California Supreme Court Upholds Multiple 998 Settlement Offers

In a prior post, I discussed the disagreement among appellate courts concerning the effect of multiple settlement offers under Code of Civil Procedure Section 998. Yesterday, in , the California Supreme Court resolved the dispute by holding that a later 998 offer does not extinguish an earlier one. Its reasoning was: 1. Section 998 does not prohibit multiple offers; 2. multiple offers foster settlement (the goal of Section 998); 3. parties should not be penalized or rewarded for making or rejecting multiple offers; 4. encouraging more 998 offers promotes the public policy of compensating injured parties; and 5. trial courts have discretion to deny the benefits of Section 998 if there is any gamesmanship with the offers. Accordingly, plaintiffs and defendants may now make multiple 998 offers without fear that a second one will extinguish the ability to recover interest, expert witness fees, or both, from the date of the first 998 offer. To borrow the words of Justice Marvin Baxter, who authored the Martinez decision, "the chances of settlement increase with multiple offers." Martinez is welcomed news in these most-difficult economic times for courts and litigants. As Jim Carey said, "settle, settle, settle."


One More Reason to Settle: Courts Split over Review of Orders Approving Good Faith Settlements

In Oak Springs Villa Homeowners Association v. Advanced Truss Systems, Inc. (2012) 206 Cal.App.4th 1304 (Oak Springs), a Court of Appeal held that a trial court’s good faith settlement determination is a non-appealable interlocutory ruling that is only reviewable by a timely petition for writ of mandate pursuant to Code of Civil Procedure § 877.6.

In Oak Springs, the homeowners association (HOA) brought an action against the developers, roof subcontractor, roof material supplier (ATS) and structural engineering firm for construction defects. The HOA settled with all defendants except ATS. The trial court determined that the parties settled in good faith. ATS did not file a petition for writ of mandate, but instead appealed from the order approving the settlement.

The Court dismissed ATS’ appeal. The Court rejected ATS’ argument that it could appeal from an order resulting in the dismissal of its cross-complaint for indemnity against the developer: “The final judgment rule cannot be interpreted to allow a party who remains in the action to base its appeal on an order involving a different party [i.e. the party that settled].” In doing so, the Court expressly disagreed with the Court of Appeal in Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939 (Cahill), which had recently determined that a writ petition under § 877.6 was not the sole means of challenging a trial court’s good faith settlement determination. (Notably, the appellant in Cahill, unlike ATS, filed a petition for writ of mandate, which was denied, before filing its appeal.) Oak Springs called Cahill’s analysis “bare" and disagreed with its conclusion because it would give parties two appeals on the same issue: one from the order approving the good faith settlement, and the other from the final judgment.

The Oak Springs and Cahill decisions (from the Second and the Fourth Districts of the Court of Appeal, respectfully) represent a clear split of authority as to whether a non-settling party may appeal from an order approving a good faith settlement. The Supreme Court may ultimately decide this issue. Until then, you must timely file a petition for writ of mandate to seek review of an order approving a good faith settlement.

The bottom line: In lawsuits involving multiple defendants, Oak Springs gives an advantage to those parties that settle. Parties who do not settle have little practical recourse if the trial court approves the settlement because appellate courts grant less than one in ten of all writ petitions.

A Plaintiff's Right to Dismiss Is Not Absolute.

A plaintiff has the right to voluntarily dismiss, with or without prejudice, all or any part of an action before the commencement of trial. Civ. Proc. § 581. A plaintiff that fears losing may simply dismiss his lawsuit to prevent the defendant from obtaining an award of contractual attorney's fees. Civ. Code § 1717 ("[w]here an action has been voluntarily dismissed…there shall be no prevailing party.") But, plaintiff's right to cut and run is not absolute.

In Bank of America v. Mitchell, 204 Cal.App.4th 1199 (2012), the trial court sustained defendant's demurrer without leave to amend. Two days later, the bank filed a voluntary dismissal with prejudice. It then opposed defendant's fee motion on the ground that there could be no prevailing party because it had dismissed the action with prejudice. However, the trial court vacated the bank's dismissal and awarded attorney fees to the defendant. The court of appeal affirmed. By sustaining the demurrer without leave to amend, the trial court had decided the dispute on the merits. Therefore, the bank no longer had the right to voluntarily dismiss under § 581.


A Judgment against A Trust Is Unenforceable

The recent decision of __ Cal.App.4th __ (2011) held that a trust is neither a person nor an entity. As such, a trust cannot sue or be sued. And a judgment against a trust is unenforceable because a judgment debtor is defined as a “person” against whom a judgment is entered. Therefore, when suing a trust, you must: (1) name the trustee in his or her representative capacity as a trustee; and (2) ensure that judgment is entered against the trustee; and not the trust itself.

The plaintiff in Portico, sued the trustees of a trust but unfortunately did nothing to correct an arbitration award and subsequent judgment entered against only the trust. Plaintiff later attempted to enforce the judgment against assets of the trust. However, the trustees of the trust claimed ownership of the trust assets and argued that no judgment had been entered against them or their predecessors. The court of appeal agreed and affirmed the trial court’s order to grant the trustees’ claim of ownership to the assets of the trust. Fortunately for the plaintiff, the court of appeal reversed (with instructions) the trial court’s orders denying leave to amend the judgment to include one of the original trustees.

Bottom line: If you have litigation involving a trust, don’t make the mistake of treating the trust as you would a person or an entity. 

When A Court Grants an Injunction on the Merits No Undertaking Is Required

The Court in  201 Cal.App.4th 1371 (2011) issued a peremptory writ and reversed an order dissolving an injunction because plaintiffs failed to post a bond. The case involved a foreclosure dispute between borrowers and their lender over whether the lender complied with Civil Code section 2923.5, subd. (a). Pursuant to that section, a lender must contact the borrower to try to prevent foreclosure before recording a notice of default.

In granting the borrowers' motion for an injunction, the trial court expressly found that neither the lender nor its servicer contacted the borrowers before issuing a notice of default. The trial court, however, required plaintiffs to post a $20,000 bond and make $500 monthly payments. It later dissolved the injunction when plaintiffs failed to post the bond and make monthly payments.

The appellate court concluded that the trial court erred in requiring a bond in the first place. The trial court did not merely determine that plaintiffs had a substantial likelihood of success on the merits, but rather decided the dispute in plaintiffs' favor. The purpose of an injunction is to protect the defendant against losses incurred if the defendant later prevails on the merits. Therefore, no undertaking is required when the court grants an injunction after deciding the merits. Shahen v. Superior Court (1941) 46 Cal.App.2d, 187, 189 (bond cannot be ordered on a permanent injunction issued after a trial on the merits).

Posting bonds is often difficult and expensive for clients. Whenever you seek an injunction, try to get the court to rule on the merits. If you succeed, you remove the requirement for a bond or undertaking.

He Who Hesitates, May be Too Late!

 In , the Court of Appeal held that a party, who has the option to litigate in more than one forum and litigates extensively in one forum, cannot then decide to enforce its rights to litigate in another forum. Pursuant to a forum selection clause, Trident Labs agreed to waive any rights to commence an action anywhere but Illinois.  Trident nevertheless sued Merrill Lynch in California.  Merrill Lynch actively litigated the case for 19 months in California by filing a cross-complaint, conducting substantial discovery and filing motions seeking relief. Merrill Lynch then filed a motion pursuant to to stay or dismiss the lawsuit based on the forum selection clause.  Merrill Lynch contended that it had the right to make the motion "at any time," and the trial court agreed.  The Court of Appeal noted that section 410.30 does not say such motions may be made at any time. "Where no limits are stated, a reasonableness standard is inferred."  The Court of Appeal concluded that 19 months of delay, without any justification, is unreasonable as a matter of law and reversed the trial court. Moral of the story: Don't delay!