When Imposing Costs on a Party that Receives Less at Trial Than Was Offered in Settlement, Courts Should Consider the Party’s Financial Resources

In a lawsuit where an employee unsuccessfully claimed discriminatory firing under the Fair Employment and Housing Act (FEHA), a California Court of Appeal considered several issues regarding costs of litigation that the unsuccessful employee should have to pay to the employer. Of particular importance, the Court concluded that the trial court should have considered the employee’s financial situation in determining the reasonable amount of costs that it ordered him to pay. (Seever v. Copley Press, Inc. (47 Cal.Rptr.3d 206, Cal.App. 2 Dist., Aug. 15, 2006))

Facts

Employee, Michael Seever, a building supervisor for one of Copley Press’s newspapers, lost his job during a reduction in force. Employee sued Employer under the FEHA, claiming discrimination on the basis of disability, family and medical leave, and age. A jury returned a verdict in favor of Employer, and the trial court ordered Employee to pay $85,494 in litigation costs to Employer. Employee appealed.

Decision

The prevailing party in a lawsuit is entitled to recover certain costs pursuant to the Code of Civil Procedure. Employee argued that the trial court erred in making him pay the cost of videotaping depositions that were not used at trial. The Court of Appeal determined the videotaped depositions were reasonably necessary because Employer used them in its trial preparation; the trial attorney, who had not taken the depositions, was able to use the videotaped depositions to judge the witnesses’ demeanor. Employee also argued that he should not be made to pay 37 cents per mile for Employer’s counsel to attend depositions. Considering that Employer’s counsel had to travel from San Diego to Los Angeles for 30 depositions and the mileage requested was less than the rate allowed by the IRS, the Court determined that the trial court did not abuse its discretion on this issue. However, the Court agreed with Employee that he should not have to pay for unused trial exhibits, because they could not have assisted the trier of fact.

Lastly, Employee challenged the reasonableness of expert fees that the trial court ordered Employee to pay to Employer. The award of fees was based on Code of Civil Procedure § 998, which allows a trial court to award costs and expert fees where a plaintiff rejects a defendant’s offer of judgment and then recovers less at trial than the offer. The Court questioned whether the award of expert fees was reasonable as required by § 998. The Court stated that incentives to settle must be balanced between the two parties, so that less affluent parties will not be “pressured into accepting unreasonable offers just to avoid the risk of financial penalty they can’t afford.” Trial courts may have to consider the parties’ respective resources when considering settlement incentives (such as section 998 cost awards).

The Court therefore sent the case back to the trial court to inquire about Employee’s “financial situation [and] whether the cost award allowed here represents an unduly powerful settlement incentive to a litigant of [Employee’s] means.”

Note

This Legal Alert replaces our previous alert on this case dated October 16, 2006.

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