For Better or For Worse, Court Finds Joint 998 Offer To Husband and Wife Sufficient Basis For Expert Witness Fees and Costs Award

Posted on May 1, 2012 by David J. McMahon

By David J. McMahon and Tino X. Do

In Farag v. ArvinMeritor Inc., 2012 DJDAR 5206 (April 24, 20120), the California Court of Appeal for the Second Appellate District affirmed a post-judgment order denying plaintiffs’ motion to tax expert witness costs. Defendant sought these costs pursuant to California Code of Civil Procedure section 998 after defeating plaintiffs’ claims at trial.

Plaintiffs husband and wife sued defendant, among many others, after the husband was disabled by mesothelioma. Plaintiffs alleged that the husband was exposed to defendant’s asbestos-containing products while working on cars. Prior to trial, defendant served a section 998 offer to compromise of $0.01 on plaintiffs jointly. Plaintiffs did not accept this offer and proceeded to trial. The jury returned a verdict in defendant’s favor. Defendant then submitted a memorandum of costs for approximately $11,033 for expert witness fees as well as $2,173 in expert travel costs, based on the rejected section 998 offer. Plaintiffs filed a motion to tax these costs which was denied.

On appeal, Plaintiffs claimed that the section 998, made jointly and unallocated to husband and wife, was void in the absence of a showing the offer provided fair and reasonable value. The appellate court rejected this claim.

The appellate court first found that plaintiffs failed to properly raise the issue of whether a section 998 offer made jointly to a husband and wife was void in the trial court, and therefore waived the ability to raise it on appeal.

The court also rejected plaintiff’s claim as a prior court in Barnett v. First National Ins. Co. of America, 184 Cal.App.4th 1454 (2010) concluded that a section 998 offer could be made jointly to spouses because, under California’s community property law, a cause of action for personal injury damages is community property and either spouse can accept an offer to settle that claim on behalf of the community. The court found that defendant’s joint section 998 offer was valid, and affirmed the post-judgment order.

 

Cost Shifting is Proper Where Defendant's Section 998 Offer Was Reasonable as a Matter of Law

Posted on November 21, 2011 by David J. McMahon

In Adams v. Ford Motor Co., 2011 Cal. App. Unpub. LEXIS 7411 (Cal. App. 2d Dist. Sept. 29, 2011), the California Court of Appeal for the Second Appellate District decided an important case arising under the cost shifting provisions of California Code of Civil Procedure § 998. This is the so called “offer of judgment” statute. The case arose out of a wrongful death claim against Ford Motor Co. (“Ford”).

The decedent allegedly performed regular maintenance on his vehicles. Five of the cars were manufactured by Ford. He contracted mesothelioma and passed away. His wife and their three children sued Ford. The plaintiffs argued that Ford’s products caused the decedent’s exposure to asbestos.

Ford served the plaintiffs with a settlement offer under CCP § 998 in the amount of $2,500 per plaintiff, amounting to $10,000. The offer also included a mutual waiver of costs. The plaintiffs did not respond to the offer, allowed it to expire and the case went to trial. 

The jury found in favor of Ford, and Ford filed a memorandum of costs, claiming $185,741 in costs, including expert witness fees of $167, 570 pursuant to the cost shifting provisions of CCP § 998.

The plaintiffs moved to tax costs. 

Plaintiffs alleged that Ford’s 998 offer was made in bad faith and that Ford had no reasonable expectation that the offer would be accepted. Thus, it was made only to recover expert witness fees in the event that Ford prevailed at trial. The trial court denied plaintiffs’ motion as the lower court concluded that the offer was reasonable.

The Court of Appeal affirmed the lower court’s ruling. The Court noted that if a plaintiff does not accept a defendant’s Section 998 offer and the plaintiff fails to obtain a more favorable judgment, the plaintiff may not recover post‑offer costs. Moreover, the plaintiff must pay the defendant’s costs from the time of the offer as well as for the services of expert witnesses.

However, to be enforceable, the settlement offer must be “realistically reasonable under the circumstances of the particular case.” The Court concluded that the plaintiffs should have known that their chances of prevailing were slim because they had entered into several other settlements with other defendants for amounts much lower than they sought from Ford.

Does Negotiating a Fee Award along with Substantive Relief Create a Conflict of Interest?

Posted on January 7, 2011 by Gary A. Bresee

An interesting article was published in California Lawyer, January 2011 issue, regarding attorneys' fees, and in particular, negotiating the amount of those fees during settlement discussions.  Negotiating Attorneys Fees, Id. at 12, "Expert Advice," by Adam W. Hofmann, from the San Francisco office of Hanson Bridgett.  The author recognizes that attorneys representing plaintiffs in civil rights and public interest cases usually bifurcate the settlement negotiations, with an attempt to reach agreement on the substantive issues first.  The right to attorneys' fees, and the amounts thereof, are typically delayed until after the substantive issues have been resolved.  Plaintiffs lawyers usually claim that bifurcation is necessary to avoid an ethical conflict between the client's claim and the lawyer's interest in getting paid.

The author argues, however, that such strategy may, in some cases, be a tactical mistake.  The tactic of negotiating the fees simultaneously with the substantive claims may arguably avoid the inherent conflict that usually arises. 

The answer is, of course, that it all depends on your case.  Negotiating the issues simultaneously, and demanding an excessive amount of fees (at least in the eyes of the defendant) could cause a stumbling block in the negotiations over the substantive claims.  Creating such an obstacle to the settlement talks at that point would mean plaintiff gets nothing, so the conflict could be real at that point.  Because many actions are driven by the fee claim -- the recovery of fees being the primary motivation for bringing suit in the first place -- the conflict of interest should always be considered.  The avoidance of that conflict is no doubt heavily dependent upon the case and the particular circumstances in each negoatiation.   

An intersting article, and worth your time to read; especially if you find yourself confronting this conflict question.

Appellate Court Concludes that Cost Shifting is Calculated from the Date of the Last Urevoked Offer of Judgment

Posted on December 10, 2009 by David J. McMahon

In One Star Inc. v. Staar Surgical Co. the Second District Court of Appeal reversed the decision of the trial court concerning the interpretation of the “offer of the judgment” statute, California Code of Civil Procedure § 998. 

One Star Inc. (“Star”) was a business representative for Staar Surgical Co. (“Surgical”). Star sued Surgical for breach of contract. In September of 2007, Surgical made an offer of compromise pursuant to CCP § 998. Pursuant to the terms of the statute the offer lapsed 30 days after it was made and not accepted. Two months later Surgical made a second offer. However, Surgical withdrew the offer before the date that it lapsed. Star was successful at trial but recovered less than what Surgical had offered in the first offer of judgment. Surgical then moved to recover the costs pursuant to CCP § 998.

Pursuant to CCP § 998 a party may make an offer in writing to allow judgment to be taken against that party. If the offer is not accepted prior to trial, or within 30 days after it is made, it is deemed withdrawn. If the plaintiff fails to accept the offer and fails to obtain a higher judgment, the plaintiff is required to pay the defendant’s costs, including proper expert costs. For this reason the statute can be a powerful settlement tool in litigation.

The trial court denied Surgical’s motion to recover costs on the ground that the second withdrawn offer extinguished the first offer. Surgical appealed, arguing that its first offer still controlled because it expired before the second offer was made and withdrawn. The court of appeal agreed and reversed.

The appellate court held that under Section 998, when a plaintiff refuses a settlement offer and then obtains a less favorable judgment at trial, the defendant is entitled to those costs incurred after the settlement offer. The later offer operates to extinguish the earlier offer, regardless of its validity. However, there is an exception where the offer of judgment is revoked before expiration of the statutory period. It is no longer treated as a valid 998 offer.

Thus, where a defendant withdraws a second settlement offer, the plaintiff’s recovery is measured against the first settlement offer. In this case, the second offer was revoked and no longer considered a valid offer of judgment. Thus, the court of appeal concluded that the lower court made an error when it ruled that the prior offer was extinguished by the second offer.

 

Insurer's Duty of Good Faith Extends to All Insureds in Multiparty Litigation

Posted on December 1, 2009 by Gary A. Bresee

An insurer's duties become complicated when litigation is pending against more than one of its insureds. In general, an insurer may have a duty to accept a settlement offer made within policy limits, but in the case where more than one of the insureds is sued, how is that duty affected when a CCP Section 998 settlement offer is made to only one of the insureds? 

The question was answered by the First Appellate District in Kauffman v. California State Automobile Association (2009) No. A123494 (unpublished). The son and his parents were all insured under an automobile policy, so when he caused an accident, the plaintiffs sued not only the son, but the parents for "negligent entrustment of the car" to their son.

Plaintiffs then made a policy limits demand to the son alone, using an offer of compromise under CCP Section 998. The offer was rejected. Plaintiffs eventually entered into a complex settlement agreement where the son assigned any rights he may have had against the carrier to the Plaintiffs. In Plaintiffs' subsequent suit against the insurer, the appellate court decided, first, that the 998 Offer did not create the requisite conflict of interest triggering the carrier's duty to appoint separate counsel, or Cumis counsel, under Civil Code section 2860. 

More importantly, the court rejected the argument that the carrier acted in bad faith by refusing to accept the 998 Offer. In fact, the carriers' acceptance of the 998 Offer for the full policy limits would have been bad faith to the remaining insureds; i.e., the parents. The insurer's duties extend to all of its insureds, and the carrier cannot favor one insured over another. Because the 998 Offer was for the full policy limits, agreeing to settle on the son's behalf would have left the parents completely exposed. Consequently, the court found no bad faith under these facts.