Chen v. BMW: A Cautionary Tale for Litigants
By: Josephine Petrick
April 19, 2023
The California Court of Appeal’s recent opinion in Chen v. BMW of North America, LLC, 87 Cal. App. 5th 957 (2022), offers two important lessons for litigants. First, if you receive and reject an offer to compromise under California Code of Civil Procedure section 998, do not later settle the case, unless you have considered carefully whether and how that section 998 offer will affect your ability to recover fees and costs after (or under) the settlement.[1] Second, if you litigate your case and you obtain a judgment in your favor, carefully consider whether there is any ground to appeal—or cross-appeal—part of the judgment, and timely pursue the appeal or cross-appeal if the cost of doing so is warranted. In short, “ABC”: Always Be (Considering) Cross-Appealing.
Background
Daniel Chen filed a lawsuit against BMW of North America for breach of warranty and for violating the Song-Beverly Consumer Warranty Act and the Consumers Legal Remedies Act. Chen alleged that a new BMW he bought was defective. After the lawsuit had been pending for about a year, BMW extended an offer to compromise under California Code of Civil Procedure section 998; the offer contemplated that the court would enter judgment against BMW in the amount of $160,000, Chen would return the car, and BMW would pay Chen’s attorneys’ fees and costs in the litigation, in an amount determined by the Court following a properly noticed motion by Chen. Chen rejected the section 998 offer, and the litigation continued for another two years.
The parties eventually settled on the day of trial. The terms of the settlement were essentially identical to the section 998 offer: BMW would pay Chen $160,000; Chen would return the car; and Chen’s attorneys’ fees and costs would be determined by the court through a noticed motion. Chen moved for attorneys’ fees and costs in the amount of $436,071.82, but the trial court only awarded $53,509.51, an amount it arrived at by excluding all fees and costs except those accrued through July 2017, 45 days after the section 998 offer was made. The court reasoned that Chen was barred from recovering the post-July 2017 fees and costs because Chen failed to obtain a better litigation result than what BMW offered in its 998 offer.
Chen appealed and argued that BMW’s 998 offer was invalid because its terms were too vague. The Court of Appeal affirmed. It held that BMW’s 998 offer complied with all statutory requirements and Chen did not achieve a result more favorable than its terms, so section 998 barred recovery of attorneys’ fees and costs accrued after the offer was made.
The Court of Appeal further noted: “The only potential error in the result here actually benefited Chen: the trial court awarded attorney fees accrued for 45 days after the section 998 offer was made, although the statute precluded an award of fees incurred after a valid offer. But as BMW has not cross-appealed, we will not disturb the finding.” 87 Cal. App. 5th at 963. In other words, had BMW taken a cross-appeal, it would have been able to further reduce the attorneys’ fee award; but because it had not done so, the Court of Appeal would not reduce the award on its own motion. See id.[2]
After the trial court issued its decision, BMW might have determined that the erroneous portion of the fee award was not significant enough to justify filing a cross-appeal, or it might have had another strategic reason for not cross-appealing. Regardless, Chen v. BMW is a good reminder of the best practice of always considering an appeal.
Takeaways
The Chen decision provides two important lessons:
- If you receive and reject a section 998 offer, do not later settle without carefully considering whether and how section 998 will affect your ability to recover attorneys’ fees and costs after (or under) the settlement.
- If you litigate your case and obtain a judgment in your favor, carefully consider whether there is any ground on which to appeal part of the judgment or to take a cross-appeal.
About the author: Josephine Petrick is a Counsel at The Norton Law Firm. She is a California State Bar-Certified Appellate Specialist.
[1] California Code of Civil Procedure section 998 is a cost-shifting mechanism designed to promote early resolution of litigation by encouraging parties to make—and accept—reasonable settlement offers. See Scott Co. v. Blount, Inc., 20 Cal. 4th 1103, 1114 (1999). The statute encourages acceptance of reasonable offers by penalizing a party who does not accept a settlement offer and then fails to achieve a better result through continued litigation. Cal. Code Civ. Proc. § 998(c)(1). In such a case, the non-accepting party cannot recover litigation costs, including attorneys’ fees, accrued after the date the offer was made. Scott, 20 Cal. 4th at 1112. To invoke the statutory mechanism, the offer must be in writing, and must “allow judgment to be taken or an award to be entered in accordance with the terms and conditions stated at that time.” Cal. Code Civ. Proc. § 998(b). It must “include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted.” Id.
[2] The rule requiring a cross-appeal to correct an error that benefited the appellant is the same in federal court. See, e.g., Greenlaw v. United States (2008) 554 U.S. 237 (2008) (absent a cross-appeal by the government, Court of Appeals should not have ordered that the criminal defendant-appellant’s sentence be increased).