Issue: In Oscar J. Madrigal et al. (2023) 2023 S.O.S. 1464 the Court considered whether C.C.P. 998(c)(1)’s cost-shifting penalty provisions apply when an offer to compromise is rejected and the case ends, not with a judgment after a trial, but a settlement that provides for payment of money by defendant in exchange for a dismissal with prejudice by plaintiff.
Answer: Yes (under the facts of this case).
Factual & Procedural Background: Lemon law case! Plaintiffs sued Hyundai under the Song-Beverly Consumer Warranty Act (Civ. Code § 1790 et seq.) for breach of express and implied warranties arising out of Plaintiffs’ purchase of a car. The purchase price was $24,172.73. On November 14, 2016, five weeks after suit was filed, Hyundai sent a reasonable 998 offer: the amount paid for the car, incidental and consequential damages, and an amount equal to “one times the amount of the actual damages,” or a fixed amount of $37,396.60, plus attorney fees of $5,000 or an amount of fees determined by the trial court. On May 26, 2017, Hyundai sent another 998, the operative 998, for $55,556.70, plus attorney fees of $5,000, or as determined by the court. Plaintiffs let it lapse. Litigation continued.
On the first day of trial, in January 2019, the parties settled. The parties recited the terms of the settlement on the record pursuant to C.C.P. Section 664.6 which provides: “If parties to pending litigation stipulate . . . 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.”
The settlement terms included that: (1) Hyundai would pay Plaintiffs $39,000; (2) the settlement would be subject to C.C.P. 664.6; and (3) plaintiffs could seek attorney fees and costs by motion within six months. The parties agreed the dismissal with prejudice would be filed after payment of the $39,000 to Plaintiffs and the attorney fees and costs were decided.
Thereafter, Plaintiffs filed the motion for attorney fees and costs as prevailing parties under C.C.P. Section 1032(a)(4) (“’Prevailing party’ includes the party with a net monetary recovery”) and the Song-Beverly Act (Civ. Code § 1794 subd. (b)) seeking $207,438.75 in fees and $20,865.83 in costs, totaling $228,304.58.
Hyundai filed a motion to strike or tax plaintiffs’ costs arguing plaintiffs’ settlement was for $16,556.70 less than Hyundai’s second 998 offer and therefore, plaintiffs failed to obtain a more favorable “judgment” than the 998 offer and should have all costs incurred after that offer stricken. The court would have had to strike $20,242.88 of plaintiffs’ $20,865.83 total costs. Hyundai also filed a motion to strike the attorney fees making the same argument. The trial court had ruled that C.C.P. 998(c) does not apply to cases ending in settlement.
Rule: C.C.P. 998(c)(1)’s cost-shifting penalty provisions apply when an offer to compromise is rejected and the case ends with a settlement that provides for payment of money by defendant in exchange for a dismissal with prejudice by plaintiff.
Analysis: C.C.P. 998(c)(1): “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 post-offer costs and shall pay the defendant’s costs from the time of the offer.”
Hyundai’s Arguments: Hyundai argued the terms of the settlement amounted to a “judgment” under 998(c) and the trial court should have evaluated the parties’ rights to costs and attorney fees through same.
Plaintiffs’ Arguments: Plaintiffs argued C.C.P. 998 does not apply in cases that resolve by way of settlement; (2) Hyundai could not show they obtained a more favorable result than a nonexistent judgment; and (3) C.C.P. 998 provided no basis for reducing the amount of fees or costs brought under the Song-Beverly Act.
The Court agreed with Hyundai that the settlement amounted to a “judgment” under C.C.P. 998.
The Court began by noting the following. C.C.P. 1032 pertaining to recovery of attorney fees is abrogated by C.C.P. 998. Moreover, the language of C.C.P. 998(b), which states that a party may serve upon another party an offer to “allow judgment to be taken or an award to be entered[.]” Further, the Court noted, the statute says nothing about the timing or form of the “judgment,” whether after trial, summary judgment, or otherwise.
Since “judgment” is not defined in C.C.P. 998(c) and, by its terms, it does not exclude cases that do not end in judgment after trial, the Court wrestled with whether the final resolution of the case—payment of money in exchange for dismissal with prejudice—effected a “judgment” under the statute.
Under 998(b), which outlines the requirements for a valid 998 offer and acceptance, “judgment” has been interpreted broadly. (See, e.g., DeSaulles v. Community Hospital of Monterey Peninsula (2016) 62 Cal. 4th 1140) (rejecting argument that an offer to compromise was invalid under C.C.P. 998 because it called for payment of money rather than entry of judgment) (see also Goodstein v. Bank of San Pedro (1994) 27 Cal.App.4th 899 (“[A]s between the parties thereto and for purpose of enforcing settlement agreements, a compromise agreement contemplating payment by defendant and dismissal of the action by plaintiff is the legal equivalent of a judgment in plaintiff’s favor.”)
The Court concluded the California Supreme Court had determined under cases interpreting subsection C.C.P. 998(b) that “judgments” is meant to include its functional equivalents, like dismissal of a case with prejudice, and it was proper to interpret “judgment” in subdivision (c) in the same way.
Next, the Court went on to explain that the structure of the settlement in this case was like a final judgment under 998. For instance, Hyundai had an enforceable right to a dismissal with prejudice which the Court said is a proxy for a final judgment. Moreover, the parties utilized section 664.6 to memorialize their agreement and enforce it. Additionally, the Court found support under the Song-Beverly Act which provides that a prevailing vehicle purchaser “shall be allowed . . . to recover as part of the judgment a sum[.]”
Lastly, the Court cited policy reasons, stating the purposes of Section 998, careful review and acceptance of reasonable settlement offers, were well served by applying the statute to the facts of this case.
The dissent made a lot of different arguments, including the following: (1) they argued for application of contract interpretation doctrine, i.e., implied revocation of the 998 by the ultimate settlement; (2) the language of C.C.P. 998 “fails to obtain” means the cost-shifting provision only applies when plaintiff’s unilateral action results in a judgment less favorable than the terms of the 998; and (3) (understandably) this will inject uncertainty into the 998 process.