Second District, Division 7 Finds Lower Court Erred in Its Application of Code of Civil Procedure Sections 998 and 1032.
In our category “Section 998,” we have explored numerous cases that discuss the operation of Code of Civil Procedure section 998, a pretrial offer to compromise mechanism that can operate to deny post-offer fees and costs under the right circumstances to a party that fails to accept or rejects the offer. However, 998 is a very tricky statute and offers under it must be crafted with care. Even trial courts get confused in determining whether the offer precluded fees and costs to a litigant actually winning a judgment (albeit small in nature). The next case illustrates the difficulty of calculating who “won” in the 998 context, reinforcing that 998 offers must be made great thought.
Crutcher v. Chandler Lodge Foundation, Inc., Case No. B202574 (2d Dist., Div. 7 Mar. 5, 2009) (unpublished) involved a plaintiff who won $5,000 in defamation damages after a bench trial even though defendant had made a pretrial 998 offer in the amount of $5,001 (with each side to
bear its own costs and fees) which was apparently rejected by plaintiff. The trial judge determined that defendant was the prevailing party under 998 in the entire action (which included a complaint and cross-complaint, with the latter being dismissed during trial), and he later entered judgment for defendant in the amount of $23,163.65—broken down as the costs award of $28,163.65 offset by plaintiff’s $5,000 judgment.
According to the Second District, Division 7, the trial court erred by conflating the procedures required by sections 1032 and 998.
First, 998 did not alter the determination of which side was the prevailing party—plaintiff obviously prevailed for costs award purposes because he obtained a net monetary recovery and obtained a dismissal of the cross-complaint. 998 only causes the augmentation or withholding of costs that would otherwise be awardable under sections 1031 and 1032.
Second, the appellate panel found that the lower court erred in its actual application of section 998. The trial judge failed to consider plaintiff’s pre-offer costs in determining whether the ultimate award was more favorable than the settlement offer. (Stallman v. Bell, 235 Cal.App.3d 740, 747-749 (1991); see also Heritage Engineering Construction, Inc. v. City of Industry, 65 Cal.App.4th 1435, 1441 (1998) [when a defendant’s 998 offer includes costs, it is to be compared with plaintiff’s judgment plus pre-offer costs].) Because it was fairly evident that plaintiff incurred at least one dollar in pre-offer costs, the cost-shifting provisions of 998 did not apply—plaintiff’s award and pre-offer costs “unquestionably add[ed] up to more than the amount of the offer to compromise.”
In a footnote, the appellate court also noted two other errors made with respect to 998. First, even if a plaintiff rejects a 998 offer that is greater than the recovery ultimately obtained, that plaintiff still may recover its pre-offer costs to which it would otherwise be entitled. (Scott Co. v. Blount, Inc., 20 Cal.4th 1103, 1112 (1999).) Second, the trial court forgot to consider that if a plaintiff rejects a 998 offer and then fails to obtain a more favorable judgment or award, the opponent’s post-offer costs are to be deducted from the plaintiff’s recovery. (Code Civ. Proc., sec. 998(e).)
This case is a great primer for any practitioner faced with either crafting a 998 offer or determining whether costs were augmented or constricted based on the ultimate award.