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Saturday, August 11, 2012

Wohlgemuth v. Caterpillar: Where Plaintiff Accepts 998 Offer That Is Silent as to Attorney Fees and Costs, Plaintiff Is Prevailing Party and May Recover Fees and Costs

Wohlgemuth v. Caterpillar Inc. (7/23/12) --- Cal.App.4th --- is not an employment case, but it demonstrates an important point for counsel in employment matters, particularly defense counsel: when dealing with a CCP section 998 offer to compromise, be sure that the offer states clearly whether prevailing party costs and fees are included in the amount of the offer.  Failure to do so can lead to a very uncomfortable situation for the defendant and its counsel.  
"Where a [Code of Civil Procedure] section 998 offer is silent on costs and fees, the prevailing party is entitled to costs and, if authorized by statute or contract, [attorney] fees." (Engle v. Copenbarger & Copenbarger, LLP (2007) 157 Cal.App.4th 165, 168.)  This is a "brightline rule," meaning that "a [Code of Civil Procedure] section 998 offer to compromise excludes [attorney] fees only if it says so expressly." (Id. at p. 169, italics added.)
Slip op. at 6.   

Plaintiffs filed suit for violation of the Song-Beverly Consumer Warranty Act. Before trial, defendant made a CCP 998 offer to pay plaintiffs $
50,000 in exchange for a dismissal with prejudice and release of all claims. The offer was silent as to attorney fees and costs.  

The plaintiffs accepted the offer and moved to recover their attorney fees and costs.  The trial court (Fresno County Superior, Judge Jeffrey Y. Hamilton) found that plaintiffs prevailed and awarded them their fees and costs.  Defendant appealed, and the Court of Appeal affirmed.  

First, the Court rejected defendant's argument that the trial court could not award attorney fees and costs because the case was dismissed, and no judgment was entered.  A "compromise agreement contemplating payment by defendant and dismissal of the action by plaintiff is the legal equivalent of a judgment in plaintiff's favor." Slip op. at 8.  

Second, the Court held that the trial court did not abuse its discretion in finding that the plaintiffs were the prevailing parties.  While defendant could be the prevailing party because a dismissal was entered, plaintiffs also could be the prevailing parties because they obtained a net monetary recovery.  In this case, the trial court did not abuse its discretion by finding that plaintiffs were the prevailing parties.  

The moral of the story is clear. Be very careful with CCP 998 offers.  Read the statute and the offer carefully to avoid nasty surprises.  

The opinion is available here

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