The Myth of The Power of a 998 Offer

02.27.2024

Section 998 of the California Code of Civil Procedure (“CCP”) was adopted in 1971 to promote resolution of cases. The concept behind the statute was if a plaintiff did not receive an award at trial more than what they had been offered via a 998 Offer to Compromise, then all attorneys’ fees and litigation costs incurred after the offer would be forfeited and the plaintiff would have to pay the defendant’s costs post-offer to compromise. In this incarnation of the rule, the 998 offer was a powerful tool. In cases where there were limited damages but strong liability, plaintiff attorneys could hold an employer hostage where they sued under a statute that provides attorneys’ fees and costs. The defense bar’s response to such tactics was to file a 998 offer early in the case before the plaintiff had expended significant amounts in attorneys’ fees and costs. This strategy, however, has effectively been kiboshed by the California courts and legislature in discrimination cases.

The normal result of winning one’s case is that besides recovering damages you also can obtain costs under California Code of Civil Procedure Section 1032. CCP § 1033.5 lists the type of costs that are recoverable under § 1032, and §1033.5(a)(10) specifically lists attorneys’ fees recoverable by contract, statute, or law. While cases brought under the Fair Employment and Housing Act (“FEHA”) recognized that defendants could only recoup their attorneys’ fees if the plaintiff’s case were frivolous, there was a split in authority about whether defendants could recover their costs when they prevailed.

If you cannot cut off attorneys’ fees, can you at least cut-off costs with a 998 offer?

The California Supreme Court decision addressed the issue of defendants’ recovery of litigation costs in Williams v. Chino Valley Independent Fire Dist., 61 Cal. 4th 97 (2015), where the court held a prevailing defendant should not be awarded fees and costs unless the court finds the action was objectively without foundation when brought, or the plaintiff continued to litigate after it clearly became so. Id. at 99-100. FEHA was amended on January 1, 2019, such that the Williams decision was codified into what is now Cal. Gov’t Code § 12965(c)(6), and that section specifically states that despite CCP § 998, a prevailing defendant cannot recover costs and fees unless the lawsuit was frivolous, unreasonable, or groundless.

So, does that mean if plaintiffs win, they get costs and fees, but defendants only get their costs and fees if the plaintiff’s case is frivolous? In short, yes. Probably in the vast majority of cases a defendant will not be able to recover their fees and costs. If the plaintiff wins anything, it is hard to argue their case was frivolous; thus, a defendant has little hope of recouping monies spent to defend itself. While the reverse is true and plaintiffs typically can expect to recover their fees and costs, there is a sliver of hope that defendants can influence judges on the recovery of costs and fees for prevailing plaintiffs.

What is the impact of non-FEHA claims on attorneys’ fees?

Very few cases are solely based on FEHA claims. While defendants probably will not be able to recover their attorneys’ fees for the FEHA portion of their complaint, can they argue that under CCP § 998 they should be able to recover their fees and costs for their non-FEHA causes of action? In Roman v. BRE Properties, Inc., 237 Cal. App. 4th 1040 (2015), the court’s answer to this question was where the other claims are inextricably intertwined with the FEHA claims, the rule of law under FEHA controls. Most non-FEHA claims are typically intertwined with FEHA claims; therefore, this does not create a path to reimbursement. If a defendant can truly show that a non-FEHA claim has nothing to do with discrimination, harassment, or retaliation, then the best they can hope for is an allocation of some amount of fees and costs, and in all likelihood, such allocation will be a mere trifle compared to the total costs and fees.

Why might 998 offers still be relevant?

If offers to compromise under § 998 have become superfluous in discrimination, harassment, and retaliation cases, why should defendants even bother with this useless process? The key may be that going through the exercise may create helpful evidence in an opposition to a plaintiff’s motion for attorneys’ fees. Attorneys’ fees and costs under section 12965(c)(6) are permissive and not mandatory; thus, a Court has discretion to award costs and fees. In Chavez v. City of Los Angeles, 47 Cal. 4th 970 (2010), the Court held that a prevailing plaintiff could recover attorneys’ fees unless special circumstances would render the award unjust. Id. at 985. The Court concluded that a reduced fee award is appropriate where the plaintiff only achieves a limited success. Id. at 989-90. In that case, the plaintiff requested $870,935.50 in attorneys’ fees for a verdict of $11,500. The court found that awarding attorneys’ fees in this case would be unjust and opted to award no attorneys’ fees at all. Thus, trying a case and achieving a result that is less than an offer to compromise could evidence special circumstance rendering an award of fees and costs unjust.

A similar finding, albeit for a different reason, was reached in Snoeck. v. Exaktime Innovations, Inc., 96 Cal. App. 5^th 908 (2023). In this recent case, the plaintiff was victorious on only one of the six causes of action alleged in the complaint and the jury returned a verdict of $130,088 for failure to engage in the interactive process. The plaintiff’s attorney calculated a lodestar amount by multiplying the hours worked on the case times the attorney billing rate of $750, which equaled $1,193,870. The attorney then used a multiplier of 1.75 for a total attorneys’ fees request of $2,089.870. The defendant’s attorney argued that the attorneys’ fees should be reduced by the amount charged after the 998 offer or reduced to 16.6 percent of the billed hours proportional to the plaintiff’s success rate, and an additional 25 percent deduction due to patent excessive billing. Although the court took no issue with plaintiff attorney’s billing rate of $750 per hour and did not apply the insurance rate that defendant’s attorney was required to use, it applied a 20% across the board reduction for the hours because of overstaffing, duplicative work, excessive and vague billing, and the degree of plaintiff’s success. Thus, the loadstar amount was reduced from $1,192,353.50 to $953,882.80. The court then applied a 1.2 positive multiplier because counsel had worked on the case for four years without being paid resulting in a sum of $1,144,659.36 for attorneys’ fees. The court then took the extraordinary measure of applying a negative .4 multiplier for plaintiff’s attorney’s lack of civility for a total attorneys’ fee award of $686,795.62. The court held that a prevailing plaintiff should ordinarily recover attorneys’ fee unless special circumstance would render such an award unjust, and further noted that a reduced attorneys’ fee award might be justified by a general observation that an attorney over litigated a case. Id.at 580; Vines v. O’Reilly Auto Enterprises, LLC, 74 Cal. App. 5^th 174, 182 (2022)(a fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether). Although this court did not utilize the 998 offer as a basis for its conclusion of overlitigation, an argument certainly could be made that failing to accept a 998 offer and obtaining worse results from a jury verdict could evidence overlitigation of a case.

Welcome to the Hotel California!

In the newly published case of Neeble-Diamond v. Hotel California by the Sea, 2024 WL 41423 (2024), the California Court of Appeal once again addressed the issue of whether a prevailing defendant could recover costs in a discrimination case based on FEHA. The Court held that in a FEHA case, even where a defendant wins, they cannot recover their costs unless the lawsuit was objectively frivolous. Id. at *1. In this case, the defendant did file a motion for attorneys’ fees, but did not file a motion for costs – instead filing only a memorandum of costs. The court held that since costs were discretionary in a FEHA case, a motion for costs had to be filed and a memorandum of costs was not sufficient. So welcome to the Hotel California, such a lovely place, such a lovely place….

For employers, however, it is difficult to determine if it is heaven or hell when it comes to litigation and recouping costs. Prevailing defendants should have no expectation of reimbursement for attorneys’ fees and costs expended. In cases where the plaintiff is a prevailing party, a 998 offer may help cushion the blow of defeat. While a 998 is not an elixir that heals all the wounds of unfair litigation, in those cases where damages truly are de minimis, using a 998 offer to compromise just might give a court enough information to determine that an award of attorneys’ fees and costs would be unjust, and the court might utilize its discretionary power to deny or seriously circumscribe this benefit to plaintiffs’ attorneys.