Something You Didn't Know About CCP § 998 Offers

Timothy Kowal, Esq.
  •  
December 10, 2020

It is something I did not know, anyway:

Plaintiff can still recover post-offer fees even if Plaintiff does not beat the 998 offer. 

In Regueiro v. FCA US, LLC (2d Dist., Div. 1 Nov. 19, 2020) Case No. B301772 (unpublished) (https://www.courts.ca.gov/opinions/nonpub/B301772.PDF), Plaintiffs sued on the Song-Beverly Act (lemon law). Defendant made a CCP 998 offer. Three of them, actually, starting at $50,000 and going up from there to over $140,000. Plaintiffs rejected all of them, and then prevailed on their implied warranty claim, but only recovered about $25,000. Plaintiffs didn't remotely beat any of the 998s.

So that means Plaintiffs were foreclosed by CCP 998 from recovering any post-offer fees, right? Nope. The trial court awarded post-offer fees anyway, totaling $83,000.

Defendant appealed, arguing the post-offer fee award was erroneous under CCP 998.

The Second District, Division One, disagreed. The Court noted the statutory language of CCP 998 mandates that no post-offer costs may be awarded. But no such bright-line rule applies to fees. Instead, the trial court has discretion to determine whether plaintiff acted reasonably in rejecting the 998 offer. (Even though the Plaintiffs here did not remotely beat the 998 offers, the lemon law provides statutory penalties, so the court held it was reasonable to hold out and reject the offers under those circumstances.)

Indeed, fee awards that reject post-offer fees, without any analysis of plaintiff's reasonableness in rejecting the 998 offer, may be reversed on that basis. (Etcheson v. FACA US LLC (2018) 30 Cal.App.5th 831, 840.)

Here is something else you might not know about 998 offers: They can prevent Plaintiff from becoming the "prevailing party." (The upshot of this, however, neither the trial nor appellate courts could figure.)

In Geiger v. Floyd’s 99-California, LLC (4th Dist., Div. 3 Nov. 18, 2020) Case No. G056747 (unpublished) (https://www.courts.ca.gov/opinions/nonpub/G056747.PDF), Plaintiff brought individual and PAGA claims, and the individual claims were compelled to arbitration, where plaintiff accepted a 998 offer, and the arbitrator awarded plaintiff pre-offer costs and fees. The arbitrator also determined Plaintiff was the prevailing party.

The trial court affirmed the fee award, but deleted the arbitrator's prevailing-party determination, because the 998 offer denied employer's liability. The trial court also dismissed the PAGA claims, as plaintiff no longer had standing to pursue them.

On appeal, the Fourth District, Division Three, in an opinion written by Acting Presiding Justice Fybel, affirmed the trial court's ruling on the 998 issues. The 998 offer was an arbitration agreement, which by its terms denied employer's liability and permitted plaintiff to recover his costs fees as determined by the arbitrator. Thus, plaintiff employee's recovery was entirely by agreement, not by judicial determination, and thus was not a prevailing party.

If you are curious, this correction of the arbitrator's award is not a correction of a mistake of fact or law. Instead, the arbitrator's prevailing-party determination was an act in excess of the powers conferred on the arbitrator. See CCP § 1286.2(a). That is because the fee determination was made by agreement of the parties, not by a judicial determination of the merits of plaintiff's claims.

Even so, the Court of Appeal seemed to wonder, as the trial court did, "why the parties are fighting so strenuously over this seemingly unimportant issue." (I suspect Plaintiff believed it would get him some traction on his PAGA claims.)

The Court reversed the dismissal of the PAGA claims, however. Noting the California Supreme Court this year in Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73 held that a plaintiff's settlement of individual claims does not affect standing to pursue PAGA claims, the Court reversed to allow the PAGA claims to proceed.