CCP 998 and settlements - new guidance from the court of appeal

Recently, the 3rd District Court of Appeal in Madrigal v Hyundai Motor America, 90 Cal. App. 5th 385 (April 11, 2023) gave new guidance - the first in 151 years under CCP 998 - on what to consider when settling cases involving CCP 998 and fee shifting statutes. The Supreme Court has granted review. However, now the law is uncertain and counsel cannot ignore the decision in the Court of Appeal. When settling a case and the settlement amount is less than the 998 offer, be careful to state how fee shifting will be applied, if at all. Do it wrong, and plaintiff may discover too late that the 998 offer controls, and anticipated fees and costs are lost.

One preliminary point. Madrigal involved the lemon law. However, the lessons can apply to other fee shifting statutes.

Case of first impression

Madrigal involved the Song Beverly Act, commonly called the lemon law. Briefly, plaintiff alleged that his car was a lemon. Defendant made two 998 offers to compromise, the second one for $55,560.70 to plaintiff with fees and costs to be determined by the trial court on motion. This is a relatively standard type of 998 offer in a lemon law case. Both 998 offers expired without acceptance.

On the first day of trial, the judge urged settlement and also, on request, gave tentative rulings on key in limine motions by defendant that were adverse to plaintiff. Oops - plaintiff quickly settled. Settlement was for $39,000 to be paid to plaintiffs - $16,557.70 less than the last 998 offer. The settlement also provided for fees and costs to be determined by motion.

Plaintiff's counsel sought $207,438.75 in fees with an additional $20,865.83 in costs. Hyundai said forget it - no attorneys fees after the date of the second 998 offer could be recovered, and after plaintiff was taxed for costs only $622.95 could be recovered. Hyundai said that CCP 998 governs and this limit applies because the settlement was for less than the 998 offer. The trial court held for plaintiff and, after a hard look at what was claimed, awarded fees of $81,142.50 and costs of $17,681,05.

Hyundai appealed. The Court of Appeal held for Hyundai. Under the plain words of CCP 998, plaintiff "fail[ed] to obtain a more favorable judgment or award" so costs and fees were limited by 998. There was a vigorous and lengthy dissent.

This is the first time that any court has dealt with a settlement that is less than the 998 offer when the case involved a fee shifting statute. As the court noted, this is the first time this issue has been dealt with in the 151 years of the existence of 998 and its predecessors. That clearly is the reason that the Supreme Court has granted review. With review, the law is in limbo so this case must be taken into account in settlement negotiations.

How this case may affect settlement negotiations

Until the Supreme Court issues a decision, Madrigal can change settlement negotiations in any case involving a fee shifting statute - not just the lemon law - where the settlement is for less than the last 998 offer. Plaintiff's counsel now may not be able to settle damages for less than the 998 offer and comfortably turn to the trial court for an award of fees and costs. The negotiation landscape has changed in this type of case and until the law becomes certain it will remain this way.

The Madrigal court suggested that there are some straightforward ways to deal with its decision. Settlement can be all-inclusive of damages, fees and costs - a single dollar number. Or the parties might agree that any rights under 998 will not apply. These suggestions may work. Or not. They do not take account of dynamics in settlement negotiations.

Plaintiffs now may be less willing to settle for lower than the 998 offer even in a case that has turned to their disadvantage. The discussion about fees and costs may become more difficult.

Also, some plaintiff's counsel do not like all-inclusive settlements. They believe that settlements where their fees and client's damages are bundled can create tension between counsel and client. The all-inclusive option might be elusive.

Defendants may feel that they have the upper hand in any negotiation where settlement could be lower than the 998 offer. Defendants may be more inclined to play hard ball than before Madrigal.

Would defendants waive 998 rights in a settlement as the court suggested? Perhaps, but maybe for a hefty price because defendants now may view this as a major concession.

So with this decision the landscape for negotiation has changed -- at least until the Supreme Court issues a decision. As of today, counsel cannot ignore Madrigal in settlement negotiations.

A gentle reminder - read the settlement documents.

In Geringer v Blue Rider Finance (Case No. B316718, Court of Appeal, 2d District, 8/22/2023), the court decided that Blue Rider's counsel could also be a witness. For our discussion, these are the important facts: Blue Rider alleged that Geringer fraudulently induced Blue Rider to sign a settlement agreement. The agreement was signed by Blue Rider "without noticing the improperly inserted provisions." Blue Rider's counsel testified at deposition that "he was duped" by opposing counsel who he claims "substituted terms into the agreement" that Blue Rider did not intend. Therefore he should be able to be a witness.

Read the settlement agreement before signing. This can save you a lot of trouble.