As most car dealers are aware, offers made pursuant to California Civil Procedure (CCP) Section 998 can be a useful tool to reign in the cost of settling consumer litigation. Section 998 is a cost-shifting statute designed “to encourage the settlement of litigation without trial, by punishing the party who fails to accept a reasonable settlement offer from its opponent.” Westamerica Bank v. MBG Indus. Inc. (2007) 158 CA4th 109, 129 (internal quotes omitted). Among other features, Section 998 provides “the costs allowed under Sections 1031 and 1032 shall be withheld or augmented”: If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer. In addition, ... the court or arbitrator, in its discretion, may require the plaintiff to pay a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the defendant. CCP § 998, subds. (a), (c)(1) Recently, the Court of Appeal published an opinion in the case of Ayers v. FCA US LLC interpreting Section 998, which supports limiting the plaintiff’s attorney fee awards in lemon law cases even if dismissal is entered pursuant to the parties’ mutual agreement. In Ayers v. FCA US LLC, the Plaintiff purchased a Jeep Grand Cherokee that the plaintiff alleged had multiple defects. This led to the plaintiff filing a lawsuit, which included causes of action against the manufacturer for violations of the Song-Beverly Consumer Warranty Act. Shortly after the complaint was filed, the manufacturer served an offer pursuant to CCP § 998. The plaintiff did not accept the offer. The manufacturer made two additional offers pursuant to CCP § 998, which were also rejected by the plaintiff. The manufacturer made a third and final offer to buy back the vehicle for $143,000 and pay reasonable costs and attorney’s fees pursuant to Civil Code§ 1794(d). While the Ayers litigation was pending in the trial court, there was a change in the law that reduced plaintiffs’ damages. Specifically, in Niedermeier v. FCA US LLC, the Court of Appeal held that Song‑Beverly’s restitution remedy “does not include amounts a plaintiff has already recovered by trading in the vehicle at issue” and excluded such amounts from the calculation of Song-Beverly penalties. In this case, the Plaintiff traded in his vehicle for $13,000, making his maximum potential recovery reduced by $39,000. Shortly after Niedermeier was decided, Plaintiff made his own Section 998 offer for $125,000 plus costs, expenses and attorney fees pursuant to Civil Code § 1794(d) as agreed by the parties or determined by the trial court in lieu of agreement. In exchange, it provided for the dismissal of the lawsuit with prejudice. The manufacturer accepted the offer. The plaintiff filed a motion for an order to determine fees, expenses and costs after the parties failed to agree on the amounts. Plaintiff requested $220,852.50 in attorney fees and $440,512.75 in costs, for a total of $261,365.25. The manufacturer argued its third Section 998 offer precluded the plaintiff from recovering $74,527.50 in fees, which was incurred after the date of the offer. The trial court rejected this argument on two grounds: 1) Section 998’s limitations on expense and cost recovery do not apply when the case is resolved by a pretrial settlement; 2) the intervening change in law that reduced the Plaintiff Attorney’s Fees in Lemon Law Lawsuits Restricted by Section 998 Offer By John P. Swenson, Shareholder and Janae L. Hill, Associate Scali Rasmussen 20 SAN DIEGO DEALER
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