Contracting v. Hanson Aggregates, Inc.

NEI CONTRACTING AND ENGINEERING, INC., Plaintiff, v. HANSON AGGREGATES, INC., et al., Defendants.

Case No. 12-cv-01685-BAS(JLB)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

May 31, 2017

ORDER DENYING PLAINTIFF'S MOTION FOR ATTORNEYS' FEES AND COSTS

[ECF No. 182]

Plaintiff NEI Contracting and Engineering, Inc. ("NEI") placed orders for concrete by phone with Defendant Hanson Aggregates Pacific Southwest, Inc. ("Hanson"). After accepting delivery of the concrete, NEI refused to pay for it. But NEI's efforts to stiff Hanson crumbled when Hanson produced recordings of its phone orders. The company paid its bill in full.

NEI then filed this putative class action against Hanson based on Hanson's practice of recording customers' phone calls. It hoped to recover millions of dollars in damages on behalf of a class of Hanson's customers. NEI also sought to change Hanson's conduct. The company succeeded on the second point—part way through the litigation, Hanson voluntarily changed its phone system's admonition to advise customers that their calls may be recorded.

It would turn out to be a Pyrrhic victory. By the time NEI discovered Hanson's new behavior, the company's contingency fee counsel had already invested nearly $300,000 worth of time into this case. Yet, the hope of a large class action recovery never materialized. NEI proceeded to trial on its individual claim against Hanson, and it lost. The company recovered nothing.

Now, NEI turns to California's Private Attorney General Statute and the state's catalyst theory to try to recoup some of its counsel's investment. By leveraging its success in changing Hanson's conduct, the company hopes to subsidize its unsuccessful pursuit of a class action recovery. Thus, NEI seeks to recover all of its attorneys' fees up to the date it discovered Hanson's new behavior. The company also requests this fee amount be increased by a multiplier of 1.75—for a total bounty of almost $500,000. Hanson opposes.¹

Although NEI achieved partial success, a fee award is not appropriate. NEI does not meet its burden of demonstrating the requirements under California's Private Attorney General Statute and the catalyst theory are satisfied. Consequently, for the following reasons, the Court DENIES NEI's motion.

I. BACKGROUND²

Hanson sells crushed aggregates, ready-mix concrete, and soil amendments to the construction industry. NEI is a general contractor that has purchased concrete products from Hanson since at least 2002. As mentioned above, this case arises from Hanson's practice of recording its customers' phone orders and a billing dispute between the parties that was resolved through reference to recordings of NEI's orders.

A. Hanson's Recording Practice

Hanson receives orders for ready-mix concrete and aggregate materials through its dedicated phone order line. Before the order is placed, the customer generally speaks with Hanson's sales and specifications departments to determine what is needed and the pricing of the order. None of these calls, nor calls to Hanson's administrative or billing departments, is recorded. However, Hanson does record all calls that come into its dispatch lines, which are used when a customer actually places an order.

Prior to July 15, 2009, Hanson used a Voice Print International ("VPI") phone system. While the VPI system was in place, Hanson used "beep tone generators" on all of its telephones that received calls to the dispatch lines. The beep tone generators qualified as notice of recording.

NEI's owner and president is Eric Barajas. Various NEI employees, including Rich Degraffenreid, Sandy LeFever, and Charles Alexander, had authority to and did place orders with Hanson on behalf of NEI from job sites using their cell phones. Thus, NEI employees placed orders through Hanson's dispatch lines prior to July 15, 2009, and heard the audible beep tones generated by Hanson's beep tone generators. Accordingly, prior to July 15, 2009, NEI knew it was being recorded when its employees called the Hanson dispatch lines and therefore consented to the recording.

In July 2009, Hanson replaced its VPI system with an OAISYS Talkument phone system. As part of this phone system, Hanson included a pre-recorded verbal admonition stating that the call "may be monitored for quality assurance" to any customers calling through the dispatch lines. NEI continued to place orders with Hanson after it switched to the OAISYS Talkument phone system.

B. Billing Dispute

In 2011, NEI placed orders with Hanson in conjunction with its work on a construction project. Mr. Degraffenreid was the superintendent on the project. He,Mr. Alexander, and Mr. LeFever all had authority to place orders in conjunction with this project. The original estimate for the project was 100 cubic yards of concrete. In fact, however, the project used over 600 cubic yards of concrete. Hanson thus billed NEI for this higher amount of concrete.

Mr. Barajas, who was reviewing the Hanson invoices for the project, thought the bill was too high. He did not make inquiry of any of NEI's employees who placed the orders whether the bills were correct or not. Instead, he requested proof from Hanson that the orders belonged to NEI. Hanson provided copies of the original invoices for the concrete orders, but Mr. Barajas still disputed the bills and requested proof that the amount of concrete billed was actually delivered to NEI. Hanson then provided copies of the delivery tickets for the concrete NEI ordered. The delivery tickets were signed by NEI employees at the construction site who accepted delivery of the concrete. However, because many of the signatures were illegible, Mr. Barajas refused to pay the charges.

In response, Hanson filed a lawsuit against NEI and its bond company on December 8, 2011, seeking approximately $66,266.98, plus costs and fees, for unpaid invoices. Mr. Barajas countered that the concrete billed by Hanson could not have been concrete for the construction project at issue because the project did not require the particular strength of concrete being billed. Hanson replied by producing on March 8, 2012, recordings of phone calls with NEI employees that proved NEI had ordered the particular strength of concrete for the project.

After being confronted with invoices, signed delivery tickets, and recordings of NEI employees ordering the concrete, Mr. Barajas acquiesced and settled the case on behalf of NEI in May 2012 and paid the amount invoiced. Hanson agreed to waive any attorneys' fees or interest requested. NEI did not object to Hanson's recording practice during this billing dispute.

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C. CIPA Action

Shortly thereafter, on July 6, 2012, NEI filed the present action against Hanson under California's Invasion of Privacy Act ("CIPA") and the Class Action Fairness Act. The company did not try to resolve this dispute before filing suit. NEI's initial pleading raised a putative class claim under California Penal Code section 632, which prohibits the recording of confidential communications. The company, however, ultimately abandoned this claim in favor of a claim under California Penal Code section 632.7, which prohibits the recording of cell phone calls without consent. Thus, NEI's Second Amended Complaint filed on October 29, 2013, alleged Hanson violated section 632.7 by recording its customers' phone calls without their consent. NEI sought $5,000 in statutory damages per violation of section 632.7. It also sought injunctive relief enjoining Hanson's alleged violation of section 632.7.

D. Change in Hanson's Conduct

On December 23, 2013—a few months after NEI filed its Second Amended Complaint and clarified its theory of relief—Hanson changed the admonition that customers hear when calling its dispatch lines. The new admonition informs customers that their calls "may be monitored or recorded for quality assurance." Hanson disclosed this change on August 8, 2014, in a response to a written discovery request, which NEI's counsel reviewed on August 11, 2014. (Campion Decl. ¶ 3, Ex. A, ECF Nos. 182-2, 183-3.)

E. Trial

Ultimately, after the Court resolved a motion for summary judgment and various motions related to class certification, NEI's individual claim and request for injunctive relief remained for trial. Before trial, the Court ruled that NEI could potentially recover $5,000 for every one of the forty-four cell phone calls Hanson allegedly recorded without NEI's consent. Hence, NEI's potential recovery at trialwas $220,000. However, the morning of trial, NEI informed the Court and Hanson that it would be proceeding on only one cell phone call between NEI's principal Mr. Barajas and Hanson on November 21, 2011, and would, therefore, only be seeking damages of $5,000 along with injunctive relief. The parties orally waived their right to a jury and proceeded by way of bench trial.

Following trial, the Court ruled against NEI on the merits and entered judgment in favor of Hanson. Although it lost at trial, NEI now brings a motion to recover the amount of attorneys' fees it incurred up until August 11, 2014—the date it discovered Hanson had changed its conduct. Specifically, NEI seeks to recover its claimed actual fees of $283,397.50, increased by a multiplier of 1.75, for a total of $495,945.63 in attorneys' fees.

II. ANALYSIS

NEI brings its request for attorneys' fees under California's Private Attorney General Statute, Cal. Civ. Proc. Code § 1021.5. Under this provision, "a court may award attorneys' fees to a successful party against one or more opposing parties" if the action "has resulted in the enforcement of an important right affecting the public interest" and several additional requirements are satisfied. Cal. Civ. Proc. Code § 1021.5.

Section 1021.5 is "[a]n important exception" in California "to the American rule that litigants are to bear their own attorney fees." Graham v. DaimlerChrysler Corp., 34 Cal. 4th 553, 565 (2004). California enacted the provision "as a codification...