Award of Costs to Prevailing Employers Is “Mandatory” When the Plaintiff Rejects a Section 998 Offer and Fails to Obtain a More Favorable Judgment

10.23.2017

In the recent case of Sviridov v. City of San Diego (2017) 14 Cal.App.5th 514, the California Court of Appeal found that prevailing employers that make a Section 998 settlement offer to the plaintiff in actions brought under the Fair Employment and Housing Act ("FEHA") are entitled to costs incurred after the plaintiff’s rejection of the offer.

Background
After his termination, the plaintiff filed a lawsuit against the City of San Diego and the San Diego Police Department alleging causes of action under the FEHA and the Public Safety Officers Procedural Bill of Rights Act ("POBRA"), among others. During the litigation, the defendants served the plaintiff with three settlement offers pursuant to Code of Civil Procedure section 998, each of which was rejected. The trial court granted summary judgment in favor of the defendants as to all causes of action, except for breach of contract and violation of POBRA. After a bench trial, the court entered judgment in favor of the plaintiff and ordered his reinstatement.

However, the Court of Appeal reversed the judgment on the basis that the plaintiff did not timely appeal his termination. It remanded the matter with directions to enter judgment in favor of the defendants.

On remand, the trial court awarded costs of $90,387.28 to the City. The plaintiff appealed.

Court’s Reasoning
After analyzing the interplay of three statutes, the court in Sviridov found that prevailing parties are authorized to obtain costs in FEHA actions where the plaintiff rejects a Section 998 offer. The first statute, Govt. Code section 1032(b), provides the general rule for civil cases that, "[e]xcept as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." The second statute, Govt. Code section 12965(b), provides that in actions brought under the FEHA, "the court, in its discretion, may award to the prevailing party … reasonable attorney’s fees and costs, including expert witness fees." The court noted that this provision of the FEHA is an "express exception" to section 1032(b)’s mandate to award costs to a prevailing party, and that the awarding of costs is discretionary. The court’s discretion is subject to the holding in Christiansburg Garment Co. v. Equal Employment Opportunity Commission (1978) 434 U.S. 412, that "a prevailing defendant … should not be awarded fees and costs unless the court finds the action was objectively without foundation when brought, or the plaintiff continued to litigate after it clearly became so." (Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4th 97 at 115.)

The court found that the third statute at issue, Code of Civil Procedure section 998, also provides an exception to section 1032’s rule that only a prevailing party is entitled to costs. The court held that Section 998(c)(1) makes the awarding of ordinary costs "mandatory" against a plaintiff who rejects a Section 998 offer and fails to obtain a more favorable judgment. Section 998 also provides the court with discretion to award reasonable expert witness costs. The court noted that Section 998 is a cost-shifting statute that encourages the settlement of actions by penalizing parties who fail to accept reasonable pretrial settlement offers. Consequently, a plaintiff who refuses a reasonable pretrial settlement offer and subsequently fails to obtain a more favorable judgment is penalized by the awarding of costs in the defendant’s favor. The court rejected the plaintiff’s argument that a blanket application of Williams precluded an award of Section 998 costs, because it was "objectively groundless" and "would erode the public policy of encouraging settlement in such cases."

The court also found no merit in the plaintiff’s contention that the POBRA precluded the awarding of costs related to the POBRA action when a plaintiff rejects a Section 998 offer. In particular, the court found that the plaintiff’s basis for his contention, Govt. Code section 3309.5(d)(2), is not an exception to sections 1032 or 998 and does not create a separate rule or standard for POBRA.

Take-Away
This case is significant because it eliminates a common argument made by plaintiffs who reject a Section 998 offer, lose at trial, and attempt to avoid the consequences of their decision to reject the offer. With this ruling, employers navigating a lawsuit with FEHA causes of action should consider making a Section 998 offer. If the plaintiff rejects the offer and fails to obtain a more favorable judgment, the plaintiff may have to pay the employer’s costs incurred after the rejection of the Section 998 offer.