Corporation’s Section 998 Settlement Offer Was Valid And Shifted Fees and Costs To Consumer

CATEGORY: Client Update for Public Agencies
CLIENT TYPE: Public Employers
DATE: Feb 07, 2023

In 2013, Smalley bought a 2014 Subaru.  While the car was still under warranty, non-repairable defects surfaced.  Subaru subsequently denied Smalley’s request that Subaru repurchase the vehicle, and Smalley sued Subaru.

Subaru served Smalley a Code of Civil Procedure Section 998 settlement offer for $35,001.00 and Smalley’s choice of either $10,000 for costs and attorneys’ fees, or costs and attorneys’ fees to be determined by the Court.  In exchange, Smalley would have to request the dismissal of his lawsuit with prejudice and return the car to the dealer and clear the title to Subaru.  Smalley objected to the offer in writing as “not reasonable.”

Section 998 incentivizes the settlement of lawsuits by shifting post-offer litigation fees and costs to the party who declined a more lucrative offer than the court or jury later awards after trial.   In making the decision to reject Subaru’s Section 998 offer, Smalley took the risk that he would not obtain a better result, be deprived of post-offer attorney fees, and be made to pay the other side’s fees or costs.

After a civil trial, a jury awarded Smalley $27,555.74.  The Court, finding the Section 998 offer valid, then awarded Smalley $1,351.17 in pre-offer costs and awarded Subaru $16,684.92 in post-offer costs to account for the greater amount Subaru had offered in its 998 offer.  Smalley appealed this post-judgment order, alleging that the offer was invalid.

The Court rejected Smalley’s argument that the 998 offer was invalid because it did not specify whether he would be the prevailing party for purposes of a motion for attorneys’ fees.  The Court noted that Section 998 does not require that language.

The Court also rejected Smalley’s argument that the offer was invalid because it did not distinguish expenses from costs.  Relying on prior case law the Court noted “Where a section 998 offer is silent on costs and fees, the prevailing party is entitled to costs and, if authorized by statute or contract, fees.”  Therefore, Smalley still would have been entitled to recover expenses, and the failure to include the word “expenses” in the offer does not make it invalid.

The Court upheld the post-judgment order for costs.

Smalley v. Subaru of America, 2022 WL 18276885.

Note: Statutory settlement incentives like 998 offers are very complex, and rejecting these offers involves monetary risks.  Never reject a 998 settlement offer without first receiving sound legal advice. 

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