BILL ANALYSIS                                                                                                                                                                                                   
                                                                   SB 1324


                           SENATE THIRD READING

                SB 1324 (Kopp) - As Amended:  May 27, l994

SENATE VOTE:  31-0

ASSEMBLY ACTIONS: 

COMMITTEE       JUD.           VOTE 10-0                           
šCOMMITTEE                                              VOTE         

DIGEST

Existing law provides the following:

1)   Generally, a prevailing party (in a civil action) is entitled to 
     recover costs.  Among other things, costs include attorney fees 
     authorized by contract, statute or (other) law. 

2)   Notwithstanding the above, costs may be "withheld or augmented" 
     pursuant to the following:

     a)   Not less than 10 days before trial, any party may serve a 
          settlement offer on any other party.  If the offer is not 
          accepted within 30 days or commencement of trial, whichever is 
          first, it is deemed withdrawn and is inadmissible.

     b)   If an offer by the defendant is not accepted and the plaintiff 
          fails to obtain a more favorable judgment, the plaintiff shall 
          not recover his or her costs and shall pay the defendant's costs 
          from the time of the offer.  Additionally, the court may require 
          the plaintiff to pay the defendant's costs from the date of 
          filing of the complaint and the cost of expert witnesses.

          
In such a case, the costs awarded to the defendant shall be š          deducted from the plaintiff's judgment.  If the costs awarded to 
          the defendant exceed the plaintiff's judgment, a judgment for the 
          balance shall be entered on behalf of the defendant.! 

     c)   If an offer by the plaintiff is not accepted and the defendant 
          fails to obtain a more favorable judgment, the court may require 
          the defendant to pay the costs incurred by the plaintiff for 
          expert witnesses.  Also, under Civil Code Section 3291, a 
          plaintiff is entitled to recover prejudgment interest (in tort 
          cases) from the date the "998" offer is made.

This bill states (for purposes of "998" offers) that in a cause of action 
šnot based on tort, a plaintiff shall not be deemed to have obtained a 
šjudgment more favorable than the offer unless the judgment, minus 
šattorney's fees and costs, exceeds the defendant's offer.

FISCAL EFFECT


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None 

COMMENTS

1)   The author is the sponsor of SB 1324, which overturns the decision in 
     Encinitas Plaza Real v. Knight (1989) 209 Cal.App.3d 996.

     In Encinitas Plaza, a shopping center lessor, sued Knight, a 
     defaulting lessee.  After an extraordinarily complex series of suits 
     and countersuits, Knight offered Plaza $21,000 to settle the second 
     suit. Plaza rejected this offer.  At trial, Plaza was awarded $6,000 
     in damages and, after hearing, $39,000 in attorney's fees.  (The 
     $39,000 award was subsequently reduced by $9,000, which represented 
     the fees due Knight for its successful appeal after the first trial.) 

     Knight argued that it was not liable for Plaza's costs, including the 
     $30,000 in attorney's fees, because Plaza's award, minus the fees, was 
     less than Knight's $21,000 settlement offer.  The Court summarized the 
     issue as follows:

                 "Thus, the key issue presented is whether the
               attorney's fees awarded here should be considered
               an item of costs in the context of section 998. 
               Knight's appeal is premised on the notion that
               attorney's fees are an element of costs.  We
               disagree."

     The Court ruled that Plaza was entitled to attorney's fees as a matter 
     of contract (the lease contained an attorney's fees provision).  Thus, 
     the fees incurred by Plaza were an element of damages and not merely 
     recoverable as costs.  Accordingly, Plaza's total judgment, 
     approximately $6,000 plus $30,000, exceeded Knight's offer of $21,000. 
      Within the meaning of Section 998, Plaza obtained a more favorable 
     judgment than the offer made by Knight. 

2)   The author argues that the Encinitas ruling distorts the purpose of 
     Section 998, to encourage settlement, by rewarding marginally 
     successful litigants who "run up" large attorney fee bills.  The 
     author asserts that the Section 998 "calculation" should be made 
     entirely on the basis of the damages recovered exclusive of fees.









                                                                     FN 010011



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