Second District, Division 7 Examines the Interplay Between Two Statutory Schemes.
There is a definite interplay between Civil Code section 1717 (allowing recovery to a prevailing party where there is a contractual fees clause) and Code of Civil Procedure section 998 (California’s offer to judgment statute). Where a party might otherwise be considered the prevailing party under Civil Code section 1717, CCP section 998 can turn the tables: if a settlement offer made by the defense pursuant to section 998 is not accepted and plaintiff fails to obtain a more favorable judgment or award, plaintiff may not recover his/her postoffer costs and must pay the defendant’s costs from the time of the offer. (§ 998(c)(1).) These sections were under the microscope in the next decision, JK Consultants v. X, Inc., Case No. B210112 (2d Dist., Div. 7 Mar. 23, 2010) (unpublished), a 3-0 decision authored by Presiding Justice Perluss.
In this case, plaintiff executive search consultants sued a client for breach of a contract containing a fees clause, eventually winning $7,477.01 after an eight-day bench trial (although requesting about $54,000 in damages). Earlier, defendant client submitted a 998 offer to settle the case for “$20,771.01 with each party to bear its own costs, attorney fees or other taxable costs,” an offer not accepted by plaintiff. Although plaintiff sought recovery of $123,000 in fees as the prevailing party under section 1717, defendant countered that it had obtained the greater relief so that it was entitled to a $136,000 fee recovery. (Dueling fee requests!) The trial court granted plaintiff a fee award of $60,270 and denied defendant’s fee request. Defendant appealed.
Defendant first argued that preoffer costs and fees should not have been used in evaluating whether plaintiff recovered more than defendant’s 998 offer. (The trial court did consider plaintiff’s preoffer costs and fees totaling about $28,500, adding it to the damages award, in coming to the conclusion that plaintiff’s recovery exceeded the 998 offer by more than $20,000.) Nothing wrong with that, Justice Perluss and his colleagues found. Preoffer costs should be considered. (Heritage Engineering Constr., Inc. v. City of Industry, 65 Cal.App.4th 1435, 1441 (1998).) Defendant then refined its argument to contend that the preoffer costs had to be excluded because the defense 998 offer excluded these fees and costs. Wrong again, with the appellate court citing several cases that held preoffer costs must still be considered in this type of situation. (See, e.g., Fundamental Investment etc. Realty Fund v. Gradow, 28 Cal.App.4th 966, 971-972 (1994); Stallman v. Bell, 235 Cal.App.3d 740, 747-749 (1991); Kelly v. Yee, 213 Cal.App.3d 336, 338 (1989).)
Defendant next argued that plaintiff could hardly be a prevailing party; after all, it only recovered about 14.5% of its demand. Not so, said the appellate court, because the trial court has broad discretion to determine the prevailing party where no one obtains an unqualified win. (Scott Co. v. Blount, 20 Cal.4th 1103, 1109 (1999) [no abuse of discretion for trial court to conclude plaintiff prevailed despite only receiving approximately 20% of contract damages being sought].)
Defendant last contested the amount of the fees award, especially in light of plaintiff’s overall small recovery. Nope, said Justice Perluss and his colleagues. The litigation was exceedingly contentious, as shown by the nearly equal substantial fees spent by each side. The lower court’s decision to cut plaintiff’s fees in half was a fair resolution of the fee amount controversy.