California’s First Appellate District Issues Ruling Adding Specificity to CCP § 998 Offers And Stating Any Agreements To Share Costs Include Specific Statements To Allow Parties To Seek To Recoup Those Costs After Trial

By Carl I. S. Mueller, Esq. and Nicole A. Poltash, Esq., The Maloney Firm, APC

On April 13, 2020, the First Appellate District of the Court of Appeal of the State of California filed an opinion in Anthony v. Li, Case No. A156640, clarifying the requirements for a valid offer to compromise under California Code of Civil Procedure (“CCP”) § 998 and subsequent applications for costs under CCP § 1032. In short, plaintiffs’ counsel in Anthony lost the chance to recoup expert fees pursuant to CCP § 998 by improperly drafting the statutory offer to acceptance by two parties. Further, the same counsel waived his client’s ability to recover mediation costs and court reporter costs by failing to include language allowing the prevailing party to seek those costs after trial in the initial agreements to split costs with opposing counsel. As such, the ruling serves as another reminder to attorneys to avoid cutting corners at any point during litigation.

In Anthony v. Li, plaintiff Anthony sued defendant Li and PV Holding Corporation (DBA Avid Rent-A-Car) for injuries arising from a car accident. Li was served via service on PV Holding under California Civil Code 1939.33, which allowed PV Holding to accept service on behalf of Li. Li and PV Holding were jointly represented, but filed and served separate answers and responses to discovery.

The parties agreed to participate in a mediation, with each side agreeing to pay 50% of the mediation costs. Mediation was unsuccessful, but nonetheless, Anthony subsequently dismissed PV Holding a few months later. Two months thereafter, Anthony served a CCP § 998 offer to compromise that required judgment against Li and PV Holding in the amount of $500,000, and required acceptance by both Li and PV Holding. Li countered with a CCP § 998 offer of her own, and neither offer was accepted.

The matter proceeded to trial, and the parties agreed to split equally the costs of all court reporting and original transcripts. A jury returned a verdict for Anthony in an amount of $650,235, an amount greater than his CCP § 998 of $500,000. Anthony then filed and served a memorandum of costs, seeking expert fees, mediation costs, and court reporting costs. Li moves to tax Anthony’s costs.

On appeal, the Court upheld the trial court’s decision to tax Anthony’s expert witness fees, finding Anthony’s CCP § 998 offer was invalid. In sum, for a CCP § 998 offer to be valid, it must be “clear and specific.” As a general rule, a CCP § 998 that requires by multiple parties is not “clear and specific,” and is therefore invalid. While exceptions to that general rule exist, they did not apply in this instance. Further, the CCP § 998 offer was inappropriately directed to a dismissed party, PV Holding, and therefore the offer could not have been accepted.

Anthony argued that although dismissed, PV Holding still would be liable as Li’s insurer, and therefore should be able to accept the CCP § 998 offer. The appellate court rejected this argument, noting that the language of the CCP § 998 offer “in no way advised defendants that the offer was directed at PV Holding as the insurer responsible for any judgment entered against Li.” Therefore, the offer was invalid. This position was unchanged by the nature of Li’s status as a defendant for the purpose of Anthony reaching Li’s renters’ insurance, since such a theory would make CCP § 998 more uncertain.

More interestingly, the Court clarified that because the parties agreed to share the costs of mediation and court reporters, the language of those agreements barred Anthony from seeking reimbursement of those costs pursuant to CCP § 1032.

[W]here, as in this case, the parties agree to share costs during litigation, the courts will enforce those agreements as written under principles that “[w]hen the language of a document is unambiguous, we are not free to restructure the agreement,” and “if parties [] wanted to allow recovery of the apportioned fee by the prevailing party as an item of cost, they were free to spell this out in their agreement,” but such a provision will not be read into the agreement.

As such, the careful litigator should take guidance from the above language, and clarify in any agreement with opposing counsel about splitting costs whether such an agreement will affect their client’s ability to seek those costs after trial as a prevailing party.

Therefore, the appellate court reiterates a theme common in many of its rulings: lawyers must exercise care in all aspects of litigation. Whether that is in drafting CCP § 998 offers clearly or in ensuring agreements to split costs address the ability to seek costs after trial, lawyers must always have an eye towards their clients’ interests all the way through trial.

About the Authors: Carl I.S. Mueller, Esq. and Nicole A. Poltash, Esq.

Carl Mueller represents attorneys and clients in disputes over legal fees and legal malpractice and Nicole Poltash is a civil litigation attorney. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com or Nicole Poltash at npoltash@maloneyfirm.com.

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