CENTRAL DISTRICT OF CALIFORNIA RTC, et al., Plaintiffs, v.

ROBIN SCOTT, et al., Defendants.

No. 85-711-JMI (Bx)
85-7197-JMI (Bx) MEMORANDUM OF DECISION I.

INTRODUCTION On the heels of the order dismissing plaintiffs' amended complaints for discovery misconduct, defendants- counterclaimants ("defendants") have moved for an order awarding them 2.9 million dollars in attorneys' fees.

Defendants argue that they are entitled to all fees incurred in defending the dismissed cases, citing the Lanham Act (15 U.S.C.

1170, the copyright statute (17 U.S.C. 505), California contract law, and the court's inherent power to sanction bad faith conduct.

Plaintiffs-counterdefendants ("plaintiffs") have opposed the motion. After the motion was submitted, plaintiffs requested that the Special Master defer ruling on the motion for attorneys' fees until after they produced the court-ordered discovery and conducted their own discovery regarding the attorneys' fees.

II.

DISCUSSION A. DEFENDANTS ARE ENTITLED TO ATTORNEYS' FEES UNDER THE LANHAM ACT Defendants have requested attorneys' fees pursuant to the Lanham Act, which authorizes the court to award such fees in an "exceptional case". See 15 U.S.C. 1117. Courts have found an "extraordinary case" where the "opposing party is guilty of 'extraordinary, malicious, wanton and oppressive conduct'".

Academy of Motion Picture Arts v. Creative House, 944 F.2d 1446, 1457 (9th Cir. 1991), citing Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1026 (9th Cir. 1985).

Plaintiffs have abused the federal court system by using it, inter alia, to destroy their opponents, rather than to resolve an actual dispute over trademark law or any other legal matter.

This constitutes "extraordinary, malicious, wanton and oppressive conduct". As such, this case qualifies as an "exceptional case" and fees should be awarded pursuant to the Lanham Act.

B. DEFENDANTS ARE ENTITLED TO ATTORNEYS' FEES UNDER THE COPYRIGHT STATUTE Defendants have requested attorneys' fees pursuant to the copyright stature, 17 U.S.C. 505. The statute reads as follows:

In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof.

Except as otherwise prohibited by this title, the court may also award a reasonable attorney's fee to the prevailing party as part of the costs. See 17 U.S.C. 505.

Despite this broad language, the Ninth Circuit has consistently held that a prevailing defendant must show that the plaintiffs' action was frivolous or brought in bad faith in order to recover attorneys' fees. Jartech, Inc. v. Clancy, 666 F. 2d 403, 407, (9th Cir. 1982), cert. denied, 459 U.S. 879, reh'q denied, 459 U.S. 1059, second reh'q denied, 463 U.S. 1237 (1983); see also, Bibbero Systems, Inc. v. Colwell, 893 F.2d 1104, 1108 (9th Cir. 1990) (reaffirming the validity of the Jartech standard and applying it to pretrial dismissals).

Defendants [ed. Mayos] have met their burden under the Jartech standard. Plaintiffs' complaints were not frivolous, but they were brought in bad faith. It is abundantly clear that plaintiffs sought to harass the individual defendants and destroy the church defendants through massive overlitigation and other highly questionable litigation tactics. The Special Master has never seen a more glaring example of bad faith litigation than this. Therefore, it is appropriate to award attorneys' fees pursuant to the copyright statute.

C. THE COURT WILL NOT AWARD ATTORNEYS' FEES BASED ON CALIFORNIA STATUTORY LAW Plaintiffs [ed. Scientology] have argued that California statutory law authorizing an award of attorneys fees for the prevailing party on contract claims should not be applied where, as here, the contract claims were dismissed as non-justiciable under the first amendment freedom of religion clauses.

Plaintiffs' argument is not without merit. Applying state statutory law might impinge upon important constitutionally guaranteed individual rights. California contract law might collide with the first amendment in this particular context.

Nevertheless, the court clearly has the power to award attorneys' fees for the contract claims, and all other claims, based upon its inherent power to sanction bad faith litigation conduct. See, infra at 5-6. As set forth below, the court will exercise that power. Therefore, the Special Master need not, and will not, address this unsettled and complex constitutional question.

D. DEFENDANTS ARE ENTITLED TO AN AWARD OF ATTORNEYS' FEES UNDER THE BAD FAITH EXCEPTION TO THE AMERICAN RULE It is well established that, under the "American rule", courts ordinarily will not award the prevailing party attorneys' fees absent statutory authority to do so. See e.q., Hensley v.

Eckerhart, 461 U.S. 424, 429 (1983).

It is equally well established that there is an exception to the American rule when the losing party has engaged in bad faith or oppressive litigation tactics. See, Alyeska Pipeling Service Co.v. Wilderness Society, 421 U.S 240, 258 (1975) ("Also, a court may assess attorneys' fees for the willful disobedience of a court order . . . or when the losing party has 'acted in bad faith, vexatiously, wantonly, or for oppressive reasons'."); see also, Chambers v. NASCO, Inc., _U.S._, 111 S.Ct. 2123, 2135 (1991) ("There is, therefore, nothing in the other sanctioning mechanisms or prior cases interpreting them that warrants a conclusion that a federal court may not, as a matter of law, resort to its inherent power to impose attorney's fees as a sanction for bad faith conduct.")

As already stated, the Special Master finds that plaintiffs engaged in egregious bad faith litigation conduct. Therefore, to the extent that fees are not awarded pursuant to the court's inherent power to sanction such bad faith conduct.

E. THE SUBMITTED ATTORNEYS' FEES ARE FAIR AND REASONABLE The Special Master has reviewed the attorneys' bills submitted by defendants with an eye towards the twelve factors enunciated in Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 70 (9th Cir.

1975) -- the cornerstone "lodestar" for attorneys' fees motions.

The defendants submission passes muster under this lode-star test. The submission reflects that many attorneys worked many, many hours on this case. However, the hours are reasonable given the plethora of constitutional issues, discovery stand-offs, appeals and, most importantly, plaintiffs' practice of endlessly litigating issues.

The hourly rates are reasonable for federal civil practice within the Central District of California. The submission is complete and accurate. It does not contain billings for the pending counterclaims or extraneous matters. Redactions due to privileges are at a minimum and appear fair. Overall, the submission is extensive and convincing.

The Special Master has considered plaintiff's numerous objections to the submission in writing and at the hearing on the motion, but finds that these objections are meritless.

Therefore, the court will award the requested amount of 2.9 million dollars.

A recommended order will follow.

*** IT IS ORDERED THAT plaintiffs' motion to defer ruling on the motion for attorneys fees is DENIED. IT US FURTHER ORDERED THAT defendants motion for attorneys' fees is GRANTED and plaintiffs are to pay defendants 2.9 million dollars for attorneys' fees.

IT IS SO ORDERED.

DATED: January 20, 1993 JAMES G. KOLTS U.S. Special Master

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