Media & Insights
April 2, 2025
Ordinarily, the prevailing party in a civil action is entitled to recover litigation costs. (Code Civ. Proc., § 1032, subds. (a)(4), (b).)
Code of Civil Procedure section 998 modifies this rule. When a plaintiff rejects or fails to timely accept a qualifying settlement offer from the defense, and then fails to obtain a more favorable judgment, the plaintiff is not entitled to postoffer litigation costs and must pay some or all of the defendant’s postoffer litigation costs. (Code Civ. Proc., § 998, subd. (c)(1).) The question addressed by the Supreme Court in this case is whether this rule applies where the parties settle prior to trial.
Plaintiffs alleged their newly purchased car was a lemon, and asked the defendant manufacturer to repurchase the car pursuant to the Song-Beverly Consumer Warranty Act. (Civ. Code, § 1793.2, subd. (d)(2).) Defendant declined, and plaintiffs sued.
Prior to trial, defendant made two separate settlement offers. Plaintiffs responded to neither, and the offers were deemed withdrawn. (Code Civ. Proc., § 998, subd. (b)(2).) Months later, the parties agreed to settle.
Defendant agreed to pay plaintiffs an amount less than that offered in defendant’s second settlement offer, and plaintiffs agreed to dismiss their complaint with prejudice. Plaintiffs then moved to recover their costs as the prevailing party. Defendant argued that by rejecting its second settlement offer, and ultimately settling for less, plaintiffs had not “obtain[ed] a more favorable judgment,” and therefore could not recover any postoffer costs. (Code Civ. Proc., § 998, subd. (c) [when a defendant makes a settlement offer which is rejected or deemed withdrawn, and “the plaintiff fails to obtain a more favorable judgment or award,” the plaintiff “shall not recover postoffer costs” and must pay some or all of the defendant’s postoffer costs].)
The trial court disagreed, holding that section 998’s cost-shifting provisions were never triggered because the parties settled before trial and therefore no judgment was rendered. The Court of Appeal reversed. (Madrigal v. Hyundai Motor America (2023) 90 Cal.App.5th 385.)
The Supreme Court affirmed the Court of Appeal’s reversal. The Court rejected the trial court’s narrow reading of section 998, noting that section 998 contains no requirement “that the case be resolved by trial,” and interpreted “judgment” broadly, to include the results of settlements, as well as trials. (Typed opn. 11.) For section 998’s “ ‘carrot and stick’ approach to encourag[ing] pretrial settlement” to work, cost-shifting must apply “even to cases that settle before trial but after rejection of an offer.” (Typed opn. 13.)
