Wednesday, June 9, 2004
Court of Appeal Rules:
Sec. 998 Offer Including ‘Reasonable’ Attorney Fees Is Enforceable
By DAVID WATSON, Staff Writer
A settlement offer which includes a provision for the recovery of “reasonable” attorney fees is not too vague to be enforced under Code of Civil Procedure Sec. 998, the Fourth District Court of Appeal ruled yesterday.
In an opinion by Justice James A. McIntyre for Div. One, the court said a settlement offer made in a dispute between two event staffing companies was valid under the cost-shifting statute, which permits the maker of an offer to recover post-offer expert witness fees and other costs if the offer is rejected and the rejecting party achieves a less favorable result at trial. McIntyre said San Diego Superior Court Judge Thomas O. LaVoy was right to reject the contention of Elite Show Services, Inc. that the offer made by Staffpro, Inc. was too vague to be enforced.
Elite sued Staffpro in 2001 for unfair competition, unfair business practices and intentional interference with prospective economic advantage, claiming Staffpro used unlicensed personnel as security guards, evaded payroll taxes, and failed to provide its employees with workers compensation benefits and disability insurance, allowing it to undercut Elite’s business.
Staffpro offered to agree to the injunctive relief sought in the complaint and to pay “a sum equal to the amount of reasonable attorneys’ fees and taxable costs” incurred by Elite in investigating and prosecuting the lawsuit up to the time of the offer. Elite rejected the offer.
Elite dropped its intentional interference claim and its demand for monetary damages before trial. LaVoy granted the company only part of the injunctive relief it sought.
Must Be Unconditional
Citing Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, McIntyre agreed with Elite that a Sec. 998 offer “will be strictly construed in favor of the party against whom it would operate—and although the inclusion of nonmonetary terms and conditions therein does not necessarily render an offer invalid, the offer must be unconditional to be enforceable.”
But the fact that the amount of attorney fees was not specified in the offer did not “render the offer so uncertain as to be unenforceable,” the justice said.
“Many contracts contain a provision authorizing the prevailing party in litigation arising out of the contract to recover reasonable attorney fees from another party to the contract, yet Elite is unable to cite any published authority holding the inclusion of such a provision renders the subject contract uncertain or unenforceable,” McIntyre wrote. “More importantly, the failure of the offer to specify the dollar amount of reasonable fees would not have precluded a court from ascertaining with reasonable certainty Staffpro’s obligations thereunder if Elite had accepted the offer.”
Code of Civil Procedure Sec. 1033.5(c)(5) provides a “mechanism for determining the amount of attorney fees allowable as costs,” either by stipulation of the parties or upon a noticed motion, the justice pointed out.
“Because applicable statutory and rule provisions set forth a procedure for determining the amount of attorney fees to be awarded pursuant to a contractual provision..., the fact that the offer does not specify a particular amount of attorney fees does not leave the matter open for the parties’ future agreement, nor does it create an uncertainty that renders it unenforceable. In this regard, a settlement offer that includes an agreement to pay reasonable attorney fees is analogous to the inclusion of an award of unspecified costs in a judgment, a very commonplace occurrence. The fact that the amount of reasonable costs (in this case, fees) must be determined thereafter does not render the offer fatally uncertain.”
Elite, McIntyre said, was right to call attention to a passage in Barella in which the Supreme Court declared that “the legislative purpose of section 998 is generally better served by ‘bright line rules’ that can be applied to these statutory settlement offers—at least with respect to the application of contractual principles in determining the validity and enforceability of a settlement agreement.”
“We agree wholeheartedly and believe our determination that a settlement offer’s inclusion of a provision agreeing to pay the offeree’s reasonable attorney fees does not render the offer unenforceable under section 998 is such a bright line rule.”
McIntyre said it was too late for Elite to contend that the outcome at trial was not less favorable that the settlement offer. Elite raised that argument for the first time in its reply brief on appeal, the justice noted.
“Even if we were to consider Elite’s argument on its merits,” he explained, “we would have a difficult time accepting Elite’s position that, although Staffpro offered to stipulate to the exact injunctive relief requested in Elite’s complaint, the offer was less favorable to Staffpro than the nonmonetary components of the trial court’s judgment, which were more limited in scope, although more detailed in certain respects.”
The case is Elite Show Services, Inc. v. Staffpro, Inc., 04 S.O.S. 2856.
Copyright 2004, Metropolitan News Company