California Court of Appeal Resuscitates A Defensive 998 Offer

09.30.2024

In a Shakesperean-like saga, the California Court of Appeal recently held that a plaintiff could not recover attorneys’ fees or other costs incurred after the defendant submitted a “Section 998” offer to compromise. Simers v. Los Angeles Times Commc'ns LLC (2024) 104 Cal. App. 5th 940.

In 2013, T.J. Simers, a well-known sports columnist for the Los Angeles Times, sued the Times for constructive termination, and age and disability discrimination after the Times demoted him and he quit to work at the Orange County Register. The case went through three trials and continued on even after the death of Simers on June 2, 2024, until the court’s decision on August 30. As detailed below, this decision opens up a strategy for employers facing complaints where there are limited damages but strong liability, to use 998 offers to limit exposure to liability for attorneys’ fees and costs.

Prologue

Like Macbeth, this case involved blind greed, here by a plaintiff’s attorney, in refusing to settle after being provided a 998 offer by the Times.

It is well settled that a prevailing defendant, except in the most rare, frivolous, cases cannot recover their attorneys’ fees and costs where a plaintiff received an award at trial less than what they had been offered via a 998 Offer. The question remained in a case based on FEHA, whether a prevailing plaintiff, like Bassanio in the Merchant of Venice, would forfeit all attorneys’ fees and litigation costs incurred after a 998 offer.

In cases where there are limited damages, but strong liability, plaintiff attorneys can hold an employer hostage where they sue under a statute that provides attorneys’ fees and costs. A possible response to such tactics is to file a 998 offer early in the case before the plaintiff has expended significant amounts in attorneys’ fees and costs.

At first blush, this strategy appeared weakened when recent appellate court decisions have held that the Fair Employment and Housing Act (FEHA) trumps Code of Civil Procedure section 998 and have called into question whether defendants can diminish potential attorneys’ fees awards and costs by serving plaintiffs with an early 998 offer. In Huerta v. Kava Holdings, Inc. (2018) 29 Cal. App. 5th 74, the court left open the question of whether a 998 Offer applies in a non-frivolous FEHA action when a plaintiff refuses a defendant’s reasonable statutory settlement offer but fails to achieve a better result at trial.

The answer appears to be, yes, based on the Simers decision.

The Saga

In the first jury trial, the jury found for Simers on both of his discrimination claims and his constructive termination claim and awarded him over $2 million in economic damages and $5 million in noneconomic damages. However, the trial court granted a judgment notwithstanding the verdict on the constructive termination claim and ordered a new trial on the noneconomic damages.

In the second trial, the jury awarded Simers $15.4 million in noneconomic damages, but the court granted a new trial on two grounds: (1) one of plaintiff’s counsel during closing argument engaged in misconduct by improperly suggesting the jury should award damages based on the Times’ wealth in direct violation of a jury instruction, and (2) damages were excessive and could not be justified by the evidence.

Shortly before the third trial began, the Times made a 998 offer for $1.25 million plus attorneys’ fees to be determined by the court. In the third trial, Simers’ attorney asked for a verdict between $30 and $50 million for noneconomic damage, and the Times’ counsel asked for an award between $500,000 and $1 million. The jury returned a verdict for $1.25 million.

Simers’ attorney filed a motion for attorneys’ fees asking for $15.5 million. This figure was derived from a loadstar of $7,860,475, which was the purported hours worked times the hourly rates of the attorneys working on the matter, with a multiplier of 2.0 for contingent risks and other factors. This amount was incurred working on all three trials and the appeal of the first trial.

The Times opposed the attorneys’ fees motion on several grounds including that no fees should be awarded after the 998 offer. Simers also claimed costs of $577,890.29 and defendants filed a motion to tax costs in part because no costs should be allowed after the 998 offer. The trial court awarded Simers $3,264,906 in attorneys’ fees and $210,882.55 in costs. The trial court’s opinion, which was ultimately affirmed by the Court of Appeal should serve as a road map for defense counsel on how to attack outrageous demands.

Denouement

The court directly addressed the question posed in Huerta and held that the Plaintiff could not recover attorneys’ fees or other costs incurred after the 998 offer. Thus, in those cases where plaintiff has a strong liability case without much in the way of damages, an employer should consider serving a 998 offer as early as possible to undercut plaintiff attorneys banking on a huge attorneys’ fees award.

The court also found that the amount of fees claimed by Simers was not reasonable. It initially reduced the hourly rates claimed by all Simers’ lawyers. For instance, the attorney who engaged in misconduct during the second trial had her rate cut from $1,300 to $700 per hour. The court found that the extraordinary amounts Simers’ counsel requested showed that they were not very successful based upon the ultimate jury verdict. Thus, at a minimum, it could be said that the attorneys were not masterful, nor did they achieve an outstanding result. The court determined that there is a “civic value” in discouraging the overlitigation of civil rights cases.

The court also questioned the number of hours used to calculate the loadstar. The fact that the Simers had 11 different attorneys work on the case led to inefficiency and excessive billing. Thus, when attacking attorneys’ fees, one should also look for duplications like multiple attorneys at a deposition or at a hearing that merely pads the bill.

Curtain Call

While an offer to compromise might not result in payment of defense costs and attorneys’ fee unless a case is frivolous, this tool, if used properly and early, can undermine a case with limited damages that is being over-litigated to run up costs and attorneys’ fees. There is now a definitive opinion by the Court of Appeal that if used properly, a 998 offer can greatly put a plaintiff’s attorney at risk for not settling a case for a reasonable amount of money.