Covert v. FCA U.S., LLC
| Decision Date | 04 January 2022 |
| Docket Number | B303663 |
| Court | California Court of Appeals Court of Appeals |
| Parties | ERIC ALVIN COVERT, Plaintiff and Respondent, v. FCA USA, LLC, Defendant and Appellant. ERIC ALVIN COVERT, Plaintiff and Respondent, v. FCA USA, LLC, Defendant and Appellant. |
Modified and certified for publication 1/11/22
APPEAL from orders of the Superior Court of Los Angeles County, No BC629240Michelle Williams Court, Judge. Reversed and remanded with directions.
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 (Civ. Code, § 1790 et seq.; the Song-Beverly Act) and awarded Covert $48, 416 in damages and penalties. About two months after Covert filed the lawsuit, FCA served Covert with a settlement offer pursuant to Code of Civil Procedure[1] section 998 for $51, 000, plus reasonable attorneys' fees and costs, in exchange for dismissal of the action with prejudice. Covert filed objections to the section 998 offer. Fifteen months later FCA served Covert with a second section 998 offer for $145, 000 with otherwise identical terms. FCA appeals from postjudgment orders denying its motion to tax costs incurred by Covert, including expert witness fees; granting Covert's motion to tax costs incurred by FCA; and granting Covert's motion for attorneys' fees pursuant to Civil Code section 1794, subdivision (d).
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 incurred prior to the date the second offer was served and award FCA its costs, including expert witness fees, reasonably incurred thereafter.
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]
On October 5, 2016-63 days after Covert filed the complaint-FCA served an offer to compromise pursuant to section 998 (first section 998 offer). The offer stated in substantial part: The offer provided that it was made pursuant to Goodstein v. Bank of San Pedro (1994) 27 Cal.App.4th 899 (Goodstein) [4] The offer described the mechanism for acceptance of the offer, but it did not provide any details about the mechanics of payment, return of the vehicle, or dismissal of the action.
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 section 998 offer. The offer was identical in all material respects to the first section 998 offer, except the settlement payment was raised to $145, 000. Covert did not serve objections to the second offer and did not accept it before it lapsed.
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.
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 section 998, subdivision (c)(1), precluded Covert's recovery of costs, including expert witness fees, incurred after the first section 998 offer because FCA's offer of $51, 000 exceeded Covert's total award of $48, 416.[6] FCA likewise opposed Covert's motion for attorneys' fees, arguing Covert's recovery was less than either of FCA's section 998 offers, and therefore the subsequent attorneys' fees were not reasonably incurred.
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 his objections to the first offer, and the first section 998 offer was premature and not ascertainable.[7] In his reply brief in support of his motion for attorneys' fees, Covert highlighted that the failure of the offers to specify when FCA would pay and when Covert would...
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