A New Consideration In Deciding Whether To Settle A Case in Litigation

The recovery of costs and fees in litigation, including the recovery of fees paid to experts hired in the litigation, is usually a factor in considering settlement offers or litigating cases. Years ago, the Legislature created a mechanism to make settlement offers that would shift the right to recover costs if a party to litigation fails to do better than a settlement offer that was made. That is, the statutory scheme set forth in Code of Civil Procedure section 998 somewhat punishes someone for failing to settle more than what was offered to settle. In the case discussed in this article, the additional costs to be paid were the expert's fees of the defendant; the novelty of this case was that the defendant was considered to have "prevailed" when the plaintiff gave up on her case by dismissing it - it never went to trial.

Although the case of Mon Chong Loong Trading Corp., v. Superior Court of the State of California (Defang Cui, Real Party in Interest) does not deal with a construction issue, we thought it was interesting to discuss as it dealt with the shifting of costs, as well as strategy in litigating a civil case.

The way that Section 998 works is that if an offer is made in a statutory form, which is not accepted (either by rejecting it or its expiration), and then the party making the offer does better at trial, the offering party will have shifted the recovery of costs. As one example, a defendant offers to settle the plaintiff's claims for $10,000 on a specific date. The offer is rejected and the case goes to trial where the plaintiff only recovers $5,000. The defendant owes the amount of the judgment, but only those costs incurred up to the date of the offer, and the defendant gets to offset what it owes by all of its recoverable costs after the date of the offer. So, if the defendant had costs exceeding the judgment, the plaintiff could actually owe money to the defendant even though it won. In more complex litigation, the right to recover expert's costs is also made available under this scenario, where without this type of offer, in virtually all other cases each party bears their own expert's costs.

Now, this is where the particular decision from the court of appeal was unique - what the courts call a case of first impression. The ability to recover expert's costs under Section 998 had in every appellate case only existed when a case was litigated to completion. With that in mind, the recent case added a wrinkle. Defang Cui ("Cui") filed suit against Mon Chong Loong Trading Corp ("Mon") for injuries obtained during a slip and fall. During the litigation, Mon made a 998 offer to Cui for $10,000 but Cui never responded. Instead, Cui ended up dismissing its case.

Another cost statute (Section 1032) allows for the recovery of certain costs, including things like filing fees and court reporter fees, to the prevailing party and one can be considered the prevailing party under that statute by the other party dismissing the case. In the trial court, Mon sought costs of over $7,000, including $3,600 for expert witness fees since a 998 offer had been, asserting that Mon "prevailed." The trial court awarded the other typically recoverable costs but not the expert witness fees because the case did not result in a judgment or award that was more favorable than the 998 offer.

Mon filed an appeal, urging the Court of Appeal to determine that a voluntary dismissal was the same as a judgment for purposes of the cost shifting aspects of Section 998. The Court of Appeal indicated that the plaintiff's voluntary dismissal of the matter did constitute failure to obtain a more favorable judgment or award and it was within the trial court's discretion to award expert witness fees to the defendant. As the Court said, "While a lawsuit may be concluded by a voluntary dismissal, the price of such a dismissal is the payment of costs under section 1032. In our view, Section 998 expands those costs to include the discretionary award of expert witness fees. Because of this, the Court of Appeal directed he trial court to reconsider whether the defendant was entitled to the expert witness fees under the Code of Civil Procedure section 998.

This case illustrates several strategies in litigation. When the plaintiff failed to designate an expert and was argued to be precluded from hiring one, the defendant served the 998 offer which would require plaintiff to pay their expert's costs upon prevailing. The plaintiff dismissed the action (and apparently refiled it trying to start over again) thinking they would avoid the pitfalls of their errors. This case illustrates that dismissing a case renders the party potentially liable for a wider range of expenses incurred by the other party.