Strategic use of CCP 998 offers in employment law matters

California Code of Civil Procedure section 998 is a powerful and underutilized tool in defending employment law matters. The legislature designed CCP 998 to encourage fair and reasonable settlements. Therefore, Plaintiffs who reject an employer’s reasonable offer of litigation settlement may face severe economic consequences if they miscalculate and reject the offer – even if they ultimately prevail at trial.

Consider a hypothetical case: Plaintiff sues her former employer for sex harassment and wrongful termination in violation of California’s Fair Employment & Housing Act (FEHA). Plaintiff alleges she was sexually harassed and threatened by a co-worker, and that she was forced to resign.

Well before trial, the employer serves a CCP 998 offer to compromise for “$115,000, plus reasonable attorney’s fees to be determined by the court or by agreement of the parties” in exchange for Plaintiff dismissing the lawsuit. The offer included a signature line for Plaintiff to accept, stating that the acceptance must be signed, served and filed within 30 days or else the offer will be deemed withdrawn.

At the time the employer served the 998 offer, the employer surmised Plaintiff’s counsel, at most, had $85,000 in fees and costs. So, the employer essentially offered $200,000 to settle.

A jury trial commenced and reached a verdict in favor of Plaintiff on all causes of action. But the jury awarded “only” $25,000, which typically would entitle Plaintiff to recover all attorney’s fees and costs from case inception through trial. But Plaintiff failed to beat the employer’s CCP 998 offer of $115,000, and thus her attorney’s fees would be cut off as of the date of the CCP 998 offer. So, Plaintiff and her attorney’s recovered $110,000 ($25,000 + $85,000). Had Plaintiff accepted the 998 offer, Plaintiff and her attorney would have received $200,000, and saved the time and expense of trial.

· Recovery of costs under Government Code 12965 and Code of Civil Procedure 998

Let’s assume now that the employer prevailed at trial on all causes of action. The impact of not accepting a CCP 998 offer can be devastating for plaintiffs because employers can recover costs as the prevailing party.

As the “prevailing party,” the employer may seek costs under California Code of Civil Procedure, section 1032(b), which provides, “[e]xcept as otherwise provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.” A prevailing party is entitled to recover costs as a matter of right under statute. Davis v. KGO-T.V., Inc., 17 Cal.4th 436, 439 (1998).

We can expect Plaintiff will argue the employer is not entitled to its costs pursuant to Williams v. Chino Valley Independent Fire Dist., 61 Cal.4th 97 (2015). In Williams, the court addressed the issue of whether an award of costs in a FEHA action is governed by Government Code section 12965(b) instead of Code of Civil Procedure section 1032(b) and, if so, whether the court’s discretion in awarding costs requires a finding that the plaintiff’s action was groundless. Id. at p. 101.

The court concluded: Under the Christiansburg standard, a prevailing plaintiff should ordinarily receive his or her costs and attorney fees unless special circumstances would render such an award unjust. A prevailing defendant, however, 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 p. 115 (citing Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978)).

Therefore, in order for the employer to recover costs under Code of Civil Procedure section 1032 or Government Code section 12965, the Court must determine whether Plaintiff’s action was objectively without foundation or Plaintiff continued to litigate the action after it became clear that it was without foundation.

The Williams court, however, did not consider whether a defendant could recover costs pursuant to CCP 998. The court in Holman v. Altana Pharma US, Inc., 186 Cal.App.4th 262 (2010), addressed whether a defendant prevailing on a FEHA claim must show the plaintiff’s action was frivolous in order to recover expert witness fees. The court concluded, even if the plaintiff’s claims were not frivolous, the court was still required to consider the defendant’s request for its expert witness fees under CCP 998. Id. at 277, 280.

After Holman emerged Huerta v. Kava Holdings, Inc. 29 Cal.App.5th 74, 78-84 (2018) holding, notwithstanding CCP 998, a judge may not award fees and costs to a prevailing defendant in a FEHA action, unless the judge finds that the action was frivolous, unreasonable, or groundless when brought or that the plaintiff continued to litigate after it clearly became so. This was subsequently codified by Government Code 12965(b), effective January 1, 2019.

Once a FEHA claim is brought, Plaintiff and her counsel ought to calculate whether the case should be maintained in the face of a reasonable offer to settle under CCP 998. In deciding to reject a CCP 998 offer, Plaintiff assumes the risk that she will not obtain a better result and will be deprived of postoffer attorney’s fees and required to pay the employer’s post offer costs. Reck v FCA US LLC, 64 Cal.App.5th 682, 698 (2021).

Facing the specter of paying an employer’s costs, including expert fees (with the requisite showing) promotes judicial economy by providing an incentive to parties in FEHA cases to settle their disputes before trial. Indeed, the stakes may be even higher for non- FEHA employment law matters that allow the employer to recover costs for non-frivolous cases.

· Good faith offer and failure to accept under CCP section 998

In our hypo, the employer offered to pay Plaintiff $200,000, which ostensibly was a multiplier of nearly three times Plaintiff’s total earnings during her tenure. Therefore, the Court will likely conclude the CCP 998 offer was reasonable and made in good faith. Because Plaintiff rejected the offer, she is now liable for post-offer costs under CCP 998, including expert fees in the event the employer can prove the plaintiff’s claims were frivolous, unreasonable, without foundation, or brought in bad faith.

· Individual cost items

The Court next decides whether the individual cost items are recoverable. Our Plaintiff is now stuck having to show the employer costs for depositions, process servers, trial exhibits, expert witness fees, etc., were not reasonable or justified. These costs, especially expert witness fees, will inevitably dwarf Plaintiff’s $25,000 award. Plaintiff’s last ditch effort would be to ask the court to “scale” the expert fee award. See, Seever v. Copley Press, Inc., 141 Cal.App.4th 1550, 1561-6 (2006).

· Pre-trial Considerations

While the above hypothetical explains the math behind CCP 998 offers, not all cases go to trial. Yet, an employer serving a CCP 998 offer will force plaintiffs and their attorneys to take a realistic view of their case, else face the financial risk in continuing to litigate. At the very least, used strategically, the offer will promote further settlement discussions.

Katherine S. Catlos is a partner at Kaufman Dolowich Voluck, LLP.