Smalley v. Subaru of Am., Inc.

• Decision Date: 13 December 2022
• Docket Number: G059904 (consol. w/ G060441)
• Citation: 87 Cal.App.5th 450,303 Cal.Rptr.3d 434
• Parties: Michael SMALLEY, Plaintiff and Appellant, v. SUBARU OF AMERICA, INC., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

87 Cal.App.5th 450

303 Cal.Rptr.3d 434

Michael SMALLEY, Plaintiff and Appellant,

v.SUBARU OF AMERICA, INC., Defendant and Respondent.

G059904 (consol. w/ G060441)

Court of Appeal, Fourth District, Division 3, California.

Filed December 13, 2022

As Modified January 11, 2023

Certified for Partial Publication.^*

Rosner, Barry & Babbitt, Hallen D. Rosner, Arlyn L. Escalante, San Diego; Strategic Legal Practices, Payam Shahian, Los Angeles; California Consumer Attorneys and Michael H. Rosenstein for Plaintiff and Appellant.

Dykema Gossett, James S. Azadian, Derek S. Whitefield, Cory L. Webster, Los Angeles, and Nina Moreno for Defendant and Respondent.

OPINION

MOTOIKE, J.

Michael Smalley sued Subaru of America, Inc. (Subaru) under California's lemon law. Pursuant to Code of Civil Procedure section 998 ( section 998 ), Subaru made a settlement offer to Smalley (the section 998 offer). Smalley did not accept the section 998 offer and the matter went to trial. At trial, Smalley prevailed, but recovered less than the section 998 offer. In accordance with the fee shifting rules of section 998, the trial court awarded Smalley his preoffer costs, but awarded Subaru its postoffer costs. Smalley appealed.

We conclude the section 998 offer was valid, reasonable, and made in good faith. Therefore, we affirm the trial court's costs awards.

Because of the pendency of the appeal on the costs awards, the trial court deferred a ruling on Smalley's motion for attorney fees. Smalley also appealed from the order delaying ruling on the attorney fees motion. We conclude that order is not appealable, and no grounds exist to construe it as an extraordinary writ. That appeal shall be dismissed.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

In 2013, Smalley bought a 2014 Subaru Forester. While under warranty, the vehicle suffered defects Subaru could not fix. Smalley's request to Subaru to repurchase the vehicle was denied.

In July 2016, Smalley filed a complaint against Subaru alleging violations of the Song-Beverly Consumer Warranty Act ( Civ. Code, § 1790 et seq. ) (Song-Beverly Act) and the Magnuson-Moss Warranty Act ( 15 U.S.C. § 2301 et seq. ). In May 2017, Subaru served a section 998 offer on Smalley, through his attorneys. The section 998 offer reads in full as follows:

"To Plaintiff and Plaintiff's attorneys of record:

"Pursuant to California Code of Civil Procedure section 998, in full settlement of the claims made by plaintiff Michael Smalley (‘Plaintiff’) against defendant Subaru of America, Inc. (‘SOA’), SOA offers to pay Plaintiff the sum of Thirty Five Thousand and One Dollars ($35,001.00) plus either one of the following at Plaintiff's election: (1) Ten Thousand Dollars ($10,000.00) for Plaintiff's costs, including attorney's fees, or (2) Plaintiff's costs, including reasonably incurred attorney's fees, to be determined by the Court. In exchange, Plaintiff shall do each of the following: (1) file a Request for Dismissal of Plaintiff's action against SOA with prejudice; and (2) return the subject 2014 Subaru Forester to SOA, by delivering possession and transferring free and clear title to SOA after receiving payment from SOA of the sum of Thirty Five Thousand and One Dollars ($35,001.00) described above.

"If Plaintiff accepts this offer, the attorney of record for Plaintiff shall,

"1. Sign here: _________;

"2. Elect one of the following by checking a box:

" Ten Thousand Dollars ($10,000.00) for Plaintiff's costs, including attorney's fees, or

" Plaintiff's costs, including reasonably incurred attorney's fees, to date to be determined by the Court; and

"3. Return the executed offer to attorneys of record for SOA.

"If this offer is not accepted within the time prescribed by section 998 of the California Code of Civil Procedure, it shall be deemed withdrawn and cannot be brought in as evidence by Plaintiff at trial." (Some capitalization omitted.)

Smalley objected to the section 998 offer in writing as "not reasonable."

The case continued to trial, and a jury awarded Smalley damages of $20,555.74 and a civil penalty of $7,000, for a total recovery of $27,555.74. Judgment was entered in July 2020.

Smalley and Subaru each filed a memorandum of costs, and each filed a motion to strike or tax the other's costs. The trial court found the section 998 offer was valid and exceeded the amount awarded to Smalley by the jury. The court awarded Smalley $1,351.17 in preoffer costs, and awarded Subaru $16,684.92 in postoffer costs. Smalley filed a notice of appeal from that postjudgment order (appeal No. G059904).

Smalley also filed a motion for attorney fees. The trial court stayed ruling on the attorney fees motion because that motion would depend on the validity of the section 998 offer, which was the same issue already on appeal. Smalley filed a notice of appeal from the trial court's postjudgment order staying the motion for attorney fees (appeal No. G060441). This court granted Smalley's unopposed motion to consolidate the two appeals.

DISCUSSION

Our review of the section 998 offer is subject to two different standards of review: Whether the section 998 offer was valid is a question of statutory interpretation we review de novo, and whether the offer was reasonable and made in good faith is reviewed for abuse of discretion. ( Covert v. FCA USA, LLC (2022) 73 Cal.App.5th 821, 832, 834, 288 Cal.Rptr.3d 723 ( Covert ).)

I THE SECTION 998 OFFER WAS VALID

As the offering party, Subaru had the burden of demonstrating the settlement offer was valid under section 998. ( Covert, supra , 73 Cal.App.5th at p. 832, 288 Cal.Rptr.3d 723.) The validity of a section 998 offer is determined as of the date it is served. ( Covert, supra , at p. 833, 288 Cal.Rptr.3d 723.)

The section 998 offer met the basic requirements of section 998, subdivision (b) : It was in writing, contained the terms and conditions of the settlement, and included a provision allowing Smalley to indicate his acceptance of the offer.

"To be valid, an offer under section 998 may include nonmonetary terms and conditions, but it must be unconditional. [Citation.] ‘[F]rom the perspective of the offeree, the offer must be sufficiently specific to permit the recipient meaningfully to evaluate it and make a reasoned decision whether to accept it, or reject it and bear the risk he may have to shoulder his opponent's litigation costs and expenses. [Citation.] Thus, the offeree must be able to clearly evaluate the worth of the extended offer.’ [Citation.]" ( MacQuiddy v. Mercedes-Benz USA, LLC (2015) 233 Cal.App.4th 1036, 1050, 182 Cal.Rptr.3d 691 ( MacQuiddy ).) The section 998 offer was for $35,001, plus fees and costs of either $10,000 or the reasonable amount of fees and costs incurred to that date, to be determined by the court, in exchange for dismissal of the action with prejudice and transfer of title to and possession of the vehicle. Smalley could clearly evaluate the offer's worth.

Smalley argues the section 998 offer was invalid because it did not specify whether he would be deemed the prevailing party for purposes of a motion for attorney fees. Section 998 does not require an offer to include language regarding the prevailing party, and the court "may not impose any additional requirements or limitations that do not appear on the face of the statute. [Citation.]" ( Rouland v. Pacific Specialty Ins. Co. (2013) 220 Cal.App.4th 280, 288, 162 Cal.Rptr.3d 887.) Given that the section 998 offer provided that Smalley would receive his costs and attorney fees, either in the set amount of $10,000 or in an amount to be determined by the court, his argument the section 998 offer was invalid because it did not include a statement that he was the prevailing party is not convincing.

Smalley relies on In re Volkswagen "Clean Diesel" Mktg., Sales Practices, & Prods. Liab. Litig. (N.D.Cal. Sept. 8, 2020), 2020 WL 5371404, 2020 U.S. Dist. Lexis 163603 ( Volkswagen ), which we find to be inapplicable here. In Volkswagen , the plaintiffs opted out of settlements with Volkswagen over claims Volkswagen's " ‘clean diesel’ " engines had been rigged to evade emissions test procedures. (Id. at p. *1, 2020 U.S. Dist. Lexis 163603, at pp. *189-*191.) Claims under the Song-Beverly Act and the Consumer Legal Remedies Act ( Civ. Code, § 1750 et seq. ) (CLRA) were decided at a trial against other "Bellwether plaintiffs" and in favor of Volkswagen. (Id. at pp. *1-*2, 2020 U.S. Dist. Lexis 163603, at p. *192.) Volkswagen then made new settlement offers to each of the plaintiffs under Federal Rules of Civil Procedure, rule 68, of " ‘an amount for Plaintiff's costs (including reasonable attorneys' fees, if any) incurred in connection with this action through the date on which this offer is made, in an amount to be determined by the Court.’ [Citation.]" (Volkswagen, supra , at p. *2, 2020 U.S. Dist. Lexis 163603, at p. *193.) The plaintiffs accepted the rule 68 offers, and thereafter requested almost $1.5 million in attorney fees and over $120,000 in costs. (Volkswagen, supra , at p. *2, 2020 U.S. Dist. Lexis 163603, at pp. *192-*193.)

Volkswagen took the position the plaintiffs were not entitled to recover any attorney fees, arguing that because the fee-shifting claims under the Song-Beverly Act and the CLRA had been determined in the trial of the Bellwether plaintiffs' cases to be not viable, the amount of reasonable attorney fees for the settling plaintiffs was zero. (Volkswagen, supra , at pp. *2-*3, 2020 U.S. Dist. Lexis 163603, at p. *194.) The federal district court rejected this argument and awarded attorney fees to the plaintiffs. (Volkswagen, supra , at pp. *2-*5, 2020 U.S. Dist. Lexis 163603, at pp. *194-*200.) Importantly, Volkswagen's argument the plaintiffs were not entitled to attorney fees was not based on the lack of a "prevailing party" term in the rule 68 offers but rather on the merits of the decisions on the same claims in the Bellwether plaintiffs' trial. Smalley's fear Subaru would make the same losing argument as...