Key Decisions

August 2012 – Compromise Could Create Fee Liability

(filed under: Key Decisions Archive | August 16, 2012)

Other Cases Of Interest

A Defendant’s Acceptance Of A Statutory Offer To Compromise Could Create Statutory Attorney Fee Liability

Wohlgemuth v. Caterpillar Inc.
(Cal. Ct. of App., 5th Dist.), filed July 23, 2012

Richard L. Wohlgemuth and Gloria M. Wohlgemuth purchased a new motor home that had an engine manufactured and warranted by Caterpillar Inc. The Wohlgemuths subsequently claimed the engine was defective and sued Caterpillar under the Song-Beverly Consumer Warranty Act embodied in Civil Code section 1790, et seq. They alleged that Caterpillar failed to repair the defects after a reasonable number of attempts.

Shortly before trial, Caterpillar made an offer to compromise under the terms of Code of Civil Procedure section 998. The offer provided that the Wohlgemuths would be paid $50,000, in exchange for which they would dismiss the action with prejudice and sign a release of all claims. The offer was silent as to attorney fees and costs.

The Wohlgemuths filed a notice of acceptance of the offer, dismissed the action with prejudice and then moved to recover their attorney fees and costs under Civil Code section 1794(d). Caterpillar opposed the motion, arguing that there was no formal judgment in the Wohlgemuths favor as a predicate for an attorney fee or cost award and that, in any event, it, Caterpillar, was the true prevailing party, not the Wohlgemuths, since a dismissal had been entered.

The trial court rejected Caterpillar’s arguments, found that the Wohlgemuths prevailed, and awarded attorney fees and costs to the Wohlgemuths.

The Court of Appeal affirmed.

Before addressing Caterpillar’s arguments, the court noted that 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.

The court then rejected Caterpillar’s arguments that for the Wohlgemuths to be considered prevailing parties, there must be an actual judgment in their favor and that since they dismissed their action, there was no judgment. It ruled that a compromise agreement contemplating payment by defendant and dismissal of the action by plaintiff can be the legal equivalent of a judgment in plaintiff’s favor.

The court then turned to the question of whether the particular compromise was such that the Wohlgemuths could be considered to have prevailed. It held that the fact that the Wohlgemuths dismissed the action does not mean that they were necessarily precluded from being deemed the prevailing parties.

Given the amount of the settlement ($50,000) in comparison to the cost of replacing the defective engine ($21,000) and the cost of the entire motor home, the trial court did not abuse its discretion in ruling that the Wohlgemuths were the prevailing parties.