Kelly A. Knight is an attorney and mediator based in Los Angeles, CAlifornia. He handles matters throughout California.

Second District Court of Appeal holds that 998 cost-shifting does not occur in FEHA actions unless the plaintiff’s case was frivolous, following Fourth District Court of Appeal.

As most practitioners are now aware, the relevant fee-bearing statute in Fair Employment and Housing Act actions is applied asymmetrically: prevailing plaintiffs may receive costs and attorney’s fees, but prevailing defendants cannot receive costs or attorney’s fees unless the court finds that the case was frivolous. See Williams v. Chino Valley Independent Fire Dist., 61 Cal. 4th 97, 115 (2015).

What, then, is the effect of a statutory to offer to compromise under section 998 of the Code of Civil Procedure in FEHA actions where the plaintiff does not accept a 998 offer and fails to achieve a result in a case that is nonfrivolous?

In Arave v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 19 Cal. App. 5th 525 (Jan. 2, 2018) (Google Scholar link here), the Fourth District Court of Appeal in held that section 998 must give way to FEHA—a defendant may not recover costs or expert-witness fees even if it obtains a better result at trial than its prior 998 offer unless the plaintiff’s claim was frivolous. (The Fourth District covers the superior courts in the counties of San Diego, Orange, San Bernardino, and Riverside.)

Would other districts follow? For example, for Los Angeles practitioners, what would the Second District do? (The Second District covers the superior courts in the counties of Los Angeles, Ventura, Santa Barbara, and San Luis Obispo.) Or would we have a split of authority like we did on meal/rest duties leading up to Brinker?

We now have the Second District Court of Appeal’s answer in Huerta v. Kava Holdings, Inc., 2018 WL 5961895 (Cal. Ct. App. 2nd Dist. (Nov. 14, 2018)) (slip opinion here; Google Scholar link here). Short answer: 998 does not allow for cost-shifting unless the plaintiff’s case was frivolous.

In Huerta, the plaintiff filed a civil action alleging wrongful termination under the FEHA, among other things. The plaintiff was a restaurant worker who was fired after a confrontation with a coworker. After both workers were fired, multiple coworkers reported that the plaintiff’s coworker had been harassing the other Hispanic workers and making racist comments and that the plaintiff bore the brunt of the harassment. Huerta, slip op. at 7.

Shortly before trial, the defendant employer served a 998 offer of $375,000 all-inclusive (i.e., the plaintiff to bear his own attorney’s fees and costs). The plaintiff did not accept and countered with a 998 offer of $1.55 million. Id. at 8.

Although the complaint included non-FEHA claims, some were disposed of on summary adjudication while others were voluntarily dismissed at the close of evidence, leaving FEHA claims for retaliation, harassment, discrimination, and failure to prevent harassment or discrimination. Id. at 10. The jury returned a verdict for the defendant. Id.

After trial, the defendant sought costs, expert-witness fees, and prevailing-party attorney’s fees under Government Code 12965(b) (the FEHA’s attorney’s fee provision) and section 998 of the Code of Civil Procedure since it obtained a more favorable judgment than its prior 998 offer. Id. The plaintiff moved to tax costs on the grounds that the FEHA precluded an award of any costs at all unless the action is frivolous. See id. at 11.

Critically, the trial court found that the action was not frivolous. Id. The trial court ruled that the defendant was precluded from recovering ordinary costs, expert-witness fees, and attorney’s fees under the FEHA, but it did award post-offer ordinary costs and expert-witness fees under section 998, reducing the award to $50,000 due to the plaintiff’s economic circumstances. Id. The plaintiff appealed.

On appeal, the Second District Court of Appeal found the Arave court’s reasoning persuasive. The Huerta court summarized the Arave court’s reasoning as follows:

Section 12965(b) is an express exception to section 1032, subdivision (b). Section 998 “operates only as an adjustment to cost awards under Section 1032(b), [so] it follows that Section 12965(b) overrides Section 998(c) . . . . [I]f a defendant may not obtain an award of costs under Section 1032(b) [because] plaintiff's claim are nonfrivolous, the trial court may not augment an award of costs by awarding expert witness fees under Section 998(c).”

See id. at 28, citing Arave, 19 Cal. App. 5th at 553.

The Huerta court found this logic “unassailable” and reached the same result:

We find Arave’s logic unassailable. The Legislature expressly pegs section 998 to section 1032. (§ 998, subd. (a).) In non-FEHA actions, a “defendant is entitled under section 998 to those costs incurred after the settlement offer to which a prevailing party would be entitled under section 1032.” [citation] In non-FEHA actions, where the special prevailing party cost statute is not an express exception to section 1032, a defendant is also entitled under section 998 to its postoffer costs. [citation] But in nonfrivolous FEHA cases, the prevailing party cost provisions are express exceptions to section 1032. (Williams supra, 61 Cal.4th at p. 105.) It follows, then, that section 998 does not apply in nonfrivolous FEHA actions. (Arave, supra, 19 Cal.App.5th at p. 553.)

Analyzed thusly, for cases that predate the amendment to section 12965(b), we see no reason to differentiate between the treatment of ordinary costs, attorney fees, and expert witness fees in nonfrivolous FEHA actions. The language in section 12965(b) indicates all three categories are subject to the same rules.

Id. at 29.

Arave and Huerta will affect cases filed before January 1, 2019. Those cases will be working their way through the courts over the next several years, so the reach of these opinions is large.

So there you have it. Unless there’s a really unexpected change at the Cal. Supremes level, the Williams rule now seems pretty solidified in all circumstances: a defendant employer cannot obtain any costs (including ordinary costs, expert-witness fees, or attorney’s fees) in nonfrivolous FEHA actions regardless of whether the defendant beat its 998 offer.

Note that the FEHA has been amended. Effective January 1, 2019, Government Code section 12965(b) includes express language that a prevailing defendant shall not be fees and costs unless the court finds that the action is frivolous, notwithstanding section 998.

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