LARA & LUNA APC EMPLOYEE RIGHTS UPDATE JANUARY 2, 2018

The California Court of Appeal Confirms that the Cost-Shifting Provision in Government Code Section 12965(b) Overrides Code of Civil Procedure Section 998(c)

In Arave v. Merrill, Lynch, Pierce, Fenner & Smith Inc. et al. (Cal. Ct. App. 4 th Dist., January 2, 2018) the Fourth District Court of Appeal clarified that the general cost shifting provisions in civil cases set forth in Code of Civil Procedure Section 998(c) are overridden by the express provisions governing costs awards in Government Code Section 12965(b) (which provides that a defendant employer may only obtain an award of costs against a plaintiff employee asserting claims under the California Fair Employment and Housing Act ("FEHA") where the trial court expressly finds the FEHA claims to be frivolous). In Arave , the plaintiff, Brent Arave, sued Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill Lynch") for claims of religious discrimination, harassment, and retaliation, and also asserted California Labor Code claims for violation of wages and whistleblower retaliation.

After trial, the jury returned a verdict in favor of Merill Lynch on all claims that survived summary judgment. Merrill Lynch then sought costs and expert witness fees. The trial court awarded $54,545.18 in ordinary costs under Code of Civil Procedure § 1032 and $29,097 in expert witness fees under Code of Civil Procedure § 998.

With regard to the expert fee award, Merrill Lynch had previously made an offer to compromise under Section 998, which was not accepted. The trial court considered Mr. Arave's objection that the FEHA statute governs whether the prevailing party can recover expert witness fees, but ruled that it was appropriate to award such fees to the defendants under Section 998. Relying on California Supreme Court precedent, the Court noted that an award of attorney fees or costs to a prevailing FEHA defendant is permissible only where "the Court finds the action was objectively without foundation when brought, or the plaintiff continued to litigate after it clearly became so." Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4 th 97, 115. The Court of Appeal agreed that the standard applicable to attorney fees and ordinary costs "also applies to expert witness fees for a prevailing FEHA defendant." The Court noted that "our Legislature, like Congress before it, sought 'to encourage persons injured by discrimination to seek judicial relief' and '[t]he Legislature could well have believed the potential for a cost award in the tens of thousands of dollars would tend to discourage even potentially meritorious suits by plaintiffs with limited financial resources." Williams, at pp. 112-113. The Court held that as expert witness fees raise precisely the same concern, there is no basis in statute or case law to treat them differently. Expert witness fees may be awarded to a prevailing defendant in a FEHA case only upon showing the plaintiff's FEHA claim was objectively baseless.

The Court further ruled that Section 998(c) allows a trial court to award a defendant expert witness fees and costs incurred after a reasonable pretrial settlement offer, "but only as an adjustment to an award of costs under Section 1032(b)." The Court emphasized that section 998 costs and fees are available to the prevailing party "[e]xcept as otherwise expressly provided by statute." As the Supreme Court in Williams held that the cost shifting provision of Government Code Section 12965(b) is an express exception to the cost shifting provision of Section 1032(b), the Court in Arave held that "Section 12965(b) overrides Section 998(c), rather than the other way around." The Court then concluded that "if a defendant may not obtain an award of costs under Section 1032(b) if plaintiff's claim[sic] are nonfrivolous, the trial court may not augment an award of costs by awarding expert witness fees under Section 998(c)." The Court then rejected defendant's arguments that expert witness fees were distinct from ordinary costs and ruled that "if Williams bars imposing Section 998(c) ordinary costs, we conclude it bars imposing Section 998(c) expert witness fee costs as well."

The Court then disagreed with prior appellate decisions in Holman v. Atlana Pharma US (2010) 186 Cal.App.4 th 262 and Sviridov v. City of San Diego (2017) 14 Cal.App.5 th 514. With regard to Holman , the Arave Court ruled that the Holman decision concluded that Section 12965(b) is not an express exception to awarding costs under Section 1032(b) - a premise that was subsequently rejected by the Supreme Court in Williams. As for the Sviridov decision, the Arave Court disagreed with that decision because the plaintiff in Sviridov "had forfeited the issue of whether Willaims precludes a prevailing defendant from recovering costs on a nonfrivolous FEHA claim under Section 998." The plaintiff had not provided any analysis or citation to legal authority and therefore forfeited the argument. The Arave Court then concluded that "we believe a full consideration of the statutes and case law compels the conclusion defendants were not entitled to an award of expert witness fees in this case." The Court noted that its holding applied to FEHA cases in which expert witness fees are not awardable to defendants under Section 12965(b). Where, a defendant prevails after trial against a FEHA claim that the trial court rules is frivolous, the trial court may consider whether the plaintiff rejected a reasonable settlement offer as well as the plaintiff's ability to pay any cost award. Similarly, where an employee plaintiff prevails after trial, the trial court may consider whether the defendant rejected a reasonable settlement offer in deciding whether to award the plaintiff expert witness fees.

With regard to the award of ordinary costs, the Court of Appeal, citing the Supreme Court decision in Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4 th 97, 115, emphasized that a prevailing employer cannot recover ordinary costs on FEHA claims "unless the Court finds the action was objectively without foundation when brought, or the plaintiff continued to litigate after it clearly became so." As the trial court had ruled that the FEHA claims were not objectively without foundation, defendants were not entitled to recover ordinary costs incurred in defending against Mr. Arave's FEHA claims. The Court remanded the matter back to the trial court to determine whether any costs were awardable on the plaintiff's wage claims. The Court further held that a defendant employer may only be entitled to recover attorney fees on a wage case where the trial court expressly rules that the plaintiff-employee's case was frivolous.

Lara & Luna APC continues to monitor new laws and related developments that impact the rights of employees throughout the State of California. The firm believes that educating employees about these issues improves workplaces in particular and our community as a whole. If you have any questions regarding your rights as an employee - from the time that you submit your job application through the conclusion of your employment relationship - please contact our office at (562)444-0010 or visit our website at www.laralunalaw.com

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