CCP § 998 Shifts Fees for Worse-Off Settlements

Ayers v. FCA US, LLC, No. B315884 (D2d8 Feb. 27, 2024).

This is a Lemon Law case involving dueling offers under Code of Civil Procedure § 998. Manufacturer made one offer. Then it made a second higher offer. And then a third that was even higher. Years go by. Then the Court of Appeal decided a case that said that if the Consumer subsequently trades the car in, the trade in value gets deducted from the cost basis that (trebled) sets the maximum damages amount. If good law,* that would lower Plaintiff’s damages by about $40k. Plaintiff then made an offer of his own, which was higher than Manufacturer’s second offer but lower than its third. Manufacturer took the deal.

Plaintiff subsequently moved for attorneys fees, which in Lemon Law cases can significantly exceed the Consumer’s recovery. Manufacturer argued, however, that the fees should be cut of at the point of its third § 998 offer, because that offer was for more money than the Consumer actually got when his own offer was accepted. The trial court ruled that § 998’s cost-shifting rule does not apply to a case that is concluded by a settlement, as opposed to a trial, and declined to tax the fees. Manufacturer appealed.

There’s a case on this point from last year. See Madrigal v. Hyundai Motor America, 90 Cal. App. 5th 385 (2023). Over a dissent, it held that § 998(c)(1)’s imposition of fee shifting if the plaintiff “fails to obtain a more favorable judgment or award” applies when the “award” is obtained by plaintiff under a settlement, instead of a judgment. A concurring and dissenting opinion disagreed, reasoning that when parties resolve a case pursuant to a settlement nobody succeeds or fails at anything. A deal is just struck. The Supreme Court granted review of Madrigal last August.** The Court, as it now often does, ruled that pending review, Madrigal could be cited for both its persuasive value and for the existence of a conflict in the Court of Appeal under the Auto Equity Sales rule.

The Court here agrees with the Madrigal majority, finding that “a plain reading of section 998, subdivision (c)(1) compels the conclusion that it applies to any litigation that terminates with the plaintiff getting less than he would have if he had accepted the defendant’s earlier section 998 offer.” The Court goes through a number of policy rationales and rejects the Consumer’s assertion that applying § 998 to a case that ends in a settlement itself discourages settlement. Perhaps the most convincing point the court makes is that a settling party that doesn’t want to be subject to fee shifting based on a prior § 998 offer is always free to demand that fee shifting be excluded from the terms of any settlement.

Justice Viramontes concurs and dissents.

He largely agrees with the concurrence and dissent in Madrigal. He thinks, at minimum, that the majority’s “plain reading” of § 998(c)(1) is not dispositive because it is susceptible to a construction based on the idea that a settlement can’t be a failure. “[A]t the very least, the statute’s use of those words calls into question whether a settlement for less than the unaccepted offer equates to a failure to obtain a more favorable judgment under section 998(c)(1).” Looking into the purpose and legislative history animating § 998, he finds that the available evidence, albeit slim, suggests that the statute is intended to apply only when a settlement offer isn’t bested by a subsequent adjudication, not just a later settlement.

Affirmed.

*, ** A week after this case was decided, the Supreme Court issued an opinion in Niedermeier v. FCA, holding that trade in value does not merit a deduction from Lemon Law damages. Entering a settlement based on assumptions about the law that subsequently change, however, does not generally invalidate the settlement. Of course, review has also been granted in Madrigal. Plaintiff here can likely get a grant-and-hold based on that and if Madrigal is reversed, Plaintiff can likely get a reversal of the ruling on § 998 fee shifting. But it is still really doubtful that he could blow up the whole settlement based on incorrect assumptions of pre-Niedermeier law. 

Post-Judgment Fees Don't Require a Number in the Judgment

Guo v. Moorpark Recovery Svc., LLC, No. A159195 (D1d5 Feb. 8, 2021)  

When a judgment includes an award of attorneys’ fees under a contractual fee provision, Code of Civil Procedure § 685.040 authorizes the creditor to also recover fees incurred in enforcing the judgment. Here, the creditor got a default judgment, which included a statement that it was entitled to a fee award. But the creditor never filed a cost bill to actually recover those fees so no ultimate judgment ever specified an amount. The Court of Appeal here holds that doesn’t matter. So long as the underlying judgment stated that the creditor was entitled to fees, that was adequate for the creditor to obtain fees for collection under § 685.040.

Reversed.

Fees on a Contract

Waterwood Enters. v. City of Long Beach, No. B296830 (D2d1 Dec. 18, 2020)

Plaintiff in this breach of contract case won $45k in damages. The verdict was roughly of a prior Code of Civil Procedure § 998 offer made by Plaintiff. Relying on that fact, the trial court ruled that defendant, not plaintiff, was the prevailing party. It awarded defendant $170k in attorneys’ fees based on a fee-shifting clause in the contract. 

Section 1717 of the Civil Code addresses recovery under contracts that permit prevailing parties to recover attorneys’ fees. It defines prevailing party as “the party who recovered a greater relief in the action on the contract.” That definition governs regardless of any contrary definition in the contract. There are a few potential outcomes under §1717. When plaintiff or a defendant wins a simple unqualified win—either plaintiffs’ recovery of full damages or a defense verdict—that party prevails. But in any other scenario, the trial court has discretion to decide that one party, or the other, or neither, prevailed. 

Here the trial court made three mistakes. First, it ruled that defendant prevailed because the $45k plaintiff won was for part of damages that was basically uncontested by defendant. That, however, wasn’t supported by the record. The jury’s special verdict form provided an unallocated damages verdict. There was no way to know whether the damages were for the breach arguably conceded by defendant or for something else.

And in any event, the defendant’s “concession” was not a proper consideration. Section 1717(b)(2) specifically provides an avenue for a defendant to concede partial liability—it can tender the disputed amount. Short of that, a defendant is not entitled to credit for not fighting hard on a point during trial.

Finally, the trial court should not have compared the verdict to the § 998 offer. A comparison between what was won and “litigation objectives” is an appropriate consideration in deciding who prevailed. To make that assessment, the Supreme Court has said courts should look to, among other things, pleadings, trial briefs, and opening statements. But settlement offers should not play into that calculus.

It was thus error to determine that defendant prevailed. There was only one contract claim, and plaintiff was the only party that obtained relief. So on remand, the trial court should apply the proper standard to determine whether plaintiff was the prevailing party, or whether nobody was.

Reversed.

Lodestar for Lemons

Hanna v. Mercedes-Benz USA, LLC, No. B283776 (D2d7 Jun. 18, 2019)
 
I discussed the key issue in this case in my post on the Warren case last winter. A prevailing plaintiff in a Song-Beverly lemon law case is entitled to attorneys’ fees, calculated on a lodestar bases, even if that means the fee award vastly exceeds the damages. The court here failed to do that for a good chunk of the award, based on a misreading of plaintiff’s fee agreement with her attorney. 

That was error.

Reversed and remanded.

Ahh the CEQA

Heron Bay Homeowners Assoc. v. City of San Leandro, No. A143985 (D1d4 Jan. 12, 2018)

A Homeowners’ Association obtained a writ of mandate under CEQA, ordering a City and a Manufacturer to prepare an environmental impact report before beginning construction of a 100-foot tall wind turbine near the HOA’s neighborhood. City and Manufacturer gave up on the project. But the trial court nonetheless awarded the HOA its fees under the private attorney general doctrine, Code of Civil Procedure § 1021.5.

Because Because

Mountain Air Enters, LLC v. Sundowner Towers, LLC, No. S223536 (Cal. Jul. 31, 2017)

This Supreme Court case came up recently in the Monster case. Like Montser, it deals with whether a prevailing party can get attorneys’ fees when the contract with the fee provision in it was the basis of an affirmative defense.

Complaint About One Employee Not a Public Concern

Baughn v. Dep't of Forestry & Fire Protection, No. C072462 (D3 Apr. 6, 2016).

Defendant—the state agency that fights forest fires—appeals from the denial of an anti-SLAPP motion. The court of appeal affirms. 

Scapels and Sledgehammers

Mountjoy v. Bank of America, No. C077283 (D3 Feb. 29, 2016)

Although trial courts get a lot of deference in fee award decisions, that deference is not unlimited. The court here decided that 70 percent of the entries in plaintiff’s bills were problematic in one way or another. So it just lopped 70 percent off the total hours when it did its lodestar analysis, even though there was no evidence that the allegedly problematic entries made up 70 percent of the time. Although the Court of Appeal rejects most of plaintiff’s specific assertions of error, it finds the 70 percent across-the-board reduction to be arbitrary and thus an abuse of discretion.
 
Reversed.

Too Late to Dismiss a Related Case

Mesa Shopping Center v. O’Hill, No. G049205 (D4d3 Dec. 23, 2014)

While an arbitration was pending, plaintiff filed this case seeking ancillary declaratory and injunctive relief. It filed a motion for a preliminary injunction, which was denied. Then the case got stayed while the arbitration proceeded. Soon after the arbitrator ruled for defendants, including an award of about $800,000 in fees and costs under a contractual fee provision, plaintiff voluntarily dismissed this case with prejudice. Thereafter, defendants moved to vacate the dismissal and for an award of fees incurred in the court case. The trial court denied the motion.

In Collections, You've Lost if You've Already Won

Karton v. Dougherty, No. B24431 (D2d1 Nov. 14, 2014)

When a plaintiff sues to collect on a debt, but the debt has already been paid off, the defendant is the prevailing party for the purpose of awarding contractual attorneys’ fees under Civil Code § 1717 and Code of Civil Procedure § 1032.

Reversed.