Court of Appeal:
CCP §998 Applies Where Case Settled for Less Than Offer
Opinion Says Plaintiffs Who Sued Under ‘Lemon Law,’ Which Provides for Award of Attorney Fees, Costs to
Prevailing Plaintiff, Are Not Entitled to Award Where Spurned Offer Exceeded Settlement Amount
By a MetNews Staff Writer
The Third District Court of Appeal held yesterday, in a 2-1 decision, that where a plaintiff spurns a statutory offer to compromise and then settles for a lesser amount, the provisions of Code of Civil Procedure §998 apply and a plaintiff, in a suit under the state’s “lemon law,” is not entitled to an award of attorney fees and costs as the prevailing party in that situation.
Justice Peter A. Krause authored the majority opinion, in which an issue of first impression was presented. Justice Elana Duarte signed his opinion.
Acting Presiding Justice Ronald B. Robie dissented, arguing that the cost-shifting provisions of §998 apply only where the plaintiff suffers a defeat at trial or gives up the fight, not where there’s a settlement.
‘Lemon Law’ Suit
Plaintiffs Oscar J. and Audrey M. Madrigal brought a car for $24,172.73; they sued Hyundai under the Song-Beverly Consumer Warranty Act (Civil Code §1790 et seq.); the defendant made a statutory offer to comprise under which it would pay $24,172.73 plus actual damages, to be determined, or $37,396.60 plus $5,000 in attorney fees or in such an amount as the judge set; there was no response to the offer and it expired; a second offer was made on the same terms except that the fixed amount of $55,556.70 was substituted for $37,396.60; that offer also expired.
On the day set for trial, the matter was settled. Hyundai agreed to pay $39,000, with fees and costs to be set by the court, and with the court maintaining jurisdiction to determine the remaining issue.
Under Civil Code §1794(d), a prevailing plaintiff “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….” The Madrigals sought $228,304.58 in attorney fees and costs.
Hyundai argued that the plaintiffs were entitled to only $622.95 in costs, reasoning that the settlement was for $16,556.70 less than the second offer to compromise ($55,556.70 minus $39,000). Placer Superior Court Judge Michael W. Jones rejected Hyundai’s contention, explaining that the purpose of §998 “is to encourage settlement of lawsuits prior to trial” and given that the parties did settle and there was no trial, and “no judgment or award was rendered,” §998 “does not apply.”
He awarded the plaintiffs $81,142.50 in attorney fees and $17,681.05 in costs.
In his opinion reversing the judgment, Krause pointed out that §998(c)(1) provides:
“If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer.”
(It does not appear from the opinion that Hyundai sought an award of its postoffer costs pursuant to that section.).
“[T]he only question asked by subdivision (c)(1) of the statute is whether the plaintiff who rejected the offer obtained, or failed to obtain, a ‘more favorable judgment’ through continued litigation. It says nothing about the timing or form of that judgment, whether after trial, summary judgment, settlement, or otherwise.”
He observed that “[b]y its plain terms, section 998 does not exclude cases that end in settlement, or limit its cost-shifting provisions to cases that end in a judgment after trial….”
The jurist noted that in similar contests, courts have construed “the term ‘judgment’ to include a dismissal with prejudice, like the one agreed to by the parties in this case.”
Rejects Jones’s Interpretation
Differing from Jones’s view, Krause set forth:
“The trial court found that section 998’s policy of encouraging settlement was met by the stipulated settlement in this case, a finding that plaintiffs urge us to endorse. But the policy behind section 998’s cost-shifting penalty provisions supports the conclusion that the statute is designed not to encourage pretrial settlements generally, but specifically to encourage the acceptance of offers to compromise within the parameters of the statute by using the stick of postoffer costs and fees against reluctant offerees….
“Applying section 998’s ‘carrot and stick’ approach to settlements like the one here furthers the statute’s policy of avoiding gamesmanship and encouraging careful consideration and acceptance of reasonable offers to compromise.”
“Plaintiffs rejected reasonable offers to compromise early in the case, creating a known risk that they might have to forfeit costs and attorney fees from the date of the operative section 998 offer if they failed to obtain a more favorable judgment later. When they ultimately agreed on the brink of trial to accept a monetary settlement that was less than Hyundai’s second section 998 offer, and further agreed to dismiss their complaint with prejudice, they ‘fail[ed] to obtain a more favorable judgment’ within the meaning of section 998, subdivision (c). The trial court should therefore have applied that statute when assessing the costs and attorney fees recoverable by the parties.”
In his dissent, Robie zeroed in on the word “fail” in §998(c)(1).
A plaintiff “fails to obtain a more favorable judgment or award,” he maintained, only where the defendant triumphs at trial or the defendant abandons the effort, not where an accord is reached. Roble cited Burton’s Legal Thesaurus which provides such synonyms for “fail” as, in one category, “be defeated,” “flunk,” and “not succeed,” and, in another category, “abandon” or “forsake.”
He also quoted from Black’s Law Dictionary, and argued:
“The foregoing definitions demonstrate ‘fails to obtain’ may reasonably be understood to refer to the result flowing from the plaintiff’s unilateral action rather than a result flowing from a compromise between opposing parties. A plaintiff is defeated or loses, for example, when, following an adverse adjudication, the plaintiff obtains a judgment less favorable than what the defendant offered….”
“A plaintiff may also obtain a less favorable judgment by abandoning the action and making no effort to obtain a judgment at all….Neither of the foregoing plain meaning applications pertain to negotiated settlements where the result is not due to the plaintiff’s unilateral action, but is instead the result of continued negotiations and a compromised settlement between the parties.
“Moreover, a settlement does not result in a winner or a loser.”
Krause scoffed in his opinion that underlying Robie’s approach “is the idea that the statute is so abstruse that we must resort to a legal dictionary, thesaurus, or statutory deconstruction.” He countered:
“The phrase ‘fails to obtain a more favorable judgment’ means what it says—the plaintiff fails to, or does not, meet its obligation at the conclusion of the lawsuit to obtain a judgment more favorable than the amount stated in the offer to compromise….There is no need to go beyond the plain text of section 998, subdivision (c) to divine the meaning of the phrase ‘fails to obtain.’ ”
The case is Madrigal v. Hyundai Motor America, 2023 S.O.S. 1464.
Representing the Madrigals on appeal were Roger Kirnos of Knight Law Group LLP in Century City; Century City practitioner Michael Harris Rosenstein; Bryan Charles Altman, also of Century City; and Cynthia E. Tobisman of the Beverly Hills appellate firm of Greines, Martin, Stein & Richland LLP. Acting for Hyundai were Soheyl Tahsildoost and Kainoa Aliviado of the Theta Law Firm in Lawndale and Julian G. Senior SJL Law, PC, in El Segundo.
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