ERIC ALVIN COVERT, Plaintiff and Respondent, v. FCA USA, LLC, Defendant and Appellant.
B303663
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN
Filed 1/4/22
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS. (Los Angeles County Super. Ct. No. BC629240)
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Horvitz & Levy, Lisa Perrochet, John A. Taylor, Jr.; Hawkins Parnell & Young, Barry R. Schirm and Ryan K. Marden for Defendant and Appellant.
Knight Law Group, Steve Mikhov, Roger Kirnos, Amy Morse; Century Law Group, Edward O. Lear, Rizza Gonzales; Greines, Martin, Stein & Richland and Cynthia E. Tobisman for Plaintiff and Respondent.
A jury held automaker FCA US, LLC (FCA) liable to Eric Alvin Covert for breach of warranty under the Song-Beverly Consumer Warranty Act (
On appeal, FCA contends both of its section 998 offers were valid, and because the jury awarded Covert less than the amount of either offer, the trial court erred in awarding Covert attorneys’ fees and costs and denying FCA its costs. Covert responds that both offers were invalid for the reasons set forth in his objections, and the first offer was not in good faith because it was premature. We agree with FCA that both offers were valid. However, the trial court abused its discretion in failing to consider whether the first offer was made in good faith. As to the second offer, Covert did not meet his burden to show it was not made in good faith.
Accordingly, we reverse the trial court‘s orders and remand for the court to consider whether FCA‘s first offer was made in good faith. If the trial court finds the first offer was made in good faith, the court shall award FCA its costs reasonably incurred after the first offer was served and deny Covert his attorneys’ fees and costs. If the court finds the first offer was not made in good faith, it shall award Covert his attorneys’ fees and costs reasonably
BACKGROUND AND PROCEDURAL HISTORY
A. The Complaint
On August 3, 2016 Covert filed this action against FCA and H.W. Hunter, Inc.,2 asserting causes of action for breach of express warranty and breach of implied warranty in violation of the Song-Beverly Act, and a cause of action for fraudulent concealment. As alleged in the complaint, Covert purchased a 2011 Dodge Ram 2500 pickup truck (the vehicle) from FCA through a Hunter dealership in Lancaster. The vehicle suffered from numerous defects, and between April 2011 and October 2015, Covert brought the vehicle to a licensed repair facility on 15 occasions for warranty repairs. Covert‘s complaints included problems with the vehicle‘s oxygen sensor, loss of power, engine noise, difficulty starting the engine, and multiple recalls, and on
at least six occasions the check engine light was illuminated. The complaint further alleged FCA knew and failed to disclose to Covert that the vehicle‘s integrated power module suffered from defects that had led to irregular transmission activity and frequent illuminations of the check engine light in dozens of FCA vehicle models, and these defects were the subject of multiple regulatory investigations, recalls, technical service bulletins, consumer complaints, and a federal class action lawsuit filed in 2013.
On his causes of action under the Song-Beverly Act, Covert sought rescission of the vehicle contract and reimbursement of his purchase money, consequential damages, prejudgment interest, attorneys’ fees and costs, and a civil penalty of up to two times his actual damages due to FCA‘s willful misconduct. Covert also sought punitive damages and prejudgment interest.3
B. FCA‘s Section 998 Offers
On October 5, 2016—63 days after Covert filed the complaint—FCA served an offer to compromise pursuant to
substantial part: “Pursuant to [section] 998, defendants [FCA] and [Hunter], jointly, without admitting liability, offers [sic] to pay in exchange for dismissal of this action with prejudice in its entirety and return of the vehicle that is the subject of this lawsuit, the sum of $51,000.00. In addition, [FCA and Hunter], jointly offer to pay reasonable costs, expenses and attorneys’ fees based on actual time expended pursuant to . . .
On November 7, 2016 Covert served objections to the first section 998 offer, contending the offer was vague, ambiguous, and
uncertain because it failed to: (1) specify whether it included post-acceptance attorneys’ fees and costs; (2) address entitlement to prejudgment or postjudgment interest; (3) specify whether Covert was required to sign a separate release agreement; (4) contain a “good faith and reasonable offer component“; (5) specify the date on which Covert would receive payment; and (6) specify the date by which Covert would be required to surrender the vehicle. Covert also objected that the offer was unreasonable given the early stage of the litigation: “[Covert] is unable to fully analyze the value of [Covert‘s] claims against Defendants, such as the willfulness and maliciousness of Defendants’ actions, as the complaint was filed less than three (3) months ago, and adequate discovery has not taken place.”
On January 5, 2018, three weeks before the date then set for trial, FCA served a second
After an eight-day jury trial, starting on May 6, 2019, the jury returned a special verdict finding FCA liable for breach of express written warranty and not liable for breach of implied warranty and fraudulent concealment. The jury awarded Covert $42,416 in damages based on its finding that Covert paid $49,726 for the vehicle and incurred $5,500 in incidental and consequential damages, less $12,810 for the value of Covert‘s use of the vehicle based on the 27,836 miles driven. The jury also imposed a penalty of $6,000, for a total award of $48,416. On
June 12, 2019 the trial court entered judgment on the jury‘s verdict, leaving open the determination of prejudgment and postjudgment interest, attorneys’ fees, and costs, which would be included in an amended judgment.
D. Postjudgment Motions for Attorneys’ Fees and Costs
Following entry of judgment, Covert filed a memorandum of costs seeking $55,015 in costs, including $27,630 in expert witness fees, and a motion for $294,433 in attorneys’ fees (using a lodestar of $196,289 with a 50 percent enhancement). Covert also filed a motion for prejudgment interest of at least $14,206.5 FCA filed its own memorandum of costs, seeking $69,178 in costs, including $66,951 in expert witness fees.
FCA filed a motion to tax Covert‘s costs, arguing
of FCA‘s
FCA argued that both its offers were valid and Covert‘s attorneys had executed almost identical section 998 offers made by FCA in prior lawsuits, which showed that Covert‘s attorneys were capable of evaluating these offers but instead “determined to risk it all at trial, rather than earnestly contemplate the true value of their clients’ case.”
Covert opposed FCA‘s motion to tax costs and moved to tax FCA‘s costs on the basis both section 998 offers were invalid on the grounds set forth in
After a hearing, on November 26, 2019 the trial court issued a three-page order ruling on the parties’ respective motions to tax costs and Covert‘s motions for attorneys’ fees and prejudgment interest. The court denied FCA‘s motion to tax costs, finding Covert was the prevailing plaintiff on his Song-Beverly Act claim, and thus, entitled under
section 998 offers absent a term specifying the time for payment. We deny Covert‘s request because the documents were not before the trial court and are not relevant on appeal. (See Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3 [“Reviewing courts generally do not take judicial notice of evidence not presented to the trial court.“]; Coyne v. City and County of San Francisco (2017) 9 Cal.App.5th 1215, 1223, fn. 3 [denying judicial notice as to documents that were not relevant to court‘s analysis].)
FCA timely appealed from the November 26, 2019 orders.9
A. Recovery of Costs Under Section 998
“‘“`[C]osts’ of a civil action consist of the expenses of litigation . . . . The right to recover any such costs is determined entirely by statute.“’ (Olson v. Automobile Club of Southern California (2008) 42 Cal.4th 1142, 1148; accord, Khosravan v. Chevron Corp. (2021) 66 Cal.App.5th 288, 294 (Khosravan).)
acceptance of the offer by signing a statement that the offer is accepted.”
On a motion to strike or tax costs, “[t]he burden is on the offering party to demonstrate that the offer is valid under
“‘An offer to compromise under . . .
offer.“’ (Menges, supra, 59 Cal.App.5th at p. 26; accord, Khosravan, supra, 66 Cal.App.5th at p. 295.) “The inclusion of nonmonetary terms and conditions does not render a section 998 offer invalid; but those terms or conditions must be sufficiently certain and capable of valuation to allow the court to determine whether the judgment is more favorable than the offer.” (Menges, at p. 26; accord, Khosravan, at p. 295; Valentino v. Elliott Sav-On Gas, Inc. (1988) 201 Cal.App.3d 692, 697 (Valentino) [“[A]n ‘offer’ includes all its terms and conditions and must be evaluated in the light of all those terms and conditions.“].)
“‘To further the purposes of promoting reasonable settlement under
Once the offeror shows the
However, an offer is only made in good faith if the offer “‘“`carr[ies] with it some reasonable prospect of acceptance.“‘‘” (Licudine, supra, 30 Cal.App.5th at p. 924; accord, Adams, supra, 199 Cal.App.4th at p. 1483.) “Whether a section 998 offer has a reasonable prospect of acceptance is a function of two considerations, both to be evaluated in light of the circumstances ‘“at the time of the offer“’ and ‘“not by virtue of hindsight.“’ [Citations.] First, was the 998 offer within the ‘range of reasonably possible results’ at trial, considering all of the information the offeror knew or reasonably should have known? [Citation.] Second, did the offeror know that the offeree had sufficient information, based on what the offeree knew or reasonably should have known, to assess whether the ‘offer [was] a reasonable one,’ such that the offeree had a ‘fair opportunity to
intelligently evaluate the offer‘?” (Licudine, at pp. 924-925; accord, Adams, at p. 1485.)
“Although the party making a 998 offer generally has the burden of showing that [the] offer is valid [citations], it is the 998 offeree who bears the burden of showing that an otherwise valid 998 offer was not made in good faith.” (Licudine, supra, 30 Cal.App.5th at p. 926; accord, Elrod, supra, 195 Cal.App.3d at p. 700.) “Whether a section 998 offer was reasonable and made in good faith is a matter left to the sound discretion of the trial court, and will not be reversed on appeal except for a clear abuse of discretion.” (Najera v. Huerta (2011) 191 Cal.App.4th 872, 877; accord, Licudine, at p. 923.)
B. The Interplay Between Code of Civil Procedure Section 998 and Civil Code Section 1794
FCA contends the cost-shifting provisions of
the trial court erred in declining to apply
In Murillo, the defendant sellers of mobile homes prevailed at trial on the plaintiff buyer‘s Song-Beverly Act claims. (Murillo, at pp. 988-989.) The trial court denied the buyer‘s motion to strike or tax costs and awarded the sellers their prevailing party costs under
In response to the buyer‘s contention the three cost recovery provisions were inconsistent, the Murillo court reasoned
the sections could be reconciled: “On the one hand, if a buyer should prevail in an action under the [Song-Beverly] Act, he or she is entitled to costs, expenses, and attorney fees as set forth in
to recover more at trial than a rejected pretrial settlement offer. The [A]ct allows prevailing injured car buyers to recover attorney fees and costs in order to render such lawsuits ‘economically feasible’ [citing Murillo, supra, 17 Cal.4th at p. 994]; but declining to award such a buyer postoffer attorney fees and costs if he has refused a reasonable pretrial settlement offer does not defeat that purpose. An injured plaintiff may be encouraged to sue by the prospect of recovering his costs if successful, but no articulated public policy is served by allowing him to maintain a lawsuit that loses its economic viability by virtue of the seller‘s willingness to settle on terms better than those a jury will award.” (Duale, at p. 728.)
In his respondent‘s brief, Covert contends we should reject Duale‘s “unsound expansion of Murillo” because the Supreme Court‘s holding in Murillo was based on the court‘s reconciliation of the cost-recovery statutes in the context of a prevailing seller, but where the buyer prevails, there is a conflict between
However, Covert‘s argument still fails because, as the Court of Appeal explained in Duale, supra, 148 Cal.App.4th at
page 728, the Supreme Court‘s holding in Murillo was also premised on the Legislature‘s expressed intent in
Regardless of which party prevails at trial, there is no conflict between the Song-Beverly Act‘s incentives that are designed to make it economically feasible for a buyer to seek redress through litigation, notwithstanding that his or her damages will generally be limited to include only the vehicle‘s value, civil penalties up to double the amount of damages, and incidental damages (thus providing for only limited attorneys’ fees under a contingency fee agreement), and
legal expenses of trial. Accordingly, we conclude that a valid and reasonable section 998 offer by the seller, where the buyer recovers less than the offer, precludes recovery by the buyer of postoffer attorneys’ fees and costs under
C. FCA‘s Section 998 Offers Were Valid
FCA contends the trial court erred in sustaining Covert‘s objections to the first section 998 offer and in impliedly invalidating the second offer with identical nonmonetary terms on the same grounds.11 Covert responds that the nonmonetary terms made the offers uncertain, and FCA, as the party seeking to enforce the offers, failed to meet its burden to demonstrate their validity. We review the validity of the offers de novo and conclude they were
evaluate the worth of the offer and make a reasoned decision whether to accept the offer.“’ (Menges, supra, 59 Cal.App.5th at p. 26.)
1. Failure to address post-acceptance attorneys’ fees
The section 998 offers provided, “[D]efendants offer to pay reasonable costs, expenses and attorneys’ fees based on actual time extended pursuant to
Covert‘s objection lacks merit. The payment provision of the section 998 offers expressly incorporated
“prosecution of [the] action.” Covert’s entitlement to fees would end only when prosecution of the action ends upon dismissal.
2. Failure to address prejudgment and postjudgment interest
Covert objected that FCA’s
Covert’s objection that the
3. Failure to specify whether FCA would require a separate release
Covert objected that the
Here, the offers did not include a release requirement at all. Covert’s contention the absence of a release requirement could somehow bind him to a broad release is even further afield from the positions rejected by the courts in Goodstein and Linthicum and is not supported by any reasonable construction of the offers.
4. Failure to contain an express good faith provision
Covert objected that the offers “fail[ed] to contain an express good faith and reasonable offer component,” and therefore was invalid. In its order sustaining the objection, the trial court characterized the defect as the
5. Lack of specific payment date
Covert objected that the lack of a specific date by which FCA was required to make the settlement payment rendered the
Moreover, as FCA argues, the Courts of Appeal have repeatedly upheld the validity of
Covert cites no authority for his contention that an offer to pay money in exchange for a dismissal without a payment date renders the offer invalid. Further, under FCA’s
FCA offered a monetary payment “in exchange for dismissal of this action with prejudice in its entirety and return of the vehicle.” Covert objected the offers “lack[ed] specificity regarding the date [Covert] will be required to surrender the Subject Vehicle, thus making the offer uncertain.” Covert agues in his respondent’s brief that the absence of a term linking FCA’s payment to Covert’s surrender of the vehicle creates a potential for abuse because FCA could require Covert to return the vehicle before making the settlement payment, leaving Covert with no vehicle and no compensation. As he argues, even if the trial court were to construe the
Covert’s objection has superficial appeal because FCA could refuse to make a settlement payment until the vehicle is surrendered. But this does not invalidate the offer for lack of certainty. For a
MacQuiddy v. Mercedes-Benz USA, LLC, supra, 233 Cal.App.4th at page 1050, relied on by Covert, is not to the contrary. There, the Court of Appeal concluded a
D. The Trial Court Abused Its Discretion in Failing To Consider Whether the First Section 998 Offer Was Premature
Because the
focused on the arguments relating to validity without addressing whether the offer was premature, and therefore not in good faith.
FCA urges us to reverse the trial court’s order because “given that the trial court sustained all of Covert’s objections across the board, with no finding on the reasonableness of FCA’s first
Covert’s argument that the first
for fraud. FCA contends Covert’s detailed, 32-page complaint shows he had extensive information prior to filing the lawsuit about the defects in FCA’s integrated power module, and he was aware that FCA knew these defects had caused other owners of his vehicle model to have problems similar to those he experienced.14 However, significant factual issues remain as to
(Ibrahim v. Ford Motor Co. (1989) 214 Cal.App.3d 878, 894.) Conversely, “a violation is not willful if the defendant’s failure to replace or refund was the result of a good faith and reasonable belief the facts imposing the statutory obligation were not present. This might be the case, for example, if the manufacturer reasonably believed the product did conform to the warranty, or a reasonable number of repair attempts had not been made, or the buyer desired further repair rather than replacement or refund.” (Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th 174, 185; see Robertson v. Fleetwood Travel Trailers of California, Inc. (2006) 144 Cal.App.4th 785, 815 [trial court erred in excluding from trial evidence of seller’s belief it could repair a damaged trailer, “including the nature and details of those prospective repairs” and whether “it had not yet been given a reasonable number of repair attempts.”].)
what FCA knew or should have known about Covert’s specific vehicle based on his repair attempts at an FCA-authorized facility. For example, was a defect in the integrated power module in Covert’s car the cause of his vehicle failures, and if so, was FCA aware of this fact? And did Covert know whether FCA
discretion in finding
DISPOSITION
We reverse the trial court’s November 26, 2019 orders granting Covert’s motion to tax costs, granting in part Covert’s motion for attorneys’ fees, and denying FCA’s motion to tax costs. We remand for the court to consider whether FCA’s first
FEUER, J.
We concur:
PERLUSS, P. J.
IBARRA, J.*
show the second offer was not made in good faith. In light of our holding that the second offer was valid, the trial court did not err in finding the second
* Judge of the Santa Clara County Superior Court, assigned by the Chief Justice pursuant to