November 15, 2023
By: Thomas O’Connell
Citation:
G.P.P., Inc. v. Guardian Protection Products, Inc., 2023 WL 7723234 (E.D. Cal. 2023)
Executive Summary:
In this unpublished decision, Magistrate Judge Sheila K. Oberto of the United States District Court for the Eastern District of California addressed cross-motions for attorney’s fees following a prolonged contractual dispute. The Plaintiff, G.P.P., Inc., operating as Guardian Innovative Solutions (GIS), sought attorney’s fees as the prevailing party on several claims under multiple Warehousing Distributor Agreements (WDAs). The Defendants, Guardian Protection Products, Inc. and RPM Wood Finishes Group, Inc., also claimed entitlement to fees under the WDAs. The court ruled in favor of GIS, finding it the prevailing party entitled to $4.35 million in attorney’s fees, while denying the Defendants’ fee requests.
Relevant Background:
This case arose from several WDAs between Plaintiff G.P.P., Inc., doing business as Guardian Innovative Solutions (GIS), and Defendants Guardian Protection Products, Inc. and RPM Wood Finishes Group, Inc. These agreements granted GIS exclusive rights to distribute Defendants’ protective coatings and wood care products across various territories, including Alabama, Florida, Tennessee, Pennsylvania, and Cook County, Illinois.
In 2015, GIS alleged that Defendants had wrongfully terminated the WDAs, breached their contractual obligations, and interfered with GIS’s operations. GIS further argued that the WDAs created franchise relationships, entitling GIS to protections under the California Franchise Investment Law (Cal. Corp. Code §§ 31000–31516) and the Illinois Franchise Disclosure Act (815 ILCS 705/1 et seq.).
Defendants countered that the agreements were standard commercial contracts, not franchises, and that their terminations complied with the WDAs’ express terms. They also contended that GIS failed to mitigate damages and that GIS’s claims for additional protections under franchise laws were unsupported.
The litigation proceeded through two trials. The first trial resulted in no recovery for GIS. However, on appeal, the Ninth Circuit ruled in favor of GIS on key interpretative issues regarding the WDAs. A second trial awarded GIS $12 million for breaches of several agreements, reduced to $6 million due to mitigation. Additionally, GIS was granted leave to amend its complaint to include agreements terminated during the appellate process.
Defendants, for their part, prevailed on certain claims, including GIS’s abandoned causes of action and a declaratory judgment action. Based on these outcomes, Defendants filed a motion for attorney fees under California Civil Code § 1717, asserting that they were entitled to recover fees as the prevailing party on these specific claims. GIS also filed its own motion for attorney fees, arguing that it achieved greater relief and prevailed on the core issues of the litigation.
Defendants succeeded on some claims, including GIS’s abandoned causes of action and a declaratory judgment. Both parties moved for attorney fees based on the WDAs’ provisions, which allowed recovery for the prevailing party in actions “on the contract.”
Decision:
The court granted GIS’s motion for attorney fees, awarding $4.35 million, and denied Defendants’ motion for fees. The decision was based on several critical findings:
- The court determined that GIS was the prevailing party under California Civil Code § 1717, which entitles the party achieving “greater relief” in contract disputes to recover reasonable attorney fees. While GIS’s damages were reduced from $12 million to $6 million after mitigation, the court emphasized that GIS achieved significant litigation objectives. These included monetary recovery, appellate victories that overturned prior unfavorable rulings, and establishing legal interpretations of the WDAs that were central to the dispute.
Defendants argued that GIS’s partial recovery should disqualify it from prevailing party status. However, the court rejected this argument, citing Hsu v. Abbara, 9 Cal. 4th 863 (1995), and Scott Co. v. Blount, Inc., 20 Cal. 4th 1103 (1999), which affirm that achieving key litigation goals suffices for prevailing party designation, even without complete recovery.
- Defendants sought fees based on their success in minor claims, such as abandoned causes of action and a declaratory judgment. The court, however, found that these successes did not outweigh GIS’s overall achievements in the case. The court concluded that Defendants failed to demonstrate they were entitled to fees as the prevailing party.
- The WDAs explicitly included provisions for attorney fees to the prevailing party in disputes arising under the contracts. The court interpreted these provisions broadly, consistent with Barrientos v. 1801-1825 Morton LLC, 583 F.3d 1197 (9th Cir. 2009), finding that all claims at issue were “on the contract” for purposes of § 1717.
- The court found GIS’s fee request of $4.35 million reasonable, considering the complexity and scope of the case, which spanned over eight years and included multiple trials and appeals. The court applied the lodestar method—multiplying the reasonable hourly rate by the hours expended—and found GIS’s request supported by evidence of the time and resources required to achieve its litigation objectives.
- Defendants objected to the fees as excessive, arguing that GIS engaged in unreasonable litigation practices and inflated the time spent on certain tasks. The court rejected these arguments, finding GIS’s fees justified by the results obtained.
Looking Forward:
This case is a good reminder for franchisors on how important it is to think strategically not just when drafting agreements but also when resolving disputes. Hence, while the court’s decision focused heavily on fee-shifting provisions, there are a couple of key takeaways for the franchise community:
- The court’s decision shows that being the “prevailing party” isn’t only about the amount you recover. What really mattered here was that GIS achieved its big-picture goals, like favorable appellate rulings and establishing the correct interpretation of its contracts. Franchisors should keep this in mind: even if the dollar amount seems small, achieving key legal victories can still make you the winner.
- The court broadly interpreted the fee-shifting provisions in the agreements, which worked in GIS’s favor. This highlights the importance of writing clear, unambiguous clauses in franchise agreements, especially when it comes to litigation or arbitration provisions. A well-written agreement can save you a lot of headaches if disputes ever arise.
Overall, this case shows how franchisors can stay ahead by thinking ahead. Whether it’s making sure your contracts are airtight or having a smart strategy for handling disputes, a little preparation can go a long way in protecting your business and staying in control of the narrative.