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Horvitz & Levy persuaded the Court of Appeal to issue a published opinion that rejects a commonly used tactic to inflate attorney fee awards in lemon law cases.
Plaintiff Jacob Ayers sued automaker FCA, alleging violations of the Song-Beverly Consumer Warranty Act, also known as the “lemon law.” FCA made several offers to settle the case, each of which Ayers and his counsel rejected. After continuing to litigate the case for years, Ayers and his lawyers then offered to settle the case for less than what FCA had offered years earlier. After the case settled, Ayers’ lawyers sought and obtained a fee award that included all the fees they incurred after rejecting FCA’s settlement offer. The trial court overruled FCA’s objections and awarded plaintiffs’ counsel their post-offer fees.
FCA appealed and retained Horvitz & Levy as its appellate counsel. We argued that the fee award should be reversed under California Code of Civil Procedure section 998, which imposes penalties on parties who reject a reasonable pretrial settlement offer. Under that statute, if a plaintiff rejects a defense settlement offer and then “fails to obtain a more favorable judgment or award,” the plaintiff cannot recover any costs (including attorney fees authorized by statute) incurred after the date of the offer. We argued that, under the plain language of the statute, a plaintiff who rejects a defense settlement offer and then settles for a lesser amount is not entitled to the post-offer fees because they have “fail[ed] to obtain a more favorable judgment or award.”
The Court of Appeal agreed with our arguments in a published opinion. All three justices on the panel rejected Ayers’ argument that section 998 does not apply to lemon law cases. The majority opinion also rejected Ayers’ argument that section 998 applies only in cases that go all the way to verdict and does not apply to cases that end in settlement before trial. The majority accepted Horvitz & Levy’s position that section 998 applies whenever a plaintiff rejects a settlement offer and fails to beat the offer. It doesn’t matter why the plaintiff had a change of heart and settled before trial for an amount less than or equal to the offer that the plaintiff previously rejected. No matter the reason, the plaintiff who gambled when rejecting the earlier offer and then settled for less has “failed to obtain a more favorable judgment or award” within the meaning of section 998 and is therefore prohibited from recovering post-offer costs.
