US Source v. Chelliah CA4/3 ( 2014 )

Filed 12/10/14 US Source v. Chelliah CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
US SOURCE LLC et al.,
Cross-complainants and Appellants, G049481
v. (Super. Ct. No. 30-2012-00534737)
MAURICE J. CHELLIAH, JR., et al., OPINION
Cross-defendants and Respondents.
Appeal from an order of the Superior Court of Orange County, H. Michael
Brenner, Judge. (Retired judge of the Orange Super. Ct. assigned by the Chief Justice
pursuant to art. VI, § 6 of the Cal. Const.) Affirmed.
Reza Ghaboosi for Cross-complainants and Appellants.
Andrew D. Weiss for Cross-defendants and Respondents.
* * *
I. INTRODUCTION
ChoiceAdz.com, a search engine optimization firm, filed a complaint
against US Source, a marketing firm, for breach of contract. US Source responded with a
cross-complaint for breach of contract, and included a cause of action for violation of
Penal Code section 502.1 The focus of section 502 is computer hacking.2 Section 502
also has an attorney fee provision in subdivision (e) for civil actions filed “pursuant to”
that subdivision.3 The trial judge rejected all claims by each party, but thereafter
awarded ChoiceAdz.com its attorney fees on the basis of US Source’s unsuccessful
section 502 claim. On appeal, US Source now presents a single, pristine issue of law: Is
the opportunity for attorney fees under section 502 restricted to plaintiffs only? US
Source says yes, therefore it was error to award any fees at all to ChoiceAdz.com, who
was a defendant on US Source’s section 502 claim. But we conclude otherwise. The text
is plain; any legislative history to the contrary is unclear. We affirm the order.
II. FACTS
Our facts are taken largely from the trial court’s statement of decision. US
Source is operated by Christopher Russell and Anthony Gutierrez (collectively US
Source), which is a marketing firm. ChoiceAdz.com is owned and operated by Maurice
J. Chelliah, Jr., who also owns Draycott Company. ChoiceAdz.com is in the business of
1 All references to section 502 in this opinion are to the Penal Code.
2 Technically speaking, the statute obviously encompasses activity beyond classic computer
hacking. It is perhaps best encapsulated in the Legislature’s declaration of intent, as stated in subdivision (a): “It is
the intent of the Legislature in enacting this section to expand the degree of protection afforded to individuals,
businesses, and governmental agencies from tampering, interference, damage, and unauthorized access to lawfully
created computer data and computer systems. The Legislature finds and declares that the proliferation of computer
technology has resulted in a concomitant proliferation of computer crime and other forms of unauthorized access to
computers, computer systems, and computer data.”
3 Section 502, subdivision (e) provides in pertinent part as follows: “(1) In addition to any other
civil remedy available, the owner or lessee of the computer, computer system, computer network, computer
program, or data who suffers damage or loss by reason of a violation of any of the provisions of subdivision (c) may
bring a civil action against the violator for compensatory damages and injunctive relief or other equitable relief. . . .
[¶] (2) In any action brought pursuant to this subdivision the court may award reasonable attorney’s fees.”
2
providing search engine optimization services.4 In early 2011, Chelliah attempted to
expand his business by hiring a friend, Brandon Roberts, to search for a company to
provide marketing services to ChoiceAdz.com . Roberts eventually contacted Anthony
Gutierrez, with whom he had worked before. Gutierrez had extensive marketing
experience, but little experience with search engines. Gutierrez referred Roberts to
Christopher Russell who owns US Source.
A series of meetings ensued, involving all four parties: Chelliah, Roberts,
Russell, and Gutierrez. Around June 2011, an agreement was reached under which
Chelliah would finance a new marketing team established by Gutierrez and Russell. The
agreement entailed minimum payments of $30,000 a month.
By the end of October, however, Chelliah had become dissatisfied with the
sales leads generated by US Source. As the trial judge would later find, Chelliah made an
“arbitrary and unilateral decision” to reduce his payments: He paid $20,000 the second
month, $15,000 the third month, and we have no indication he paid anything thereafter.
ChoiceAdz.com and Draycott (collectively ChoiceAdz.com) filed a complaint for breach
of contract a few months later, in January 2012.
US Source, however, had hired sales reps, installed computers, phones, and
signed a long-term lease for office space in anticipation of ChoiceAdz.com’s business.
And so, in March 2012, US Source filed its own cross-complaint against ChoiceAdz.com,
also alleging breach of contract. Additionally, the cross-complaint contained a claim for
violation of section 502.
The cross-complaint’s text as regards the section 502 claim was conclusory.
There is no reference at all in the cross-complaint as to how, precisely, ChoiceAdz.com
4 Search engine optimization is a body of knowledge bearing on an advertiser’s likelihood of being
placed relatively higher among the “hits” that a viewer will see from a search engine’s index of sites fitting the
viewer’s search terms.
3
had, somehow, stolen computer data from US Source. At trial, the only allusion to
computers at all was that ChoiceAdz.com had provided US Source with the email
addresses of two individuals at ChoiceAdz.com itself (one of which was
“chris@choiceadz.com”), and ChoiceAdz.com later closed those email addresses after
the relationship was terminated.
In a statement of decision filed in July 2013, Judge Gregory Munoz
rejected every claim by every party.5 There is no appeal from the merits of that decision.
Two months later, ChoiceAdz.com and Draycott made a motion for attorney fees as the
“prevailing parties” on US Source’s third cause of action for section 502 violation.
The trial court granted the motion. Judge Munoz’s statement of decision
directly confronted Judge Moskowitz’s decision in Swearingen v. Haas Automation, Inc.
(S.D. 2010) 2010 U.S. Dist. LEXIS 36963, which had categorically concluded section
502 is limited to “prevailing plaintiffs only.” (Id. at p. 7.) Specifically, the Swearingen
decision pointed to a California Senate Judiciary Committee report from 2000 saying
language in an earlier draft of the originating bill amending section 502 that had restricted
attorney fees to “prevailing plaintiffs” had been dropped, so as not to “chill desired civil
enforcement under the proposed new cause of action.” (Id. at p. 8.) From the Judiciary
Committee report’s reference, Swearingen concluded that the report revealed the
Legislature’s intent to “limit the recovery of attorney’s fees to prevailing plaintiffs only.”
(Ibid.)
Judge Munoz explicitly disagreed with Swearingen. He wrote, “If the
[L]egislature intended to limit attorney’s fees to prevailing plaintiffs it could have made
its intention unmistakably clear by saying so as it has done with so many other statutes.”
Rather, he reasoned, the deletion of the words “prevailing party” was simply an
5 Judge Munoz was the trial judge, and the one who made the attorney fee order. However, the
formal, signed attorney fee order from which this appeal is taken was signed by Judge H. Michael Brenner, hence
his name is in the caption.
4
indication the Legislature thought the words “superfluous.” That is, the Legislature was
no longer concerned that a party had to actually prevail to be “entitled to fees.” “Now,”
he noted, “even losing parties may be entitled to fees.” That meant the decision “to
award fees remains within the discretion of the trial court.”
III. DISCUSSION
A. Background
US Source reasons this way: The enacted language of section 502 doesn’t
say it is limited to plaintiffs, but then again it doesn’t say it is available to defendants
either, ergo it is ambiguous. And, since the language is ambiguous, resort to the
legislative history of the statute is appropriate. Further, since the legislative history
shows “prevailing party” language was deleted in the process of amending section 502 so
as not to “chill” the assertion of section 502 claims, the ambiguity must be construed to
preclude defendants from receiving attorney fees. (The connecting thought here is that
ChoiceAdz.com was, despite its nominal status as the original plaintiff, substantively a
“defendant” because it was US Source who asserted a section 502 claim against
ChoiceAdz.com in a cross-complaint.)
US Source buttresses its “no-chill” argument (our phrase, not its) with what
might be described as a probability analysis: Prior to 2000, it was highly probable that a
section 502 plaintiff would prevail, because, after all, a section 502 defendant would by
definition have already been convicted of a crime, which by definition entails a higher
standard of proof than an ordinary civil action. However, after 2000 it is now less likely a
section 502 plaintiff will prevail, because the conviction prerequisite for a section 502 has
been dropped. Therefore, says US Source, in order to both (a) encourage section 502
claims but (b) assuage its worry that section 502 plaintiffs might be exposed to attorney
fees if they didn’t prevail, the Legislature deleted “prevailing party” language from the
statute in order to confine fee recoveries solely to plaintiffs.
5
A complete history of section 502 is thus in order. That history goes like
this: Prior to 2000, section 502 made computer hacking a crime. However, subdivision
(e) of the statute also provided that victims of computer hacking could bring a civil action
against any person convicted under section 502. Such victims could also seek attorney
fees if they were a “prevailing party.”6 There was a perceived deficiency in this scheme,
however. Civil actions required a prerequisite criminal conviction (i.e., one based on a
“beyond a reasonable doubt” standard) and prosecutors’ offices often lacked the
“technical experience” and resources to prosecute computer crimes.7 So, in 2000, at least
one computer-oriented business (eBay8) sought to have the statute amended to make it
easier for victims of computer hacking to obtain civil remedies without the need to first
obtain a criminal conviction.
Two bills were introduced in 2000 to dispense with the conviction
prerequisite of the statute and, in effect, create a free-floating statutory civil cause of
action attached to a statute in the Penal Code – Assembly Bills 2232 and 2727. Each
proposed to make computer hacking under section 502 a statutory tort with a civil remedy
even if prosecutors couldn’t obtain a conviction. And each bill contained an attorney fee
provision. Assembly Bill 2232’s attorney fee provision contained an explicit reference to
“prevailing parties.”9 Assembly Bill 2727’s attorney fee provision made no such
reference.10 Both bills were passed, and approved by the Governor on September 24,
6 For example, in 1999, the year before the 2000 amending legislation, section 502, subdivision
(e)(2) read: “In any action brought pursuant to this subdivision the court may award reasonable attorney’s fees to a
prevailing party.”
7 See Senate Judiciary Committee Bill Analysis for August 8, 2000 hearing date, page 4.
8 According to the same Senate Judiciary Report which influenced the Swearingen court, eBay was
the direct “sponsor” of Assembly Bill 2727, about which more in a moment.
9 It provided that section 502, subdivision (e)(2) would read: “In any action brought pursuant to this
subdivision the court may award reasonable attorney’s fees to a prevailing party.” (Italics added.)
10 It provided that section 502, subdivision (e)(2) would read: “In any action brought pursuant to this
subdivision the court may award reasonable attorney’s fees.”
6
2000, with the final codification reflecting Assembly Bill 2727’s deletion of any
“prevailing party” language.11
A Senate Judiciary Committee report of August 8, 2000, concerning
Assembly Bill 2727 gave some indication why the bill was passed without any
“prevailing party” language. The report recounted how certain “Recent amendments”
that had been made to remove opposition and explained why that bill ended up with no
prevailing party language: “Also, existing law allows the award of reasonable attorney’s
fees to prevailing parties. In response to concerns that this language might chill desired
civil enforcement under the proposed new civil cause of action, this provision is proposed
for repeal.” It was this very passage which the Swearingen court said “reveal[ed] it was
the legislature’s intent to limit the recovery of attorney’s fees to prevailing parties only.”
(Swearingen, supra, 2010 U.S. Dist. LEXIS at p. 8.)
One additional item of legislative history from the year 2000, however,
needs to be mentioned. The Legislative Counsel’s Digest of Assembly Bill 2727 – the
version passed without prevailing party language – had this to say on the topic: “This bill
would also authorize a court to award punitive or exemplary damages where a violation
of these criminal provisions was willful, or where it is proven that the defendant has been
guilty of oppression, fraud, or malice as specified, would allow the award of attorney fees
to any party, and would impose a 3-year statute of limitations.” (Italics added.) The
Swearingen court did not discuss the Legislative Counsel’s Digest comment.
11 Each bill had a provision recognizing the other was proposing amendments to section 502.
Section 2 of Assembly Bill 2232 had a provision to the effect that if Assembly Bill 2727 was enacted first, section 1
of Assembly Bill 2232 would not become operative. While both bills were filed with the Secretary of State the same
day, we may infer that Assembly Bill 2727 was enacted first, because its version of section 502, subdivision (e)(2)
was the one that was codified.
7
B. Analysis
1. Plain Text
Classic statutory analysis usually follows a three-step decision-tree: Start
with the language of the statute. If plain, apply it, and stop there. (White v. Ultramar,
Inc. (1999) 21 Cal. 4th 563, 572 [“‘If the plain language of a statute is unambiguous, no
court need, or should, go beyond that pure expression of legislative intent.’”].) If the
language is not plain, look at the legislative history. (See Halbert’s Lumber, Inc. v. Lucky
Stores, Inc. (1992) 6 Cal. App. 4th 1233, 1239 [“But if the meaning of the words is not
clear, courts must take the second step and refer to the legislative history.”].) And if the
legislative history fails to “reveal clear meaning,” there is final step which courts should
only take if they have no alternative: apply reason, practicality and common sense. (Id.
at p. 1239.)
Judge Munoz was right on all three steps. First, the language really isn’t
ambiguous. Lots of statutes don’t say lots of things. Just because this statute doesn’t say
that the trial court may award fees to a defendant (or, more precisely, a party not making
a section 502 claim) doesn’t make it ambiguous. On its face the text of the statute is
plainly inclusive. All the trial judge needs is an action “pursuant to” the statute. Any
perceived need for the statute to specifically say defendants or non-section 502 claimants
may be awarded fees depends on the idea that a limitation to plaintiffs must be implied
into the text of the statute. And that idea doesn’t work. (See Code Civ. Proc., § 1858
[“In the construction of a statute, . . . the office of the Judge is simply to ascertain and
declare what is in terms or in substance contained therein, not to insert what has been
omitted”].) The statute might be a bit broad as written, but that’s the way the Legislature
wrote it.
But, says US Source, much of the time when the Legislature writes an
attorney fee statute, it specifically limits it to prevailing plaintiffs. (E.g., Civ. Code,
§ 52.4 [in action by person subjected to gender violence, a “prevailing plaintiff” may be
8
awarded fees and costs].) So the open-endedness of section 502, as written, is
anomalous, to say the least. The answer to this point is that broad statutory language
does not make it less plain. Just on text alone, any party is eligible for fees under section
502. We deal with the classic problems of overbreadth and absurdity in part III.B.3.
below.
2. Unclear Legislative History
We could stop there. (White, supra, 21 Cal.4th at p. 572.) But, because a
portion of the legislative history of section 502 may have led at least one federal judge
into error, we will observe that the legislative history does not reveal an intent – certainly
not a “clear” intent – to restrict attorney fee awards under section 502 only to section 502
claimants.
There are two aspects to US Source’s legislative history argument. One is
the conclusion to be drawn from the fact “prevailing party” language was, in fact, deleted
from the statute in the process of its enactment. This fact, however, doesn’t help US
Source’s position – it goes in the opposite direction. If you have a statute that says: “In
any action brought pursuant to this subdivision the court may award reasonable attorney’s
fees to a prevailing party” and you delete the final clause so it reads merely: “In any
action brought pursuant to this subdivision the court may award reasonable attorney’s
fees,” the logical implication is that any requirement of prevailing has been dropped – it’s
a classic case of expanding the scope of a statute by deleting previously restricting
language. (E.g., Garrett v. Young (2003) 109 Cal. App. 4th 1393, 1404 [noting, among
other things, that the Legislature’s deletion of previous references to hospitals and
reasons for admission to hospitals in medical privacy act meant the legislation was “to
apply more broadly to patients of all kinds under the care of any type of health care
provider”].) Indeed, if the actual intent were to restrict fees to plaintiffs, the simplest
amendment would have been to just put the word “plaintiff” where the word “party” had
been.
9
The second aspect is the “chill” reference in the Senate Judiciary
Committee report. This is indeed some support for an implied restriction of fees
exclusively to section 502 claimants. The logic goes like this: If section 502 claimants
have any possibility that making a section 502 claim could backfire on them and result in
having fees assessed against them if they didn’t prevail, they would be reluctant to bring
section 502 claims in all but the most compelling cases. The situation would, in effect,
be right back to where it was prior to 2000, when a criminal conviction was prerequisite
for a section 502 claim.
But it’s only “some” support because a disinclination to chill section 502
claims is not the only reason the Legislature might have had to drop the “prevailing
party” language. Another reason would be to unambiguously allow for section 502
claimants to obtain their fees in complex, “mixed” cases where a trial judge might think
attorney fees should be awarded to a section 502 claimant, even though, on balance, that
section 502 claimant might not qualify as a “prevailing party.” (Cf. In re Tobacco Cases
I (2011) 193 Cal. App. 4th 1591, 1599, 1603-1604 [entitlement to contractual attorney fees
in “mixed result” case is discretionary matter properly addressed to trial court in the first
instance]; Scott Co. v. Blount, Inc. (1999) 20 Cal. 4th 1103, 1109 [“If neither party
achieves a complete victory on all the contract claims, it is within the discretion of the
trial court to determine which party prevailed on the contract or whether, on balance,
neither party prevailed sufficiently to justify an award of attorney fees.”].)
However, even assuming the “chill” reference is indeed indicative of a fear
that section 502 claims might be retarded by the prospective of being on the painful side
of an attorney fee award, it is certainly not a clear indication such a fear motivated the
Legislature. First, the Senate Judiciary Committee report’s “chill” allusion must be
balanced against the Legislative Counsel’s natural reading of the text of the statute
according to what we have determined to be its plain language: Since the text isn’t
restricted to prevailing parties, “any party” can obtain fees. And as between a committee
10
report and the Legislative Counsel’s digest, the latter carries at least as much weight as
the former, if not more. (See Jones v. Lodge at Torrey Pines Partnership (2008) 42
Cal. 4th 1158, 1170 [“Although the Legislative Counsel’s summaries are not binding
. . . , they are entitled to great weight. . . . ‘It is reasonable to presume that the
Legislature amended those sections with the intent and meaning expressed in the
Legislative Counsel’s digest.’ [Citation.]”].)
And second, if the Legislature was primarily concerned with making sure
no section 502 claimant ever was hit with a fee award, it could easily have included
language to that effect. (As it did, for example, in the gender violence statute, Civil Code
section 52.4, cited above.) As it is, all we have is the oblique shadow of that idea, not the
idea itself.
Bottom line: the legislative history does not clearly say what Swearingen
concluded it said – that the Legislature intended to restrict fees to section 502 claimants.
It is, rather, unclear, and thus not compelling in either direction. In J. A. Jones
Construction Co. v. Superior Court (1994) 27 Cal. App. 4th 1568, 1571, this court held
that a “clear statement” of legislative intent was required to overcome a previous court
decision construing an ambiguous statute – and in the absence of such a clear statement,
the judicial construction remained viable. Here, we are not even confronted with an
ambiguous statute. As written, it is plain and allows fees to any party.
3. Reason and Practicality
The last refuge of a losing litigant in the face of plain language is an
absurdity claim – the statute can’t mean what it says because what it says is just too awful
to have been what the Legislature meant. And sometimes absurdity arguments prevail.
(See Unzueta v. Ocean View School Dist. (1992) 6 Cal. App. 4th 1689, 1701.)
But usually they don’t. As this court pointed out in CSEA v OC Comm.
College (2004) 124 Cal. App. 4th 574, 588, “True, in rare cases, statutory ambiguity is not
a condition precedent to further interpretation, and the literal meaning of the words may
11
be disregarded to avoid absurd results. But this approach is reserved for ‘extreme cases’
where the absurdity is patent. . . . We must exercise caution using the “absurd result”
rule; otherwise, the judiciary risks acting as a ‘“super-Legislature”’ by rewriting statutes
to find an unexpressed legislative intent.” Along those lines, Justice Kenneth Yegan
recently penned a vibrant characterization of the absurdity rule in People v. Harbison
(2014) ___ Cal.App.4th ___, ___ [2014 Cal.App. LEXIS 947] (dis. opn. of Yegan, J.12),
the gravamen of which is that the absurdity doctrine depends much on the self-evidency
of what is claimed to be so absurd that it overrides the actual text written by the
Legislature – the classic “know it when I see it” standard. Here, US Source notes the
variety of bad things made criminal under section 502,13 and posits that the Legislature
couldn’t possibly have intended to allow a defendant found liable for having done such
things to obtain attorney fees.
We agree that the Legislature did not intend defendants found to have
engaged in activity proscribed by section 502 to recover fees. But just because one can
imagine an absurd result under a discretionary statute does not make the statute say
anything other than what it says. The Legislature used the word “may” in section 502.
The word “may” traditionally denotes trial court discretion. (E.g., Jones v. Catholic
Healthcare West (2007) 147 Cal. App. 4th 300, 307 [general rule that “Courts routinely
construe the word ‘may’ as permissive and words like ‘shall’ or ‘must’ as mandatory.”].)
When trial courts have discretion, it is not unfettered, but must be used reasonably in
light of the statute conferring that discretion in the first place. (E.g., Farmers Ins.
Exchange v. Superior Court (2013) 218 Cal. App. 4th 96, 106 “All exercises of discretion
must be guided by applicable legal principles, however, which are derived from the
12 Justice Yegan authored Unzueta, which upheld an award of some pay to the teacher in that case as
against an absurdity argument, but interpreted “full compensation” not to take into account amounts the teacher
earned during his suspension was too much even for the majority. Justice Yegan’s dissent in Harbison is thus an
homage to his colleague Justice Gilbert, who found the entire result in Uzueta too much to take.
13 For example, knowingly introducing a computer virus into a computer network. (See § 502, subd.
(c)(8).)
12
statute under which discretion is conferred.”].) Statutes need not be written so as to block
abuse of discretion. The courts can do that without explicit direction.
We have no doubt that in the extreme situation proffered by US Source, it
would be a clear abuse of discretion to award attorney fees to a party found to have
engaged in activity proscribed by section 502. But the extreme case is not this case.
This case, in fact, is a good example of why the Legislature may have refrained from
explicitly restricting section 502 attorney fees to prevailing parties, i.e., the result here is
by no means absurd. On the record before us, US Source’s section 502 claim comes
close to having been frivolous, if not having been entirely frivolous. The claim itself, as
stated in the cross-complaint, was supported by no actual facts at all. The only parts of
the record14 that reveal the merits of that claim involved the revelation that
ChoiceAdz.com was merely closing email addresses it owned.
The trial judge would thus have been justified in concluding that the section
502 claim had only been included in US Source’s cross-complaint for its in terrorem
effect. The Legislature might not have wanted to chill reasonable section 502 claims, but
it wasn’t willing to insulate frivolous or abusive section 502 claims either. We find no
error.
14 US Source, as appellant, did not designate the reporter’s transcript of the trial as part of the
appellate record. We have only the oral argument on the fee motion.
13
IV. DISPOSITION
The attorney fee order is affirmed. Respondent will receive costs on
appeal.
BEDSWORTH, J.
WE CONCUR:
O’LEARY, P. J.
ARONSON, J.
14