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.

Settlement Offer Referencing Costs Includes Attorney Fees

Posted on August 3, 2011 by David J. McMahon

 

In Martinez v. Los Angeles County Metropolitan Transportation Authority, 2011 DJDAR 7417 (2011), the California Court of Appeal for the Second District held that when a plaintiff accepts a defendant’s settlement offer under Code of Civil Procedure Section 998, and that offer states that each side will bear its own costs, attorney fees are precluded as a matter of law.

The plaintiff filed suit against the Metropolitan Transportation Authority (MTA). The plaintiff alleged damages as one of the MTA drivers refused to allow the plaintiff to ride the bus with her service animal.

The MTA initiated settlement pursuant to Code of Civil Procedure Section 998. 

The “998 offer” stated that each side would bear their own “costs.” The plaintiff accepted the offer. 

Several weeks later she filed a motion for attorney fees, contending that the settlement offer did not preclude her from recovering statutory attorney fees. The plaintiff argued that the MTA’s offer only referred to “costs” and did not mention “attorney fees.” The MTA argued that the term “costs” implicitly included attorney fees under the statute. The trial court denied the plaintiff’s motion. The judge ruled that statutory attorney fees were an item of cost under CCP Section 1033.5, therefore implicitly included in the 998 offer.

The Court of Appeal affirmed the trial court’s decision. 

The appellate court noted that a party who accepts a Section 998 offer is entitled to costs and attorney fees unless they are excluded. The court also observed that pursuant to CCP Section 1033.5(a)(10) provides that attorney fees are allowable “costs” when authorized by contract or statute. 

The court of appeal noted that the offer in this case specifically excluded “costs” but did not mention attorney fees. Therefore, unless it expressly stated otherwise, an offer under Section 998 that excludes “costs” also excludes attorney fees. Therefore, the trial court’s denial of attorney fees was proper.

 

Award of Attorney Fees Under the Automobile Sale Finance Act Upheld by Court of Appeal

Posted on July 20, 2010 by David J. McMahon

by David J. McMahon and Tino X. Do

In Nelson v. Pearson Ford Co., D054369 (July 15, 2010), the Fourth Appellate District upheld the trial court’s judgment awarding attorney fees to plaintiff class representative under the Automobile Sale Finance Act (“ASFA”), and denied costs to defendant in its claim under California Code of Civil Procedure Section 998.

Nelson involved a class action against the Pearson Ford car dealership for alleged violations of the ASFA, Consumers Legal Remedies Act (“CLRA”) and California Unfair Competition Law (“UCL”) arising from a backdated car sale contract that resulted in a car buyer paying interest for a time period when no contract existed, and for erroneously adding insurance premium to the sales price of the car which resulted in additional sales tax and financing charges. 

Two separate classes were certified by the trial court: the backdating class and the insurance class. 

Following a bench trial, the trial court found Pearson Ford liable under the ASFA to only the insurance class, liable to both classes under the UCL, and not liable to either class under the CLRA. The trial court granted certain remedies under the ASFA and the UCL, and awarded Nelson his attorney fees and costs under the ASFA. Both parties appealed. 

The appellate court reversed the trial court as to the portion of the judgment finding Pearson Ford not liable to the backdating class under the ASFA and the CLRA. The court also found that the trial court erred in the remedies it awarded under the ASFA and the UCL. The court upheld the trial court’s ruling on the award of attorney fees and costs.

Attorney fees in this matter were not awarded under the UCL, which does not permit this type of remedy, but under the AFSA, a statute that specifically grants the recovery of attorney fees to the prevailing party. 

The appellate court noted that Pearson Ford did not challenge the trial court’s conclusion that Nelson was the prevailing party for both classes under the ASFA (Civ. Code section 2983.4), or dispute the awarded amount. Instead, Pearson Ford argued that the trial court should have taken into consideration the fact that it had made a Section 998 offer of $500,000 before trial, and that Nelson failed to obtain a more favorable judgment at trial. 

The appellate court, while noting that a valid settlement offer can be made under Section 998 in a certified class action, agreed with the trial court that the Section 998 offer at issue was invalid because it was a lump-sum offer to two classes. The court stated that it would be impossible to determine whether either class received a less favorable result at trial than it would have received under the offer.