Costs, Prevailing Party, Section 998, Section 1717: Trial Court Order Denying All Attorney’s Fees And Costs To Defendants Reversed On Appeal

Defendants Will Be Entitled To Substantial Fees/Costs On Remand, Not To Mention An Attempt To Garner Even More Fees.

            This next case is a very substantial reverse of fortune on appeal.  So, that takes us to posting on Abregov v. Lawrence, Case No. G056866 (Abregov II) (4^th Dist., Div. 3 Mar. 19, 2020) (unpublished).

            Plaintiffs sued several defendants for alleged breaches of the parties’ shareholder agreements and fiduciary duties, contractual and tort in nature.  Defendants cross-claimed.  Eventually, after a two-phased bench trial, plaintiffs recovered nothing, and defendants obtained some relief on their cross-complaint in the form of a declaration that a company was not a statutory close corporation.

            Defendants then sought $626,341.65 in costs ($472,380.81 of which were expert witness/fees and costs) after plaintiffs rejected a CCP § 998 offer.  Because there was a prevailing party contractual clause in the shareholder agreement, defendant also moved for almost $8.3 million in attorney’s fees under Civil Code section 1717 and/or CCP § 998.  This, of course, prompted motions to tax or strike costs and vigorous opposition to the fee request.

            Although the judgment contained a provision that defendants prevailed, the trial judge believed he had been “snookered” into so finding, ultimately denying the defense postjudgment motions for costs and attorney’s fees and not addressing the defense request for 998 costs.

            Routine Costs.  The trial court erred on this issue.  Defendants did obtain relief on the cross-complaint such that they were prevailing parties entitled to litigation costs as a matter of right.  (CCP § 1032(b); Zintel Holdings, LLC v. McLean, 209 Cal.App.4^th 431, 438 (2012).). So, a remand was in order so that specific costs items could be reviewed under plaintiffs’ motion to tax costs.

            Section 998 Costs.  Given that section 998 allows for broader costs such postoffer attorney’s fees if based on a contract and expert witness fees, the appellate court next reviewed defendants’ offer to settle the complaint for $500,000 in exchange for a dismissal with prejudice “of all claims Plaintiff has asserted against the Offeror Defendants in the above-captioned action,” with all parties being their costs/fees.  In this area, section 998 allows fees, as long as there is a contractual basis (and there was here), even in the absence of a prevailing party determination as long as the judgment was more favorable than the statutory offer (which it was).  (Scott Co. v. Blount, Inc., 20 Cal.4^th 1103, 1114 (1999).).  The “all claims” language in the 998 offer did not invalidate it because only involved the claims in the complaint, not asking for broader releases or a release of non-alleged claims.  (One Star, Inc. v. STAAR Surgical Co., 179 Cal.App.4^th 1082, 1096 (2009).). Because plaintiffs failed to obtain a more favorable judgment, the defense was entitled to 998 postoffer costs and reasonable attorney’s fees.

            Section 1717 Fees.  Defendants did prevail under the shareholder agreement fees clause such that the fee denial on this basis was reversed.  The appellate court decided that a voluntary cancellation of shares did not tarnish this conclusion (although the trial judge believed otherwise) because the defense achieved a “lopsided” victory on all of plaintiffs’ claims.  However, the lower court on remand needed to determine if the fees clause was broad enough to cover fee recovery on noncontract causes of action.  (Brown Bark III, L.P. v. Haver, 219 Cal.App.4^th 809, 818 (2013).)

            Assigned Justice Dunning, a retired judge of the Orange County Superior Court, penned the 3-0 opinion.