Did Caterpillar’s Attorneys Commit Malpractice When They Served a 998 Offer?

  In Wohlgemuth v. Caterpillar, plaintiffs purchased a new motor home that had an engine manufactured and warranted by Caterpillar. Plaintiffs claimed the engine was defective and sued Caterpillar under the Song-Beverly Consumer Warranty Act, alleging Caterpillar failed to repair the defects after a reasonable number of attempts. Shortly before trial, Caterpillar served and filed the following Code of Civil Procedure section 998 offer:

“Pursuant and subject to the provisions of Code of Civil Procedure § 998, defendant Caterpillar Inc., without admitting liability, hereby offers to pay to plaintiffs . . . the total sum of Fifty Thousand Dollars ($50,000.00), in exchange for the dismissal with prejudice of the entire action and general release of all claims as to this defendant.”

  Plaintiffs filed an acceptance of the offer and a dismissal. Thereafter, plaintiffs moved for attorney fees under the Song-Beverly Act. The trial court found plaintiffs to be the prevailing parties and awarded attorney fees to plaintiffs in the amount of $117,625 and costs in the amount of $7,737.08. Affirmed.

  What was the attorneys’ error? The section 998 offer failed to include the following or similar language: “Each party to bear its own costs and attorney fees.”

  Where a Code of Civil Procedure section 998 offer is silent on costs and fees, the prevailing party is entitled to costs and, if authorized by statute or contract, attorney fees. This is a “bright-line” rule. When a section 998 offer is silent about attorney’s fees and costs, it cannot reasonably be interpreted to exclude their recovery and the prevailing party may seek them. The fact that Caterpillar’s offer to compromise was silent on the subject of recovery of attorney fees and costs clearly left such recovery available.

  The term “judgment” as used in section 1794(d) of the Song-Beverly Act has a broad scope. Thus, where a dismissal with prejudice is entered as part of a compromise agreement under section 998, it is the equivalent of a judgment for purposes of section 1794(d). The pretrial dismissal with prejudice pursuant to the agreement was sufficient for purposes of section 1794(d) to allow an award of attorney fees and costs. While the parties may expressly waive attorney fees and costs, allowing a defendant to thwart an otherwise successful consumer’s remedy under section 1794(d) by means of an agreement silent on attorney fees and costs—merely because the means used to finally terminate the action was a dismissal rather than a formal judgment—would become a trap for the unwary consumer and a potential means of evading statutory compliance.

  The failure of Caterpillar’s attorneys to include a provision in the section 998 offer that each party would bear its own costs and attorney fees was the error which entitled the Wohlgemuths to their fees and costs. It satisfies the “but for” test, i.e., but for the error Caterpillar would not have had an attorney fee and cost award entered against it following acceptance of the offer. I suspect the appeal was handled by Caterpillar’s attorneys’ errors and omissions carrier. If so, that insurer will also be responsible for paying the Wohlgemuths fees and costs on appeal.

  I consult with clients and accept cases involving legal malpractice and breach of fiduciary duty claims, including errors and omissions coverage issues. For other types of cases I accept, please scroll my “Home” and “My Practice” pages. If you are seeking a legal consultation or representation, please give me a call at 818.971.9409. – Michael Daymude

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