Settlement Offer That Excluded “Costs” Likewise Excluded Attorney Fees

In Martinez v. Los Angeles County Metropolitan Transportation Authority, (— Cal.Rptr.3d —-, Cal.App. 2 Dist., May 23, 2011), a court of appeal considered whether a settlement offer accepted by a plaintiff under Code of Civil Procedure section 998 stating that each party would bear their own costs also excluded the recovery of attorney fees. The court of appeal held that the terms of the offer excluded a recovery of attorney fees.


Jessica Martinez (“Martinez”) brought a lawsuit against Los Angeles County Metropolitan Transportation Authority (“MTA”) for disability discrimination under federal and state law after an MTA driver refused to allow her to ride on the bus with her companion dog. The MTA offered to settle pursuant to section 998. The offer provided in part that the MTA “hereby offers to compromise the above-captioned matter for the total sum of $2,501.00, each side to bear their own costs.” Martinez accepted MTA’s offer.

Weeks later, Martinez filed a motion for attorney fees pursuant to the Americans with Disabilities Act and California statutes protecting the civil rights of the disabled. Martinez contends her acceptance of the offer did not preclude her from recovering attorney fees because “the offer referred only to ‘costs’ and did not mention ‘attorney fees.'” MTA however argued that the word “costs” included attorney fees pursuant to Code of Civil Procedure section 1033.5. In denying the motion for attorney fees, the trial court found that “statutory attorney’s fees are an item of costs pursuant to CCP section 1033.5(a)(10)(B) . . . and are therefore included in the defendant’s section 998 offer, which states ‘each side to bear their own costs.'”


The court of appeal in Engle v. Copenbarger & Copenbarger, LLP (2007) 157 Cal.App.4th 165, 169, held as follows: “[A] party who secures a recovery by accepting a section 998 offer is entitled to costs and attorney fees unless they are excluded by the offer.” In Engle, the offer had no provision regarding costs and fees. The court therefore found that Engle should be awarded both as the prevailing party.

Relying on the Engle case and California Code of Civil Procedure sections 998, 1032, and 1033.5, the court of appeal in this case found that an offer of settlement expressly excluding costs but making no mention of attorney fees results in no recovery of attorney fees. The court of appeal specifically found that “[u]nless the offer expressly states otherwise, an offer of a monetary compromise under section 998 that excludes ‘costs’ also excludes attorney fees.”

The appellate court stated its conclusion is “based on the rapport between sections 998, 1032 and 1033.5.” Section 1032 states that a party accepting a settlement offer pursuant to section 998 is the prevailing party for purposes of seeking costs. Section 1033.5 sets forth the allowable costs. Section 1033.5(a)(10) also provides that “attorney fees are allowable costs under section 1032 when authorized by contract, statute, or law.” The court of appeal thus concluded that because attorney fees are costs pursuant to section 1033.5, “it follows that when a section 998 offer provides that each party will bear its own costs the word ‘costs’ refers to all the costs described in section 1033.5, including attorney fees.” The court of appeal affirmed the trial court’s order.


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