David Sarnoff
Last year, the California Supreme Court made a seismic shift in cost-shifting for employment cases, ruling that in actions arising under the California Fair Employment and Housing Act (“FEHA”), a prevailing defendant is not entitled to recover its costs unless the court finds the plaintiff’s case to have been unreasonable, frivolous, or without merit. (Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4th 97.) The Supreme Court was very clear: “Government Code section 12965(b) is an express exception to Code of Civil Procedure section 1032(b) and … therefore governs costs awards in FEHA cases.” (Williams, supra, 61 Cal.4th at 105.) In other words, Code of Civil Procedure (“CCP”) § 1032 no longer applies to FEHA cases.
After the Supreme Court issued its opinion in Williams, Jacob Nalbandyan provided an in-depth analysis of the effect of Williams on offers to compromise under CCP § 998 in the June 2015 CELA Bulletin. The basic analysis is easy:
Step 1: Williams holds that awards of costs in FEHA actions are not governed by CCP § 1032.
Step 2: CCP § 998(a) states “[t]he costs allowed under Section[] 1032 shall be withheld or augmented as provided in this section.”
Step 3: Because CCP § 1032 no longer applies to FEHA pursuant to Williams, CCP § 998, by its plain language, cannot apply to FEHA cases.
Case law supports this plain-language argument because CCP § 998 cannot provide greater rights than what is authorized by statute. (See, e.g., Mangano v. Verity, Inc., (2008) 167 Cal.App.4th 944, 949-951.)
Unfortunately, some courts are side-stepping Williams’s holding when it comes to statutory settlement offers under CCP § 998, and are instead choosing to follow Holman v. Altana Pharma US, Inc. (2010) 186 Cal.App.4th 262. These courts reason that Holman’s analysis of the interplay of CCP § 998, CCP § 1032, and FEHA accounts for the public policies behind each of those sections and even assumed that FEHA cost awards were governed by Christiansburg Garment Co. v. EEOC (1978) 434 U.S. 412 (awarding fees to a prevailing defendant only if the case is found to be unreasonable, frivolous, meritless, or vexatious). “Even if the Christiansburg standard implicitly applies when prevailing defendants seek to recover expert witness fees under section 12965, Holman concluded that the trial court was authorized to exercise its discretion under Code of Civil Procedure section 998 to award expert witness fees.” (Ochotorena v. California Dept. of State Hospitals (Super. Ct. San Luis Obispo County, 2016, No. 14CVP-0252) [ruling on Motion to Tax Costs, dated July 1, 2016]; see also Broten v. Target Corp. (Super. Ct. San Diego County, 2016, No 37-2013-00045142-CU-WT-CTL) [tentative ruling, adopted as modified by final ruling].)
Even though such analysis disregards the 3-step plain-language approach, courts seem to be ignoring this by ruling that Williams did not invalidate Holman, and in fact may have done the opposite. In a recent ruling regarding this very issue, a Court stated:
Importantly, [Holman] was also cited by the Supreme Court in [Williams]. Although Williams specifically disapproved the holdings in Davis v. KGO–TV, Inc., 17 Cal.4th 436, 444, Perez v. County of Santa Clara, 111 Cal.App.4th 671, Knight v. Hayward Unified School Dist., 132 Cal.App.4th 121 and Hatai v. Department of Transportation, 214 Cal.App.4th 1287, it did not voice any criticism of the approach taken in Holman.
(Ochotorena v. California Dept. of State Hospitals (Super. Ct. San Luis Obispo County, 2016, No. 14CVP-0252); see also Broten v. Target Corp. (Super. Ct. San Diego County, 2016, No 37-2013-00045142-CU-WT-CTL); Pao v. Kleiner Perkins Caufield & Byers, LLC (Super. Ct. San Francisco County, 2015, No. CGC-12-520719).) These courts all agree the mere fact that Williams did not expressly overrule Holman constitutes an implicit approval of Holman with respect to CCP § 998.
In Ochotorena, the Court struck all ordinary costs pursuant to Williams, but used Holman to award expert fees pursuant to section 998. However, not all courts recognize even that limitation. One court in San Diego determined “the ordinary costs and expert witness fees incurred by the prevailing employer after its section 998 offer was rejected, are recoverable in this action.” (See Broten v. Target Corp. (Super. Ct. San Diego County, 2016, No 37-2013-00045142-CU-WT-CTL) [tentative ruling].) Such a ruling sets a potentially dangerous precedent circumventing the Christiansburg standard that is meant to apply to FEHA costs after Williams. This case is currently on appeal.
Now for the good news: at least two courts struck an entire memorandum of costs pursuant to Williams, even after a CCP § 998 offer. One court followed the 3-step plain-language approach, citing the express language of CCP § 998(a) and concluding “since section 12965, subd. (b), is an exception to section 1032, it is also an exception to section 998.” (Mejorado v. The Garold C. Brown Family Limited Partnership (Super. Ct. Fresno County, 2015, No. 13CECG-1734).) That court specifically rejected the defendants’ argument based on Holman because Williams did not address the issue of costs after a 998 offer, finding that, despite the arguably positive treatment of Holman by the Williams Court, “[t]he remaining language of Williams appears to be inconsistent with the defendant’s contention that section 998 mandates an award of costs to it.” (Id.) The court even “question[ed] whether Holman is even still good law” considering it was decided long before Williams. (Id.)
The other court addressed the issue in a far more succinct manner:
An award of costs in FEHA claims is discretionary and requires a showing that plaintiff’s action was objectively without foundation when brought or plaintiff continued to litigate after it clearly became so. [Williams.] This statutory requirement is applicable even where the case involves a CCP § 998 offer. (see Mangano v. Verity, Inc. (2008) 167 Cal.App.4th 944.)
(Vogelsang v. Crossmark, Inc., et al. (Super. Ct. Placer County, 2016, No. S-CV-0033228).)
Though it should not be necessary based on the plain language of the statutes involved, it seems likely that this split will have to be corrected either by an appellate court specifically addressing this issue or by legislative fix. Courts have no choice but to follow Williams with respect to standard costs. Nevertheless, Holman provides some ammunition for courts to still permit even ordinary costs when a CCP § 998 offer is involved.
If you would like copies of the rulings from the cases cited in this Practice Guide, please contact info@cela.org
David Sarnoff is a founding partner of Sarnoff + Sarnoff, a firm dedicated to representing the rights of aggrieved employees. His professional experience includes a broad range of employment matters including discrimination, harassment, retaliation, wrongful termination, and labor code violations. Sarnoff + Sarnoff is located in Burlingame, CA and litigates matters throughout California.