Silence Can Be Deadly Where Fees and Costs Are Not Expressly Dealt With.
Code of Civil Procedure section 998 offers a potential fee-shifting settlement mechanism for litigants in civil cases, although the offers must be crafted and worded very carefully. In essence, section 998 allows a litigant—up to 10 days before a scheduled trial or contractual arbitration—to serve a written offer to take judgment under specified terms. Unless specified otherwise, the offer lapses 30 days after service. If the offer is not accepted, and the 998 offeror obtains a more favorable judgment, the offeree is liable for offeror’s recovery of its reasonable postoffer costs, including reasonable expert witness expenses (the latter being expenses that are usually not recoverable as routine costs or as attorney’s fees). In structuring 998 offers, the offeror generally needs to factor in the preoffer costs (including fees, if properly authorized by contract or statute) spent by the offeree before the offer or provide that the offeror will agree to the costs as determined by the trial court in a later law and motion proceeding.
However, what happens if the 998 offer is silent about costs and fees? For the offeror, failure to carefully consider the implications on this issue and simply structuring the 998 terms without an express provision on fees and costs may be disastrous, as a decision from the Fourth District, Division Three aptly illustrates.
Justice Bedsworth, with a journalistic flourish all his own and after observing that “cautionary tales rarely have happy endings,” proceeds to publish a thoughtful decision on one peril of 998 offers “in the hope of providing a warning.” In Engle v Copenbarger and Copenbarger, 157 Cal.App.4th 165 (2007), rev. den., a former legal assistant sued her former law firm employer and some individual attorneys for statutory sexual discrimination as well as for some tort claims. Defendants served a 998 offer, offering to settle for $35,000 and providing that “judgment … shall be in exchange for a release and discharge of any and all claims, of whatsoever nature (substantive and procedural) which the plaintiff may have against the defendants.” The 998 offer said nothing expressly about fees or costs. Plaintiff accepted, refused to sign a release that waived costs and fees, and then moved for costs/fee recovery as the prevailing party after the trial court entered judgment on the 998 offer terms. Defendants primarily opposed on the ground that the broadly-worded release language took care of the costs/fee issue. The trial court denied the costs/fee motion, and our local Santa-Ana based court reversed on the appeal brought by plaintiff.
Justice Bedsworth iterated that a 998 offer silent on costs and fees allows the prevailing party entitlement to recover costs and, if authorized by contract or statute, to recover attorney’s fees. “If [defendants] meant the offer to include [plaintiff’s] attorney fees, it was a simple enough matter to spell out that condition.” The appellate court did not buy that the broadly-worded release clause in the 998 offer waived the fee claim, reasoning: “We do not know why the release was written in terms broader than the offer. But we are convinced the bright-line rule exists precisely to avoid disputes such as this one about whether there was manipulation or misunderstanding. We think that is a good reason for a bright-line rule and see no cause to depart from it here. If [defendant law firm] wanted a fee waiver, it should have put one in the offer. Since the offer was silent on fees, it did not bar a later fee motion.”
998 offers are not the only context where a settling litigants needs to be careful on how they deal with costs and fee issues.
As we noted in our June 12, 2008 post on Benson v. Little, stipulated settlement language can be problematic for a settling party if not clear in dealing with the costs/fee issue (or, as in that case, preserving the issue for future resolution in the event of a performance default). Most parties insert language in settlement agreements or stipulations that “each side bears its own costs, fees and expenses in the litigation and in the preparation and signing of this agreement/stipulation.” This type of language is highly suggested in order to end disputes and prevent surprise endings of an unintended nature.
For example, in Folsom v. Butte County Ass’n of Governments, 32 Cal.3d 668, 676 (1982), elderly and disabled citizens filed suit against local government for failure to provide proper transit services (a real concern for the aged). The parties settled, after local government agreed to make some corrections, with a consent decree which was silent on the issue of attorney’s fees and costs. Bad move. The California Supreme Court decided that the prevailing parties—there, the elderly and disabled—were entitled to seek fees and costs, as an incident to a judgment entered as part of the consent decree, where the settlement document happened to be silent on the issue of fees/costs.
One also needs to be careful in settlements that are silent on fees and costs, but provide that there will be a dismissal of the underlying action. True, a pretrial dismissal of contract claims means that no fees will be awarded under the reasoning of Santisas v. Goodin, 17 Cal.4th 599 (1998) (one of our Leading Cases). However, the same result likely does not follow if statutory fee-shifting claims are involved. There is case law holding that Santisas does not apply to bar these types of statutory claims. (See, e.g., Parrott v. Mooring Townhomes Ass’n, Inc., 112 Cal.App.4th 873, 878-880 (2003), rev. den.; Damian v. Tamondong, 65 Cal.App.4th 1115, 1124 (1998).) So, if a defendant settles with a plaintiff in a statutory fee-shifting case and does not expressly cover the costs/fee issue, the plaintiff may move for fees and surprise the defendant with an additional exposure that the defendant did not expect.
Moral of the story: deal with costs/fees issues in 998 offers and settlement documents in an upfront, unconditional manner. Inadvertence or strategic silence may bite the litigant who does not expressly deal with the issue.