recipient of the transmission, and
may be a communication privileged by law. If you received this email in error, please notify us
immediately of the error by return email, and please delete this message from your system. Any
review, use, dissemination, distribution, or copying of this email is strictly prohibited. Thank you in
advance for your cooperation.
From: Lanphere, Andrew D. [mailto:andrew.lanphere@pillsburylaw.com]
Sent: Tuesday, March 22, 2022 9:02 AM
To: David Y. Chun, Esq. ; Baldocchi, Jennifer
Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
Hi David and Jennifer –
My plan is to submit the order to the court tomorrow. If you have any comments/objections please
let me know; otherwise I will advise the court I received no response to the proposed order.
Thanks,
Drew
Andrew D. Lanphere | Partner
Pillsbury Winthrop Shaw Pittman LLP
Four Embarcadero Center, 22nd Floor | San Francisco, CA 94111-5998
t +1.415.983.1321 | m +1.415.290.2183
andrew.lanphere@pillsburylaw.com | website bio
From: Lanphere, Andrew D.
Sent: Wednesday, March 16, 2022 12:22 PM
To: David Y. Chun, Esq. ; 'Baldocchi, Jennifer'
Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
David and Jennifer,
I’m following up to see if you have any comments/objections to the form of proposed order. Please
let me know.
Regards,
Drew
From: Lanphere, Andrew D.
Sent: Wednesday, March 9, 2022 9:26 AM
To: 'David Y. Chun, Esq.'
Cc: 'Baldocchi, Jennifer'
Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
David and Jennifer –
Attached is a form of proposed order for your review, and also a redline showing the edits to the
tentative that are reflected in the proposed order, consistent with the court’s instructions
yesterday. Please let me know if this form of order is acceptable to you.
Regards,
Drew
From: David Y. Chun, Esq.
Sent: Monday, March 7, 2022 2:41 PM
To: Lanphere, Andrew D.
Cc: 'Baldocchi, Jennifer'
Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case
No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling
Drew – pursuant to Santa Cruz Local Rule 2.10.01(b), this email serves to inform you that
defendant’s side contests the tentative and will appear tomorrow to argue at the hearing scheduled
for tomorrow in this matter on the fee motion – David Chun, Esq.
The contents of this message, together with any attachments, are intended only for the use of
the individual or entity to which they are addressed and may contain information that is legally
privileged, confidential and exempt from disclosure. If you are not the intended recipient, you
are hereby notified that any dissemination, distribution, or copying of this message, or any
attachment, is strictly prohibited. If you have received this message in error, please notify the
original sender or the Pillsbury Winthrop Shaw Pittman Service Desk at Tel: 800-477-0770,
Option 1, immediately by telephone and delete this message, along with any attachments, from
your computer. Nothing in this message may be construed as a digital or electronic signature
of any employee of Pillsbury Winthrop Shaw Pittman. Thank you.
1
2
3
4
5
6
7
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 COUNTY OF SANTA CRUZ
10 JEFFREY SCHARF, an individual, and Case No. 20CV01388
SHERRIL SMITH-SCHARF, an individual,
11 [PROPOSED] ORDER DEFENDANTS’
Plaintiffs, MOTION TO DETERMINE
12 PREVAILING PARTY AND TO FIX
vs. AMOUNT OF ATTORNEY’S FEES
13
SCHARF INVESTMENTS, LLC, a limited
14 liability company; and BRIAN KRAWEZ, an
individual,
15
Defendants.
16
17
18
19
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28
ORDER
CASE NO. 20CV01388
1 The motion to determine prevailing party and fix amount of attorney’s fees (“Motion”) of
2 defendants Scharf Investments, LLC and Brian Krawez (“Defendants”) came on for hearing before
3 this Court on March 8, 2022. Plaintiffs Jeffrey Scharf and Sherril Smith-Scharf (“Plaintiffs”)
4 appeared at the hearing through their counsel Andrew D. Lanphere of Pillsbury Winthrop Shaw
5 Pittman, LLP, and Defendants appeared at the hearing through their counsel David Y. Chun of the
6 Law Offices of David Y. Chun and Jennifer Baldocchi of Paul Hastings LLP. The Court, having
7 reviewed the papers filed in support of and in opposition to the Motion, and having heard the
8 argument of counsel, finds, adjudges, and orders as follows:
The motion is denied.
9
The threshold issue for the Court’s determination on this motion is whether
10 Defendants are the prevailing parties in this action.
11 Plaintiffs’ initial complaint asserted causes of action for breach of three Promissory
Notes and Pledge Agreements. Plaintiffs alleged that Defendants were in default and the
12 Notes were immediately due, because the Notes provided that a failure by Defendants to
perform any agreement in the MIPA or Operating Agreement constituted a default; and
13 further provided for acceleration of the Notes upon a change in control of Scharf
Investments. Plaintiffs alleged that default events as specified in the MIPA and TOA had
14 occurred, and that there had been a change in control of the company. Shortly after Plaintiffs
filed their complaint Defendants paid Plaintiffs the sum of $18 Million. There does not
15 appear to be any dispute that this constituted the full amount of the debt Plaintiffs claim was
then due. While Plaintiffs claim that they disputed that the Notes were actually due, but
16 nevertheless made the payment based on current interest rates and to avoid paying $600,000
in interest, a payment of this magnitude in such close proximity to the filing of the complaint
17 can be reasonably viewed as an implicit admission of liability.
18 Following Defendants’ payment Plaintiffs filed a First Amended Complaint (FAC)
which revised the breach of contract claims to allege that the payment did not compensate
19 Plaintiffs for the costs of collection and attorney’s fees, to which they were entitled under the
Notes [“On any Event of Default, Payee shall be entitled to recover from Payor all reasonable
20 costs of collection, and, should suit be brought on this Note and judgment be obtained in
favor of Payee, Payee shall be entitled to reasonable attorneys' fees, which, on accrual, shall
21 bear interest at the same rate as the principal”]. The FAC also added tort causes of action for
concealment of a change of control and other events of default; conversion of certain
22 Exchange Interests and Rights (EIRs); breach of fiduciary duty by concealing events of
default and the transfer of certain EIRs; and a declaratory relief cause of action to determine
23 the parties’ respective rights to the EIRs and for an accounting as to the EIRs.
24 Defendants argue that the causes of action asserted in the FAC were “frivolous”, and
that Defendants must therefore be declared the prevailing parties and Plaintiffs must suffer
25 the consequences of unnecessarily continuing the litigation by paying Defendants’ attorney’s
fees on the non-contract claims. However, Defendants’ payment of the underlying debt did
26 not compensate Plaintiffs for any damages Plaintiffs may have incurred as a result of the
delay in discovering that the alleged change in control and other events of default, such as
27 deprivation of voting rights attached to the EIRs. The payment of the underlying debt also
failed to compensate Plaintiffs for the costs of collection and attorney’s fees as provided in
28 the Notes. While Plaintiffs eventually elected to dismiss these claims, the conclusion that
1
ORDER
CASE NO. 20CV01388
Defendants’ payment of $18 Million was an implicit admission of liability leads to the
1 further conclusion that these claims, while likely far smaller than the initial claims, were not
necessarily frivolous, as they are based on the same core facts alleged in the initial complaint.
2
Plaintiffs obtained their litigation objectives by obtaining the bulk of the relief they
3 sought. The Court therefore finds that Defendants are not the prevailing parties in this action,
and denies Defendants’ fee motion on this basis.
4
The Parties having been instructed to meet and confer about defendants’ October 25,
5 2021 Costs Memorandum, to which no motion to tax was filed, and parties having agreed to
the form of this order, costs in the amount of $1,390.20 are awarded to defendants.
6
7 IT IS SO ORDERED
Dated: March __, 2022
8
9 Timothy Volkmann
Judge of the Superior Court
10
11 Approved as to form:
12
13 __________________________
Counsel for Defendants
14
15 Approved as to form:
16
17 __________________________
Counsel for Defendants
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2
DECLARATION OF ANDREW D. LANPHERE IN SUPPORT OF PLAINTIFFS’ OPPOSITION TO DEFENDANTS’
MOTION TO DETERMINE PREVAILING PARTY AND TO FIX AMOUNT OF ATTORNEY’S FEES
CASE NO. 20CV01388
1
2
3
4
5
6
7
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 COUNTY OF SANTA CRUZ
10
JEFFREY SCHARF, an individual, and Case No. 20CV01388
11 SHERRIL SMITH-SCHARF, an individual,
[PROPOSED] ORDER DEFENDANTS’
12 Plaintiffs, MOTION TO DETERMINE
PREVAILING PARTY AND TO FIX
13 vs. AMOUNT OF ATTORNEY’S FEES
14 SCHARF INVESTMENTS, LLC, a limited
liability company; and BRIAN KRAWEZ, an
15 individual,
16 Defendants.
17
18
19
20
21
22
23
24
25
26
27
28
ORDER
CASE NO. 20CV01388
1 The motion to determine prevailing party and fix amount of attorney’s fees (“Motion”) of
2 defendants Scharf Investments, LLC and Brian Krawez (“Defendants”) came on for hearing before
3 this Court on March 8, 2022. Plaintiffs Jeffrey Scharf and Sherril Smith-Scharf (“Plaintiffs”)
4 appeared at the hearing through their counsel Andrew D. Lanphere of Pillsbury Winthrop Shaw
5 Pittman, LLP, and Defendants appeared at the hearing through their counsel David Y. Chun of the
6 Law Offices of David Y. Chun and Jennifer Baldocchi of Paul Hastings LLP. The Court, having
7 reviewed the papers filed in support of and in opposition to the Motion, and having heard the
8 argument of counsel, finds, adjudges, and orders as follows:
9 The motion is denied.
10 The threshold issue for the Court’s determination on this motion is whether
Defendants are the prevailing parties in this action.
11
Plaintiffs’ initial complaint asserted causes of action for breach of three Promissory
12 Notes and Pledge Agreements. Plaintiffs alleged that Defendants were in default and the
Notes were immediately due, because the Notes provided that a failure by Defendants to
13 perform any agreement in the MIPA or Operating Agreement constituted a default; and
further provided for acceleration of the Notes upon a change in control of Scharf
14 Investments. Plaintiffs alleged that default events as specified in the MIPA and TOA had
occurred, and that there had been a change in control of the company. Shortly after Plaintiffs
15 filed their complaint Defendants paid Plaintiffs the sum of $18 Million. There does not
appear to be any dispute that this constituted the full amount of the debt Plaintiffs claim was
16 then due. While Plaintiffs claim that they disputed that the Notes were actually due, but
nevertheless made the payment based on current interest rates and to avoid paying $600,000
17 in interest, a payment of this magnitude in such close proximity to the filing of the complaint
can be reasonably viewed as an implicit admission of liability.
18
Following Defendants’ payment Plaintiffs filed a First Amended Complaint (FAC)
19 which revised the breach of contract claims to allege that the payment did not compensate
Plaintiffs for the costs of collection and attorney’s fees, to which they were entitled under the
20 Notes [“On any Event of Default, Payee shall be entitled to recover from Payor all reasonable
costs of collection, and, should suit be brought on this Note and judgment be obtained in
21 favor of Payee, Payee shall be entitled to reasonable attorneys' fees, which, on accrual, shall
bear interest at the same rate as the principal”]. The FAC also added tort causes of action for
22 concealment of a change of control and other events of default; conversion of certain
Exchange Interests and Rights (EIRs); breach of fiduciary duty by concealing events of
23 default and the transfer of certain EIRs; and a declaratory relief cause of action to determine
the parties’ respective rights to the EIRs and for an accounting as to the EIRs.
24
Defendants argue that the causes of action asserted in the FAC were “frivolous”, and
25 that Defendants must therefore be declared the prevailing parties and Plaintiffs must suffer
the consequences of unnecessarily continuing the litigation by paying Defendants’ attorney’s
26 fees on the non-contract claims. However, Defendants’ payment of the underlying debt did
not compensate Plaintiffs for any damages Plaintiffs may have incurred as a result of the
27 delay in discovering that the alleged change in control and other events of default, such as
deprivation of voting rights attached to the EIRs. The payment of the underlying debt also
28 failed to compensate Plaintiffs for the costs of collection and attorney’s fees as provided in
the Notes. While Plaintiffs eventually elected to dismiss these claims, the conclusion that
1
ORDER
CASE NO. 20CV01388
1 Defendants’ payment of $18 Million was an implicit admission of liability leads to the
further conclusion that these claims, while likely far smaller than the initial claims, were not
2 necessarily frivolous, as they are based on the same core facts alleged in the initial complaint.
3 Plaintiffs obtained their litigation objectives by obtaining the bulk of the relief they
sought. The Court therefore finds that Defendants are not the prevailing parties in this action,
4 and denies Defendants’ fee motion on this basis.
5 The Parties having been instructed to meet and confer about defendants’ October 25,
2021 Costs Memorandum, to which no motion to tax was filed, and parties having agreed to
6 the form of this order, costs in the amount of $1,390.20 are awarded to defendants.
7 IT IS SO ORDERED
8 Dated: March __, 2022
9
Timothy Volkmann
10 Judge of the Superior Court
11
Approved as to form:
12
13 __________________________
14 Counsel for Defendants
15
Approved as to form:
16
17
__________________________
18 Counsel for Plaintiffs
19
20
21
22
23
24
25
26
27
28
2
DECLARATION OF ANDREW D. LANPHERE IN SUPPORT OF PLAINTIFFS’ OPPOSITION TO DEFENDANTS’
MOTION TO DETERMINE PREVAILING PARTY AND TO FIX AMOUNT OF ATTORNEY’S FEES
CASE NO. 20CV01388
Preview
1 PILLSBURY WINTHROP SHAW PITTMAN LLP ANDREW D. LANPHERE (CSB NO. 191479) 2 Four Embarcadero Center, 22nd Floor San Francisco, CA 94111-5998 3 Telephone: 415.983.1000 Facsimile: 415.983.1200 4 Attorneys for Plaintiffs JEFFREY SCHARF 5 and SHERRIL SMITH-SCHARF 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF SANTA CRUZ 10 JEFFREY SCHARF, an individual, and Case No. 20CV01388 11 SHERRIL SMITH-SCHARF, an individual, SUMMARY OF RESPONSE RECEIVED 12 Plaintiffs, TO PLAINTIFF’S PROPOSED ORDER DENYING DEFENDANTS’ MOTION TO 13 vs. DETERMINE PREVAILING PARTY AND TO FIX AMOUNT OF 14 SCHARF INVESTMENTS, LLC, a limited ATTORNEY’S FEES liability company; and BRIAN KRAWEZ, an 15 individual, (Cal. R. Ct. 3.1312(b)) 16 Defendants. 17 18 19 20 21 22 23 24 25 26 27 28 SUMMARY OF RESPONSE TO PROPOSED ORDER DENYING MOTION TO DETERMINE PREV. PARTY AND FIX AMT. OF ATTORNEY’S FEES CASE NO. 20CV01388 1 Pursuant to Cal. R. Ct. 3.1312(b), Plaintiffs submit this summary of the response provided by 2 Defendants to the proposed order prepared by Plaintiffs denying defendants’ motion to determine 3 prevailing party and fix the amount of attorney’s fees (“Plaintiffs’ Proposed Order”). Plaintiffs’ 4 Proposed Order is being filed and served along with this summary. 5 1. On March 9, 2021, Plaintiffs’ counsel pursuant to the Court’s direction provided 6 Plaintiffs’ Proposed Order to Defendants’ counsel via email. (See Ex. A.) 7 2. On March 16 and March 22, 2022, Plaintiffs’ counsel sent follow up emails to 8 Defendants’ counsel seeking their consent to Plaintiffs’ Proposed Order. (See Ex. A.) 9 3. On March 22, 2022, Defendants’ counsel emailed an alternative form of proposed 10 order (“Defendants’ Proposed Order). Defendants’ Proposed Order added language providing for 11 the award of $1,390.20 in non-attorney fee costs to Defendants. (See Ex. B.) Defendants’ counsel’s 12 email explained the basis for this proposed inclusion in the proposed order. (Id.) 13 4. On March 23, 2022, Plaintiffs’ counsel emailed Defendants’ counsel, and declined to 14 agree to Defendants’ Proposed Order. As Plaintiffs’ counsel explained: 15 I don’t agree that this addition should be made to the proposed order. The court instructed the parties to submit a form of order that removed the language in the tentative ruling that 16 found plaintiffs to be the prevailing party. The form of order we provided did so. 17 The court did not direct the parties to include in the order any language regarding any non- attorney’s fees costs listed in the memorandum of costs, nor was the subject of those costs or 18 the authorities you cite below raised in defendants’ notice of motion or briefing. Thus, this issue simply has not been adjudicated by the court and is not properly included in the order. 19 I will, however, raise the question of the non-attorney’s fees costs listed in the memorandum of costs with my clients, and advise you of their position regarding payment. I would not 20 anticipate that motion practice would be required to resolve that issue, but if a motion is required it would need to be a separate motion from the attorney’s fees motion. 21 Pursuant to CRC 3.1312, I will provide the court with your correspondence to me and its 22 attachments when we submit the proposed order. 23 (Ex. A.) 24 Dated: March 23, 2022 PILLSBURY WINTHROP SHAW PITTMAN LLP 25 26 27 By: ANDREW D. LANPHERE 28 Attorneys for Plaintiffs 1 SUMMARY OF RESPONSE TO PROPOSED ORDER DENYING MOTION TO DETERMINE PREV. PARTY AND FIX AMT. OF ATTORNEY’S FEES CASE NO. 20CV01388 1 PROOF OF SERVICE 2 I, Maria M. Gonzalez, the undersigned, hereby declare as follows: 3 1. I am over the age of 18 years and am not a party to the within cause. I am employed 4 by Pillsbury Winthrop Shaw Pittman LLP in the County of San Francisco, State of California. 5 2. My email and business address are maria.gonzlaez@pillsburylaw.com; Four 6 Embarcadero Center, 22nd Floor, San Francisco, CA 94111-5998. 7 3. My mailing address is P. O. Box 2824, San Francisco, CA 94111-5998. 8 4. On March 23, 2022, I served a true copy of the attached document(s) titled exactly: 9 • SUMMARY OF RESPONSE RECEIVED TO PLAINTIFF’S PROPOSED ORDER DENYING DEFENDANTS’ MOTION TO DETERMINE PREVAILING PARTY AND 10 TO FIX AMOUNT OF ATTORNEY’S FEES 11 ☒ (EMAIL TRANSMISSION) by electronic mail to the persons at the email addresses listed 12 below. 13 ☒ (U.S. MAIL) by causing a true copy to be placed in a sealed envelope addressed as below and deposited with postage fully prepaid for collection and mailing by the U.S. Postal Service 14 following ordinary business practices. 15 Jennifer Baldocchi, Esq. Attorneys for Defendant Scharf Jessica E. Mendelson, Esq. Investments, LLC and Brian Krawez 16 PAUL HASTINGS LLP 515 South Flower Street 17 Twenty-Fifth Floor Los Angeles, California 90071 18 Telephone: (213) 683-6000 Facsimile: (213) 627-0705 19 Email: jenniferbaldocchi@paulhastings.com jessicamendelson@paulhastings.com 20 David Y. Chun, Esq. Attorney for Defendants Scharf 21 LAW OFFICES OF DAVID Y. CHUN Investments, LLC and Brian Krawez 2005 De La Cruz Blvd., Ste. 245 22 Santa Clara, California 95050-3026 Telephone: (408) 995-0200 23 Facsimile: (408) 228-5033 Email: dchun@chunlaw.com 24 I declare under penalty of perjury that the foregoing is true and correct. Executed on March 25 23, 2022 from my residence at Pittsburg, California. 26 27 Maria M. Gonzalez 28 2 SUMMARY OF RESPONSE TO PROPOSED ORDER DENYING MOTION TO DETERMINE PREV. PARTY AND FIX AMT. OF ATTORNEY’S FEES CASE NO. 20CV01388 EXHIBIT A From: Lanphere, Andrew D. To: David Y. Chun, Esq. Cc: "Baldocchi, Jennifer" Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling -- proposed v2 + costs memorandum Date: Wednesday, March 23, 2022 11:20:14 AM David, I don’t agree that this addition should be made to the proposed order. The court instructed the parties to submit a form of order that removed the language in the tentative ruling that found plaintiffs to be the prevailing party. The form of order we provided did so. The court did not direct the parties to include in the order any language regarding any non- attorney’s fees costs listed in the memorandum of costs, nor was the subject of those costs or the authorities you cite below raised in defendants’ notice of motion or briefing. Thus, this issue simply has not been adjudicated by the court and is not properly included in the order. I will, however, raise the question of the non-attorney’s fees costs listed in the memorandum of costs with my clients, and advise you of their position regarding payment. I would not anticipate that motion practice would be required to resolve that issue, but if a motion is required it would need to be a separate motion from the attorney’s fees motion. Pursuant to CRC 3.1312, I will provide the court with your correspondence to me and its attachments when we submit the proposed order. Regards, Drew From: David Y. Chun, Esq. Sent: Tuesday, March 22, 2022 6:06 PM To: Lanphere, Andrew D. Cc: 'Baldocchi, Jennifer' Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling -- proposed v2 + costs memorandum Copy of the October 25, 2021 costs memorandum is attached From: David Y. Chun, Esq. [mailto:dchun@chunlaw.com] Sent: Tuesday, March 22, 2022 5:52 PMTo: 'Lanphere, Andrew D.' Cc: 'Baldocchi, Jennifer' Cc: 'Baldocchi, Jennifer' Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling -- proposed v2 Andrew Thanks for your follow up email. In light of the court’s instruction to counsel to meet and confer about the non-attorney costs, we propose that language be included that plaintiffs pay the $1390.20 in other costs in the costs memorandum filed October 25, 2021 (see attached) for which no motion to tax was filed within the 15 days, thereby waiving “any objection”). Supporting authority is provided as follows: “Code of Civil Procedure section 1033 provides in pertinent part: ". . . A party dissatisfied with the costs claimed may, within 10 days after the service of a copy of the bill of costs, file a motion to have the same taxed by the court . . . ." (Italics added.) The city's memorandum of costs was served on plaintiffs' attorney September 29, 1981. Seventeen days later, on October 16, 1981, plaintiffs filed their motion to tax costs. By not filing said motion within the period specified in section 1033, plaintiffs waived the right to object to the costs claimed by the city. ( Oak Grove School Dist. v. City Title Ins. Co. (1963) 217 Cal.App.2d 678, 698 [32 Cal.Rptr. 288]; Eistrat v. Humiston (1958) 160 Cal.App.2d 89, 92 [324 P.2d 957]; S.F. etc. Sch. Dist. v. Bd. of Nat. Missions (1954) 129 Cal.App.2d 236, 242-243 [276 P.2d 829]; 15 Cal.Jur.3d, Costs, § 83, pp. 696-697.) As expressed in Mojave etc. R.R. Co. v. Cuddeback (1915) 28 Cal.App. 439 [152 P. 943]: HN6 "[If] a party to an action against whom cost is awarded neglects within the time specified in section 1033 to apply to the court to have the same taxed, he is deemed to have assented to the correctness and lawfulness of the items as claimed in the verified memorandum of costs as filed . . . ." (Pp. 441-442.)” [bold added] Jimenez v. City of Oxnard (1982) 134 Cal.App.3d 856, 859; Santos v. Civil Serv. Bd. (1987) 193 Cal.App.3d 1442, 1447 (failure to file a motion to tax costs constitutes a waiver of the right to object); Douglas v. Willis (1994) 27 CA4th 287, 290 (failure to challenge a costs bill waives any objection to the costs claimed thereon). David Chun, Esq. LAW OFFICES OF DAVID Y. CHUN 2005 De La Cruz Blvd., Suite 245 Santa Clara, California 95050 (408) 995-0200 (408) 228-5033 (fax) Counsel for Defendants BRIAN KRAWEZ and SCHARF INVESTMENTS, LLC NOTICE TO RECIPIENT: This email is meant for only the intended recipient of the transmission, and may be a communication privileged by law. If you received this email in error, please notify us immediately of the error by return email, and please delete this message from your system. Any review, use, dissemination, distribution, or copying of this email is strictly prohibited. Thank you in advance for your cooperation. From: Lanphere, Andrew D. [mailto:andrew.lanphere@pillsburylaw.com] Sent: Tuesday, March 22, 2022 9:02 AM To: David Y. Chun, Esq. ; Baldocchi, Jennifer Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling Hi David and Jennifer – My plan is to submit the order to the court tomorrow. If you have any comments/objections please let me know; otherwise I will advise the court I received no response to the proposed order. Thanks, Drew Andrew D. Lanphere | Partner Pillsbury Winthrop Shaw Pittman LLP Four Embarcadero Center, 22nd Floor | San Francisco, CA 94111-5998 t +1.415.983.1321 | m +1.415.290.2183 andrew.lanphere@pillsburylaw.com | website bio From: Lanphere, Andrew D. Sent: Wednesday, March 16, 2022 12:22 PM To: David Y. Chun, Esq. ; 'Baldocchi, Jennifer' Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling David and Jennifer, I’m following up to see if you have any comments/objections to the form of proposed order. Please let me know. Regards, Drew From: Lanphere, Andrew D. Sent: Wednesday, March 9, 2022 9:26 AM To: 'David Y. Chun, Esq.' Cc: 'Baldocchi, Jennifer' Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling David and Jennifer – Attached is a form of proposed order for your review, and also a redline showing the edits to the tentative that are reflected in the proposed order, consistent with the court’s instructions yesterday. Please let me know if this form of order is acceptable to you. Regards, Drew From: David Y. Chun, Esq. Sent: Monday, March 7, 2022 2:41 PM To: Lanphere, Andrew D. Cc: 'Baldocchi, Jennifer' Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling Drew – pursuant to Santa Cruz Local Rule 2.10.01(b), this email serves to inform you that defendant’s side contests the tentative and will appear tomorrow to argue at the hearing scheduled for tomorrow in this matter on the fee motion – David Chun, Esq. The contents of this message, together with any attachments, are intended only for the use of the individual or entity to which they are addressed and may contain information that is legally privileged, confidential and exempt from disclosure. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copying of this message, or any attachment, is strictly prohibited. If you have received this message in error, please notify the original sender or the Pillsbury Winthrop Shaw Pittman Service Desk at Tel: 800-477-0770, Option 1, immediately by telephone and delete this message, along with any attachments, from your computer. Nothing in this message may be construed as a digital or electronic signature of any employee of Pillsbury Winthrop Shaw Pittman. Thank you. EXHIBIT B From: David Y. Chun, Esq. To: Lanphere, Andrew D. Cc: "Baldocchi, Jennifer" Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling -- proposed v2 Date: Tuesday, March 22, 2022 5:51:52 PM Attachments: Order Denying Mtn Attys Fees 4888-0039-6820 v.2_dc edits_redlined.docx Order Denying Mtn Attys Fees 4888-0039-6820 v2.pdf Andrew Thanks for your follow up email. In light of the court’s instruction to counsel to meet and confer about the non-attorney costs, we propose that language be included that plaintiffs pay the $1390.20 in other costs in the costs memorandum filed October 25, 2021 (see attached) for which no motion to tax was filed within the 15 days, thereby waiving “any objection”). Supporting authority is provided as follows: “Code of Civil Procedure section 1033 provides in pertinent part: ". . . A party dissatisfied with the costs claimed may, within 10 days after the service of a copy of the bill of costs, file a motion to have the same taxed by the court . . . ." (Italics added.) The city's memorandum of costs was served on plaintiffs' attorney September 29, 1981. Seventeen days later, on October 16, 1981, plaintiffs filed their motion to tax costs. By not filing said motion within the period specified in section 1033, plaintiffs waived the right to object to the costs claimed by the city. ( Oak Grove School Dist. v. City Title Ins. Co. (1963) 217 Cal.App.2d 678, 698 [32 Cal.Rptr. 288]; Eistrat v. Humiston (1958) 160 Cal.App.2d 89, 92 [324 P.2d 957]; S.F. etc. Sch. Dist. v. Bd. of Nat. Missions (1954) 129 Cal.App.2d 236, 242-243 [276 P.2d 829]; 15 Cal.Jur.3d, Costs, § 83, pp. 696-697.) As expressed in Mojave etc. R.R. Co. v. Cuddeback (1915) 28 Cal.App. 439 [152 P. 943]: HN6 "[If] a party to an action against whom cost is awarded neglects within the time specified in section 1033 to apply to the court to have the same taxed, he is deemed to have assented to the correctness and lawfulness of the items as claimed in the verified memorandum of costs as filed . . . ." (Pp. 441-442.)” [bold added] Jimenez v. City of Oxnard (1982) 134 Cal.App.3d 856, 859; Santos v. Civil Serv. Bd. (1987) 193 Cal.App.3d 1442, 1447 (failure to file a motion to tax costs constitutes a waiver of the right to object); Douglas v. Willis (1994) 27 CA4th 287, 290 (failure to challenge a costs bill waives any objection to the costs claimed thereon). David Chun, Esq. LAW OFFICES OF DAVID Y. CHUN 2005 De La Cruz Blvd., Suite 245 Santa Clara, California 95050 (408) 995-0200 (408) 228-5033 (fax) Counsel for Defendants BRIAN KRAWEZ and SCHARF INVESTMENTS, LLC NOTICE TO RECIPIENT: This email is meant for only the intended recipient of the transmission, and may be a communication privileged by law. If you received this email in error, please notify us immediately of the error by return email, and please delete this message from your system. Any review, use, dissemination, distribution, or copying of this email is strictly prohibited. Thank you in advance for your cooperation. From: Lanphere, Andrew D. [mailto:andrew.lanphere@pillsburylaw.com] Sent: Tuesday, March 22, 2022 9:02 AM To: David Y. Chun, Esq. ; Baldocchi, Jennifer Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling Hi David and Jennifer – My plan is to submit the order to the court tomorrow. If you have any comments/objections please let me know; otherwise I will advise the court I received no response to the proposed order. Thanks, Drew Andrew D. Lanphere | Partner Pillsbury Winthrop Shaw Pittman LLP Four Embarcadero Center, 22nd Floor | San Francisco, CA 94111-5998 t +1.415.983.1321 | m +1.415.290.2183 andrew.lanphere@pillsburylaw.com | website bio From: Lanphere, Andrew D. Sent: Wednesday, March 16, 2022 12:22 PM To: David Y. Chun, Esq. ; 'Baldocchi, Jennifer' Subject: FW: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling David and Jennifer, I’m following up to see if you have any comments/objections to the form of proposed order. Please let me know. Regards, Drew From: Lanphere, Andrew D. Sent: Wednesday, March 9, 2022 9:26 AM To: 'David Y. Chun, Esq.' Cc: 'Baldocchi, Jennifer' Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling David and Jennifer – Attached is a form of proposed order for your review, and also a redline showing the edits to the tentative that are reflected in the proposed order, consistent with the court’s instructions yesterday. Please let me know if this form of order is acceptable to you. Regards, Drew From: David Y. Chun, Esq. Sent: Monday, March 7, 2022 2:41 PM To: Lanphere, Andrew D. Cc: 'Baldocchi, Jennifer' Subject: RE: Jeffrey Scharf, et al. v. Scharf Investments, LLC, et al., Santa Cruz Superior Court Case No. 20CV01388 -- Fee Motion Notice of Contesting Tentative Ruling Drew – pursuant to Santa Cruz Local Rule 2.10.01(b), this email serves to inform you that defendant’s side contests the tentative and will appear tomorrow to argue at the hearing scheduled for tomorrow in this matter on the fee motion – David Chun, Esq. The contents of this message, together with any attachments, are intended only for the use of the individual or entity to which they are addressed and may contain information that is legally privileged, confidential and exempt from disclosure. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copying of this message, or any attachment, is strictly prohibited. If you have received this message in error, please notify the original sender or the Pillsbury Winthrop Shaw Pittman Service Desk at Tel: 800-477-0770, Option 1, immediately by telephone and delete this message, along with any attachments, from your computer. Nothing in this message may be construed as a digital or electronic signature of any employee of Pillsbury Winthrop Shaw Pittman. Thank you. 1 2 3 4 5 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF SANTA CRUZ 10 JEFFREY SCHARF, an individual, and Case No. 20CV01388 SHERRIL SMITH-SCHARF, an individual, 11 [PROPOSED] ORDER DEFENDANTS’ Plaintiffs, MOTION TO DETERMINE 12 PREVAILING PARTY AND TO FIX vs. AMOUNT OF ATTORNEY’S FEES 13 SCHARF INVESTMENTS, LLC, a limited 14 liability company; and BRIAN KRAWEZ, an individual, 15 Defendants. 16 17 18 19 20 21 22 23 24 25 26 27 28 ORDER CASE NO. 20CV01388 1 The motion to determine prevailing party and fix amount of attorney’s fees (“Motion”) of 2 defendants Scharf Investments, LLC and Brian Krawez (“Defendants”) came on for hearing before 3 this Court on March 8, 2022. Plaintiffs Jeffrey Scharf and Sherril Smith-Scharf (“Plaintiffs”) 4 appeared at the hearing through their counsel Andrew D. Lanphere of Pillsbury Winthrop Shaw 5 Pittman, LLP, and Defendants appeared at the hearing through their counsel David Y. Chun of the 6 Law Offices of David Y. Chun and Jennifer Baldocchi of Paul Hastings LLP. The Court, having 7 reviewed the papers filed in support of and in opposition to the Motion, and having heard the 8 argument of counsel, finds, adjudges, and orders as follows: The motion is denied. 9 The threshold issue for the Court’s determination on this motion is whether 10 Defendants are the prevailing parties in this action. 11 Plaintiffs’ initial complaint asserted causes of action for breach of three Promissory Notes and Pledge Agreements. Plaintiffs alleged that Defendants were in default and the 12 Notes were immediately due, because the Notes provided that a failure by Defendants to perform any agreement in the MIPA or Operating Agreement constituted a default; and 13 further provided for acceleration of the Notes upon a change in control of Scharf Investments. Plaintiffs alleged that default events as specified in the MIPA and TOA had 14 occurred, and that there had been a change in control of the company. Shortly after Plaintiffs filed their complaint Defendants paid Plaintiffs the sum of $18 Million. There does not 15 appear to be any dispute that this constituted the full amount of the debt Plaintiffs claim was then due. While Plaintiffs claim that they disputed that the Notes were actually due, but 16 nevertheless made the payment based on current interest rates and to avoid paying $600,000 in interest, a payment of this magnitude in such close proximity to the filing of the complaint 17 can be reasonably viewed as an implicit admission of liability. 18 Following Defendants’ payment Plaintiffs filed a First Amended Complaint (FAC) which revised the breach of contract claims to allege that the payment did not compensate 19 Plaintiffs for the costs of collection and attorney’s fees, to which they were entitled under the Notes [“On any Event of Default, Payee shall be entitled to recover from Payor all reasonable 20 costs of collection, and, should suit be brought on this Note and judgment be obtained in favor of Payee, Payee shall be entitled to reasonable attorneys' fees, which, on accrual, shall 21 bear interest at the same rate as the principal”]. The FAC also added tort causes of action for concealment of a change of control and other events of default; conversion of certain 22 Exchange Interests and Rights (EIRs); breach of fiduciary duty by concealing events of default and the transfer of certain EIRs; and a declaratory relief cause of action to determine 23 the parties’ respective rights to the EIRs and for an accounting as to the EIRs. 24 Defendants argue that the causes of action asserted in the FAC were “frivolous”, and that Defendants must therefore be declared the prevailing parties and Plaintiffs must suffer 25 the consequences of unnecessarily continuing the litigation by paying Defendants’ attorney’s fees on the non-contract claims. However, Defendants’ payment of the underlying debt did 26 not compensate Plaintiffs for any damages Plaintiffs may have incurred as a result of the delay in discovering that the alleged change in control and other events of default, such as 27 deprivation of voting rights attached to the EIRs. The payment of the underlying debt also failed to compensate Plaintiffs for the costs of collection and attorney’s fees as provided in 28 the Notes. While Plaintiffs eventually elected to dismiss these claims, the conclusion that 1 ORDER CASE NO. 20CV01388 Defendants’ payment of $18 Million was an implicit admission of liability leads to the 1 further conclusion that these claims, while likely far smaller than the initial claims, were not necessarily frivolous, as they are based on the same core facts alleged in the initial complaint. 2 Plaintiffs obtained their litigation objectives by obtaining the bulk of the relief they 3 sought. The Court therefore finds that Defendants are not the prevailing parties in this action, and denies Defendants’ fee motion on this basis. 4 The Parties having been instructed to meet and confer about defendants’ October 25, 5 2021 Costs Memorandum, to which no motion to tax was filed, and parties having agreed to the form of this order, costs in the amount of $1,390.20 are awarded to defendants. 6 7 IT IS SO ORDERED Dated: March __, 2022 8 9 Timothy Volkmann Judge of the Superior Court 10 11 Approved as to form: 12 13 __________________________ Counsel for Defendants 14 15 Approved as to form: 16 17 __________________________ Counsel for Defendants 18 19 20 21 22 23 24 25 26 27 28 2 DECLARATION OF ANDREW D. LANPHERE IN SUPPORT OF PLAINTIFFS’ OPPOSITION TO DEFENDANTS’ MOTION TO DETERMINE PREVAILING PARTY AND TO FIX AMOUNT OF ATTORNEY’S FEES CASE NO. 20CV01388 1 2 3 4 5 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF SANTA CRUZ 10 JEFFREY SCHARF, an individual, and Case No. 20CV01388 11 SHERRIL SMITH-SCHARF, an individual, [PROPOSED] ORDER DEFENDANTS’ 12 Plaintiffs, MOTION TO DETERMINE PREVAILING PARTY AND TO FIX 13 vs. AMOUNT OF ATTORNEY’S FEES 14 SCHARF INVESTMENTS, LLC, a limited liability company; and BRIAN KRAWEZ, an 15 individual, 16 Defendants. 17 18 19 20 21 22 23 24 25 26 27 28 ORDER CASE NO. 20CV01388 1 The motion to determine prevailing party and fix amount of attorney’s fees (“Motion”) of 2 defendants Scharf Investments, LLC and Brian Krawez (“Defendants”) came on for hearing before 3 this Court on March 8, 2022. Plaintiffs Jeffrey Scharf and Sherril Smith-Scharf (“Plaintiffs”) 4 appeared at the hearing through their counsel Andrew D. Lanphere of Pillsbury Winthrop Shaw 5 Pittman, LLP, and Defendants appeared at the hearing through their counsel David Y. Chun of the 6 Law Offices of David Y. Chun and Jennifer Baldocchi of Paul Hastings LLP. The Court, having 7 reviewed the papers filed in support of and in opposition to the Motion, and having heard the 8 argument of counsel, finds, adjudges, and orders as follows: 9 The motion is denied. 10 The threshold issue for the Court’s determination on this motion is whether Defendants are the prevailing parties in this action. 11 Plaintiffs’ initial complaint asserted causes of action for breach of three Promissory 12 Notes and Pledge Agreements. Plaintiffs alleged that Defendants were in default and the Notes were immediately due, because the Notes provided that a failure by Defendants to 13 perform any agreement in the MIPA or Operating Agreement constituted a default; and further provided for acceleration of the Notes upon a change in control of Scharf 14 Investments. Plaintiffs alleged that default events as specified in the MIPA and TOA had occurred, and that there had been a change in control of the company. Shortly after Plaintiffs 15 filed their complaint Defendants paid Plaintiffs the sum of $18 Million. There does not appear to be any dispute that this constituted the full amount of the debt Plaintiffs claim was 16 then due. While Plaintiffs claim that they disputed that the Notes were actually due, but nevertheless made the payment based on current interest rates and to avoid paying $600,000 17 in interest, a payment of this magnitude in such close proximity to the filing of the complaint can be reasonably viewed as an implicit admission of liability. 18 Following Defendants’ payment Plaintiffs filed a First Amended Complaint (FAC) 19 which revised the breach of contract claims to allege that the payment did not compensate Plaintiffs for the costs of collection and attorney’s fees, to which they were entitled under the 20 Notes [“On any Event of Default, Payee shall be entitled to recover from Payor all reasonable costs of collection, and, should suit be brought on this Note and judgment be obtained in 21 favor of Payee, Payee shall be entitled to reasonable attorneys' fees, which, on accrual, shall bear interest at the same rate as the principal”]. The FAC also added tort causes of action for 22 concealment of a change of control and other events of default; conversion of certain Exchange Interests and Rights (EIRs); breach of fiduciary duty by concealing events of 23 default and the transfer of certain EIRs; and a declaratory relief cause of action to determine the parties’ respective rights to the EIRs and for an accounting as to the EIRs. 24 Defendants argue that the causes of action asserted in the FAC were “frivolous”, and 25 that Defendants must therefore be declared the prevailing parties and Plaintiffs must suffer the consequences of unnecessarily continuing the litigation by paying Defendants’ attorney’s 26 fees on the non-contract claims. However, Defendants’ payment of the underlying debt did not compensate Plaintiffs for any damages Plaintiffs may have incurred as a result of the 27 delay in discovering that the alleged change in control and other events of default, such as deprivation of voting rights attached to the EIRs. The payment of the underlying debt also 28 failed to compensate Plaintiffs for the costs of collection and attorney’s fees as provided in the Notes. While Plaintiffs eventually elected to dismiss these claims, the conclusion that 1 ORDER CASE NO. 20CV01388 1 Defendants’ payment of $18 Million was an implicit admission of liability leads to the further conclusion that these claims, while likely far smaller than the initial claims, were not 2 necessarily frivolous, as they are based on the same core facts alleged in the initial complaint. 3 Plaintiffs obtained their litigation objectives by obtaining the bulk of the relief they sought. The Court therefore finds that Defendants are not the prevailing parties in this action, 4 and denies Defendants’ fee motion on this basis. 5 The Parties having been instructed to meet and confer about defendants’ October 25, 2021 Costs Memorandum, to which no motion to tax was filed, and parties having agreed to 6 the form of this order, costs in the amount of $1,390.20 are awarded to defendants. 7 IT IS SO ORDERED 8 Dated: March __, 2022 9 Timothy Volkmann 10 Judge of the Superior Court 11 Approved as to form: 12 13 __________________________ 14 Counsel for Defendants 15 Approved as to form: 16 17 __________________________ 18 Counsel for Plaintiffs 19 20 21 22 23 24 25 26 27 28 2 DECLARATION OF ANDREW D. LANPHERE IN SUPPORT OF PLAINTIFFS’ OPPOSITION TO DEFENDANTS’ MOTION TO DETERMINE PREVAILING PARTY AND TO FIX AMOUNT OF ATTORNEY’S FEES CASE NO. 20CV01388