Judge Randolph M. Hammock, Case Number: 20STCV18693, Date: 2023-10-26 Tentative Ruling

Plaintiff Consumer Advocacy Group, Inc., brought this action under the Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”). Plaintiff alleged three products sold at Defendant Ross’s stores—a notebook planner, cosmetic case, and suction-cup mirror—contained Di(2-ethylhexyl) phthalate (“DEHP”), which is allegedly subject to Proposition 65 warning requirements. Defendant allegedly failed to provide such warnings. On October 22, 2021, Defendant Enchante Accessories, Inc., the distributor of the products at issue, filed a motion to intervene. The court granted the motion.

On September 8, 2023, Plaintiff dismissed the action against Defendant Enchante Accessories, Inc., without prejudice. On September 21, 2023, Defendant Enchante filed a memorandum of costs seeking $324,058.30 in total costs.

The matter first came for hearing on October 26, 2023. After oral argument, this court invited supplemental briefing. (See 10/26/23 Minute Order.) This court has read and considered Plaintiff’s November 13, 2023, “Supplemental Memorandum” and accompanying papers; Defendant’s December 13, 2023, “Supplemental Brief Re: Unreasonable and Unnecessary Expert Costs” and accompanying papers; and finally, Defendant’s December 13, 2023, “Brief Re: Validity of Enchante’s CCP 998 Offer” and accompanying papers, and now rules as follows.

Plaintiff’s Motion to Tax is GRANTED IN PART, as discussed herein. To wit, this Court taxes only $68,175.00 from the Memorandum of Costs. The motion to tax costs to the remainder of the claimed costs is DENIED.

Plaintiff Consumer Advocacy Group moves to strike or tax the cost memorandum filed by Defendant Enchante on September 21, 2023. The primary issue is whether Defendant is entitled to recover its expert witness fees incurred in this action since the expiration of the Section 998 offer to compromise.

“A plaintiff may voluntarily dismiss a complaint by written request to the clerk at any time prior to the commencement of trial, upon payment of costs (§ 581, subd. (b)(1)). As the statute expressly states, a party in whose favor such a dismissal is entered is entitled to recover its costs (§ 1032, subd. (b)). Generally, these costs do not include the fees of experts not ordered by the court. (§§ 1032, 1033.5, subd. (b)(1).) However, expert witness fees incurred after the non-acceptance of a valid section 998 settlement offer may be recoverable. (Mon Chong Loong Trading Corp. v. Superior Ct. (2013) 218 Cal. App. 4th 87, 93.)

Code of Civil Procedure § 998 allows for any party in a civil suit to serve a settlement offer to any other party before the commencement of trial. An offer must be in writing, state the terms and conditions of the proposed judgment or award, and contain a provision that allows the offeree to accept the offer by signing a statement so stating. (See CCP § 998(b).) Section 998, subdivision (c)(1) provides that “[i]f an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant's costs from the time of the offer. In addition, ... the court or arbitrator, in its discretion, may require the plaintiff to pay a reasonable sum to cover postoffer costs of the services of expert witnesses ... actually incurred and reasonably necessary in ... preparation for trial or arbitration ... of the case by the defendant.”

“The purpose of section 998 is to encourage the settlement of litigation without trial.” (Jones v. Dumrichob (1998) 63 Cal. App. 4th 1258, 1262.) To effectuate this purpose, “a section 998 offer must be made in good faith to be valid.” (Id.) “Good faith requires that the pretrial offer of settlement be ‘realistically reasonable under the circumstances of the particular case. Normally, therefore, a token or nominal offer will not satisfy this good faith requirement.’” (Id.) This generally means the offer must “carry with it some reasonable prospect of acceptance.” (Id.) “One having no expectation that his or her offer will be accepted will not be allowed to benefit from a no-risk offer made for the sole purpose of later recovering large expert witness fees.” (Id. at 1262-63.) “The validity of a section 998 offer is determined as of the date it is served.” (Smalley v. Subaru of Am., Inc. (2022) 87 Cal. App. 5th 450, 455.)

Whether a 998 offer “carries with it some reasonable prospect of acceptance” is a function two considerations: “First, was the 998 offer within the ‘range of reasonably possible results’ at trial, considering all of the information the offeror knew or reasonably should have known? [Citation.] Second, did the offeror know that the offeree had sufficient information, based on what the offeree knew or reasonably should have known, to assess whether the ‘offer [was] a reasonable one,’ such that the offeree had a ‘fair opportunity to intelligently evaluate the offer’?” (Covert v. FCA USA, LLC (2022) 73 Cal. App. 5th 821, 834.)

Jones is instructive. There, a plaintiff who refused a Code of Civil Procedure section 998 offer contended that the trial court abused its discretion in awarding the prevailing defendant discretionary costs. The plaintiff claimed the Code of Civil Procedure section 998 offer to compromise, which only included a waiver of costs, “was not a reasonable offer, but rather a token, tactical one made only to preserve the right to later claim these disputed costs.” (Jones, supra, 63 Cal.App.4th at p. 1262.)

However, the Court of Appeal rejected this argument, finding that the plaintiff did not show any factual basis to claim the offer was “ ‘unrealistic and unreasonable’ ” or made solely in order to “ ‘gain a strategic advantage.’ ” (Id. at 1263.) Instead, the offer of a waiver of costs was deemed to have a significant monetary value: “Appellants overlook the fact that in offering to have judgment entered against him, respondent [defendant] was also waiving his considerable cost bill against which appellants' likelihood of success in the case must have been weighed.” (Id.) “Facially, [Defendant’s] offer carried a significant value to [Plaintiff] because, if accepted, it would have eliminated [Plaintiff’s] exposure to the very costs which are the subject of this [motion], a sum [Plaintiff] can hardly claim now to be de minimis.” (Jones, supra, 63 Cal. App. 4th at 1264.)

As demonstrated, “case law interpreting the good faith requirement allows for great flexibility in customizing pretrial settlement offers.” (Jones, supra, 63 Cal. App. 4th at 1264.) Indeed, “even a ‘modest settlement offer’ may be in good faith if it is believed the defendant has a significant likelihood of prevailing at trial.” (Id.; accord Carver v. Chevron U.S.A., Inc. (2002) 97 Cal. App. 4th 132, 154 [998 offer providing for nominal sum plus waiver of costs and attorney fees was found to be reasonable and in good faith “in light of the circumstances at the time the offer was made”].)

Thus, “[a] defendant's offer to waive costs may carry significant value to the plaintiff because, if accepted, it eliminates the plaintiff's exposure to expert witness costs.” (Essex Ins. Co. v. Heck (2010) 186 Cal. App. 4th 1513, 1529; Adams v. Ford Motor Co. (2011) 199 Cal. App. 4th 1475, 1486 [A 998 offer had “significant value” for the plaintiff beyond the monetary award, “as it included a waiver of costs that would have protected [the plaintiff] from exposure to the costs which are the very reason for this appeal.”].) “In a particular case, a waiver of costs may be an offer of significant value.” (See Hartline v. Kaiser Found. Hosps. (2005) 132 Cal. App. 4th 458, 471 [§ 998 offer to “waive any claims for costs incurred in the litigation of this matter in exchange for the entry of a Request for Dismissal with prejudice” was reasonable and made in good faith].)

This offer, if accepted, shall resolve all claims that have been brought or could have been brought by Plaintiff CONSUMER ADVOCACY GROUP, INC. (“Plaintiff”) against Enchante based upon the manufacture, distribution, and sale of the products at issue in the above-captioned litigation in exchange for a mutual waiver of costs.

First Defendant, as the offering party, has the burden of demonstrating the settlement offer was valid under section 998. (Smalley v. Subaru of Am., Inc. (2022) 87 Cal. App. 5th 450, 455.) Once that burden is met, “the burden shifts to [the offeree] to demonstrate the offer was unreasonable or was not made in good faith.” (Id. at 458.) “If the actual judgment is more favorable to the offeror than was the offer, it is prima facie evidence of the offer's reasonableness.” (Id.; Thompson v. Miller (2003) 112 Cal.App.4th 327, 338–339 [“[W]hen a party obtains a judgment more favorable than its pretrial offer, [the offer] is presumed to have been reasonable and the opposing party bears the burden of showing otherwise.”].)

To begin, Defendant has demonstrated a valid section 998 settlement offer. The offer is in writing, states the terms and conditions of the proposed judgment or award, and contains a provision that allows the offeree to accept the offer by signing a statement so stating. (See Adham Supp. Decl.; CCP § 998(b).) Plaintiff does not contend the argument is procedurally invalid.

This shifts the burden to Plaintiff to demonstrate the offer was unreasonable or not made in good faith. By operation of the dismissal, Defendant has obtained a judgment more favorable than its pretrial 998 offer, which is prima facie evidence of the offer’s reasonableness. (See Hartline v. Kaiser Found. Hosps. (2005) 132 Cal. App. 4th 458, 471 [“Indeed, [Plaintiff’s] request for stipulation to dismissal and eventual voluntary dismissal of his remaining cause of action without a waiver of costs is prima facie evidence the offer was reasonable.”].)

When Defendant presented its section 998 offers to Plaintiff, it included a detailed and compelling cover letter outlining why it believed Plaintiff’s action was without merit and should be dismissed. (Adham Decl. ¶ 7, Exh. C.) Defendant provided an “exposure assessment,” which demonstrated that “there is no significant risk of exposure to DEHP to consumers in use of the Product, even when one is to assume daily use (which is an inappropriate and incorrect assumption).” (Id., p. 2, ¶ 1.) Defendant’s cover letter also persuasively explained “that DEHP is not a human carcinogen and poses ‘no significant risk of causing cancer in humans’” based on the California Court of Appeal decision in Baxter Healthcare Corp. v. Denton (2004) 120 Cal.App.4th 333.

Throughout its motion and supplemental briefing, Plaintiff attacks Mr. Easter’s methods and interpretation of the results. Plaintiff insists that Defendant knew Mr. Easter’s analysis was “scientifically meritless,” and thus it could not have formed the basis of a “good faith” offer. (Supp. Brief 3: 10.)

Plaintiff says the fact that Defendants continued to litigate the case and incur substantial expert fees shows Plaintiff knew the offer—and the information it relied on—were bogus. Plaintiff notes that Defendant did not designate Easter as an expert, which Plaintiff argues means Defendant knew his testing was unsound. Plaintiff also maintains that it only dismissed the case due to scheduling issues, but not because it doubted its case. Finally, Plaintiff asserts that if the court is inclined to award section 998 costs, it should reduce any such award based on Plaintiff’s ability (or inability) to pay.

Second, attempting to read anything into the fact that Plaintiff did not designate Easter as an expert is a fruitless task. All can agree that the evidence and analysis contained in the cover letter would not, standing alone, win Defendant a defense verdict. It would, however, place Plaintiff on notice of a competing interpretation of the data and provide indicia of a competent defense. This is especially true when considering that Plaintiff has failed to produce any compelling evidence to show it was operating with information to the contrary. After all, it is Plaintiff’s burden to do so.

Considering these facts, this court can only conclude that the Section 998 offer was in the range of reasonably possible results at trial. In addition, Defendant knew that the Plaintiff had sufficient information—and indeed, did provide such information in its cover letter—to allow Plaintiff to assess whether the offer was a reasonable one. (See Covert, supra, 73 Cal. App. 5th at 834.)

As noted, in a proper case, a potential waiver of costs can hold great value. (See Essex Ins. Co., supra, 186 Cal. App. 4th at 1529 [“[a] defendant's offer to waive costs may carry significant value to the plaintiff because, if accepted, it eliminates the plaintiff's exposure to expert witness costs.”].) Plaintiff frequently litigates these cases. Its counsel are experts in this area of law. They know better than anyone that covering the opposing party’s expert witness fees can be significant. (See Carver v. Chevron U.S.A., Inc. (2002) 97 Cal. App. 4th 132, 154 [“Hindsight now shows the value of the proposed waiver of costs and fees was considerable, and it was no secret at any time that Chevron hired expensive lawyers who were expected to pursue all available avenues of defense.”].)

Finally, it is immaterial that Plaintiff dismissed the action without prejudice. A Plaintiff’s voluntary dismissal of the complaint, even without prejudice, “constitutes the conclusion of the action and is therefore an appropriate precipitating event triggering the trial court's discretion as to the assessment of expert witness fees under section 998.” (Mon Chong Loong Trading Corp. v. Superior Ct. (2013) 218 Cal. App. 4th 87, 90.) “A plaintiff may fail to obtain a more favorable judgment or award by failing to obtain any award at all, as in the case of voluntary dismissal.” (Id. at 94.)

Accordingly, based on the totality of the facts and circumstances and the record before it, this Court concludes and expressly finds that Defendant’s 998 offer was made in “good faith,” and was thus valid and enforceable.

Based on the finding the 998 offer was made in good faith and that Defendant obtained a better result, Defendant can recover its costs, including post-offer expert witness fees. (§§ 1032, 1033.5, 998(c)(1).) The court now turns to the reasonableness of the fees sought. Plaintiff contends the costs sought are “manifestly unreasonable.” (Mtn. 1: 11.)

In total, Defendant seeks a total of $324,058.30 in costs in its Memorandum of Costs. The large majority of the fees, $248,175.00, are attributed to Defendant’s expert witnesses. As also noted in the Jones decision:

If items on their face appear to be proper charges, the verified memorandum of costs is prima facie evidence of their propriety, and the burden is on the party seeking to tax costs to show they were not reasonable or necessary. "On the other hand, if items are properly objected to, they are put in issue and the burden of proof is on the party claiming them as costs." (Ladas, supra, 19 Cal.App.4th at p. 774.) However, whether a cost item was reasonably necessary is still a question of fact to be decided by the trial court.”

In addition to the issue of whether these expert fees were even recoverable, Plaintiff has certainly put the “reasonableness” of these costs “in issue,” based upon its timely objection and pending motion to tax costs. Plaintiff argues “[i]n a case where there was no trial, no expert reports, no depositions of Defendant’s witness/ expert and no motion for summary judgement, the purported expert witness fees listed by Defendant are plainly neither necessary nor reasonable.” (Mtn. 3: 25-28.) Upon first glance, this contention appears to have some merit.

In any case, this shifts the burden back to Defendant to demonstrate that these costs were, in fact, reasonable and necessary. Defendants have successfully done so in great part. As set forth in the Declarations of Joseph Sala, Renee Kalmes, and Jessica Vargas, the preparation for trial of this case entailed months of testing, surveys, compilation of data, and the extent to which the use of the Products could expose consumers to DEHP.

Additionally, since these experts do not appear to be direct employees of Defendant, this Court assumes that these are the exact amounts which were actually incurred and/or paid by Defendants directly to each of these expert witnesses. It is well settled that when a bill for services is paid, that creates a rebuttable presumption that the bill was “reasonable.” Courts have based this reasoning on the “recognition that a person who receives a bill has ‘every interest to dispute its accuracy or reasonableness if there is reason to do so. Thus, if a bill or invoice is paid, the court is assured of the accuracy and reasonableness of the charges.'” (Jones, supra., 63 Cal.App.4th at 1268 (quoting Imperial Cattle Co. v. Imperial Irrigation Dist. (1985) 167 Cal.App.3d 263, 272).)

Through the supplemental declaration of defense counsel Dina Adham, Defendant has provided documentary records verifying the costs paid to the experts. (See Adham Decl., Exhs. A-J.) Hence, as previously noted, this creates a rebuttable presumption that these paid costs were reasonable and necessary. People don’t generally pay bills which are unreasonable and/or unnecessary. [FN 1] Plaintiff has simply failed to sufficiently rebut this presumption.

Considering the totality of the circumstances, the court agrees the costs sought are excessive to some extent. As previously noted by this Court, the number of experts obtained by Defendant was likely unnecessary and likely resulted in some duplication of work and evidence.

Therefore, the court finds the total amount of recoverable and reasonable expert witness costs to be $180,000.00. The amount of expert fees sought (i.e. $248,175.00) is therefore reduced to this amount.

Judge of the Superior Court

FN 1 - In any case, whether they have not been paid in whole or in part does not affect the final determination of this motion. If they have, in fact, been paid, that merely adds on additional evidence of the reasonableness and necessity of the expert fees. In either case, the final ruling does not change.