Sixth District Rejects Awarding Oil Company 998 Costs Against Three Unsuccessful Plaintiffs In Contamination Lawsuit.
Oil Company was found negligent based on the contamination of a predecessor in a prior negligence action. Later, hundreds of plaintiffs in an adjacent property brought a contamination lawsuit against Oil Company. The trial court set a “bellwether trial,” with four plaintiffs eventually presenting their case to jurors. Seven days before trial call, Oil Company sent a Code of Civil Procedure section 998 offer to three plaintiffs, offering to settle as to each for $2,001 with each side bearing its own costs and attorney’s fees. Plaintiffs declined the offers and were defensed after a full jury trial. Jurors found one plaintiff was not exposed to toxins and two plaintiffs suffered no harm from exposure to toxins. Oil Company submitted costs memoranda seeking $42,386.47, $53,042.04, and $69,336.91 from the pertinent plaintiffs (mainly consisting of expert witness fees). Plaintiffs moved to tax costs, which motions were granted in entirety by the trial court. Oil Company argued that the waiver of costs feature of the offers “enhanced” them so that they were reasonable. The lower court disagreed, finding that defense costs were not to be considered and the offers were so token/nominal so as to be “not in good faith.”
The Sixth District, in Reyes v. Chevron, Inc., Case No. H031843 (6th Dist. July 10, 2008) (unpublished), affirmed, after finding that abuse of discretion was the correct review standard. (See Arno v. Helinet Corp., 130 Cal.App.4th 1019, 1025 (2005); Thompson v. Miller, 112 Cal.App.4th 327, 339 (2003).) Even though Oil Company’s favorable jury verdict entitled it to a presumption that it offers were reasonable, plaintiffs had the burden in the lower court of showing their unreasonableness—which they did—such that Oil Company still had the appellate burden of showing an abuse of discretion in taxing costs.
The Sixth District, in a 3-0 decision authored by Justice Elia, noted differing appellate perspectives on reasonableness standards for testing section 998 offers. Some courts endorse the view that a plaintiff has no obligation to accept a token offer unless there is no reasonable possibility that a defendant will be held liable; some reasonable possibility, however slight, will support rejection of a token offer. (See, e.g., Wear v. Calderon, 121 Cal.App.3d 818, 821 (1981); Elrod v. Oregon Cummins Diesel, Inc., 195 Cal.App.3d 692, 698 (1987).) The courts recognize that even a modest or token offer may be reasonable if an action is completely lacking in merit. (See, e.g., Nelson v. Anderson, 72 Cal.App.4th 111, 134 (1999).)
Against these competing counterpoints, the appellate court could find no abuse of discretion under the circumstances. The lower court determined that a reasonable possibility of liability existed from the parties’ standpoint, especially given that a prior settling defendant had paid over $1,000 per plaintiff to be allocated to any final judgment against Oil Company. The Court of Appeal also placed emphasis on the fact that the prior finding of negligence in the adjacent property action created a reasonable expectation, on plaintiffs’ part, that liability might be found with respect to the adjoining property.
The overriding lesson in Reyes is that section 998 reasonableness is gauged by the facts known to the parties at the time the offer was made. Hindsight is not the governing standard, and the earlier adjudication in a different case and prior settlement certainly meant the plaintiffs had some reasonable expectation of prevailing for the contamination –despite the existence of presumably conflicting expert witness testimony on causation and injury issues.