This post was authored by Jeffrey C. Freedman.

What happens when two totally valid legislative goals—that happen to contradict each other—collide? Like the title of the 2003 film with Diane Keaton and Jack Nicholson, “Something’s Gotta Give!” In Huerta v. Kava Holdings, Inc., decided this past November 14, the collision was between a Code of Civil Procedure (CCP) section (§ 998(c)) intended to encourage settlement of lawsuits prior to trial, and a Government Code section (§ 12965(b)) serving to avoid discouraging meritorious employment discrimination cases by claimants of modest means. As you might guess, the CCP provision was required to stand aside and the Government Code section was given priority.

Felix Huerta, after being fired from his job at the legendary Bel-Air Hotel, sued Kava Holdings, the Hotel’s owner, for violation of the Fair Employment and Housing Act (FEHA) on a number of theories, most of which were dismissed before or during trial. At trial, the jury decided all the remaining claims against him and in favor of the Hotel.  Just prior to trial, the Hotel made an offer to compromise pursuant to CCP section 998, which Huerta rejected. Subsection (c)(1) of section 998 provides in pertinent part: “If 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” as well as certain expert witness fees. Accordingly, since Huerta rejected the settlement offer and won nothing from the jury, the judge awarded the Hotel $50,000 in costs and expert witness fees.

Huerta appealed. The Court of Appeal, otherwise affirming the judgment in favor of the Hotel, vacated the cost and fees award as contrary to the Government Code provision in FEHA. The appellate court held that section 12965(b) “overrides” section 998(c) and therefore a prevailing defendant cannot obtain an award of cost or fees even if its offer of compromise is rejected and the plaintiff fails to obtain a better result at trial. The Court noted language in a prior decision that “shifting these litigation expenses to what ordinarily are modest-or low-income individuals would unduly discourage these plaintiffs from litigating legitimate claims.”

Ever since FEHA was reorganized in 1980, Government Code section 12965(b) has provided: “In civil actions brought under this section, the court, in its discretion, may award to the prevailing party. . . , reasonable attorney’s fees and costs, including expert witness fees.” Thus, as written, a prevailing plaintiff or defendant could receive an award, not merely of costs, but also of attorney’s and expert witness fees. However, in 1978, the U.S. Supreme Court, in Christiansburg Garment Co. v. EEOC, had construed similar language about costs and attorney’s fees in Title VII of the federal Civil Rights Act of 1964 as allowing an award to a prevailing plaintiff as a matter of course, but only to a prevailing employer when the plaintiff’s case was frivolous, unreasonable or groundless, or where the plaintiff continued to litigate after it clearly became so. The California courts adopted this same standard for FEHA cases, and since then prevailing defendants have routinely been denied fees and costs as long as the plaintiff’s case was assessed by the trial judge as “non-frivolous.” However, until now, defendants could still make section 998 offers of compromise almost up to the eve of trial in hopes of encouraging settlement by putting the plaintiff in jeopardy of a significant adverse award of costs and fees even if they won at trial but received less than the defendant had offered.

Now, due to the Huerta decision, and an amendment to section 12965(b) to become effective this coming January 1, section 998 is no longer available to defendants in most all FEHA cases as leverage to settle cases up to the eve of trial by putting plaintiffs at risk of such awards. Effective the first of 2019, this language is added to the final sentence of section 12965(b), which allows costs and attorney’s fees to the prevailing party in a FEHA case: “except that, notwithstanding Section 998 of the Code of Civil Procedure, a prevailing defendant shall not be awarded fees and costs unless the court finds the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so.” Thus, the only exception will be in those rare cases which a judge agrees are “frivolous, unreasonable, or groundless.”

Please note, however, that section 998 will still be available for plaintiffs to use against employers they have sued for a FEHA violation. Also, employers can still use section 998(c) against plaintiffs to this extent: 998 also provides that “If 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.” So, if an employer’s section 998 offer is rejected, and the plaintiff at trial wins less than the employer offered, the plaintiff cannot receive an award for costs s/he incurred after the offer was made.