Prevailing Party, Section 1717, Section 998: 1/4 DCA Reverses Trial Court’s Denial Of Section 998 Fees To Defendant Who Entered Handwritten Agreement To Transfer Real Property Valued At More Than His 998 Offer.

Plaintiffs Voluntarily Dismissed Action Without Terms Of Handwritten Agreement Being Met And Property Was Never Transferred.

            In Debenedetti v. Debenedetti, Case No. A162074 (1^st Dist., Div. 4 January 24, 2022) (unpublished), plaintiff brothers, who were successor co-trustees of their father’s trust, filed an action against their brother for breach of a promissory note securing a $157,000 loan the trust had made to him. Defendant made a Code of Civil Procedure § 998 offer to settle the action for $99,500 – inclusive of all fees, costs and interest – but the parties ended up signing a handwritten agreement several days later.  The handwritten agreement provided that the action would be settled with the transfer from defendant to the trust of real property valued at more than $157,000.  Transfer of the property was contingent upon a satisfactory inspection of the property to take place within 45 days, and the handwritten agreement was to be replaced with a formal written agreement incorporating the same terms within 10 days. One year later, plaintiffs responded to the trial court’s order to show cause, re dismissal of the action, with a request for voluntary dismissal without prejudice – which the trial court granted. 

            Afterward, plaintiffs and defendant filed competing costs memorandums and motions to tax.  Additionally, defendant sought attorney fees as the prevailing party under section 998 as plaintiffs had recovered nothing because no formal written agreement was ever signed, the inspection never happened, and the property was never transferred. Additionally, defendant sought reimbursement of fees under Civil Code § 1717 based on the attorney-fee provision of the underlying promissory note.  However, based on the handwritten agreement, the trial court awarded no costs and denied defendant’s motion for fees. 

            Defendant appealed the fees denial – arguing he was entitled to fees under both section 1717 and section 998. The 1/4 DCA disagreed with defendant’s section 1717 argument – finding his claim barred under subdivision (b)(2), which states, “[w]here an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section.”  However, defendant’s section 998 argument resulted in a reversal and remand for determination of the amount and reasonableness of fees defendant incurred post-998 offer. Because plaintiffs did not accept defendant’s section 998 offer and failed to obtain a more favorable judgment – with no formal settlement agreement ever signed and the property never transferred – defendant was entitled to recovery of costs from the time of the offer.  Citing Mon Chong Loong Trading Corp. v Superior Court, 218 Cal.App.4th 87, 93-94 (2013), the panel found defendant’s entitlement to fees was triggered when plaintiffs voluntarily dismissed the action, and irrespective of prevailing party findings under section 1717 where the dismissed action is on a contract that provides for attorney fees. (Scott Co. v Blount, Inc., 20 Cal.4th 1103, 1114 (1999) [“Under section 998, the defendant’s entitlement to costs derives not from its status as a prevailing party but from the plaintiff’s failure to accept a reasonable settlement offer.”].)