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Court of Appeal:
Rejection of §998 Offer Improperly Invoked in Denying Attorney Fees in Lemon-Law Case
Where Ultimate Recovery Exceeded Offer, Judge Was Off Base in Disallowing Post-Offer Fees on Ground That Final Settlement Was Only Slightly Above Statutory Offer to Compromise—Opinion
By a MetNews Staff Writer
The First District Court of Appeal has held that a judge abused his authority in denying attorney fees to the prevailing plaintiff in a lemon law case from the time of a statutory offer to compromise to the end of the litigation even though the final settlement exceeded the offer by $8,500.
Justice Gabriel P. Sanchez of Div. One wrote the opinion. It reverses an order by Alameda Superior Court Judge Evilio Grillo.
Defendant FCA US LLC, which manufactured the 2011 Dodge Challenger, made an offer on April 23, 2018, to pay $81,000 plus reasonable costs, expenses, and attorney fees in settlement of a case brought against it by Kathy L. Reck and Thomas Reck, who had purchased such a vehicle, which repeatedly went into the shop for repairs, and who sued when FCA declined to buy the car back. The action was instituted under the Song-Beverly Consumer Warranty Act—the “lemon law.”
That act, comprising Civil Code §1790 et seq., provides in §1794(d):
“If the buyer prevails in an action under this section, the buyer shall be allowed by the court to recover as part of the judgment a sum equal to the aggregate amount of costs and expenses, including attorney’s fees based on actual time expended, determined by the court to have been reasonably incurred by the buyer in connection with the commencement and prosecution of such action.”
FCA’s offer was made pursuant to Code of Civil Procedure §998 which says that if the ultimate recovery in a case is less than the offer, “the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer.”
Although the Recks on Aug. 1, 2018, the second day of trial, garnered a settlement for a greater amount than the offer—$89,500—Grillo disallowed any fees incurred after the offer made the previous April was spurned. Noting that “close to $100,000 of the fees incurred were incurred between the time of the 998 offer and the date of the settlement,” he declared that fees charged during that time period “were not reasonable or necessary.”
Grillo granted an award based, under the lodestar method, on the Recks’s attorneys’ hourly rates times the number of hours expended—coming to $20,158—with a .5 multiplier, totaling $30,237. The amount that was sought was $124,831.
Disagreeing with Grillo’s approach, Sanchez wrote:
“No published authority addresses the precise question before us: may the trial court rely on a plaintiff’s rejection of a reasonable offer to compromise under section 998 to reduce or deny post-offer attorney fees and costs when the plaintiff secures a recovery that is superior to the rejected offer? We conclude that in the context of civil rights or public interest litigation involving mandatory fee shifting statutes, it is an error of law for the trial court to reduce an attorney fee award on the basis of a plaintiffs failure to settle when the ultimate recovery exceeds the section 998 settlement offer.”
He went on to say:
“Although the trial court retains broad discretion to evaluate post-offer attorney fees and costs under a lodestar analysis, and to reduce the fee recovery in the appropriate circumstance, it may not categorically deny all fees from the date of the offer when the plaintiffs decision to press forward with litigation has been vindicated by a more favorable judgment or award.”
The jurist reasoned:
“Allowing the trial court to categorically deny attorney fees simply because the plaintiff turned down a section 998 offer that is inferior to their ultimate recovery places too large a settlement club in the court’s hands. In making the decision to reject a section 998 offer, the plaintiff takes on the risk that he or she will not obtain a better result and will be deprived of post- offer attorney fees and be made to pay the other side’s fees or costs. Plaintiffs must be free to take these kinds of calculated risks without fear that the trial court may deny reasonably incurred post-offer attorney fees even after successfully litigating their matter to a more favorable resolution. To endorse a different rule would create inordinate pressure on plaintiffs to accept low or unreasonable section 998 settlement offers, and undermine the prosecution of meritorious civil rights or public interest litigation and the legislative interest in awarding a prevailing plaintiff their reasonable attorney fees and costs under mandatory fee-shifting statutes.”
He noted that the offer that the amount recovered by the Recks under the settlement was more than 10 percent more than what was proposed under the §998 offer.
Sanchez also took note that there were billings from 13 lawyers in connection with the prosecution of the plaintiffs’ case. He said the holding is not to be regarded as a bar to the trial judge taking inti account whether there has been overlitigation of a matter, saying:
“[B]ecause one of the factors in a lodestar analysis involves an evaluation of the ‘results achieved’ by the plaintiff, we do not agree with appellants’ suggestion that the trial court may not consider a rejected section 998 offer at all. The reasonableness of the tendered section 998 offer in relation to the results obtained by the plaintiff may be a consideration in the overall recovery of a reasonable attorney fee award.”
The case is Reck v. FCA US LLC, 2021 S.O.S. 2210.
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