040710 adler v relynet

8/7/2019 040710 Adler v RelyNet

1/44KELLY O'HALLORAN, OFFICIAL COURT REPORTER, USDC -- (916) 448-271

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

---oOo---

BEFORE THE HONORABLE JOHN A. MENDEZ, JUDGE

---oOo---

DUSTIN K. ADLER,

Plaintiff,

vs.

RELYNET, INC., et al.,

Defendants.

/

No. Civ. S-08-1333

---oOo---

REPORTER'S TRANSCRIPT

POST-TRIAL MOTIONS

WEDNESDAY, APRIL 7, 2010

---oOo---

Reported by: KELLY O'HALLORAN, CSR #6660


2/44KELLY O'HALLORAN, OFFICIAL COURT REPORTER, USDC -- (916) 448-271

APPEARANCES

For the Plaintiff:

MILLSTONE PETERSON & WATTS, LLP

2267 Lava Ridge Court, Suite 210

Roseville, CA 95661

BY: GLENN W. PETERSON

For the Defendant:

DAVIS & LEONARD, LLP

888 Cal Center Drive, Suite 180

Sacramento, CA 95826

BY: STEPHEN L. DAVIS


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KELLY O'HALLORAN, OFFICIAL COURT REPORTER, USDC -- (916) 448-271

1

SACRAMENTO, CALIFORNIA

WEDNESDAY, APRIL 7, 2010, 9:30 A.M.

---oOo---

THE CLERK: Civil S-08-1333; Adler versus RelyNet, et

al.

Counsel, announce your appearances, please.

MR. PETERSON: Good morning, your Honor. Glenn

Peterson for the plaintiff.

MR. DAVIS: Good morning, your Honor. Stephen Davis

for the defendants.

THE COURT: All right. Good morning to all of you.

We have a lot of motions on. I'll take them up one at a

time. Okay. Let's start with the defendants' motion for

judgment as a matter of law. In this motion, defendants have

asked the Court to overturn the jury's verdict which was in

favor of Mr. Adler and to grant judgment as a matter of law

in favor of RelyNet and Mr. DiCarlo, raising a number of

points. One, that defendants argue that the evidence at

trial established that Mr. Adler is estopped as a matter of

law. Second, that the evidence established that RelyNet is a

co-owner of the ZeroForum software. And in the alternative,

the defendants are seeking a new trial on the grounds that

the Court erred in admitting, not granting a motion in limine

as to the testimony of Chris Whitaker. And also that the

damage award was grossly excessive and clearly not supported


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by the evidence.

These are not new arguments to the Court. I have seen

them. I actually went back and reviewed all the jury

instructions. We actually had a specific jury instruction,

part of instruction 15, in which the jury was instructed that

the defendants contend there is no copyright infringement.

There is no copyright infringement where the defendant is a

joint author of the copyrighted works or where the plaintiff

is equitably estopped by his misconduct from claiming

copyright infringement, or where the plaintiff by his words

or conduct has waived his right.

Waiver is not discussed in this most recent motion,

but the other two defenses are. So the jury had a chance to

consider those defenses. They obviously rejected them and

found in favor of Mr. Adler. I did not see anything new in

these briefs to convince me that the jury's verdict was

incorrect in this case. And, in fact, I agree with the

jury's verdict in this case. I told the lawyers and told the

parties that they should rethink their positions before this

trial started. And I could see this coming. The verdict in

no way surprised the Court. And part of the problem with the

motion is it's a lot of focus on Mr. Adler and no focus on

Mr. DiCarlo. And this was a case, having sat through the

jury trial and obviously having lived with this case for a

while, in which Mr. DiCarlo should have known that 12 people


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were not going to find in his favor. Mr. DiCarlo, you were

fortunate that you had good counsel who were able to on,

quite frankly, a technical but legally correct matter get rid

of a fraud case and get rid of a fraud claim. In part, Mr.

Adler has to take responsibility for not lawyering up sooner.

Otherwise, that fraud claim would have remained.

But I just shake my head at this case and that you

could not see that what you did to Mr. Adler, your friend,

you were the best man at his wedding, you led him along.

When I read these motions and having sat through the trial,

now read that Mr. Adler was fully aware of what he was doing,

and Mr. Adler knew this and Mr. Adler knew that, the evidence

at trial was so contrary to that. Mr. DiCarlo, you were not

credible as a witness. You clearly are someone that is

manipulative. You manipulated Mr. Adler from day one.

Mr. Adler, I don't mean this in a mean way, but the

evidence is clear to me and the testimony is clear to me that

you are naive, that you trust people, and you were dealing

someone that you trusted completely.

And estoppel is, as Mr. Peterson points out in his

briefs, it's an equitable defense. Mr. DiCarlo is not

someone who deserves equity. He is a snake charmer. And he

took full advantage of someone that was or at least thought

he was his friend. That's why I say it was so obvious how

this was going to turn it out when you try it to 12 people


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from a practical point of view. And from a legal point of

view, they rejected the defenses as well. There is

absolutely no reason for this Court, based on what I saw and

heard at trial, to overturn that verdict. And again, as I've

said, I completely agree with it. You ripped off your

friend. It's almost criminal what you did. And yet you seem

so impervious to that, so calculating. You got a $2 million

windfall, and you didn't share a dime with him. Again, it

just rubs the wrong way obviously to 12 people. And as a

matter of law, you're not entitled to a verdict.

You're lucky you had good lawyers. And I say that

seriously. But once this got to 12 people and got to trial,

as set forth in the opposition, the equitable defense doesn't

make it. And again, as a matter of law, I agree with the

plaintiff that in no way can RelyNet claim co-authorship or

co-ownership, or Mr. DiCarlo.

What really surprised me at trial was the testimony

that at times -- I thought the trial would be a little

different. I thought Mr. DiCarlo would at least argue or at

least there would be facts showing how hard he worked at

building up this business and how many hours he worked. And

what was surprising is it was the complete opposite. It

wasn't even Mr. Adler's testimony. It was the other person

that testified where at times Mr. DiCarlo would just take

off. He'd use Mr. Adler and -- I can't remember, what's the


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name of the other employee?

MR. PETERSON: Layton Wedgeworth.

THE COURT: To run the business while he was off. He

wouldn't show up to work. He'd come in late. And what

really I think bothered the jury and the evidence showed is

you're a person that simply isn't honest and straightforward

with people. I don't know how Mr. Adler could have known

that ultimately you were going to rip him off, because you

never had the guts to tell him. You just strung him along.

When I read the reply brief, I wrote some notes. For

example, on page 5 of 14, middle of the page, it's written:

"The subject of the ownership of the ZeroForum software never

came up during these conversations." That's just because

Mr. DiCarlo avoided discussing that. Then it says, "Second,

DiCarlo did not actually lie to Adler or falsely induce him

to do anything, especially relating to the software." And I

wrote right next to it, "Yes, he did." It's lying by

omission is in part what it is. And he clearly avoided

discussions claiming ownership. Again, the problem with this

whole theory of why the Court should overturn the jury's

verdict and grant a verdict and judgment in favor of the

defendant is based on a view of the evidence that only looks

at Mr. Adler and doesn't look at Mr. DiCarlo's conduct.

On the next page it's written, "It's hard to see what

more RelyNet could have done to act like an owner of the


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software for the five years that Adler was affiliated with

the company." And I wrote a note saying, "How about writing

a contract?" Giving Mr. Adler notice, telling him, by the

way, RelyNet is, in fact, the owner of this software. We

always have been the owner. We claim that we're the

co-author. Here, sign this. You've been licensing this to

us for years. Here's the license.

He didn't do any of that. And again, you ask the

Court to focus only on Mr. Adler or primarily Mr. Adler's

conduct with respect to the estoppel defense. But it's an

equitable defense. And as Mr. Peterson points out in the

briefs, there's this whole issue of clean hands.

Next paragraph on page 6, "There's no actual evidence

that Adler's permission to use the software was fraudulently

induced." And there's so much evidence of that, and there

was so much evidence of that in this case.

There's other notes I wrote, but you obviously can

tell from my comments that I agree in this case with the

plaintiff's opposition. I agree with the jury verdict on the

defenses.

As to the request for a new trial, I again find the

plaintiff's arguments with respect to Mr. Whitaker in the

opposition to this motion for new trial as being persuasive.

I ruled against the motion in limine with respect to

Mr. Whitaker on the grounds that the issue was not


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admissibility, but it was what weight was the jury going to

give to that. And you cross-examined him at length. You put

on other evidence. You did everything you needed to do,

Mr. Davis, in terms of trying to undermine Mr. Whitaker's

testimony, and the jury didn't accept it. You did your job.

But this isn't an issue that it was clear error to allow

Mr. Whitaker to testify. I do find as a matter of law it was

not error, and I sustain my earlier ruling on the motion in

limine that it's really a question of weight, not

admissibility. I know obviously you disagree, and that will

be taken up. But I so find and would deny the request for

motion for new trial on those grounds.

And then in terms of was the damage award grossly

excessive, clearly not supported by the evidence, again I

disagree. There was a basis for the jury so finding and

giving the award that they did. There's this big question of

the $699. I think it comes from the testimony that the

license was $699, and the jury just added $699 because that

was the licensing fee.

MR. PETERSON: That was my interpretation as well.

THE COURT: It's a funny amount, but clearly there was

evidence. That number was thrown out there. So for all

those reasons, the motion for judgment as a matter of law and

in the alternative for a new trial is denied.

I know it's harsh, but the reality is, Mr. DiCarlo,


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that you got what you had coming to you and, frankly, what

the jury thought you deserved.

All right. I want to turn to the second motion, which

is the motion to amend the judgment to include prejudgment

interest. Both sides agree that prejudgment interest is

available under the Copyright Act in the discretion of the

district court. So it really is a discretionary matter. The

Polar Bear case, Polar Bear Productions vs. Timex Corp., a

Ninth Circuit case 2004, 384 F.3d 700, is the case that so

holds. The purpose of prejudgment interest in a copyright

case is the same as for damages generally, to effectuate the

legislative purpose of making copyright holders whole.

I just thought of something. I do want to go back.

Because I didn't talk a lot about the joint author argument

that the defendants raised. I do want to acknowledge. I

think I did make mention of that. Obviously I know it's in

the motion filed by the defendants. But I thought, again,

the plaintiff's argument with respect to that was persuasive.

This isn't software that really is a co-authorship type of

situation. This was Mr. Adler's software from day one. And

again, the evidence at trial made it clear that whatever

Mr. Adler did while employed by RelyNet with respect to this

software may have added some bells and whistles, but it

became clear from the evidence at trial that this software,

90 percent of it, 95 percent of it, was done when Mr. Adler


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was not employed by RelyNet, when he was working out of his

home. And so the later versions, the 2.0.6 and 2.1.2 are

really, in effect, just updates. There wasn't a substantial

contribution.

And again, we had a specific jury instruction as to

that on the joint author defense. It was instruction number

23. The jury obviously considered that. And they did not

find that that defense was established. I don't think

there's any new facts that have been raised or anything that

I missed while I was listening to the trial that would

convince me that the jury was in any way wrong in rejecting

that defense. And again, you don't have a specific finding,

but I think the evidence clearly suggests that this wasn't a

case where each author made a substantial and valuable

contribution to the work. This work was, in effect, done by

the time Mr. Adler became an employee of RelyNet. And the

additional bells and whistles he put in didn't change that

fact or make RelyNet's contribution substantial and valuable.

The work was, in effect, done previously.

So I do want to acknowledge that I considered that as

well and accept the plaintiff's opposition on that issue as

well.

All right. Let's get to prejudgment interest.

Mr. Adler's argued that prejudgment interest would be

appropriate in this case. It would serve the purposes of the


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copyright laws, and that it is easy to calculate. He's

argued that he's entitled to prejudgment interest from the

date that the defendant sold the website to Internet Brands

through the date that judgment was entered, which was

February 8, 2010. And under 28 USC Section 1961(b),

compounding interest annually, the total judgment that he

seeks, plus pretrial interest, would be 90,000 -- total

prejudgment interest would add to the judgment. The

prejudgment interest part would be $90,229.

Defendants have argued that prejudgment interest is

not appropriate in this case because it cannot be calculated.

Defendants further argue that the jury meant its award to

fully compensate Adler for all of his copyright damages. And

without a special finding of what injury Mr. Adler was being

compensated for and when it happened, a prejudgment interest

award would be inappropriate.

Defendants also argue that awarding prejudgment

interest in this case would be inappropriate because of the

large size of the damage award.

Keep in mind, actually, that Mr. Peterson on behalf of

Mr. Adler sought over $2 million in this case, and the jury

awarded a million one and some change. I think a $2 million

damage award would have been large. 1.1 seems fair and

appropriate to this Court.

Defendants argue the testimony and evidence at trial


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was that RelyNet never earned much from the software in the

form of license fees, which at the time of the Internet

Brands sale were a maximum of $199 per month. Defendants

argue that Mr. Adler was compensated by the jury far in

excess of his rightful claim as a mere copyright holder, and

an award of prejudgment interest would be excessive.

Based on the briefs, I don't need any further

argument. I disagree again with defendants on this issue. I

agree with the plaintiffs. And I agree that prejudgment

interest can be easily calculated, given that the money was

made once it was sold. There's a date certain as to when it

was sold to Internet Brands, as plaintiff has argued. And

that it clearly would serve the legislative purpose of making

Mr. Adler whole if prejudgment interest is included. It is a

discretionary call by the Court, and in this case the Court

is deciding to exercise its discretion in favor of the

plaintiff.

The jury could easily have given him $2 million. And

I think maybe even there's an argument under these

circumstances that Mr. DiCarlo, based on what I heard at

trial as to his efforts, in quotes, or lack thereof towards

this business, that this business was really driven by the

employees, in part, that it was more of a team rather than an

individual effort, that maybe Mr. DiCarlo didn't deserve to

keep half of the amount that he was paid. I'm not here to


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argue that. The jury so found. But I don't think there's an

argument that Mr. Adler and the award the jury gave him was

intended as the only amount he should receive and that any

prejudgment interest would be excessive. And so I do find

that an award of prejudgment interest is appropriate. I

grant the plaintiff's motion and award prejudgment interest

in the amount of $90,229 in favor of the plaintiff and

against the defendants.

All right. Let's get to the final motion which is the

motion for attorneys' fees. Mr. Peterson, I have a lot of

questions. Let's start with costs. Part of the problem I

have with your motion for attorneys' fees is how confusing

you've made it. Because in the opening brief, you ask for

one amount, and then in the reply you say, oh, we

inadvertently included this, and so I'm going to take those

out.

When I get through all those, right now my numbers

show that just as far as costs go, your firm is asking for

$16,426 in costs, and Mr. Costello's firm is asking for

$5,681.50 in costs, when I include the deductions. But then

I look at the bill of costs that were filed. And I'll get to

the issue of them being late filed. But in your bill of

costs, Mr. Peterson, I only see $14,938.78. I'm looking at

document 267. And for Mr. Costello's firm, I see $3,061.75.

And so I asked myself how do you get to the higher numbers


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that you're seeking if they're not already in your bill of

costs?

MR. PETERSON: What we did, your Honor, is that after

the motion was filed with the attorneys' fees and costs

broken out in the supporting declarations, the cost bill was

filed thereafter in order to identify more specifically for

the Court what costs were being claimed and how they broke

out. The fact that the amount of costs claimed in the

declarations doesn't line up with the memoranda is a

reflection only of the fact that the memoranda categories,

some of the costs didn't fit. So the memoranda filed

represent our attempt to break down further what's claimed in

the declarations.

THE COURT: When you say your memorandum, you mean

your actual bill of costs?

MR. PETERSON: Yes, the costs.

THE COURT: But it's less than what's in your

declaration. I don't get that. I would think it would be

the other way around. And there's this category on the

district court form "other costs," which you could have

included. So I have no idea how you arrived at your costs.

Not to mention that there's two other issues. One, the issue

that you late filed the bill of costs, and I should just deny

it for that reason alone. And, two, there's specific

objections to a number of these costs. And those


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total $7,355.76 for costs in your bill, Mr. Peterson, and

$1,855.65 in Ms. Bertani or Mr. Costello's bill.

So the first question is why shouldn't I just deny it

outright because you late filed?

MR. PETERSON: Well --

THE COURT: You did late file; right?

MR. PETERSON: Yes, it was two days late. And the

only reason I can give you is that the purpose of our filing

the cost bill was to better explain the costs that were

claimed in the timely filed declarations.

THE COURT: Wasn't it a month late? I mean judgment

was February 8th. You filed on March 11th. That's a month,

isn't it?

MR. PETERSON: We had a stipulation, your Honor, that

everything would get filed on an agreed schedule. And the

cost bill wasn't specifically included in that stipulation

for sure. Perhaps it should have been. But as I said, the

point of filing the cost bill was really just to break down

more specifically the costs that were claimed in the

memoranda -- I'm sorry -- in the declarations.

THE COURT: Right. But again, it didn't do that

because, again, I have no idea what additional costs that

you're claiming through your declarations aren't in the bill

of costs. And I assume you can't give me an itemized list of

that.


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And then, second, I want you to respond to the point

raised by the defendants that you're also, both firms, are

trying to seek costs that relate to claims against Internet

Brands and Intermedia. Specifically, a deposition of David

P. Robbins, transcripts of Adrian Harris and Barbara Walsh.

Travel expenses to the Knighton deposition, who was a

representative for Internet Brands, and his testimony was

irrelevant. Summons and subpoena costs for Internet Brands,

Vortex Media, and Intermedia, George Knighton. And the

deposition transcript of George Knighton and a conference

room fee for George Knighton's deposition.

Why should those be awarded?

MR. PETERSON: Well, first of all, your Honor --

THE COURT: Knighton was that strange guy; right?

MR. PETERSON: He was the strange guy, yeah. Is your

question directed just to Knighton or the list that

preceded --

THE COURT: The list that's in the opposition.

MR. PETERSON: Well, in the reply declarations that we

filed, one filed by me and one filed by John Costello,

document number 286-2 and 286-3.

THE COURT: I got those.

MR. PETERSON: We backed out those costs that were

objected to associated with the state action and associated

with the litigation activities versus Internet Brands. Now,


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with respect to George Knighton specifically --

THE COURT: Again, Costello only backed out $308 in

costs, and you backed out $705 in costs. By my math, that's

$1,013. And they want me to back out almost $9,000 in costs.

So you haven't backed out all the costs that they're --

MR. PETERSON: That's correct. And the reason why we

didn't back out all of them, George Knighton is a good

example. George Knighton is not a witness who was deposed in

the case solely because Internet Brands was a defendant.

Quite the contrary. You may recall that I tried vigorously

to get the Court to accept evidence from George Knighton,

over the objection of the defendants, pretrial. We sought to

depose George Knighton because he was privy, as a moderator,

he was privy to communications between Adler and DiCarlo. He

was privy to communications among Adler, DiCarlo, and

Wedgeworth. And we believe that he had all kinds of relevant

things to say about statements and representations that were

made. Ultimately the Court, I believe, was persuaded that

his testimony would be hearsay, not subject to an appropriate

exception, and his testimony was disallowed. But his

testimony was cited in opposition to all three summary

judgment motions. And even after Internet Brands and

Intermedia Outdoors were out of the case, I offered his

testimony here at trial. So I don't think it's appropriate

to exclude costs associated with Knighton. He was a witness


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in the case in chief.

THE COURT: Do you think I have the discretion to

allow the costs to be taxed, imposed against the defendants

when they are late filed, when you're in violation of the

Court's local rule and Rule 54?

MR. PETERSON: I think you clearly do have that

discretion if that was the only place that the costs we

claimed are embodied. The fact of the matter is the costs

were embodied in a timely filed motion supported by a

declaration. So I don't quarrel with the notion the Court

has discretion to reject an untimely cost bill, but I don't

think that's the configuration of facts that are before you

now.

THE COURT: Why not?

MR. PETERSON: Because the costs were claimed in the

timely filed declarations pursuant to the stipulation and

order of the Court.

THE COURT: So you think you can still be awarded

costs even if you don't file a cost bill? Even if you hadn't

filed a cost bill at all, you think I could still award

costs?

MR. PETERSON: Yes, I do.

THE COURT: Under what authority?

MR. PETERSON: The Court has done so in the case of

Intermedia Outdoors.


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THE COURT: In their motion for summary judgment you

mean?

MR. PETERSON: No. In the motion for attorneys' fees.

THE COURT: They included costs in that?

MR. PETERSON: They did.

THE COURT: Okay. What do you say about that,

Mr. Davis?

MR. DAVIS: I would disagree with that, your Honor.

THE COURT: I did do that.

MR. DAVIS: There's both statute, local rule, and also

the agreement of the parties that went into an order by the

Court. I think construing that most favorably to the

plaintiffs, they would have had until the 3rd, the stipulated

date to file this, and they didn't do so. The local rule's

very clear about filing a bill of costs. But our stipulation

didn't even address the bill of costs. I think the date to

do that would have been triggered by the February 8th date of

the judgment.

THE COURT: But the argument is Intermedia Outdoors, I

awarded costs to them. They didn't file a bill of costs. I

granted their motion for attorneys' fees, and as part of that

I awarded costs.

Why wouldn't Mr. Peterson be entitled to the same?

MR. DAVIS: Well, I would argue that that was an

erroneous decision that probably should have been brought up


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at the time that there was argument on that motion. But it

wasn't something that was addressed, and I wasn't party to

that. And I don't think it would be law of the case that

would prohibit us from raising the objection which we did.

THE COURT: 54(d) of the Federal Rules of Civil

Procedures says, "Unless a federal statute, these rules, or a

court order provides otherwise, costs, other than attorney's

fees, should be allowed to the prevailing party."

Right? I just read that correctly. I don't know of a

federal statute, rule, or a court order that provides that I

can award costs under Mr. Peterson's theory. I think you're

correct. Because our local rule doesn't say -- it just says

within 14 days, file the bill of costs. And again, I think,

in part, that local rule is designed to simply make it a

clerical matter if there's no objections. And that happens

all the time. You file your bill of costs, and actually I

don't even see it. The clerk just enters it.

MR. PETERSON: That's right. And the bill of costs

form is designed to address cases, all kinds of different

cases, including those that don't have a statutory provision

for recovery of costs, such as Section 505. And that's what

brings us here today.

THE COURT: All right. I don't want to spend a whole

lot of time on that. In terms of the specific objections

with respect to costs, I'll take another look at those. I


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know what your objections are, Mr. Davis.

Do you want to make any record with respect to

Mr. Knighton other than, again, what's already in your brief,

or respond to his comments about Mr. Knighton's deposition?

MR. DAVIS: Just responding to Mr. Peterson, I think

the testimony that was sought clearly from the outset was

going to be hearsay. I think Mr. Peterson's argument from

the beginning was that it was going to fall under some kind

of hearsay exception. But I think it clearly was not and was

not going to be relevant, and that could have been

anticipated. And my client shouldn't be required to pay the

costs of a deposition that really never should have been

taken and that was never going to be admitted at trial.

THE COURT: Okay. Let's back up. The motion itself,

the first issue is whether obviously the Court should award

attorneys' fees and costs in this case. Again, no one

disagrees that the authority for the Court to do so, and I've

done it in this case with respect to other defendants, is

Section 505 of Title 17. Section 505 of the Copyright Act

provides that "Except as otherwise provided by this title,

the court may also award a reasonable attorney's fee to the

prevailing party as part of the costs." In applying this

provision, district courts are charged with two tasks:

First, deciding whether an award of attorneys' fees is

appropriate, and, second, calculating the amount of fees to


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be awarded. Factors that may be considered by the court in

deciding weather to award fees including the following:

One, the degree of success obtained by the prevailing

party.

Two, the frivolousness of the losing party's claim.

Three, the motivation of the losing party.

Four, the reasonableness of the losing party's legal

and factual arguments.

Five, the need to advance considerations of

compensation and deterrence.

Six, the purposes of the Copyright Act.

And seven, whether the chilling effect of the

attorneys' fees may be too great or impose an equitable

burden on an impecunious plaintiff.

That's Wall Data, Inc. vs. L.A. County Sheriff's

Department, 447 F.3d 769, a Ninth Circuit case 2006.

I don't need any further argument on whether

attorneys' fees and costs should be awarded to Mr. Adler in

this case. It is clear to the Court without question that he

was the prevailing party at trial over RelyNet and

Mr. DiCarlo.

I also find that there is a need to advance

considerations of compensation and deterrence, particularly

with respect to Mr. DiCarlo and the way that he conducted

himself with respect to Mr. Adler. And I think it does


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advance the legislative purposes of the Copyright Act to

award attorneys' fees. I've done it against Mr. Adler in

this case, and I certainly believe that given his victory at

trial, it's warranted in this case that Mr. DiCarlo should

pay.

I don't necessarily find that the defense was

unreasonable. But as, Mr. Peterson, you've argued and I

agree, that doesn't prevent the Court from awarding

attorneys' fees and costs in your client's favor.

So I really want to focus -- and that is my finding.

I need to focus, however, on calculating the amount of fees

to be awarded. At this point I am going to become very

critical, Mr. Peterson, of what was submitted to me. I've

seen a lot of these motions. And this is the most unusual

declaration and summary that I've ever seen. It kind of

reminds me of how law firms used to bill clients in the old

days where they'd simply say for services rendered and stick

a big number down there. When I compare your and

Mr. Costello's declarations to what I received, for example,

from Intermedia and Internet Brands where I actually had

copies of bills sent to clients, hours set forth. And maybe

you don't bill that way. I understand attorneys bill

differently. But when you're trying to support a motion for

attorneys' fees, you've made it incredibly difficult for me

to figure out how much duplication was involved in this case.


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And it's clear to me that there was a lot of duplicative

effort, but it's hidden in the affidavits. And I completely

agree with Mr. Davis's point that you're also seeking,

despite the fact that you've pulled out, both firms, about

$31,000 of what you're asking for, that you are seeking to

recover fees for matters in which you were not successful.

Let me start with I thought I read, and I want to

confirm, Ms. Bertani's here but Mr. Costello isn't, but I

think it was in Mr. Costello's declaration. Am I correct

that I read that off the top, he's going to get a 20 percent

contingency fee? He did say that, right, in one of his

declarations?

MR. PETERSON: Yes.

THE COURT: So why should I award any attorneys' fees

to his firm? It would seem to me to be a windfall. He's

already going to get about $200,000. By my calculations,

you're seeking after the deductions, the numbers I have are

you're seeking $168,358 for your work, and the Costello firm,

in addition to the 20 percent contingency, wants another

220,987.

MR. PETERSON: No, that's not correct. Not in

addition to the 20 --

THE COURT: That's my question. Is it in addition to

the 20 percent?

MR. PETERSON: The contingent fee agreement that


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Costello had was part contingency and part hourly. So what's

put forth in the declaration is the hourly charges that the

client incurred irrespective of the contingency.

THE COURT: I understand. But if I didn't award

Mr. Costello's firm any attorneys' fees, he's still going to

get his 20 percent; right?

MR. PETERSON: You mean 20 percent of --

THE COURT: Of the judgment.

MR. PETERSON: Yes, that's correct. But the purpose

of this motion is to compensate the litigant for fees

incurred, not the counsel.

THE COURT: Well, it's a reimbursement. I'm not going

to get into whether Mr. Adler actually has paid $220,000 yet

or not. But what you're saying is -- I'm not clear what

you're saying.

MR. PETERSON: What I'm saying is that the hourly

charges that Mr. Costello has put forth in his declaration

are hourly fees incurred by the client irrespective of

whether the contingency is realized or not.

THE COURT: And so if I awarded that --

MR. PETERSON: That's reimbursement.

THE COURT: -- and Mr. DiCarlo paid $220,000 to

Mr. Costello, you're saying Mr. Costello is going to turn

that money right back over to Mr. Adler. Is that what you're

saying?


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MR. PETERSON: Well, what I'm saying is --

THE COURT: Same thing with you. Assume I awarded you

$168,000.

MR. PETERSON: Yes. None of my fees are contingent.

My fees are straight hourly. They're owed win, lose, or

draw.

THE COURT: Right.

MR. PETERSON: Okay.

THE COURT: So assume Mr. Adler hasn't paid you zero.

That 168 is going right to you under that hypothetical.

MR. PETERSON: Well, that begs the question of whether

Mr. Adler has paid the fees or not.

THE COURT: I'm not asking that. I mean ultimately

that money is going to end up in your pocket, not

Mr. Adler's.

MR. PETERSON: Not necessarily. That assumes I

haven't been paid.

THE COURT: Okay. Even if you have been paid, it goes

to Mr. Adler. It's just a reimbursement for money you've

already received.

MR. PETERSON: That's correct. In other words, my

fees, straight hourly, on a straight hourly basis --

THE COURT: I'm not worried about your fees. I don't

want to actually focus too much on your fees. My question

was it just seems like a windfall to me -- that's my first


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issue -- to Mr. Costello's firm, since he's already got a

20 percent contingency fee.

MR. PETERSON: Well, again, it was not a straight

contingency. So the hourly charges that Mr. Costello billed

to Mr. Adler pursuant to their agreement, those fees were

owed even if he lost.

THE COURT: Well, what part of that 20 percent?

MR. PETERSON: The 20 percent only applies if there's

a recovery.

THE COURT: Okay.

MR. PETERSON: I mean we don't have a recovery yet.

We have a judgment. We don't have a recovery. So my point

is even if we lost at trial, the fees billed by Costello, the

hourly amounts that are reflected in his declaration, those

would be due and owing from Mr. Adler regardless. So yes, in

that manner, it's a reimbursement.

THE COURT: My second question is I'm not sure what

Mr. Costello did in this case. And his declaration doesn't

help me. He did nothing at trial in terms of being in court,

asking questions, participating in the trial. That was all

you. I took it based on the affidavits that you actually

were involved in the case almost from the beginning as well.

I thought you came in later, but you've been around. I'm not

sure what Mr. Costello did that you didn't do as well.

I understand Ms. Bertani had a somewhat different


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role. But you see the problem your affidavits present is:

One, the affidavits, the tasks listed are real similar in a

number of things. Two, I now know that on certain

depositions, sometimes there were three lawyers from your

side at the deposition. I understand that happens at

depositions. I did practice law at one point. But when

someone is seeking to recover attorneys' fees, you have to

justify to the Court why you needed Mr. Costello and

Ms. Bertani there. This was your case. You were the lead

lawyer.

And I know that lead lawyers and trial lawyers need

someone like Ms. Bertani to assist them. I'm not questioning

that. I am questioning Mr. Costello's role in this case.

And he's not here to defend himself, which I think speaks

volumes. But go ahead.

MR. PETERSON: Well, to answer your question about the

division of labor -- and the Court asked me when we were here

last time when I came into the case, because the Court I

think believed it was right before trial. And that's

somewhat accurate. I correctly told you that I was on the

pleadings from the get go. But the division of labor was

that Mr. Costello and Ms. Bertani handled virtually all the

pretrial activities, save and except only the depositions.

But they handled all the discovery, the written discovery,

responding to the discovery, the motions, the motions to


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amend the complaint.

THE COURT: You didn't review any of that?

MR. PETERSON: Well, sure I reviewed it, yes. But I'm

speaking to your question about what was the division of

labor. So the division of the labor was absent the

depositions, prior to trial, I did very little. Well, let me

say this. Prior to the pretrial conference, I did very

little. And Costello's firm, Costello and Ms. Bertani, did

virtually all of the pretrial work. Was there some

duplication? Yes. I mean did we co-draft and collaborate on

certain documents? Yes, of course. But I'm talking about

primarily on the task, it was Costello and Bertani until

shortly before the PTC.

THE COURT: April through December now, again, you're

only seeking 26 hours. And given the tasks, I can only

assume that most of those were done by Mr. Hamilton, not by

you, since it involves sort of basic research. But they're

identical. Legal research and analysis related to various

copyright infringement. Mr. Costello, legal research and

analysis related to various copyright infringement. Meetings

with cocounsel. Meetings with cocounsel. Prepare a request

for entry of default and draft amended complaint. Prepare a

request for entry of default and draft amended complaint. I

don't think under any circumstances that in an award of

attorneys' fees that attorneys should be allowed to recover


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attorneys' fees when drafts are passed back and forth; when

four lawyers are looking at something when two lawyers can do

it. And that's what I see in this, especially on

Mr. Costello's side where there's 216 hours billed for tasks

for which you only billed, your firm only billed 26.

Again, one of these firms is going to have to suffer.

And I think you're both asking that I simply just award one

amount. You don't want me to separate it, or is that

incorrect? Do you want me to actually separate out the

award?

MR. PETERSON: No.

THE COURT: You just want one lump sum?

MR. PETERSON: Yes, sir. There's no need for that.

THE COURT: And then you two will figure it out. I

will tell you I'm going to reduce that number because there's

a lot of duplication in here. From January '09 to

December '09, again, the tasks and events are identical

almost. Now, again, you only have 46 hours during this --

actually, no. You break it up differently. During the

three-month period, March to June 2009, you have 46 hours,

and then July to September, you have 109 hours. It's

Mr. Costello who simply lumps everything together. I have no

idea from his affidavit what exactly he was doing and

Ms. Bertani was doing. So I can't separate the two of them

out. I have no idea what they were doing. And then you


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start becoming more involved, obviously, in October of 2009,

because then the hours go up to 160. And then during the

pretrial and trial phases, that's the other part I don't

understand. You have 340 hours, and they have 204 hours

during this pretrial/trial. And I can't tell how many of

those hours are Ms. Bertani's. Your hours I understand. I

mean your hours are legit. And no one's arguing about your

billable hours. This isn't a question of your hourly rates

at all. It's really a question to me of duplication and what

exactly Ms. Bertani was doing, because I actually didn't know

that you had Mr. Hamilton. I don't think I ever saw him in

court. So if you have an associate attorney working with

you, why do you need Ms. Bertani as well? That, again, seems

to be duplicative.

MR. PETERSON: As the Court may recall, Ms. Bertani

was present during the trial every day.

THE COURT: Right.

MR. PETERSON: And she was present at the PTC. The

work done by Mr. Hamilton, to address the Court's question,

only pertained to research that we couldn't do while we were

in court.

THE COURT: How do I know that?

MR. PETERSON: I understand your question.

THE COURT: That's the problem. Okay. Those were the

main issues I had, as pointed out by Mr. Davis in his


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opposition. I don't believe that it warrants an award of

zero, and I'm not going to award zero. But I'm going to take

this under submission and come up with a number. And I'll

come up with one number, both as to attorneys' fees and

costs. But I do want everyone to know leaving this court

that it's not going to be anywhere near the amount sought,

which right now I have as, again, based on -- I understand

you've taken out 31,000 already -- $389,345 in fees between

the two firms, $22,170.50 in costs. So a little over

$400,000. It's not going to come out to that.

The other thing I want to give you a chance to respond

to, because I do think Mr. Davis raises a valid point, I do

disagree that -- I do agree that you were the prevailing

party at trial. I don't agree at all that this was a

complete win, a total success. I'm not sure exactly what

words you used, but along those lines. Because there were

claims and defendants that were brought into this case which

I found Mr. Adler should not have brought into this case and

was not successful. And I can't ignore the fact that you

didn't win, although it was a small portion of the case, you

didn't win on the 502 claim. And again, looking at it from

the defendants' point of view, you asked for 2 million and

you only got 1 million. So if you had been completely

successful, you would have got the 2.2 million that I think

you sought at trial. It still was, again, a successful


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prosecution of this case, and you did prevail. It just was

not at the level that was argued in the briefs. And I can't

tell, again, from your affidavits, I know you've taken out

31,000, both of you, around $31,000 for fees that you

included that related to the state case. And, in part, that

related I think to Intermedia.

MR. PETERSON: Correct.

THE COURT: I agree and disagree with your point that

Mr. Adler prevailed as to Internet Brands. The record I

think is clear. I didn't make any finding, and I don't make

any finding, that either side prevailed. That's why I didn't

award Internet Brands its attorneys' fees. But that doesn't

and should have not lead to the inference that I found that

Mr. Adler prevailed on his claims against Internet Brands.

They ended up paying a $200 statutory damage award, and, in

my view should been dismissed from the case, but they

weren't, and that's why I awarded some additional fees to

them. But there was no finding that either side prevailed as

a matter of law and that you should be allowed to recover

your attorneys fees with respect to Internet Brands. But I

can't tell how much of this bill and costs and fees that

you're seeking deal with Internet Brands. And I think, in

part, your argument is it's so intertwined that you really

can't separate it out. The same thing you argue with respect

to the fraud claim.


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I understand the arguments. Defendants think that I

should discount the fees as well or reduce them because of

that fraud claim. Your argument is it's so intertwined with

the copyright claim that that wouldn't be appropriate. I

tend to agree with the plaintiff on that specific issue.

All this leading to the conclusion, based on what I've

read in the briefs, that there will be some reduction of the

over $400,000 sought by the plaintiff, but there definitely

will be an award of attorneys' fees and costs.

Anything either party wants to add for purposes of the

record with respect to the motion for attorneys' fees before

I, in fact, take it under submission and issue an order on

that? Mr. Peterson.

MR. PETERSON: Nothing here, your Honor.

MR. DAVIS: Yes.

THE COURT: Go ahead, Mr. Davis.

MR. DAVIS: Yes, your Honor. A couple points. With

respect to Internet Brands, first of all, while a lot of the

issues would be intertwined, procedurally the filing of the

amended complaint, the summary judgment motion specifically

relating to Internet Brands, none of that would be

intertwined. The money spent on that would be separate and

apart from the claim against my clients. And there's no

reason for my client to have to reimburse Adler for money he

spent on motion practice relating to a party that ultimately


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the Court concluded he had no business suing. So I think

that, while there may be commonality of some issues,

procedurally there's no reason for us I think to be obligated

to pay that money. And I do think that that ought to be

backed out. But there's no basis on the papers that we see

to calculate what that would be.

With respect to the state claim, the most recently

submitted declarations of Mr. Peterson and Mr. Costello back

out some of the costs, but there's no itemization of exactly

what they're backing out. I will note that that state claim,

while it no doubt consumed a lot less time than the federal

claim, existed for a year and a half.

THE COURT: And it involved, what, a demurrer and a

motion for summary judgment?

MR. DAVIS: A demurrer, two motions to stay, the

filing of an amended complaint, a summary judgment motion.

There was no, as I recall, additional discovery in that case.

THE COURT: It was mostly law and motion practice.

MR. DAVIS: It was mostly law and motion. But given

the size of the overall bill, to me, the fees seem a little

bit small, but I'm shooting in the dark. I have no way of

itemizing it without knowing exactly what's involved there.

To me, it makes me suspicious of the total amount that's

being stated in light of how long that state law case

existed. So that's definitely an additional issue as well.


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THE COURT: I would note, I mean I considered your

argument. It is as I've indicated not the type of

information I'm used to receiving in requests for attorneys'

fees. That it's legally and factually deficient. But as the

plaintiffs point out in their reply brief, and for purposes

of the record, there is a case that holds that it's an abuse

of discretion for a court to deny a fee request altogether

for lack of adequate documentation as to apportionment of

attorney time between copyright and non-copyright issues.

That's Traditional Cat Association, Inc., vs. Gilbreath,

340 F.3d 829, Ninth Circuit 2003, which holds: "Where a

district court must apportion fees, the 'impossibility of

making an exact apportionment does not relieve the district

court of its duty to make some attempt to adjust the fee

award in an effort to reflect an apportionment.'" And that's

what I'm going to end up doing. As I indicated, it's not

going to be the amount that they're seeking. There will be

some amount, but, and let Mr. Costello know as well, you've

made my job a lot more difficult by not submitting the actual

bills that most lawyers prepare and submit to their clients.

Again, I don't know if, in fact, that's the way that

either Mr. Costello or you bill, Mr. Peterson. Most lawyers

do it that way. There's a computer printout of how many

hours you spent and what the hourly rate is. That's what I

like to see. In this case, I'm assuming the worst. I'm


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assuming that those would have showed that there was a whole

lot of duplication in these cases. And because I'm assuming

the worst, quite honestly I think -- I'm not going to

separate it because you didn't ask me to separate it, but I

don't think that Mr. Costello's firm is entitled to a whole

lot in this case. I think you are, but I just don't think

his firm is entitled to a whole lot, other than the work put

in by Ms. Bertani, particularly at trial.

MR. PETERSON: Your Honor, one point of clarification,

if I may.

THE COURT: Go ahead.

MR. PETERSON: The total amount backed out of the

billings relative to the state action was a total of $23,940,

when you put the costs and fees I backed out together with

Costello's.

THE COURT: Right.

MR. PETERSON: And I'll represent to the Court based

on the amount of activity, that's a very appropriate number.

I mean there was virtually no discovery in the case. There

were two motions.

THE COURT: Well, it's your hourly rate. I mean it's

a lot of hours.

MR. PETERSON: I'm sorry?

THE COURT: That's your hourly rates. It is a lot of

hours. Your hourly rates are pretty low.


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MR. PETERSON: Right.

THE COURT: I'm agreeing with you that it is a lot of

hours.

MR. PETERSON: Mr. Davis raised the question about the

amount that we backed out seeming insufficient. And I'm

saying when you look at what happened in that case, backing

out $23,943 is not insufficient. From soup to nuts, that's

all there was. And I think what I understood Mr. Davis's

point to be is that he thinks it should be more that's backed

out. And what I'm trying to get across to the Court is

there's nothing more to back out. That's it. That's

everything.

THE COURT: Okay.

MR. DAVIS: If I may, your Honor.

THE COURT: Go ahead.

MR. DAVIS: We don't have anything specific in the

form of itemization or an affidavit with any clarity to

really address that. I'm put in the position of shooting in

the dark about what exactly they're billing for and what

they're not. And it was odd to me that their two

declarations read so similarly as though they're doing

exactly the same thing. And it doesn't make sense to me that

multiple attorneys should get paid for doing exactly the same

thing. That is how their affidavits read to me, in the

absence of anything clear.


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THE COURT: It's about 77 hours if you use a blended

rate of $300 an hour. You think you guys spent only about 77

hours on the state case?

MR. PETERSON: Yes. And what you do have in front of

you is you have a declaration from me, you have a declaration

from Costello, saying that we backed out all the charges

related to the state action. So the issue of allocation, the

issue of duplication, what I'm trying to say is it's a

nonissue. We took out all the costs and fees billed for the

state action, and we omitted them in their entirety.

THE COURT: How did you do that?

MR. PETERSON: Well, because the -- how I did it on my

billings is that I kept track of the state case and the

federal case in separate --

THE COURT: Why didn't you submit those to me?

MR. PETERSON: Well, my practice in attorney's fees

motions is we don't provide the bills. Many clients object

to providing the bills in a public forum. There's

attorney-client privilege issues. There's work-product

issues. And I can tell you many institutional clients have a

real problem with the legal fees getting -- well, with their

invoices being part of the support. So this is the way I've

always done it, is we review all the bills, and we separate

out the tasks and the timekeeper, and we describe the work in

that manner.


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THE COURT: All the years you've been practicing, and

I understand that's your practice, you've never had a judge

say to you: I can't tell what you did here?

MR. PETERSON: No. I've never had a judge say to me:

I need your bills to be able to tell what you did here.

THE COURT: Have you had cases where you were in

similar situations, though, where you had cocounsel like

this? I mean I could understand if it was just you. I could

understand that. But in a situation where you have two

firms, there's a lot of duplication of effort. And --

MR. PETERSON: I understand the concern with the two

firms. And I think that two firms on one case is -- I won't

say it's unusual, but I don't think it's the typical case.

And so I understand the Court's concern about duplication.

But the point that I'm making now is that I never provide the

invoices. And this is the way we've always done it. And the

genesis of it was when I started practicing, I worked at a

firm that had many institutional clients, and they did not

want their legal invoices put out in the public domain.

THE COURT: You can also always ask for a protective

order too.

MR. PETERSON: True enough.

THE COURT: All right. The matter on the attorneys'

fees is submitted. I'll issue an order.

Finally, I will acknowledge I did receive the proposed


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order on the declaratory and injunctive relief. And then

each side has filed briefs with respect to the order. We'll

take a look at that, and I'll get that order out as well with

respect to the declaratory and injunctive relief.

Anything further?

MR. PETERSON: One question, your Honor. The

defendants filed an ex parte application to get a hearing set

on a motion to stay enforcement. The Court hasn't addressed

it, and I don't know if the Court intends to, but I'm asking

in an abundance of caution if the Court intends to set a

hearing on that, I --

THE COURT: I thought I just stayed it until today. I

thought I did issue an order. They just wanted me to stay

enforce of the judgment until this hearing. That was my

understanding. And I think I did actually grant. I thought

there was an order actually on the docket where I granted the

motion to stay, but only until today's hearing.

MR. PETERSON: Did you see that, Counsel?

MR. DAVIS: I did not see that order, your Honor.

THE COURT: Did I do that, Mr. Vine?

THE CLERK: I'm not finding that, your Honor.

THE C OURT: Did I do t hat? I t hink I did. If n ot, i t

was implicit. But it was only until today.

MR. PETERSON: Okay.

THE COURT: You have a judgment. I'm not staying that


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judgment absent some type of formal motion requesting me to

now stay judgment.

MR. PETERSON: Okay. That's all I need.

THE COURT: You don't see anything on there?

THE CLERK: No.

THE COURT: Maybe we didn't issue something.

MR. PETERSON: If you did, I didn't get it. And the

fact that Mr. Davis didn't get it is an additional sign.

THE COURT: I think I may have told my law clerks wait

to see if there's an opposition. But we were so close to

today's hearing, I think I just -- actually, I thought I said

issue a minute order. But if not, so the record's clear, it

was only to today's hearing date. So there is no stay in

effect.

MR. PETERSON: Very well. Thank you.

THE COURT: All right. Thank you both.

(Proceedings concluded at 11:15 a.m.)


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I certify that the foregoing is a correct transcript

from the record of proceedings in the above-entitled matter.

/s/ Kelly O'Halloran

KELLY O'HALLORAN, CSR #6660

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