Bodell Const. Co. v. Trustees of California State University

• Decision Date: 13 April 1998
• Docket Number: No. D028092,D028092
• Citation: 73 Cal.Rptr.2d 450,62 Cal.App.4th 1508
• Court: California Court of Appeals Court of Appeals
• Parties: , 124 Ed. Law Rep. 977, 98 Cal. Daily Op. Serv. 2731, 98 Daily Journal D.A.R. 3731 BODELL CONSTRUCTION COMPANY, Plaintiff and Respondent, v. TRUSTEES OF the CALIFORNIA STATE UNIVERSITY, Defendant and Appellant.

Page 450

73 Cal.Rptr.2d 450

62 Cal.App.4th 1508, 124 Ed. Law Rep. 977,

98 Cal. Daily Op. Serv. 2731,

98 Daily Journal D.A.R. 3731

BODELL CONSTRUCTION COMPANY, Plaintiff and Respondent, v. TRUSTEES OF the CALIFORNIA STATE UNIVERSITY, Defendant and Appellant.

No. D028092.

Court of Appeal, Fourth District, Division 1, California.

April 13, 1998.

The Reed Law Firm, J. Michael Reed, Anne L. Rauch, San Diego, Wehner & Perlman and Rodney M. Perlman, Los Angeles, for Defendant and Appellant.

Clyde A. Romney, Escondido, and William D. Wheelock, for Plaintiff and Respondent.

NARES, Associate Justice.

Defendant Trustees of the California State University (the State) appeals from the judgment on special jury verdict entered in favor of plaintiff Bodell Construction Company (Bodell). The State also appeals from a postjudgment order awarding to Bodell prejudgment interest under Civil Code section 3287, subdivision (a), and determining that Bodell is entitled to recover its costs of suit from the State under the "cost-shifting" penalty provisions of subdivision (c) of Code of Civil Procedure section 998 as amended in 1994, ¹ on the ground it obtained a judgment more favorable than the State's section 998 offer to compromise. ²

In a civil action, if a plaintiff rejects a defendant's section 998 offer to compromise and later prevails after trial but fails to obtain a judgment more favorable than the defendant's offer, he or she may recover pre offer costs but the mandatory penalty provisions of subdivision (c) of section 998 prohibit the plaintiff from recovering post offer costs and require that he or she pay the defendant's post offer costs. (§ 998, subd. (c); Stiles v. Estate of Ryan (1985) 173 Cal.App.3d 1057, 1064-1065, 219 Cal.Rptr. 647.) Under the discretionary penalty provisions of section 998, subdivision (c), the trial court in such a case may in its discretion require the plaintiff to pay not only the defendant's ordinary court costs from the date of filing of the complaint, but also the defendant's expert witness costs.

To provide some guidance on what constitutes a "more favorable judgment" in a nontort action, such as the case before us here, the Legislature amended subdivision (c) of section 998 in 1994 by adding language stating "... a plaintiff in a cause of action not based on tort shall not be deemed to have obtained a more favorable judgment unless the judgment obtained by the plaintiff, exclusive of attorney's fees and costs, exceeds the offer made by the defendant pursuant to this section.... " (§ 998, subd. (c), italics added.)

Here, the State made a section 998 offer to compromise in the amount of $525,000 to settle Bodell's breach of construction contract action. This offer, which Bodell did not accept, exceeded by about $128,000 the amount of damages (exclusive of prejudgment interest) the jury later awarded to Bodell. In a posttrial order, the court awarded to Bodell preoffer and postoffer prejudgment interest in the amount of about $147,000 under subdivision (a) of Civil Code section 3287, which the court added to the jury award of about $397,000. The resulting damage award in favor of Bodell in the sum of about $544,000 exceeded the State's offer to compromise by about $19,000. In the same posttrial order, the court determined that Bodell had obtained a judgment which was "more favorable" than the State's $525,000 offer within the meaning of subdivision (c) of section 998, and ordered that Bodell was entitled to recover its costs of suit (about $41,000) from the State.

The State appeals, contending the court erred in adding prejudgment interest to the jury's damage award in determining under section 998, subdivision (c), whether the judgment Bodell obtained was "more favorable" than the State's statutory settlement offer. This contention is two-fold. First, the State maintains that no prejudgment interest should be added to the jury's damage award in favor of Bodell in determining whether the judgment is "more favorable" than the State's section 998 offer. In the alternative, the State contends that if prejudgment interest is added to the jury award in making this determination, post offer prejudgment interest should be excluded from the analysis.

Although we disagree with the State's first contention that no amount of prejudgment interest should be included in the "more favorable judgment" analysis, we agree with the State's alternative contention. In order to promote its legislative purpose of encouraging settlement of civil litigation prior to trial, we construe subdivision (c) of section 998 to require that in a nontort action in which the plaintiff has not accepted a defendant's section 998 offer to compromise, post offer prejudgment interest awarded to the plaintiff under Civil Code section 3287 be excluded in determining whether the plaintiff has obtained a judgment "more favorable" than the defendant's offer. We also conclude that any pre offer prejudgment interest the plaintiff is entitled to recover under Civil Code section 3287 in a nontort action is to be included in determining whether the plaintiff has obtained a "more favorable judgment" within the meaning of subdivision (c) of section 998.

We further conclude the court erred by including post offer prejudgment interest in determining that Bodell had obtained a "more favorable judgment." Because we determine on independent review that Bodell failed to obtain a judgment "more favorable" than the State's reasonable offer to compromise, we reverse the portions of the judgment and order awarding costs to Bodell, and otherwise affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Bodell is a general contractor that entered into an agreement with the State for the construction of a campus building known as Craven Hall at the San Marcos campus of the California State University. As modified by a change order, the contract required Bodell to complete construction by September 28, 1992. Bodell did not complete construction by that date, but did substantially complete the project on December 14, 1992, at which time the State took beneficial use and occupancy.

The contract provided for the assessment of liquidated damages against Bodell in the amount of $4,000 for each day completion was delayed beyond the agreed completion date. Under this provision the State withheld liquidated damages in the sum of $304,100 from Bodell's progress payments for the delay in completion from September 28, 1992 through December 14, 1992.

Following completion of the project, Bodell filed a claim with the State seeking return of the liquidated damages, and compensation for additional work performed and certain alleged damages related to the delayed completion of the project. A contractor's claims review board convened by the State awarded Bodell $91,341 for additional work performed, offered a reduction in the amount of liquidated damages, and rejected virtually all of Bodell's delay damages. Under this award the State would have paid nothing to Bodell, and would have retained about $44,000 of the contract balance. Bodell rejected the award and in March 1994 filed this action for breach of construction contract against the State. ³

On May 15, 1996, the State served on Bodell a section 998 offer to compromise in the amount of $525,000. This offer included statutory costs Bodell was entitled to recover, but provided each party would bear its own attorney fees. Bodell did not accept this offer and served the State with its own statutory settlement offer in the amount of $900,000.

The case proceeded to trial. On November 18, 1996, the jury returned its verdict in favor of Bodell in the amount of $396,624. ⁴

On November 21, 1996, judgment was entered in favor of Bodell in the amount of the jury verdict. By stipulation of the parties the determination of the amount of prejudgment interest Bodell was entitled to recover was reserved to the court.

Bodell's postjudgment motion for prejudgment interest and a determination it had obtained a judgment "more favorable" than the State's section 998 offer

Bodell moved for an award of prejudgment interest under Civil Code section 3287, subdivision (a). Bodell urged the court to calculate prejudgment interest on the liquidated damages portion of the jury verdict ($304,100) at the rate of 10 percent per annum from the dates Bodell submitted its 3 progress payment requests to the State ⁵ up to the date of entry of judgment. Bodell also requested prejudgment interest on the jury's award of $91,341 for additional work performed at the rate of 10 percent per annum from the date of the February 1994 claims review board award letter to the date of entry of judgment.

In conjunction with its motion for prejudgment interest, Bodell also moved for an order determining that for purposes of subdivision (c) of section 998 it had obtained a judgment that was "more favorable" than the State's offer to compromise, and thus as the prevailing party it was entitled to recover its costs of suit. Bodell argued that its request for $147,180 in prejudgment interest, if granted, would result in a total judgment in its favor in the amount of $543,804, which for purposes of section 998, subdivision (c), would be deemed "more favorable" than the State's $525,000 statutory offer.

In its written opposition to Bodell's motion, the State argued (among other things) that in order to effectuate the policy behind section 998 of encouraging settlement of litigation, "the calculation of damages in the nature of prejudgment interest must stop at the point of the settlement offer to determine under [ ] section 998 whether a judgment is more favorable than an offer of compromise." The State also maintained that an award of prejudgment interest on the jury's verdict up to the date of the State's section 998 offer (May 15, 1996) would increase the total judgment to only $519,870, which was less favorable to Bodell than the State's $525,000...