Code of Civil Procedure section 998 jurisprudence is a hot topic these days. Last month, the Fourth Appellate District directly addressed the issue of whether a defendant can recover the fees expended on a plaintiff’s expert when the plaintiff fails to obtain a more favorable award under section 998(c). In Chaaban v. Wet Seal, Inc., 2012 Cal.App. LEXIS 84 (January 31, 2012), the Court held that the trial court has discretion to award the defendant expert fees, regardless of whose witness the expert is.

Sally Chaaban sued her employer, Wet Seal, for wrongful termination.  She hired an expert witness, Miles Locker, to testify at trial.  Wet Seal deposed Locker and, due to impending trial-related deadlines, ordered an expedited transcript, which doubled the cost. Locker did not testify at trial because of a successful in limine motion by Wet Seal. Before expert discovery, Chaaban rejected Wet Seal’s offer to compromise under section 998, the amount of which was not reported.

Wet Seal prevailed at trial and filed a memorandum of costs claiming $29,770.67, including the amount paid to Locker to depose him and the charges related to ordering the expedited deposition transcript. Chaaban filed a motion to tax costs, objecting to a number of items, including the Locker costs. The trial court denied the motion and allowed virtually all of Wet Seal’s costs.

Chaaban appealed, contending three main errors: (1) Wet Seal was not entitled to the amount expended to expedite the transcript; (2) Wet Seal was entitled only to reimbursement for fees paid to its own expert, not plaintiff’s expert; and (3) She should not have to pay for Locker’s fee since he was not allowed to testify at trial.

The Court rejected all three contentions. 

First, the expedited costs were justified because motions in limine had to be exchanged the next day at the issue conference.

As for whether section 998 permits the reimbursement of fees Wet Seal paid to Locker to secure his testimony, that was a question of statutory interpretation, which the Court reviewed de novo. 

Chaaban erroneously based her argument on section 998, subdivision (d), which covers offers made by plaintiffs to defendants. Section 998(c)(1) applies to offers made by defendants to plaintiffs and contains no limitation on the source of an expert: “If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff . . . shall pay the defendant’s costs from the time of the offer. [T]he court . . . , in its discretion, may require the plaintiff to pay a reasonable sum to cover costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial . . . or during trial . . . of the case by the defendant.”

The Court determined that the policy underlying section 998(c) – to encourage pre-trial settlement by providing a strong financial incentive to a party who fails to achieve a better result than that party could have achieved by accepting his or her opponent’s offer – supports the principle that a non-settling plaintiff is potentially liable for all of the expert fees a defendant was required to pay. The Court described this as the “stick” portion of section 998’s carrot-and-stick incentive. “The carrot is that by awarding costs to the putative settler the statute provides a financial incentive to make reasonable settlement offers.” The stick portion is “better served by including all experts within its purview.” 

But Chaaban didn’t stop there. She contended the fees were not recoverable because an expert’s fee was not an enumerated item of cost allowable under Code of Civil Procedure Section 1033.5. In doing so, Chaaban ignored the explicit statutory language of section 998(a): “The costs allowed under . . .  Section 1032 shall be withheld or augmented as provided in this section.” The Court clearly has the discretion under Section 998(a) and 998(c)(1) to award expert fees when a plaintiff rejects a 998 offer and fails to obtain a more favorable award or judgment.

Speaking of discretion, with the exception of the statutory interpretation issue, the Court reviewed the denial of the motion to tax costs under the highly-deferential abuse-of-discretion standard of review. The Court would reverse only if there had been a “clear abuse of discretion” and a “miscarriage of justice.”   And this clearly not being the case, the Court affirmed the denial. 

Finally, the fee paid to Locker was recoverable despite the fact he never testified at trial because taking his deposition was reasonably necessary to prepare for trial. Without Locker’s deposition testimony, Wet Seal would have lacked the very subject matter on which it based its motion in limine. 

Moral: The Court has sharpened the stick. Before evaluating offers to compromise under section 998, counsel must know all of the potential costs for which a non-settling party may be liable if he or she rejects the offer and fails to obtain a more favorable award. And in case the explicit statutory language isn’t clear enough, now lawyers have a published opinion directly on point to support recovery of expert fees under 998(c), regardless of whose witness the expert is. How’s that for encouraging settlement?