Latest Application Of C.C.P. 998 to Settlements
According to a recent California Appellate Court ruling, Madrigal v. Hyundai Motor America, 2023 S.O.S. 1464, yes – it does. On April 11, 2023, and in a case of first impression the Third District Court of Appeal reversed the trial court’s ruling and held that cost shifting provisions of CCP § 998 apply to settlements as well.
California Code of Civil Procedure § 998
As most of the readers are well aware, California Code of Civil Procedure § 998(b), allows either party in a civil action to serve upon any other party in the action, an offer in writing to allow judgment to be taken or an award be entered in accordance with the terms and conditions stated at that time. The party served with the CCP § 998 offer to compromise then has thirty (30) days to accept said offer, or otherwise will be deemed withdrawn – CCP § 998(b)(1)(2). CCP § 998(c)(1) includes “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.” Further, CCP § 998(d) “If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the defendant to pay a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the plaintiff, in addition to plaintiff’s costs.”
Madrigal v. Hyundai Motor America Trial Court
In Madrigal, the plaintiffs, Oscar Madrigal and Audrey Madrigal filed suit against Hyundai Motor America under the Song-Beverly Act (Civ. Code § 1790 et seq.), alleging breaches of express and implied warranties arising out of plaintiffs’ purchase of an allegedly defective automobile, otherwise commonly referred to as California’s automobile lemon law. Unlike run-of-the-mill civil cases, such as personal injury/negligence cases, lemon law cases statutorily mandate the recovery of reasonable attorney fees to a prevailing plaintiff.
In the early litigation stages of Madrigal, Hyundai extended two separate CCP § 998 offers to compromise to Plaintiffs, both of which were rejected. The case appears to have been heavily litigated for almost two more years, until the case proceeded to a jury trial. At the jury trial and after the jury panel was sworn, the parties ultimately reached a settlement agreement for an amount that was less than Hyundai’s second CCP § 998 offer to compromise to Plaintiffs.
Under the terms of the settlement agreement, the parties’ attorneys recited the terms of the stipulated settlement on the record pursuant to California Code of Civil Procedure § 664.6(a), which states “If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.”
The terms of the settlement, included among other things, the amount that Hyundai would pay to Plaintiffs, a release of any claims that arise out of or related to the same set of facts and circumstances, and that Plaintiffs could seek their fees and costs by motion through the trial court within six months from the date of the settlement. Upon resolution of the fees and costs being decided by the trial court, Hyundai would issue payment to Plaintiffs, which in turn would file a dismissal of their action with prejudice. Although the amount of settlement was less than Defendants’ most recent offer to compromise, there was no mention as to CCP § 998 and its application to the stipulated settlement in this action.
Sometime thereafter, Plaintiffs filed their motion for costs and attorneys’ fees as prevailing parties, seeking an amount in excess of $228,000.00. Plaintiffs held the position that CCP § 998 did not apply in this case, because the case ended in a settlement, as opposed to a judgment after trial. Plaintiffs took the position that they were not barred for recovery for additional fees and costs after the date of the second 998 offer expired. Hyundai then filed a motion to strike, or in the alternative to strike Plaintiffs’ requested fees and costs. Hyundai argued to the trial court that Plaintiffs failed to obtain a more favorable judgment than its second 998 offer to compromise, therefore were not entitled to recover any fees or costs that were incurred after the date of that second 998 offer.
The trial court disagreed with Hyundai and rejected Hyundai’s arguments that Plaintiffs could not recover any fees or costs incurred after their second CCP § 998 had expired. The trial court found that CCP § 998 did not apply in this case, as the parties had settled the case prior to trial, so no judgment or award was rendered. Although the trial court did not award the total amount of fees and costs sought by Plaintiffs, nonetheless they awarded Plaintiffs almost $90,000.00 in attorneys’ fees and costs. Thereafter, Hyundai filed a notice of appeal with the Court of Appeal.
Madrigal v. Hyundai Motor America in the Court of Appeal
The foremost issue that this case presented for review by the Court of Appeal was whether CCP § 998’s costshifting provisions apply when an offer to compromise is rejected and the case ends, not with a judgment after trial, but with a settlement that provides for payment of money by Defendants in exchange for dismissal with prejudice by Plaintiffs.
In Madrigal, the court indicated: “On appeal, Hyundai raises two principal arguments as to why the trial court’s fees and costs order should be reversed: (1) the stipulation to settlement under section 664.6 “calling for dismissal of the entire action with prejudice constituted a ‘judgment’ within the meaning” of section 998; or, alternatively, (2) the “voluntary dismissal of the entire action with prejudice constitutes a failure by [plaintiffs] to obtain a judgment or award of any kind,” triggering the costshifting provisions of section 998. The Civil Justice Association of California filed an amicus curiae brief in favor of Hyundai’s position.”
“Plaintiffs counter: (1) section 998 does not apply in cases that resolve by way of settlement; (2) regardless, Hyundai cannot show the second section 998 offer was more favorable than a nonexistent judgment or award, or a judgment or award that contains subjective, nonfinancial benefits; and (3) section 998 provides no basis for reducing attorney fees or costs in a case brought under the Song-Beverly Act in which a plaintiff prevails. Consumer Attorneys of California filed an amicus curiae brief in favor of Plaintiffs’ position.”
“We agree with Hyundai that the terms of the stipulated settlement under section 664.6 constituted a “judgment” within the meaning of section 998, subdivision (c) and that the trial court should have examined the parties’ entitlement to costs and attorney fees through the lens of that statute.”
The Court of Appeal analyzed the relevant background of CCP § 998, stating, “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.” (§ 998, subd. (c)(1).) Hence, the 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.”
The court went on further in their analysis to establish that a settlement falls within the purview of CCP § 998. “By its plain terms, section 998 does not exclude cases that end in settlement, or limit its costshifting provisions to cases that end in a judgment after trial, so we first examine the trial court’s conclusion from the perspective of whether the final resolution of this case—payment of money in exchange for dismissal with prejudice of the complaint— effected a “judgment” within the meaning of section 998, subdivision (c).”
The Court of Appeal noted that “Section 998 does not define the term “judgment.” The term “judgment” has, however, been construed repeatedly by courts under subdivision (b) of section 998, which outlines the requirements for a valid offer and acceptance under the statute. That subdivision requires that a valid offer under section 998 must “allow judgment to be taken” and set forth the “terms and conditions of the judgment.” In construing the term “judgment” in that context, courts have given the term a broad interpretation consistent with the statute’s purpose to encourage parties to make and accept reasonable offers to compromise, permitting the statute to effectuate settlements based on a practical, rather than a literal, definition of “judgment.”
The court additionally noted that the California Legislature has amended CCP § 998 multiple times over the past 25 years, and as recent as 2015, “yet it has never amended the statute to contravene the holding that the term “judgment” was equivalent to any final resolution of the action, including a dismissal with prejudice, nor have the words “at trial” been added after the phrase “more favorable judgment” where it appears in the statute.”
The court ultimately found that the settlement ended with a “judgment” within the meaning of CCP § 998 and provided easy resolution for parties to adopt to prevent a waiver under any rights under section 998. “Under the rule we adopt, a plaintiff need only factor any operative section 998 offer into a comprehensive settlement, and either try to negotiate a fixed amount of costs or attorney fees, or bargain for a waiver of any rights under section 998 from the defendant.” The court ultimately found that Plaintiffs failed to take these precautions and agreed for the trial court to determine the issue of fees and costs.
Take Away from Madrigal
As previously indicated, the Madrigal case was unique, in that it involved a lemon law case, which statutorily mandates the recovery of reasonable attorney fees to a prevailing plaintiff. However, in a run of the mill civil case, such as a personal injury/negligence case, normally only postoffer costs of the services of expert witnesses are recoverable following a more favorable Plaintiffs’ judgment than the Plaintiffs’ expired CCP § offer to Defendants.
Moving forward, if Plaintiffs reach a settlement a case in litigation, in an amount more favorable than their expired offer to compromise to the defendants, and plan on pursuing their CCP § 998 fees and costs after a settlement then they should be on the lookout and extremely careful when reading the language within the release and settlement agreement before signing. It is anticipated that the defendants will now carefully craft their language within their settlement agreements to include waivers of any CCP § 998 fees and costs.
On that same token, if Plaintiffs reach a settlement with the Defendants in a case for less than the amount of Defendants’ most recent and expired CCP 998 offer to compromise, it would be just as equally important that the settlement agreements contain carefully crafted language to include waivers of any CCP § 998 fees and costs, for protection of the Plaintiffs.
Original Published Source: OCTLA “The Gavel” Summer/July 2023 Issue
Aaron Hicks is a civil trial attorney and founder of Hicks Law Firm, based in Orange County with offices in San Diego and Tennessee. His practice includes representing plaintiffs in personal injury cases including motor vehicle accidents, premises liability, dog bites and wrongful death. Mr. Hicks is and AV Rated attorney, Super Lawyer and is currently on the Board of Directors of the Orange County Trial Lawyers Association where he serves as 1st Vice President.
