                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


PSM HOLDING CORP., a                 Nos. 15-55026
Corporation,                              15-55941
             Plaintiff-Appellant,

               v.                        D.C. No.
                                    CV 05-08891 MMM
NATIONAL FARM FINANCIAL
CORPORATION, a Corporation;
BUSINESS ALLIANCE
INSURANCE COMPANY, a
Corporation; LARRY P. CHAO,
an Individual,
          Defendants-Appellees.
2          PSM HOLDING V. NAT’L FARM FINANCIAL

 PSM HOLDING CORP., a                           Nos. 15-55087
 Corporation,                                        15-55943
              Plaintiff-Appellee,                    15-56184

                   v.
                                                  D.C. No.
 NATIONAL FARM FINANCIAL                     CV 05-08891 MMM
 CORPORATION, a Corporation;
 BUSINESS ALLIANCE
 INSURANCE COMPANY, a                              OPINION
 Corporation; LARRY P. CHAO,
 an Individual,
          Defendants-Appellants.


         Appeals from the United States District Court
             for the Central District of California
                    Valerie B. Fairbank and
        Margaret M. Morrow, District Judges, Presiding*

           Argued and Submitted December 6, 2016
                    Pasadena, California

                        Filed March 7, 2018

        Before: Stephen Reinhardt, A. Wallace Tashima,
              and Richard A. Paez, Circuit Judges.

                   Opinion by Judge Tashima


    *
      Judge Fairbank presided over this case from its inception through
July 2009. On remand from the Ninth Circuit, the case was transferred to
Judge Morrow, who presided over all subsequent proceedings.
          PSM HOLDING V. NAT’L FARM FINANCIAL                            3

                            SUMMARY**


                      Restitution / Rescission

    The panel affirmed in part, reversed in part, and dismissed
in part the district courts’ judgment and orders concerning
remedies in various appeals arising from claims for breach of
contract and fraud.

    The district court held that a judgment creditor, who
seized a judgment debtor’s company pursuant to a judgment
that was reversed on appeal, could recover in restitution for
losses suffered while it was in possession of the seized
company. The district court denied the judgment creditor’s
request to rescind its quota share reinsurance agreement
(“QSA”) with Business Alliance Insurance Company.

    The panel held that to the extent the district court’s orders
of July 26, 2010, and October 8, 2013, affirmed defendants’
right to recover restitution, they were sound. In reviewing the
district court’s December 17, 2014 order, the panel held that
the district court erred in allowing the judgment creditor to
recover in restitution. The panel’s conclusion rested on the
California Supreme Court’s decision in Ward v. Sherman,
100 P. 864 (Cal. 1909), wherein the court in an analogous
situation, declined to award the judgment creditor an
affirmative recovery to offset its losses. The panel’s decision
was bolstered by the plain reading of Restatement (First) of
Restitution § 74 and Restatement (Third) of Restitution § 18,


    **
       This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4        PSM HOLDING V. NAT’L FARM FINANCIAL

which suggested that in similar cases, the right of restitution
ran only to the judgment debtor.

    The panel rejected the judgment creditor’s challenges to
the district court’s October 8, 2013 order denying the
judgment creditor’s request for rescission of its QSA.
Specifically, the panel held that the district court did not err
by failing to consider California Civil Code § 1019, which
concerns the removal of fixtures from leaseholds. Second,
the district court thoroughly analyzed whether the QSA
amounted to a necessary expense or, instead, an
improvement. Finally, policy considerations did not favor the
judgment creditor’s position.

    The panel reversed the district court’s May 19, 2015 order
granting in part and denying in part defendants’ motion to
recover post-appeal attorneys’ fees. The panel held that the
district court erred in awarding attorneys’ fees under
California Civil Code § 1717, while simultaneously
concluding that the judgment creditor had fully satisfied the
obligations stemming from the operative judgments. The
panel dismissed, as moot, defendant’s appeal of the district
court’s reduction of the lodestar fee amount.

    Because the panel reversed the judgment creditor’s
restitution award, the panel vacated the district court’s July
14, 2015 order denying defendants’ motion to retax costs
and remanded for reconsideration in light of changed
circumstances.

    The panel ordered that in each of the five appeals, each
party should bear its own costs on appeal.
         PSM HOLDING V. NAT’L FARM FINANCIAL                 5

                         COUNSEL

Aluyah I. Imoisili (argued) and Linda Dakin-Grimm, Milbank
Tweed Hadley & McCloy, Los Angeles, California, for
Plaintiff-Appellant/Cross-Appellee.

Peder K. Batalden (argued) and Mitchell C. Tilner, Horvitz &
Levy, Encino, California; Joseph W. Cotchett and Nancy L.
Fineman, Cotchett Pitre & McCarthy, Burlingame,
California; for Defendants-Appellees/Cross-Appellants.


                         OPINION

TASHIMA, Circuit Judge:

    At the heart of this case lies a conceptually
straightforward, but procedurally complex, question of first
impression for our Circuit: Can a judgment creditor, who
seizes a judgment debtor’s company pursuant to a judgment
that is subsequently reversed on appeal, recover in restitution
for losses suffered while it was in possession of the seized
company? The district court answered in the affirmative. In
doing so, it awarded Plaintiff PSM Holding Corp. more than
$1.1 million in restitution. Defendants now challenge this
award.

   All told, the parties have filed five appeals and cross-
appeals, which were consolidated for oral argument and
decision. We have jurisdiction under 28 U.S.C. § 1291, and
we affirm in part, reverse in part, and dismiss in part.
6       PSM HOLDING V. NAT’L FARM FINANCIAL

                             I.

A. The Lawsuit and Trial

    Prior to the instant lawsuit, Defendant-Appellee/Cross-
Appellant National Farm Financial Corporation (“National
Farm”) owned Business Alliance Insurance Company
(“BAIC”). Larry Chao, the president of National Farm, co-
founded BAIC in the 1990s with his wife, Julie Chao. BAIC
provided insurance to small businesses. BAIC had $14.2
million in net written premiums and $2.8 million in net
income by 2005.

    In early 2005, National Farm entered into negotiations to
sell BAIC to Plaintiff-Appellant/Cross-Appellee PSM
Holding Corporation (“PSM”).          Ultimately, however,
National Farm walked away from the deal. Thereafter, PSM
sued National Farm, Larry Chao, and BAIC (collectively,
“Defendants”) alleging claims for breach of contract and
fraud.

    Following a trial, a jury found in favor of PSM and
awarded it $40 million on its breach of contract claim and $3
million on its fraud claim. In post-trial proceedings, Judge
Fairbank granted in part and denied in part Defendants’
motion for judgment as a matter of law (“JMOL”). The
motion was denied, with the exception that judgment was
entered in favor of Defendants on the fraud claim, thereby
reducing PSM’s damages award to $40 million. Judge
Fairbank also granted Defendants’ motion to stay execution
of the judgment pending appeal, conditioned on Defendants
posting a $40 million bond. However, after Defendants failed
to post the required bond and National Farm entered
bankruptcy, PSM executed on the judgment. In October
        PSM HOLDING V. NAT’L FARM FINANCIAL               7

2008, BAIC was transferred to PSM. At the time of transfer,
BAIC had more than $30 million in assets.

    After taking possession of BAIC, PSM took various steps
to integrate BAIC into its existing business. For example,
PSM and BAIC entered into an intercompany quota share
reinsurance agreement (the “QSA”). The QSA provided that,
for every insurance policy BAIC issued, PSM would receive
90 percent of the policy’s insurance premiums in exchange
for assuming 90 percent of the policy’s risk of loss. BAIC
would retain the remaining ten percent of the premiums and
would continue to be responsible for ten percent of the
policies’ risk of loss. PSM also assumed control of 90
percent of BAIC’s loss and loss expenses reserves, thereby
rendering it responsible for 90 percent of BAIC’s losses on
policies written prior to October 21, 2008, as well as on
future policies. Additionally, PSM and BAIC entered into an
Intercompany Service Agreement (“ISA”), under which PSM
would provide to BAIC certain executive, administrative, and
other services.

B. The Judgment is Reversed

    On June 18, 2009, the Ninth Circuit reversed Judge
Fairbank’s partial denial of Defendants’ JMOL motion. The
Ninth Circuit held that “[t]he plain terms of the agreement
dictate that no contract was formed because the signature
lines for National Farm; Larry Chao, as an individual; and
Julie Chao, as an individual, were left blank. As a result,
none of the parties could be liable under its terms.” PSM
Holding Corp. v. Nat’l Farm Fin. Corp., 339 F. App’x 693,
694 (9th Cir. 2009). The case was remanded to the district
court.
8        PSM HOLDING V. NAT’L FARM FINANCIAL

C. Post-Remand Proceedings

    1. July 26, 2010, Order on Restitution

   On remand from the Ninth Circuit, it was undisputed that
PSM should pay restitution to Defendants. At issue,
however, was the appropriate amount.

    On July 26, 2010, the district court granted in part and
denied in part Defendants’ motion for restitution and
attorney’s fees. Although Defendants’ motion opposed a
return of BAIC to National Farm and, instead, sought a
restitution award in the amount of $59.6 million, the district
court ordered “[r]estitution in the form of the return of
BAIC’s shares to [D]efendants.”

    The district court’s decision relied heavily on Restatement
(First) of Restitution § 74, which provides that:

       A person who has conferred a benefit upon
       another in compliance with a judgment, or
       whose property has been taken thereunder, is
       entitled to restitution if the judgment is
       reversed or set aside, unless restitution would
       be inequitable or the parties contract that
       payment is to be final; if the judgment is
       modified, there is a right to restitution of the
       excess.

Restatement (First) of Restitution § 74 (Am. Law Inst. 1937).
In such situations, comment e to § 74 provides, “the judgment
debtor is entitled to specific restitution, together with the
value of [the property’s] use in the meantime, diminished by
expenses necessarily incurred in the protection of the property
            PSM HOLDING V. NAT’L FARM FINANCIAL                     9

and the payment of taxes and liens, but not including the
expense of improvements.” Id. at § 74, cmt. e.

   According to the district court, this rule is consistent with
a similar principle set forth in Restatement (Third) of
Restitution and Unjust Enrichment § 18 (Am. Law. Inst.
2011):

          A transfer or taking of property, in
          compliance with or otherwise in consequence
          of a judgment that is subsequently reversed or
          avoided, gives the disadvantaged party a
          claim in restitution as necessary to avoid
          unjust enrichment.

    Finally, the court supported its decision by relying on
several state court decisions – from California and elsewhere
– that confronted similar issues, including Stockton Theatres,
Inc. v. Palermo, 264 P.2d 74 (Cal. Dist. Ct. App. 1953),
Erickson v. Boothe, 274 P.2d 460 (Cal. Dist. Ct. App. 1954),
and Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060
(Del. 1988).

    Based on these authorities, the district court concluded
that “Defendants are entitled to specific restitution of the
BAIC shares.”1 Additionally, the district court determined
that Defendants were “entitled to an accounting of the profits
earned while PSM held BAIC, ‘diminished by expenses
necessarily incurred in the protection of the property and the
payment of taxes and liens.’” (Quoting Restatement (First)
of Restitution, § 74 cmt. e (Am. Law Inst. 1937).)
Accordingly, the district court ordered “an accounting of the

    1
        PSM returned the BAIC shares to Defendants in early 2011.
10        PSM HOLDING V. NAT’L FARM FINANCIAL

profits PSM generated through its ownership of [the BAIC]
shares.”2

     2. October 8, 2013, Order on Accounting and
        Rescission of QSA

    Post remand, Defendants filed a motion for an award of
PSM’s profits. Defendants sought $14 million in profits.
PSM opposed the motion, arguing that it actually suffered a
$1.5 million loss as a result of its temporary possession and
control of BAIC. Additionally, PSM sought to rescind the
QSA. The district court determined that expert testimony was
required in order to resolve Defendants’ motion for profits
and PSM’s request for rescission. Accordingly, it appointed
two experts: (1) Debra J. Roberts, who would consider the
QSA issue; and (2) Timothy H. Hart, a forensic accountant,
who would consider the question of profits. After each expert
filed her/his report, the district court ruled.

  On the question of rescission, the district court denied
PSM’s request, relying on the following illustration:

         A obtains judgment in ejectment against B
         and is put in possession of Blackacre. After
         knowledge that an appeal has been taken, A
         makes improvements thereon to the amount of
         $1000, at an expense of $100 repairs a roof
         which otherwise would have leaked, and pays
         taxes thereon to the amount of $300. He


     2
        In addition to ordering a return of the BAIC shares and an
accounting of profits, the district court awarded Defendants $2,224,220.76
in attorneys’ fees and $53,984.99 in costs. These awards of fees and costs
are not at issue on this appeal.
         PSM HOLDING V. NAT’L FARM FINANCIAL                11

       remains on the land for two years, at the end
       of which time the judgment is reversed. B is
       entitled to restitution of the land and to the
       reasonable rental value of the land during the
       two years, less the amount expended by A for
       the necessary repairs and for the payment of
       taxes; ordinarily [diminishment in] restitution
       for the value of the improvements would not
       be granted.

Restatement (First) of Restitution § 74 cmt. f, illust. 14 (Am.
Law Inst. 1937). This rule, the district court reasoned, is
consistent with the well-established proposition that “the
distinction between ‘repairs and maintenance’ and
‘improvements’ can be characterized ‘as the difference
between ‘keeping’ and ‘putting’ [an] . . . asset in good
condition.” (Quoting Moss v. Commissioner, 831 F.2d 833,
835 (9th Cir. 1987).)

    Under this legal framework, the district court concluded
that “[t]he factual record supports the conclusion that the
reinsurance agreement was an improvement rather than a
necessary cost of protecting BAIC.” It reasoned that “[t]he
reinsurance agreement increased the amount of reinsurance
BAIC had prior to the time PSM acquired it” and,
consequently, “the agreement added to BAIC’s value by
reducing the amount of risk it faced.” And, there is nothing
in the record to suggest that “absent replacement of the
existing excess of loss and catastrophe insurance with the
[QSA], BAIC would have been unable to function as an
insurance company.” Similarly, the district court found no
evidence suggesting that “there was an imminent danger that
the California Department of Insurance would take regulatory
12       PSM HOLDING V. NAT’L FARM FINANCIAL

action against BAIC that would have precluded it from
writing insurance business.”

   Because, according to the district court, the QSA was
“better characterized as an ‘improvement’ [rather] than an
expense necessary to protect BAIC,” the district court
concluded that “rescission of the agreement [was] not
warranted.”

    With respect to profits, the district court made the
following findings: (1) Defendants were entitled to recover
$203,532 in “synergy profits” from PSM; (2) there was no
evidence to support Defendants recovery of “future profits”;
(3) Defendants were entitled to recover a $30,973 tax benefit
previously received by PSM due to its ownership of BAIC;
(4) Defendants were not entitled to any recovery as a result of
PSM’s liquidation of PSM’s stock portfolio; (5) PSM was not
entitled to an additional management fee beyond what had
already been paid directly by BAIC; (6) Defendants were
entitled to recover $254,524 in improperly charged transition
costs; (7) PSM was entitled to “an adjustment of the
restitution award” of $332,190 to cover “operating expenses
associated with BAIC while it ran the company”; (8) PSM
was entitled to a credit of $557,402 in “ceded premiums,” i.e.,
premiums paid on reinsurance contracts that BAIC entered
into prior to PSM’s ownership; and (9) PSM could “offset”
any restitution payment to Defendants by $700,000 to
account for PSM’s assumption of a loan made by BAIC to
National Farm.

    The district court then ordered the parties to jointly
“prepare an accounting of the amounts owed [Defendants]
and the amounts PSM [was] entitled to deduct.” The court
         PSM HOLDING V. NAT’L FARM FINANCIAL                  13

added that it would “enter judgment in favor of whichever
party is owed money pursuant to the accounting.”

    3. December 17, 2014, Order on Restitution of Profits

    The parties – unable to reach agreement on the amounts
owed – each filed a proposed judgment. The parties agreed
that, based on the district court’s prior October 8, 2013, order,
PSM was to be allotted $1,100,563 in net principal. That is,
per the October 8 order, PSM’s offsets and credits exceeded
the Defendants’ recovery of profits and benefits by just over
$1.1 million. Nonetheless, the parties disputed what should
happen next. For its part, PSM sought to recover $1,100,563
in net principal, net prejudgment interest at a rate of $211 per
day until the entry of judgment, and undetermined costs and
attorneys’ fees. In contrast, Defendants requested that the
district court award nothing to PSM and award unstated costs
to Defendants.

    The crux of Defendants’ position was that the district
court should award nothing to PSM because “[b]ased upon
the rules of restitution, which are grounded on the principles
of equity, it would be inequitable to award PSM monies,
especially since it operated BAIC at a loss during its
operations.”

    In its December 17, 2014, order, the district court rejected
Defendants’ arguments and awarded $1,100,563 to PSM. In
support of its decision, the court articulated the following
“fundamental rule” of restitution: “the goal of restitution is
‘to place the parties in as favorable a position as they could
have been in had the judgments not be enforced pending
appeal.’” (Citing Gunderson v. Wall, 126 Cal. Rptr. 3d 880,
883 (Ct. App. 2011).) Moreover, the district court continued,
14       PSM HOLDING V. NAT’L FARM FINANCIAL

“[a]bsent evidence of bad faith, even assuming PSM operated
BAIC at a loss, equity does not require that PSM be held
responsible for the loss.” (Citing Restatement (First) of
Restitution § 74, cmt. f. (Am. Law Inst. 1937).)

    In the same order, the district court considered PSM’s
request for prejudgment interest, pursuant to California Civil
Code § 3287(a). As a preliminary matter, the district court
emphasized that, under § 3287(a), “[e]very person who is
entitled to recover damages certain, or capable of being made
certain by calculation . . . is entitled also to recover interest
thereon . . . .” (Quoting Cal. Civil Code § 3287(a) (emphasis
and alterations in original).) Moreover, the district court
added, “an accounting action is prima facie evidence [that] a
claim is uncertain.” (Quoting Chesapeake Indus., Inc. v.
Togova Enters., Inc., 197 Cal. Rptr. 348, 353 (Ct. App.
1983).) Then, after surveying several California appellate
court decisions which stand for the same proposition, the
district court reasoned that “[h]ere, the issue of restitution
was complex, and necessitated that the court appoint business
valuation and reinsurance experts,” and that “[t]here were
numerous discrete questions that the court had to resolve in
order to determine the amount of restitution.” Based on these
findings, the district court declined to award prejudgment
interest.

    Concurrently with its December 17 order, the district
court entered a final judgment, in which it ordered that:
(1) based on the Ninth Circuit’s reversal, PSM would “take
nothing by way of its complaint”; (2) Defendants would
recover $2,224,220.76 in attorneys’ fees and $53,984.99 in
costs stemming from pre-reversal proceedings; (3) PSM
          PSM HOLDING V. NAT’L FARM FINANCIAL                          15

would recover $1,100,563 from Defendants as restitution; and
(4) the action would be dismissed.3

    The parties cross-appealed from the December 17 order.

    4. May 19, 2015, Order on Post-Reversal Attorneys’
       Fees and Costs

    On December 31, 2014, Defendants moved for post-
reversal attorneys’ fees. Defendants sought fees under
California Code of Civil Procedure § 685.040 or,
alternatively, under California Civil Code § 1717. PSM
opposed the motion. The district court first considered
whether Defendants could recover fees under § 685.040,
which provides:

         The judgment creditor is entitled to the
         reasonable and necessary costs of enforcing a
         judgment.     Attorney’s fees incurred in
         enforcing a judgment are not included in costs
         collectible under this title unless otherwise
         provided by law. Attorney’s fees incurred in
         enforcing a judgment are included as costs
         collectible under this title if the underlying
         judgment includes an award of attorney’s fees
         to the judgment creditor pursuant to
         subparagraph (A) of paragraph (10) of
         subdivision (a) of Section 1033.5.




    3
      The district court also stated that Defendants may file subsequent or
additional attorneys’ fees motions, in accordance with Federal Rule of
Civil Procedure 54(d).
16       PSM HOLDING V. NAT’L FARM FINANCIAL

In turn, California Code of Civil Procedure
§ 1033.5(a)(10)(A) provides that collectible costs include
“attorneys’ fees[] when authorized by . . . [c]ontract.” The
district court further noted that “[a] motion for post-judgment
costs, including attorneys’ fees, under § 685.040 must ‘be
made before the judgment is satisfied in full, but not later
than two years after the costs have been incurred.’” (Quoting
Cal. Code. Civ. Proc. § 685.080(a).)

    The district court interpreted Defendants’ position to be
that the “judgment” at issue was either (1) the Ninth Circuit’s
mandate reversing Judge Fairbank’s judgment in favor of
PSM on the breach of contract claim, or (2) the district
court’s December 17, 2014, judgment. Under either
interpretation, the district court found, Defendants cannot
prevail.

     According to the district court, the Ninth Circuit’s
mandate could not serve as the operative judgment because
it did not itself include an award of attorneys’ fees, and, as a
result, § 685.040 has no applicability. Similarly, the district
court reasoned, the December 17, 2014, judgment likewise
fails to provide a basis for recovery of post-reversal fees
because the fees requested by Defendants were incurred prior
to entry of that judgment. Thus, “it is unclear how defendants
could have incurred fees ‘enforcing’ that judgment.”
Additionally, the district court added that PSM satisfied each
of these judgments prior to the filing of Defendants’ motion,
a fact that independently precluded recovery under § 685.040.

    Next, the district court considered Defendants’ alternative
motion for fees pursuant to § 1717, which provides as
follows:
         PSM HOLDING V. NAT’L FARM FINANCIAL                  17

        In any action on a contract, where the contract
        specifically provides that attorney’s fees and
        costs, which are incurred to enforce that
        contract, shall be awarded either to one of the
        parties or to the prevailing party, then the
        party who is determined to be the party
        prevailing on the contract, whether he or she
        is the party specified in the contract or not,
        shall be entitled to reasonable attorney’s fees
        in addition to other costs.

Cal. Civ. Code § 1717(a).

    The district court began its analysis by observing that
PSM’s breach of contract claim was “indisputably” an action
“on the contract,” as required by § 1717. Moreover, the
district court reasoned, “the restitution motions . . . are ‘part
of [the] defense’ of the contractual claim.” (Alterations in
original.) (Quoting Anchor Pacifica Mgmt. Co. v. Green, No.
B253529, 2014 WL 3841227, at *1 (Cal. Ct. App. Aug. 5,
2014) (unpublished).) That is, according to the district court,
“Defendants here lost BAIC after Judge Fairbank entered
judgment and PSM executed on the judgment; their post-
appeal restitution motions sought to recover the company and
profits/benefits they were denied as a result of the erroneous
judgment.” Because the restitution motions were not distinct
or separate from the underlying breach of contract action, the
motions were, the district court concluded, “on the contract”
for purposes of § 1717.

    Having determined Defendants’ post-reversal motions
were “on the contract,” the district court considered whether
Defendants were the prevailing party, as required for
recovery under § 1717. Rejecting PSM’s arguments to the
18       PSM HOLDING V. NAT’L FARM FINANCIAL

contrary, the district court emphasized that Defendants
“achieved total victory on the claims it asserted in its
complaint and their counterclaims when the Ninth Circuit
reversed the $40 million judgment entered in favor of PSM
and held that PSM had no binding purchase agreement with
defendants.” In light of this “total victory,” the district court
concluded that “Defendants’ relative success in the post-
appeal restitution proceedings for which they now seek fees
is more properly considered in determining a reasonable
lodestar amount.”

    The district court next calculated the lodestar fee of
$438,175. It reduced this amount by 30 percent “to reflect
the defendants’ limited success on the post-appeal restitution
motions.” That is, while Defendants succeeded in securing
the return of BAIC from PSM, “the court declined to award
$59.6 million in restitution and denied their request for profits
in its entirety.” Accordingly, the district court awarded
Defendants post-reversal attorneys’ fees in the amount of
$306,722.50.

   The parties filed cross-appeals from the May 19, 2015,
order on attorneys’ fees.

     5. July 14, 2015, Order Denying Defendants’ Motion
        to Retax Costs

    On December 31, 2014, Defendants filed an application
to the Clerk to tax costs in the amount of $155,085.13. The
Clerk awarded Defendants $3,662.22 relating to certain
depositions, but refused to tax $455 in filing fees and
$150,967.22 in costs attributable to the court-appointed
experts. Defendants then moved to retax costs.
         PSM HOLDING V. NAT’L FARM FINANCIAL                  19

    In considering Defendants’ motion to retax costs, the
district court began by acknowledging that the Ninth Circuit
has construed Federal Rule of Civil Procedure 54(d)(1) as
creating a “presumption in favor of awarding costs to the
prevailing party, while at the same time granting a district
court the discretion to decline to do so.” (Citing Berkla v.
Corel Corp., 302 F.3d 909, 921 (9th Cir. 2002).) However,
the district court continued, as part of its discretion, a court
may deny costs for several reasons, including, specifically,
“whether the prevailing party’s recovery was nominal or
partial.” (Citing Quan v. Computer Scis. Corp., 623 F.3d
870, 888–89 (9th Cir. 2010).)

    In light of this discretion, as well as its prior findings of
limited success, the district court concluded that “it is
appropriate to deny certain cost[s] for which defendants seek
reimbursement despite their ‘prevailing party’ status.” Thus,
the court held:

        [B]ased on defendants’ limited success and
        partial recovery, the benefit to both parties of
        the court-appointed experts’ reports, and the
        necessity of retaining such experts to assist in
        analyzing the complex issues raised by the
        post-appeal restitution proceedings, the court
        exercises its discretion to deny defendants’
        request to tax their share of the court-
        appointed experts’ fees.

   Defendants appealed the district court’s July 14, 2015,
order denying their motion to retax certain costs.
20        PSM HOLDING V. NAT’L FARM FINANCIAL

                              II.

    We take the questions raised in these five appeals
seriatim.

A. The award of “restitution” to PSM (No. 15-55087)

     1. Standard of Review

    “We review a district court’s interpretation of state law de
novo.” Ariz. Elec. Power Co-Op., Inc. v. Berkeley, 59 F.3d
988, 991 (9th Cir. 1995) (citation omitted). “When
interpreting state law, federal courts are bound by decisions
of the state’s highest court.” Id. (citation omitted). “In the
absence of such a decision, a federal court must predict how
the highest state court would decide the issue using
intermediate appellate court decisions, decisions from other
jurisdictions, statutes, treatises, and restatements as
guidance.” Id. (quoting Sec. Pac. Nat’l Bank v. Kirkland (In
re Kirkland), 915 F.2d 1236, 1239 (9th Cir. 1990)).

     2   Analysis

    To the extent the district court’s orders of July 26, 2010,
and October 8, 2013, affirmed Defendants’ right to recover
restitution, they are sound. See Schubert v. Bates, 185 P.2d
793, 791 (Cal. 1947) (“A person who has conferred a benefit
upon another in compliance with a judgment, or whose
property has been taken thereunder, is entitled to restitution
if the judgment is reversed or set aside . . . .” (quoting
Restatement (First) of Restitution § 74 (Am. Law Inst. 1937)
(internal quotation marks omitted))). It is the district court’s
subsequent order of December 17, 2014, that broke new
ground. There, the district court awarded PSM, the judgment
         PSM HOLDING V. NAT’L FARM FINANCIAL                  21

creditor, restitution. This presents a question of first
impression: can a judgment creditor – who seizes a judgment
debtor’s company pursuant to a judgment that is then
reversed – recover in restitution for losses suffered while it
possessed the seized company? The district court answered
this question in the affirmative, thereby awarding PSM more
than $1.1 million in restitution. Perhaps because of its
doctrinal novelty, neither the parties’ briefing on appeal nor
the district court’s order cites controlling authority to support
this award. Instead, the parties rely on two provisions in the
Restatements of Restitution, § 908 of the California Code of
Civil Procedure, and several California state court decisions.

        a. Restatements of Restitution

   The Restatement (First) of Restitution was formally
adopted in 1936. Section 74 thereof provides that:

        A person who has conferred a benefit upon
        another in compliance with a judgment, or
        whose property has been taken thereunder, is
        entitled to restitution if the judgment is
        reversed or set aside, unless restitution would
        be inequitable or the parties contract that
        payment is to be final.

Two comments to § 74 warrant mention. Comment e states:

        If the property of the judgment debtor was
        awarded to the judgment creditor . . . [then]
        the judgment debtor is entitled to specific
        restitution, together with the value of its use in
        the meantime, diminished by expenses
        necessarily incurred in the protection of the
22       PSM HOLDING V. NAT’L FARM FINANCIAL

       property and the payment of taxes and liens,
       but not including the expense of
       improvements . . . .

Separately, Comment f provides:

       The judgment creditor is not liable for losses
       not caused by his mismanagement of the
       property . . . except where the action was
       brought in bad faith or where there was a sale
       on execution and the sale was improperly
       conducted . . . .

Finally, Illustration 15 to Comment f describes a situation
where, after a judgment creditor takes possession of certain
real property, a fire destroys valuable timber located
thereupon. See Restatement (First) of Restitution § 74 cmt.
f illus. 15 (Am. Law Inst. 1937). The Illustration makes clear
that while the judgment debtor is entitled to restitution of the
real property, he is not entitled to compensation for the
timber.

    A plain reading of § 74 and the comments thereto
undermines the award of restitution to PSM. Section 74
provides a right of restitution to a particularly described
party: namely, the “person who has conferred a benefit upon
another in compliance with a judgment.” Id. at § 74. In this
case, that refers to the Defendants, not to PSM. The
comments to § 74 affirm this same principle. Comment e
expressly states that “the judgment debtor is entitled to
specific restitution.” Id. at § 74 cmt. e (emphasis added).
Likewise, Comment f – in limiting what can be recovered in
restitution – speaks in terms of the judgment creditor’s
liability or lack of liability.
         PSM HOLDING V. NAT’L FARM FINANCIAL               23

    The California Supreme Court has not spoken directly to
the question presented in this appeal. On two occasions,
however, it cited § 74 approvingly. See, e.g., Sullivan v.
Wellborn, 195 P.2d 787, 789–91 (Cal. 1948) (comparing
defendant to a judgment creditor and denying his request to
reduce money owed to plaintiff because the costs incurred by
defendant were not necessary to preserve wrongfully
possessed property); Schubert v. Bates, 185 P.2d 793, 796
(Cal. 1947) (quoting § 74 in an order affirming a restitution
award to Bates, who was forced to leave her home pursuant
to an erroneous judgment that was subsequently reversed).
These cases suggest that the California Supreme Court would
likely look to § 74 to resolve the instant appeal.

   A similar provision is included in Restatement (Third) of
Restitution and Unjust Enrichment, formally adopted in 2011.
Section 18 thereof provides that:

       A transfer or taking of property, in
       compliance with or otherwise in consequence
       of a judgment that is subsequently reversed or
       avoided, gives the disadvantaged party a
       claim in restitution as necessary to avoid
       unjust enrichment.

Comment e to § 18 confirms that “[t]he rule of this section
recognizes a judgment debtor’s entitlement to restitution only
‘as necessary to avoid unjust enrichment.’” Restatement
(Third) of Restitution § 18 cmt. e (Am. Law Inst. 2011).
Both this rule and the comment accord with the plain reading
of § 74. Specifically, § 18’s use of the phrase “disadvantaged
party,” when read in context, can be interpreted only as a
reference to the party who is deprived of property by court
order – in other words, the judgment debtor. Id. at § 18.
24       PSM HOLDING V. NAT’L FARM FINANCIAL

PSM’s argument to the contrary, that the phrase
“disadvantaged party” should be read to invoke either the
judgment creditor or the judgment debtor, is unpersuasive.
But, even if we accept PSM’s position and assume, without
deciding, that § 18 is ambiguous, Comment e clarifies and
confirms that § 18 “recognizes a judgment debtor’s
entitlement to restitution,” at least to the extent such
restitution is required to avoid unjust enrichment. Id. at § 18
cmt. e (emphasis added).

    In sum, a plain reading of § 74 of the Restatement (First)
of Restitution and § 18 of the Restatement (Third) of
Restitution stands at odds with the district court’s December
17 order. However, because these authorities are, at most,
merely persuasive, our analysis must also take into account
other potential sources of law.

       b. California Code of Civil Procedure § 908

    California Code of Civil Procedure § 908 provides, in
part, as follows:

       When the judgment or order is reversed or
       modified, the reviewing court may direct that
       the parties be returned so far as possible to the
       positions they occupied before the
       enforcement of or execution on the judgment
       or order. In doing so, the reviewing court
       may order restitution on reasonable terms and
       conditions of all property and rights lost by
       the erroneous judgment . . . .

Section 908 thus identifies the purpose of awarding
restitution in cases like the one at hand: to restore, in so far
         PSM HOLDING V. NAT’L FARM FINANCIAL                  25

as is possible, the parties involved to the positions they
occupied prior to enforcement of the judgment. Here, then,
§ 908 instructs that the purpose of restitution should be to
return PSM and Defendants to their respective positions ex
ante PSM’s execution of the judgment and its taking
possession of BAIC.

    The district court’s December 17 order describes the
“fundamental rule” of restitution as “plac[ing] the parties in
as favorable a position as they could have been in had the
judgments not been enforced pending appeal.” (Citing
Gunderson, 126 Cal. Rptr. 3d at 883.) And, applying this
rule, the district court concluded that if PSM was not
permitted to recoup the expenses it incurred while it operated
BAIC, then Defendants would be placed in a position more
favorable than the one they would have occupied had PSM
never executed on the judgment.

    At first glance, the district court’s application of the rule
embodied in § 908 may appear sound. But on careful
reflection, it is not. To begin with, the district court’s
approach is arguably inconsistent with § 908’s plain
language, which provides that a restitution award should
include “all property and rights lost by the erroneous
judgment.” Cal. Code Civ. Proc. § 908 (emphasis added).
Here, it is incorrect to say that PSM suffered losses as a direct
consequence of the erroneous judgment. Rather, these losses
resulted from PSM’s own, affirmative decision to execute on
the judgment while Defendants’ appeal remained pending.
Relatedly, the district court’s order ignores that PSM assumed
some amount of risk when it opted to execute on the
judgment while an appeal was pending. See, e.g., Strong v.
Laubach, 443 F.3d 1297, 1300 (10th Cir. 2006) (“By
executing on their judgment and receiving the garnished
26       PSM HOLDING V. NAT’L FARM FINANCIAL

funds during the pendency of the appeal, the Strongs assumed
the risk that they might have to repay the money if Laubach
prevailed on appeal.”).

        c. California State Court Decisions

            i. California Supreme Court

    More than one hundred years ago, the California Supreme
Court in Ward v. Sherman, 100 P. 864 (Cal. 1909),
considered a case with facts analogous to the case at bench.
In Ward, the plaintiff surrendered, pursuant to a judgment of
the Maricopa County Court, of the Territory of Arizona,
possession of the “Sun Flower cattle range,” together with its
animals and equipment, to defendants Sherman and
Hardenberg.4 Id. at 864–65. On appeal, the Arizona
Territorial Supreme Court affirmed, but the U.S. Supreme
Court reversed. Id. at 865. Thereafter, the plaintiff, who had
already retaken possession of the property, brought an action
“to recover the cattle and horses and their natural increase . . .
less the reasonable cost of managing the range and caring for
the property, and for an accounting.” Id. In considering
plaintiff’s request for restitution, the California Supreme
Court stated the operative rule of law:

        Where a judgment or decree of an inferior
        court is reversed by a final judgment on
        appeal, a party is in general entitled to
        restitution of all the things lost by reason of
        the judgment in the lower court; and,
        accordingly, the courts will, where justice

    4
      Thus, unlike in the usual case, the plaintiff in Ward was the
judgment debtor.
         PSM HOLDING V. NAT’L FARM FINANCIAL              27

        requires it, place him as nearly as may be in
        the condition in which he stood previously.

Id. (citations omitted).

    Moreover, the court continued, where a party seeks to
recover under these circumstances:

        [T]he defendant must account for the property
        received under the judgment which has been
        reversed, and the rule governing the extent of
        his liability is that applicable to a trustee,
        which [may be] stated as follows: “The
        general doctrine being that trustees ought to
        conduct the business of the trust on the same
        manner as an ordinarily prudent man of
        business would conduct his own, they will not
        be chargeable with more than they have
        received nor held responsible for losses that
        may arise, when they have acted in good faith
        and with common skill, prudence and
        diligence.”

Id. at 865–66 (quoting 28 Am. & Eng. Ency. of Law 1059 (2d
ed. 1908).

    Applying these principles to the case before it, the
California Supreme Court began by noting that “the
defendant and those who held the ranch and the personal
property under him conducted the business of the ranch with
care and diligence.” Id. at 866. That is to say, there was no
bad faith or mismanagement. Nonetheless, the court
determined, “the expense properly incurred by them in
conducting said business was more than $1,000 in excess of
28       PSM HOLDING V. NAT’L FARM FINANCIAL

the amount received by them as the proceeds of the ranch and
of the cattle.” Id. Accordingly, the California Supreme Court
affirmed the lower court order, which had concluded that
“plaintiff was not entitled to recover from the defendant, and
that the defendant should have judgment against the plaintiff
for his costs.” Id. at 865, 867.

    Thus, the California Supreme Court in Ward confronted
a circumstance analogous to the one we face today: one
wherein a judgment creditor (who, in that case, was the
defendant) took possession of a property pursuant to an
erroneous judgment, managed the property responsibly and
in good faith, but nevertheless incurred losses that exceeded
any resulting profits.

    The relevance of Ward lies as much in what the California
Supreme Court did not do, as well as with what it did do.
That is, the court did not award the judgment creditor-
defendant an affirmative recovery to offset the losses suffered
while it managed the ranch, despite of the fact that the court
made a finding that such expenses exceeded any potential
profits or proceeds that the defendant may have earned.
Rather than allow defendant an affirmative recovery, the
court simply denied plaintiff’s request for restitution and
awarded defendant the costs of litigation. Id. at 865, 867.

           ii. California Courts of Appeal

   Although the district court acknowledged Ward in its
December 17, 2014, order, it relied more extensively on two
California Courts of Appeal decisions: Gunderson, 126 Cal.
Rptr. 3d 880, and Stockton Theatres, Inc. v. Palermo,
264 P.2d 74 (Cal. Dist. Ct. App. 1953).
         PSM HOLDING V. NAT’L FARM FINANCIAL                 29

    This is itself arguably problematic: in diversity cases,
federal courts should consider decisions of the California
Courts of Appeal only “where the Supreme Court of
California has not spoken on the question” and where there is
no “convincing evidence that the highest court of the state
would decide [the issue] differently.” Cmty. Nat’l Bank v.
Fid. & Deposit Co. of Md., 563 F.2d 1319, 1321 n.1 (9th Cir.
1977) (internal quotation marks and citations omitted). Here,
the California Supreme Court’s decision in Ward may, itself,
well be such “convincing evidence.”

    Even setting this issue aside, however, the district court’s
December 17, order remains problematic. This is because
neither Gunderson nor Stockton Theatres provides the legal
support necessary to sustain PSM’s recovery in restitution.

    In Gunderson, a jury awarded the plaintiff compensatory
and punitive damages and the defendants appealed. See
126 Cal. Rptr. 3d. at 881.While the appeal was pending, the
plaintiff executed on the judgment. Id. at 881–82. The court
of appeal affirmed the compensatory damages, but reversed
the award of punitive damages. Id. at 882. The plaintiff
voluntarily returned the punitive damages, but declined to pay
the interest that had accrued during the pendency of the
appeal. Id. The defendant moved for restitution of the
interest , which the plaintiff opposed on the ground that he
had incurred $100,000 in unnecessary costs as a result of the
defendant’s misconduct. Id.

    The court of appeal began its analysis by setting forth the
relevant legal principles. “A person whose property has been
taken under a judgment ‘is entitled to restitution if the
judgment is reversed or set aside, unless restitution would be
inequitable.’” Id. at 883 (quoting Stockton Theatres,
30       PSM HOLDING V. NAT’L FARM FINANCIAL

264 P.2d at 77). The court relied on California Code of Civil
Procedure § 908 for the proposition that

        [U]pon the reversal or modification of a
        judgment, “the reviewing court may direct
        that the parties be returned so far as possible
        to the position they occupied before the
        enforcement of or execution on the judgment
        or order. In doing so, the reviewing court
        may order restitution on reasonable terms and
        conditions of all property and rights lost by
        the erroneous judgment or order.”

Id. at 883. Thus, the court summarized, “[t]he fundamental
rule guiding the court in such proceeding[s] is, so far as
possible, to place the parties in as favorable a position as they
could have been in had the judgments not been enforced
pending appeal.” Id. (alterations in original) (quoting
Stockton Theaters, 264 P.2d at 85).

    Applying these principles, the court reasoned that because
Wall’s “prolonged evasive misconduct” caused Gunderson to
incur additional costs when executing the judgment,
returning the parties to their original positions did not require
restitution of interest. Id. at 885 (“By permitting Gunderson
to retain whatever interest had accrued on the reversed
portion of his award, the trial court was, in effect, attempting
to return him to the position he held prior to the execution of
the judgment.”). On this basis the court affirmed the trial
court’s denial of Wall’s motion for restitution. Id.

    The district court’s reliance on Gunderson is unpersuasive
for three reasons. First, Gunderson does not go as far as the
district court’s order: that is, the Gunderson court did not
          PSM HOLDING V. NAT’L FARM FINANCIAL                         31

require Wall (the judgment debtor) to affirmatively make a
payment in restitution to Gunderson (the judgment creditor).5
Yet this is precisely the legally dubious step at issue on this
appeal. Second, Gunderson involved a situation wherein the
judgment debtor’s recovery was limited because of the
debtor’s own misconduct. No such misconduct has been
ascribed to Defendants here. Finally, even if the district court
relied on Gunderson only for the general proposition that
restitution in this type of case aims to “return[] the parties to
their original positions,” it fails to persuade. This is because,
on the record here, there is insufficient evidence to conclude
that Defendants would have incurred the same losses had
their possession of BAIC not been interrupted.

    The district court’s reliance on Stockton Theatres is
unconvincing for the same reasons. There, Emil Palermo, the
owner and lessor of a theater, sought a declaratory judgment
against Stockton Theatres Inc., the lessee of the theater, to
void the lease between them. Stockton Theatres, 264 P.2d at
76–77. The trial court found in favor of Palermo and voided
the lease. Id. at 77. Thereafter, Palermo initiated and
prevailed in an unlawful detainer action against Stockton
Theatres. Palermo retook possession of the property for
several years. Id. On appeal, both judgments were reversed.
Id. Consequently, the lease was deemed valid and Palermo
returned possession of the theater back to Stockton Theatres.
Id. Viewing this victory as incomplete, Stockton Theatres

    5
       If it had, then the court would have needed to calculate the
difference between the interest received by Gunderson while he possessed
the $800,000 pending appeal, and the additional costs incurred by him as
a result of Wall’s misconduct. The court did not do so, opting instead
simply to do rough justice by zeroing out Wall’s restitution award. To be
analogous to the instant case, the court would have had to order Wall (the
judgment debtor) to affirmatively pay Gunderson (the judgment creditor).
32       PSM HOLDING V. NAT’L FARM FINANCIAL

then sought to recover, in restitution, the income Palermo had
earned from operating the theater business during the period
the appeal was pending. Id. After an accounting, the trial
court awarded Stockton Theatres $13,658.75 in lost income.
Id.

    The court of appeal began by reiterating the familiar
principles of restitution in cases where a judgment is
subsequently reversed. Id. at 77–78 (citing Restatement
(First) of Restitution § 74 (Am. Law Inst. 1937) and Ward).
In denying Palermo’s appeal, the court reasoned that Palermo
“knew those judgments were not final and that the basic one
had already been made the subject of an appeal.” Id. at 79.
Thus, he knew that “if the appeal was successful he would be
subject to a demand by the theatre company that he account
for all that he had received through his enforcement of the
questioned judgments.” Id. “To make out the right of
restitution,” the court of appeal concluded, “it was only
necessary for the theatre company to show . . . that things of
value had been taken from it through the judgments appealed
from and through Palermo’s enforcement thereof and had
passed into Palermo’s hands and that thereafter the judgments
had been reversed.” Id. Once established, “[i]mmediately the
right of restitution arose and it was the duty of the court to
place the parties back as nearly as could be in the situation in
which each had been when the erroneous judgments were
rendered.” Id.

   Here, too, the district court’s reliance on Stockton
Theatres is unpersuasive. Unlike the district court’s
December 17 order, the court in Stockton Theatres did not
require Stockton Theatres, the judgment debtor in that case,
to make an affirmatively pay in restitution to Palermo, the
judgment creditor. In fact, imagining such a result confirms
          PSM HOLDING V. NAT’L FARM FINANCIAL                       33

the district court’s error in our case: if Palermo had operated
the theater at a significant loss, no one would expect Stockton
Theatres to make him whole under a theory of restitution –
doing so would be self-evidently unfair.

        d. Conclusion

    Reviewing the December 17 order de novo, as we must
here do, we conclude that the district court erred in allowing
PSM – the judgment creditor – to recover in restitution. Our
conclusion rests on the California Supreme Court’s decision
in Ward, wherein the court, confronted with an analogous
circumstance, declined to award the judgment creditor an
affirmative recovery to offset its losses. Our holding is
bolstered by the plain reading of Restatement (First) of
Restitution § 74 and Restatement (Third) of Restitution § 18,
both of which suggest that, in cases such as the one before us,
the right of restitution runs only to the judgment debtor.
Accordingly, for the reasons set forth, we reverse the district
court’s award of restitution to PSM.6

B. Rescission of PSM’s QSA with BAIC (No. 15-55026)

    1. Standard of Review

    The applicable standard of review for this part is the
standard set forth in Part II.A.1, supra.




    6
     Our conclusion with respect to restitution also renders moot PSM’s
appeal of the district court’s order denying PSM prejudgment interest.
No. 15-55026. Because there is no award, the question of whether PSM
was entitled to receive prejudgment interest on that award is moot.
34       PSM HOLDING V. NAT’L FARM FINANCIAL

     2. Analysis

    The district court’s October 8, 2013, order denied PSM’s
request to rescind its QSA with BAIC. That decision relied
heavily on Comment e to § 74 of the Restatement (First) of
Restitution, which provides, in relevant part, that a judgment
creditor may “diminish[]” a judgment debtor’s recovery by
“expenses necessarily incurred” but not by “the expenses of
improvements.” The district court found that “[t]he factual
record supports the conclusion that the reinsurance agreement
was an improvement rather than a necessary cost of
protecting BAIC,” and, as a result, that rescission thereof
would be improper.

    PSM raises three arguments on appeal. First, PSM
contends that the district court erred by not applying, or at
least considering, California Civil Code § 1019, which
concerns the removal of fixtures from leaseholds. Second,
PSM argues that the district court compounded this error by
misapplying § 908, which compels a court to return the
parties to the positions they occupied prior to enforcement of
the erroneous judgment. Finally, PSM argues that policy
considerations favor its position, particularly because, absent
reversal, “judgment creditors would face an insurmountable
dilemma.”

   PSM’s arguments are unpersuasive.           First, § 1019
provides:

        A tenant may remove from the demised
        premises, any time during the continuance of
        his term, anything affixed thereto for purposes
        of trade, manufacture, ornament, or domestic
        use, if the removal can be effected without
          PSM HOLDING V. NAT’L FARM FINANCIAL                          35

         injury to the premises, unless the thing has, by
         the manner in which it is affixed, become an
         integral part of the premises.

Cal. Civ. Code § 1019. The language of § 1019 – in
particular, its reference to “tenants” and “premises” – has
little relevance to the instant case. PSM was never a “tenant”
and never possessed a “premises” on which anything could be
“affixed.” Therefore, PSM’s argument that the district court
abused its discretion by failing to consider § 1019 is without
merit.7

    Second, PSM’s argument that the district court erred in its
application of California Code of Civil Procedure § 908 is
similarly unconvincing. Relying on Stockton Theatres, PSM
argues that it should not be held liable for expenses that were
necessarily incurred to preserve BAIC’s value, and that the
district court’s “mechanical removal” of these costs was
error. Contrary to PSM’s argument, however, the district
court thoroughly analyzed whether the QSA amounted to a
necessary expense or, instead, an improvement.

    The district court reasoned that the applicable test for
distinguishing between “repairs and maintenance” and
“improvements” is whether “the improvements were made to
‘put’ the particular capital asset in efficient operating
condition . . . [or] if . . . they were made merely to ‘keep’ the
asset in efficient operating condition[.]” (Quoting Moss,
831 F.2d at 835.) Applying this standard, the district court


    7
       Moreover, PSM’s reliance on Central Pacific Supply Corp. v.
Breton, 937 F.2d 611, 1991 WL 134448 (9th Cir. 1991) (unpublished), is
likewise unavailing. Central Pacific involved a leasehold of real property,
see id. at *1, which is far afield from our facts.
36       PSM HOLDING V. NAT’L FARM FINANCIAL

concluded from the record evidence that PSM’s decision to
enter into the QSA “added to BAIC’s value by reducing the
amount of risk it faced.” (Emphasis added.) Because the
QSA “put” BAIC into a better position than it had been at the
time PSM took possession of it, the district court concluded
that “the reinsurance agreement is better characterized as an
‘improvement’ than an expense necessary to protect BAIC.”

    Finally, PSM’s policy argument also fails. The crux of
PSM’s argument is that, absent reversal, judgment creditors
who execute on a judgment and take possession of property
will face an “insurmountable dilemma,” wherein they must
carefully deduce which projects are “repairs and
maintenance” on the property and which are “improvements.”
But this argument is based on a false premise that it was
Defendants or the district court, not PSM, that opted to
execute on the judgment while an appeal remained pending.
It was this affirmative choice that put PSM in the position
that it has now, with hindsight, discovered to be unenviable.

C. The award of post-reversal attorneys’ fees to
   Defendants under § 1717 (No. 15-55941)

     1. Standard of Review

    We “review[] de novo questions of law concerning
entitlement to attorney’s fees.” Lagstein v. Certain
Underwriters at Lloyd’s of London, 725 F.3d 1050, 1056 (9th
Cir. 2013) (citation omitted). “State law governs whether a
party is entitled to attorney’s fees in diversity cases such as
this one.” Id. (citation omitted). However, “[w]e review [the
amount of] attorney fees awarded under state law for abuse of
discretion.” Muniz v. United Parcel Serv., Inc., 738 F.3d 214,
         PSM HOLDING V. NAT’L FARM FINANCIAL                 37

218–19 (citing 389 Orange St. Partners v. Arnold, 179 F.3d
656, 661 (9th Cir. 1999)).

    For this inquiry, because we review a diversity case,
“[d]ecisions of the California Supreme Court, including
reasoned dicta, are binding on us as to California law.” Id. at
219 (citation omitted). “Decisions of the six district appellate
courts are persuasive but do not bind each other or us.” Id.
(citation omitted). But “[w]e should nevertheless follow a
published intermediate state court decision regarding
California law unless we are convinced that the California
Supreme Court would reject it.” Id. (citation omitted).

    PSM’s appeal challenges whether the district court erred
in awarding fees under California Civil Code § 1717. This is
a legal challenge and is thus reviewed de novo. Defendants’
appeal challenges the district court’s decision to reduce their
fee award by thirty percent on grounds that they achieved
only limited success. Because this is a challenge to the
amount of fees awarded by the district court, we review for
abuse of discretion.

   2. Analysis

    The district court’s May 19, 2015 order granted in part
and denied in part Defendants’ motion to recover post-appeal
attorneys’ fees. Although the district court denied as
untimely Defendants’ request for fees pursuant to California
Code of Civil Procedure § 685.040, it awarded fees under
§ 1717. Reviewing de novo, we reverse.
38        PSM HOLDING V. NAT’L FARM FINANCIAL

     California Civil Code § 1717 states that:

        (a) In any action on a contract, where the
        contract specifically provides that attorney’s
        fees and costs, which are incurred to enforce
        that contract, shall be awarded either to one of
        the parties or to the prevailing party, then the
        party who is determined to be the party
        prevailing on the contract, whether he or she
        is the party specified in the contract or not,
        shall be entitled to reasonable attorney's fees
        in addition to other costs. . . .

        (b)(1) The court . . . shall determine who is
        the party prevailing on the contract for
        purposes of this section, whether or not the
        suit proceeds to final judgment.

Cal. Civ. Code § 1717(a)–(b).

    In Carnes v. Zamani, 488 F.3d 1057 (9th Cir. 2007), we
held that “[i]n California, the contractual right to attorney
fees contemplated by section 1717 is extinguished upon
satisfaction of the judgment.” Id. at 1061 (citing Berti v.
Santa Barbara Beach Props., 145 Cal. Rptr. 3d 364, 369 (Ct.
App. 2006)).

    Here, the district court determined that PSM had satisfied
the judgment in full prior to Defendants’ request for post-
reversal fees, and that this is true irrespective of which order
Defendants’ take as the operative “judgment.” See PSM
Holding Corp. v. Nat’l Farm Fin. Corp., No. CV 05-08891
MMM, 2015 WL 11652518, at *8 (C.D. Cal. May 19, 2015)
(“Defendants did not file their motion for attorneys’ fees and
          PSM HOLDING V. NAT’L FARM FINANCIAL                         39

costs under § 865.040 until December 31, 2014, several years
after PSM’s obligations under the mandate, i.e., return of
BAIC shares and payment of attorneys’ fees and costs, had
been satisfied.”); id. at * 9 (“More fundamentally, even if the
fees sought by defendants could be characterized as fees
incurred to enforce the December 17, 2014 judgment,
§ 685.040 provides no basis for awarding the fees because
PSM’s obligations under the December 17 judgment were
fully satisfied prior to the date defendants filed their motion
for attorneys’ fees.”). Notwithstanding these intermediate
conclusions, the district court then proceeded to award
Defendants attorneys’ fees under § 1717, without addressing
why, consistent with Carnes, Defendants’ right to these fees
was not extinguished upon PSM’s satisfaction of the
judgment. Id. at *10–14.

    Because the district court erred when it awarded
attorneys’ fees to Defendants under § 1717, while
simultaneously concluding that PSM had fully satisfied the
obligations stemming from the operative judgments, we
reverse.8 Under Carnes, any right to attorneys’ fees under
§ 1717 “is extinguished upon satisfaction of the judgment.”
488 F.3d at 1061 (citation omitted).




    8
       Our decision to reverse the district court’s award of post-reversal
fees to Defendants under § 1717 renders moot Defendants’ challenge to
the district court’s thirty percent reduction of the lodestar amount.
40       PSM HOLDING V. NAT’L FARM FINANCIAL

D. The denial of costs to Defendants for court-appointed
   experts. (No. 15-56184)

     1. Standard of Review

    We review a district court’s application of Federal Rule
of Civil Procedure 54(d)(1) and its denial of costs for abuse
of discretion. See Berkla, 302 F.3d at 917.

     2. Analysis

    Following the district court’s entry of judgment on
December 17, 2014, Defendants filed an application with the
Clerk to tax costs. After a hearing, the Clerk taxed deposition
costs in the amount of $3,622.22 against PSM, but denied
Defendants’ remaining requests to tax a $455 filing fee and
$150,967.91 in costs attributable to the court-appointed
experts. Defendants then filed a motion to retax costs. On
July 14, 2015, the district court denied the motion. The
district court’s decision rested on Defendants’ “limited
success and partial recovery, the benefit to both parties of the
court-appointed experts’ reports, and the necessity of
retaining such experts to assist in analyzing the complex
issued raised by the post-appeal restitution proceedings.”
Because we reverse the district court’s restitution award to
PSM, the district court’s rationale for denying Defendants’
motion to retax is undermined, at least in part. Accordingly,
we vacate the district court’s denial and remand for further
consideration in light of today’s opinion.
          PSM HOLDING V. NAT’L FARM FINANCIAL                          41

                                   III.

    For the reasons set forth above:

    1. In No. 15-55026 & 15-55087, we reverse the district
court’s December 17, 2014, order with respect to the order’s
award of $1.1 million in restitution to PSM.9 We dismiss as
moot PSM’s appeal of the district court’s denial of
prejudgment interest. We affirm the December 17 order in all
other respects, including as to the issue of QSA rescission.

    2. In No. 15-55941, we reverse the district court’s May
19, 2015, order awarding attorneys’ fees to Defendants. In
No. 15-55943, Defendants’ appeal of the district court’s
reduction of the lodestar fee amount is dismissed as moot.

    3. In No. 15-56184, because we reverse PSM’s
restitution award, we vacate the district court’s July 14, 2015,
order denying Defendants’ motion to retax costs and remand
for reconsideration in light of the changed circumstances.

   4. In each of these five appeals, each party shall bear its
own costs on appeal.

   AFFIRMED in part, REVERSED in part, VACATED
and REMANDED in part, and DISMISSED in part.




    9
      We recognize that, in awarding PSM a $700,000 offset, the district
court also required PSM to return the account receivable to BAIC. This
$700,000 formed a part of the award to PSM that we now reverse, and so
we also reverse that aspect of the district court’s order that required PSM
to return the receivable to BAIC.
