Maloney Firm attorneys Gregory Smith and Carl Mueller have been selected to the Super Lawyers 2020 Southern California Rising Stars list. This is an exclusive list, recognizing no more than 2.5 percent of attorneys in Southern California.  This is the fifth year Greg has appeared on the list, and the first year for Carl.  Greg earned the further distinction of being named to the Up-and-Coming 100, an elite sub-list.

Firm attorneys Patrick Maloney and Lisa Von Eschen have also consistently being recognized by Southern California Super Lawyers.

Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys.

The Super Lawyers lists are published nationwide in Super Lawyers Magazines and in leading city and regional magazines and newspapers across the country. Super Lawyers Magazines also feature editorial profiles of attorneys who embody excellence in the practice of law. For more information about Super Lawyers, visit SuperLawyers.com.

By Nicholas Grether, Esq., The Maloney Firm, APC
 

 
In the recent case of Fleming Distribution Co. v. Younan (May 15, 2020) Appellate No. A157038, Sonoma County Super. Ct. No. SCV-263702, the appellate court held that an employer waived its right to compel arbitration of a dispute over unpaid wages by delaying filing a motion to compel arbitration and participating in an administrative proceeding before the Labor Commissioner.
 
In June 2017, Alfons Younan filed a complaint with the Labor Commissioner’s Office, seeking his unpaid commissions, plus penalties and interest. In August 2017, Fleming Distribution, Co. (“Fleming”) sent a letter to the Labor Commissioner asserting that the complaint should be dismissed because Younan agreed to arbitrate his claims. If the Labor Commissioner did not dismiss the complaint, Fleming stated it would file a motion to compel arbitration in the superior court. When the Labor Commissioner did not dismiss the complaint, Fleming instead filed an answer, a motion to dismiss, and participated in the Labor Commissioner’s proceedings.
 
In December 2018, the Labor Commissioner awarded Younan $22,000 in commissions and $5,412.60 in in penalties and interest. Fleming filed a notice of appeal in the superior court and a new trial was scheduled for March 2019. In February 2019, Fleming filed a motion to compel arbitration. The motion, however, was denied because the trial court found Fleming had waived its right to arbitrate Younan’s claims.
 
On appeal, the Court determined the facts supported the ruling that Fleming waived its right to arbitrate. The Court looked to a number of factors to determine if a party has waived its right to arbitrate. For example, among the factors considered are the substantial use of “litigation machinery,” length of delay, taking advantage of judicial discovery procedures not available in arbitration, amount of preparation for trial/hearing, and whether the delay misleads the opposing party. Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1204. Simply participating in some phase of litigation is unlikely to waive the right to arbitrate, but courts look at the party’s actions as a whole in determining whether conduct is inconsistent with an intent to arbitrate. Id.
 
Upholding the trial court’s ruling, the Court of Appeal identified that Fleming waited 20 months from the filing of the complaint to file its motion to compel arbitration. While Fleming stated its position that Younan’s claims ought to be arbitrated on several occasions, Fleming participated in the hearing with the Labor Commissioner. The Court of Appeal noted the Labor Commissioner hearing was conducted at taxpayer expense, and Fleming only tried to compel arbitration after an adverse result.
 
Fleming argued that it was nonetheless entitled to compel arbitration because the lower court did not establish that Younan had been prejudiced. The Court found delay itself could support a finding of prejudice. Additionally, while Younan was unrepresented in the hearing with the Labor Commissioner, he thereafter retained counsel after Fleming’s appeal, incurring attorney’s fees and costs. The Court also noted that Younan was forced to wait several years to collect his wages and any benefits arbitration provides of a speedier resolution had been lost.
 
This case has several takeaways for employers: When utilizing arbitration agreements, do not delay in asserting that right, even when an employee asserts a claim in a forum other than the courts. The lower court and appellate court both noted that Fleming participated in the hearing before the Labor Commissioner and did not file a motion to compel arbitration for 20 months. Courts are more likely to find waiver where an employer has delayed bringing a motion to compel to “see how it goes” in one forum, before moving the dispute to arbitration. Further, arbitration rights must be asserted even where an employee is pursuing their rights in front of the Labor Commissioner. Employers who receive a notice of a complaint with the Labor Commissioner should immediately consult with their counsel to determine if the claims can be compelled to arbitration.
 
Yet, perhaps the most important lesson for employers is that arbitration agreements should be reviewed for clarity and to make sure they are compliant with the current state of the law. One issue raised in the trial court that was not addressed on appeal was that Fleming’s arbitration agreement “explicitly carve[d] out [] petitions for judicial review of a decision issued after an administrative hearing.” Fleming, at p. 5. The lower court determined in this procedural context there was no agreement to arbitrate the dispute. Hypothetically, if Fleming had not waived its right to arbitrate, it made compelling arbitration more difficult with an ambiguous agreement.
 
In sum, employers who wish to use arbitration as the forum to resolve employment disputes must be careful to craft clear arbitration agreements and timely enforce them. Current arbitration agreements should be reviewed and updated by counsel to make sure they are clear and enforceable.
 
A copy of the opinion can be found here.
 
About the Author:
 
Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this alert, contact Nicholas Grether at ngrether@maloneyfirm.com.
 
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By Craig Reese, Esq. and Carl Mueller, Esq., The Maloney Firm, APC
 

 
In April the California Court of Appeal, Second District, addressed the interpretation and applicability of arbitration terms in consumer agreements in Dennison v. Rosland Capital LLC (Case No. B295350). Practitioners should take note of the Court’s decision as guidance in both drafting and interpreting arbitration clauses.
 
Specifically, the Court upheld the trial court’s order denying Defendant’s motion to compel arbitration. In reaching its decision, the Court evaluated whether a term in a purchase agreement properly gave an arbitrator the authority to decide whether disputes arising from the contract were subject to arbitration.
 
Plaintiff/Respondent in this case was an 82-year old widower and retired Naval aviator. After seeing Defendants’ television advertisements promoting investment in precious metals, Plaintiff contacted Rosland Capital and purchased nearly $50,000 of gold and silver coins. Thereafter, Rosland Capital’s agent allegedly contacted Plaintiff repeatedly, with Plaintiff eventually placing approximately $200,000 in total orders. Plaintiff filed suit against Defendants in California Superior Court, alleging the price he paid for the coins was significantly higher than their actual value. The seller moved to compel arbitration based on the Customer Agreement signed by Plaintiff when he placed his first order. The trial court denied the motion to compel; Defendants appealed that decision.
 
The Customer Agreement was described by the Court of Appeals as a standard form agreement: “two pages long, in two compressed side by side columns, printed in extremely small font. It is impossible to read without a magnifying glass.” The Agreement itself contained an arbitration clause providing that the “Customer agrees to arbitrate all controversies between Customer and Rosland . . . arising out of or relating in any way to the products or this agreement, including the determination of the scope or applicability of this agreement to arbitrate . . .” Plaintiff argued the Agreement was procedurally and substantively unconscionable, making the arbitration clause unenforceable. Defendants argued that the Agreement delegated the authority to determine the unconscionability of the Agreement to the arbitrator, not the Court.
 
The Court noted that, under California Law, a presumption exists that the trial court will determine arbitrability in the absence of clear and unmistakable evidence that the parties intended the arbitrator to decide arbitrability.(i) The Agreement contained language purporting to grant to the arbitrator the authority to determine the scope or applicability of the arbitration agreement. However, the Agreement also contained a severability clause providing that “[i]f any provision of this agreement is held by a court of competent jurisdiction to be void, invalid, or unenforceable,” such term was severable.
 
Where a contract includes a severability clause stating that a court of competent jurisdiction may excise an unconscionable provision, there is no clear and unmistakable delegation to the arbitrator to decide if the arbitration agreement is enforceable, and therefore the issue of scope of arbitration remains with the court.(ii) Given the severability clause in the Agreement, the Court reasoned, there was no clear and unmistakable delegation of authority to the arbitrator to determine if the provision as to arbitration of the scope of the Agreement itself is unconscionable.
 
Having determined that the trial court, and not an arbitrator, was the proper authority to determine arbitrability of the action, the Appellate Court evaluated the trial court’s determination that the Agreement was unconscionable de novo. The Appellate Court found ample evidence that the Agreement was unconscionable. The Court disagreed with Defendants’ assertion that Plaintiff could not show procedural unconscionability because his lifetime of experience, including his military service, should have allowed him to negotiate the terms of the Agreement: “An 82-year-old consumer who calls a telephone number displayed in a television ad to make his first-ever investment in the highly volatile precious metals market, no matter how sophisticated he may be in other matters, cannot reasonably be expected to consider negotiating the terms of a form contract in such tiny print it cannot be read without a magnifying glass.” The Court further noted that in the context of consumer contracts, the Supreme Court has never required a party to show that it attempted to negotiate standardized contract provisions as a prerequisite to establishing unconscionability.(iii)
 
Moreover, the Appellate Court found the contract lacked mutuality in the application of the arbitration clause, limited Defendants’ liability, and limited the statute of limitations for claims against Defendants. Due to the pervasive nature of the Agreement’s unconscionable clauses, the Court of Appeals determined it could not serve the interests of justice by severing any single provision of the contract. An agreement to arbitrate is permeated by unconscionability where it contains more than one unconscionable provision, indicating a systemic effort to impose arbitration on the non-drafting party where it would work to the drafting party’s advantage. As in this case, where a court cannot reform the contract by striking a single clause, but instead would have to augment it with additional terms, the court must void the entire agreement.(iv) In so finding, the Court of Appeals upheld the trial court’s denial of the motion to compel arbitration, and awarded costs to Plaintiff.
 
For practitioners, the key takeaways from this decision are twofold. First, to carefully draft or evaluate clients’ arbitration clauses to determine the applicability of clauses purporting to grant to an arbitrator the decision of arbitrability, because that may be defeated when used in connection with severability clauses. Second, as always, attorneys must be careful to not overreach when drafting arbitration clauses, as an agreement “permeated by unconscionability” will be voided by the court.
 
About the Authors:
 
Craig Reese and Carl Mueller are attorneys at The Maloney Firm, APC, and represent parties in business litigation as well as disputes between attorneys and clients. Mr. Reese may be reached at creese@maloneyfirm.com. Mr. Mueller may be reached at cmueller@maloneyfirm.com.
 
Notes:
i Aanderud v. Superior Court, (2017) 13 Cal.App.5th 880, 891-892.
ii Baker v. Osborne Development Corp., (2008) 159 Cal.App.4th 884, 891-894.
iii Sanchez v. Valencia Holding Co., LLC, (2015) 61 Cal.4th 899, 914.
iv Magno v. The College Network, Inc., (2016) 1 Cal.App.5th 277, 292.
 
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By Nicholas Grether, Esq., The Maloney Firm, APC
 

 
The State of California has fired another shot in their ongoing battle with Uber and Lyft over the classification of their drivers as independent contractors instead of employees. On May 5, 2020, California’s Attorney General and the city attorneys for San Francisco, Los Angeles, and San Diego, filed a lawsuit in San Francisco Superior Court alleging that Uber and Lyft have intentionally misclassified their respective drivers. If Uber and Lyft classified their drivers as employees, they would be protected by California’s wage and hour laws (i.e.., minimum wage, overtime, meal periods and rest breaks, etc.), workplace safety laws, and retaliation laws. The State’s lawsuit comes in the wake of the California Supreme Court’s ruling in Dynamex Operations W., Inc. v. Superior Court, 4 Cal.5th 903 (2018), rehg. denied (June 20, 2018) (“Dynamex”) and the passage of Assembly Bill 5, which took effect on January 1, 2020; Assem. Bill No. 5 (2019-2020 Reg. Sess.) (“A.B. 5”).
 
California Adopts the ABC Test for Independent Contractors
 
A.B. 5 codified the “ABC test” from Dynamex, imposing a strict standard for classifying a worker as an independent contractor into the California Labor Code. A worker is only considered an independent contractor if the hiring party can establish all of the following: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Lab. Code, § 2750.3(a)(1); see Dynamex, 4 Cal.5th at 957. Some classic examples of using true independent contractors include hiring a plumber to fix pipes at a restaurant or enlisting a graphic designer to create a company logo. Importantly, the employer bears the burden of rebutting the presumption that a worker is an employee.
 
Prior to A.B. 5 taking effect, a number of industries and businesses lobbied for exemptions from the bill’s requirements. The lobbying led to a number of exceptions to the ABC test. For example, if certain professional services are provided by a graphic designer or a grant writer, or other worker exempt from A.B. 5, the determination of whether the worker is an employee or independent contractor is determined through a different test. The California Legislature did not include an exemption from A.B. 5 for rideshare drivers, meaning that whether they are classified as employees or independent contractors turns on the ABC test.
 
Earlier this year, Uber and Lyft failed in an attempt to get a federal court to prevent enforcement of A.B. 5. This leads us to the current lawsuit, where the State of California and several California cities are seeking to stop Uber and Lyft from classifying workers as independent contractors, for judgments to restore money to a person who was harmed by being misclassified, and to impose penalties for violating A.B. 5. The State argues the drivers are controlled by Uber and Lyft, respectively, perform work in the usual course of those companies’ businesses, and the drivers are not established in their own trade or profession. In response, Uber and Lyft argue that they are technology companies, and therefore, the work drivers do is not in the usual course of their business.
 
An interesting aspect of the lawsuit is that the State of California is seeking penalties starting from May 5, 2016. This points to one open question from Dyanmex and A.B. 5 is whether the ABC test applies retroactively. In 2019, the 9th Circuit ruled that Dynamex ought to be applied retroactively. See generally, Vazquez v. Jan-Pro Franchising International, Inc. 923 F. 3d 575 (9th Cir. 2019). California’s Supreme Court has taken up that question to issue a definitive ruling, but given the current pandemic, it is unclear when we can expect an answer.
 
By claiming damages back to 2016, the State of California is taking the position that Dynamex and A.B. 5 should be given retroactive effect. A.B. 5 stops short of expressly stating that it is applied retroactively, but includes language that it is declaratory of existing law in some circumstances. Labor Code 2750.3(i). We can expect that the coming months and years cases like the State of California’s against Uber and Lyft will provide more guidance on how to apply and interpret A.B. 5, but at this point, the uncertainty remains. Employers should also note that the California Legislature is considering several pending pieces of legislation aimed at providing additional exemptions to A.B. 5.
 
Remember the “Right to Control” Test
 
Employers should keep in mind, simply because a worker is exempt from A.B. 5 does not mean they are automatically considered an independent contractor. When A.B. 5 does not apply because of an exemption and there is a contention as to the workers classification, California courts will apply the common-law standard from S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (1989), 48 Cal. 3d 341, known as the “right to control” or “Borello test,” to determine if the worker is an independent contractor or employee. The Borello test is primarily concerned with whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. Borello directs the courts to look more than a dozen secondary factors to determine whether the individual is an employee or an independent contractor. Such factors include the length of time services are performed, if the worker hires their own employees, who provides the tools and place of work, and even considers if the parties believe an employment relationship was created. A business that controls and directs the services of individuals eligible to be classified as independent contractors could nonetheless be considered their employer. An exemption from A.B. 5 does NOT automatically mean the worker is an independent contractor under all circumstances.
 
What Can Employers Do to Avoid Liability?
 
The takeaway for employers is that classifying a worker as an independent contractor is more difficult and dangerous than ever. The State of California may be emboldened to seek penalties when using independent contractors looks like an abuse of the system. Plaintiffs’ attorneys have an easier task to prove that workers ought to have been classified as employees in order to seek damages in individual, representative, and class actions. If currently using independent contractors in your business, now is a good time to make sure that those workers meet the requirements imposed by A.B. 5. If the worker is exempt from A.B. 5, your business must ensure not to exercise a level of control that creates an employment relationship. Unless the worker is providing goods or services markedly different from your lines of business and you assert no control over the worker, a thorough analysis should be conducted to determine how to the worker should be classified. Using independent contractors may seem like a way to secure some cost savings in the short-term, but if not done correctly, it will expose your business to significant long-term liability.
 
About the Author:
 
Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this alert, contact Nicholas Grether at ngrether@maloneyfirm.com.
 
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By Patrick M. Maloney, Esq., The Maloney Firm, APC
 

 
 
In late April, the California Court of Appeal published three decisions bearing on the calculation of legal fees to be awarded to a prevailing party and paid by a losing party. Two of those decisions, Reynolds v. Ford Motor Company, 2020 WL 1921742 and Mikhaeilpoor v. BMW of North America, LLC, 2020 WL 1973877, arose from lemon law matters. The third decision, Caldera v. Department of Corrections and Rehabilitation, 2020 WL 21099751, arose from an employment matter. In Reynolds, published April 21, 2020, the Court awarded prevailing counsel 98% of the claimed hourly fees, plus a multiplier of 1.2. On the other hand, in Mikhaeilpoor, published April 24, 2020, prevailing counsel saw his requested fees slashed by the trial court. Finally, in Caldera, published April 30, 2020, the Court provided insight on setting the hourly rate when clients retain attorneys from outside their local area. Together these decisions highlight the factors that courts view as relevant when considering a fee request, and, when read carefully in context of prior precedent, provide guidance on what to do and what not to do when seeking prevailing party attorney’s fees.
 
Reynolds v. Ford Motor Company
 
In Reynolds, Ford Motor Company challenged the requested fees by asserting that, because Reynold’s counsel was on a contingent fee agreement, counsel should not be entitled to both a contingent fee and a statutory fee. While noting that in some instances an attorney may run afoul of ethical rules by collecting both a contingent and an award of statutory fees, the Court nonetheless affirmed the trial court’s holding that the prevailing party need not disclose in a fee application its financial arrangements with counsel. Rather, because the relevant provision of the Song Beverly Act provides that a prevailing party is entitled to recover “attorney’s fees based on actual time expended, determined by the court to have been reasonably incurred,” the analysis focuses on what the losing party must pay, not what the prevailing party is obligated to pay his lawyer.
 
The rationale employed in Reynolds echoes the holding of Nemecek & Cole v. Horn, 208 Cal. App. 4th 641 (2012), where the Court of Appeal held that the lawyer’s fee arrangement with his or her client is not determinative of the fees to be paid by the losing party. There, the Court was tasked with setting the amount of reasonable attorney’s fees to award Nemecek & Cole. Nemecek & Cole requested legal fees using an hourly rate of $419.93, calculated using a schedule of market rates compiled and published by the Department of Justice known as the Laffey Matrix. Horn, by contrast, argued that the fees should be calculated using an hourly rate of $100 to$215—the rates Horn’s expert believed Nemecek & Cole’s insurance carrier paid for the defense. The Court ultimately affirmed the trial court’s decision to use reasonable market rates to set the fee award, rather than the much lower rate counsel had allegedly agreed to accept from its client’s insurance company.
 
Mikhaeilpoor v. BMW of North America, LLC
 
Mikhaeilpoor involved a requested fee the trial court found to be excessive. Counsel sought nearly $350,000 in fees, comprised of hourly fees of $226,426 and additional fees with respect to work on the fee motion, and claimed he should be awarded a multiplier of 1.5. The Court awarded $95,900—just over 25% of the fees Mikhaeilpoor’s counsel had requested.
 
The trial court had good reason to award only a fraction of the fees requested. Ten attorneys had worked on the plaintiff’s case. The court noted instances of multiple attorneys billing for tasks requiring only one lawyer and found that counsel had billed large amounts of time for tasks that recycled existing form documents. The trial court did not accept the plaintiff’s claim that the suit was complicated. Instead, the trial court found the billings submitted in support of the fee application demonstrated the matter was not efficiently managed and did not describe the services provided with clarity. The court noted that an allegedly experienced attorney had worked over 240 hours on the matter, yet still required the assistance of nine other attorneys.
 
The decision in Mikaeilpoor also reflected that fee motion papers can undercut the claimed fee. The trial court seized on the testimony of Payam Shahian, the senior attorney at plaintiff’s counsel’s firm, who said he only becomes involved in matters involving “complex legal issues.” Since Mr. Shahian did not bill any time to the case, the court drew the natural inference that the suit was not complex and thus warranted neither a large hourly fee nor a fee enhancement in the form of a multiplier. Similarly, the trial court noted that the hourly rate sought for attorney Christine Haw, who did much of the work on the case, was above the hourly rates charged by equally or more experienced attorneys. Thus, the court reduced the rate awarded for Ms. Haw’s services.
 
Rather than setting the legal fees by a line-by-line audit of the legal fee invoices it found deficient, the trial court reverse-engineered the time the matter should have required. It calculated the reasonable amount of time a reasonably experienced attorney would have required to do the tasks plaintiff’s counsel claimed to have performed, i.e., 225 hours. The Court of Appeal rejected Mikaeilpoor’s argument the trial court had acted arbitrarily by failing to perform a line-by-line analysis of the claimed fees and improperly engaged in an across-the-board reduction in the claimed fees. The Court of Appeal noted that across-the-board cuts are permissible when the trial court provides a “concise but clear” explanation of the reasons for using a given percentage reduction. More significantly, the Court of Appeal found the trial court had not engaged in an across-the-board reduction, but rather had determined the amount of time it should have taken to perform the work claimed to have been done.
 
Mikaeilpoor’s unsuccessful challenges to the trial court’s approach to setting a reasonable fee harken back to an earlier decision concerning fee awards, Christian Research Institute v. Alnor, 165 Cal. App. 4th 1315 (2008). There, the Court of Appeal also warned that “[a]n attorney’s chief asset in submitting a fee request is his or her credibility, and where vague, block-billed time entries inflated with noncompensable hours destroy an attorney’s credibility with the trial court, we have no power on appeal to restore it.” Id. at 1326. The Court also noted that attorneys who “submit a plethora of noncompensable, vague, block-billed attorney time entries” should not “expect particularized, individual deletions as the only consequence.” Mikaeilpoor’s request for fees undercut his counsel’s credibility, and that showed in the resulting ruling.
 
Caldera v. Department of Corrections and Rehabilitation
 
Caldera involved an employment law plaintiff who could not find a local attorney to take his case, so he hired counsel from out-of-town. Following a successful resolution of the matter, Caldera sought an award of attorney’s fees. To calculate the fee award, the trial court declined to use counsel’s regular hourly rate in his home market, and instead used hourly rates commonly charged in the local market. The trial court also declined to award a fee multiplier, holding it had awarded legal fees by using an hourly rate at the high end of attorney’s fees in the local market. The Court of Appeal reversed, holding that when a plaintiff cannot find a local attorney, any resulting fee award should be calculated with regard to the rates in counsel’s home market. It also instructed the trial court to use a fee multiplier to calculate any enhancement to the fee award, rather than adjusting the hourly rate.
 
Reynolds, Mikaeilpoor, and Caldera demonstrate that parties who anticipate seeking an award of legal fees upon the successful conclusion of a matter should lay the groundwork for their eventual fee application from the outset. Efforts to retain counsel should be documented, particularly where local lawyers declined to accept the matter. Staffing should be carefully managed. Duplication of effort should be avoided. Efficiencies should be sought and exploited. And when it is time to prepare the fee application, care should be taken to present a cogent, consistent fee application, which does not itself inadvertently destroy counsel’s credibility. Counsel who take these precautions likely will receive not only the bulk or all of the fees claimed, but also benefit from a fee multiplier as well. Conversely, lawyers who do not handle their cases with care and pay attention to detail are likely to see both a reduction to the claimed hourly fees and the denial of any multiplier.
 
About the Author:
 
Patrick Maloney is the founder of The Maloney Firm, APC. Mr. Maloney represents parties in matters between lawyers and clients, including legal fee disputes, legal malpractice actions, and claims of breach of fiduciary duty. Mr. Maloney may be reached at pmaloney@maloneyfirm.com.
 
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California’s First Appellate District Issues Ruling Adding Specificity to CCP § 998 Offers And Stating Any Agreements To Share Costs Include Specific Statements To Allow Parties To Seek To Recoup Those Costs After Trial
 
By Carl I. S. Mueller, Esq. and Nicole A. Poltash, Esq., The Maloney Firm, APC  
 

 
On April 13, 2020, the First Appellate District of the Court of Appeal of the State of California filed an opinion in Anthony v. Li, Case No. A156640, clarifying the requirements for a valid offer to compromise under California Code of Civil Procedure (“CCP”) § 998 and subsequent applications for costs under CCP § 1032. In short, plaintiffs’ counsel in Anthony lost the chance to recoup expert fees pursuant to CCP § 998 by improperly drafting the statutory offer to acceptance by two parties. Further, the same counsel waived his client’s ability to recover mediation costs and court reporter costs by failing to include language allowing the prevailing party to seek those costs after trial in the initial agreements to split costs with opposing counsel. As such, the ruling serves as another reminder to attorneys to avoid cutting corners at any point during litigation.  
 
In Anthony v. Li, plaintiff Anthony sued defendant Li and PV Holding Corporation (DBA Avid Rent-A-Car) for injuries arising from a car accident. Li was served via service on PV Holding under California Civil Code 1939.33, which allowed PV Holding to accept service on behalf of Li. Li and PV Holding were jointly represented, but filed and served separate answers and responses to discovery.  
 
The parties agreed to participate in a mediation, with each side agreeing to pay 50% of the mediation costs. Mediation was unsuccessful, but nonetheless, Anthony subsequently dismissed PV Holding a few months later. Two months thereafter, Anthony served a CCP § 998 offer to compromise that required judgment against Li and PV Holding in the amount of $500,000, and required acceptance by both Li and PV Holding. Li countered with a CCP § 998 offer of her own, and neither offer was accepted.  
 
The matter proceeded to trial, and the parties agreed to split equally the costs of all court reporting and original transcripts. A jury returned a verdict for Anthony in an amount of $650,235, an amount greater than his CCP § 998 of $500,000. Anthony then filed and served a memorandum of costs, seeking expert fees, mediation costs, and court reporting costs. Li moves to tax Anthony’s costs.  
 
On appeal, the Court upheld the trial court’s decision to tax Anthony’s expert witness fees, finding Anthony’s CCP § 998 offer was invalid. In sum, for a CCP § 998 offer to be valid, it must be “clear and specific.” As a general rule, a CCP § 998 that requires by multiple parties is not “clear and specific,” and is therefore invalid. While exceptions to that general rule exist, they did not apply in this instance. Further, the CCP § 998 offer was inappropriately directed to a dismissed party, PV Holding, and therefore the offer could not have been accepted.  
 
Anthony argued that although dismissed, PV Holding still would be liable as Li’s insurer, and therefore should be able to accept the CCP § 998 offer. The appellate court rejected this argument, noting that the language of the CCP § 998 offer “in no way advised defendants that the offer was directed at PV Holding as the insurer responsible for any judgment entered against Li.” Therefore, the offer was invalid. This position was unchanged by the nature of Li’s status as a defendant for the purpose of Anthony reaching Li’s renters’ insurance, since such a theory would make CCP § 998 more uncertain.  
 
More interestingly, the Court clarified that because the parties agreed to share the costs of mediation and court reporters, the language of those agreements barred Anthony from seeking reimbursement of those costs pursuant to CCP § 1032.  
 
[W]here, as in this case, the parties agree to share costs during litigation, the courts will enforce those agreements as written under principles that “[w]hen the language of a document is unambiguous, we are not free to restructure the agreement,” and “if parties [] wanted to allow recovery of the apportioned fee by the prevailing party as an item of cost, they were free to spell this out in their agreement,” but such a provision will not be read into the agreement.
 
As such, the careful litigator should take guidance from the above language, and clarify in any agreement with opposing counsel about splitting costs whether such an agreement will affect their client’s ability to seek those costs after trial as a prevailing party.  
 
Therefore, the appellate court reiterates a theme common in many of its rulings: lawyers must exercise care in all aspects of litigation. Whether that is in drafting CCP § 998 offers clearly or in ensuring agreements to split costs address the ability to seek costs after trial, lawyers must always have an eye towards their clients’ interests all the way through trial.  
 
About the Authors: Carl I.S. Mueller, Esq. and Nicole A. Poltash, Esq.
 
Carl Mueller represents attorneys and clients in disputes over legal fees and legal malpractice and Nicole Poltash is a civil litigation attorney. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com or Nicole Poltash at npoltash@maloneyfirm.com.