Opinion
G062457
04-16-2024
LINDA A. GAVOLA, Individually and as Trustee etc., Plaintiffs and Appellants, v. CSJ SERVICES, INC., Defendant and Respondent.
Susan Barilich for Plaintiffs and Appellants. Mayr Lee, Scott C. Lee and Charles A. Mayr for Defendant and Respondent.
NOT TO BE PUBLISHED
Appeal from a postjudgment order of the Superior Court of Riverside County, No. RIC1901887, Carol A. Greene, Judge. Reversed. Requests for Judicial Notice granted in part and denied in part.
Susan Barilich for Plaintiffs and Appellants.
Mayr Lee, Scott C. Lee and Charles A. Mayr for Defendant and Respondent.
OPINION
SANCHEZ, J.
INTRODUCTION
Linda A. Gavola and the Robert S. and Linda A. Gavola Family Trust (Plaintiffs) appeal from a postjudgment order awarding $24,100.79 in costs and expert fees to CSJ Services, Inc. (CSJ), pursuant to Code of Civil Procedure section 998 (section 998). The trial court awarded those postoffer costs and fees on the grounds that Plaintiffs did not accept CSJ's statutory offer to compromise under section 998 and then failed to obtain a judgment that was more favorable than the terms of that offer.
We reverse because, exercising de novo review, we conclude CSJ's section 998 offer was invalid. Two components of CSJ's section 998 offer in particular made it invalid. First, the offer was for CSJ to pay Plaintiffs $75,000 in three installments, the first of which would not be due until after the scheduled trial date, and the last of which would not be due until 210 days after acceptance. Second, the offer called expressly for entry of a dismissal of CSJ, and not entry of a judgment against CSJ. The risk and consequences of CSJ defaulting in making an installment payment and Plaintiffs' inability to enforce the section 998 offer by means of a money judgment meant the offer could not be valued monetarily and compared against the jury verdict that Plaintiffs obtained against CSJ.
For similar reasons, we also conclude CSJ's section 998 offer was not made in good faith. The offer amounted to a bare promise to pay in the future and had no reasonable prospect of being accepted by Plaintiffs.
BACKGROUND FACTS AND PROCEDURAL HISTORY
In July 2023, Plaintiffs filed a motion to augment the record with seven documents. By order entered on August 25, 2023, we denied the motion to augment the record but stated that, on our own motion, we would decide in conjunction with the decision on appeal whether to take judicial notice of those documents. We now decline to take judicial notice of the notice of entry of judgment and the notice of ruling because they do not have file stamps. We decline to take judicial notice of the order granting the motion for an award of postoffer costs because it is already part of the clerk's transcript. We take judicial notice of the remaining four documents as records of a court of this state. (Evid. Code, §§ 452, subd. (d), 459.) Also in July 2023, Plaintiffs filed a request that we take judicial notice of four documents, submitted as exhibits i through iv. In our August 25, 2023 order we recharacterized the request for judicial notice as a motion to augment the record as to exhibits iii (the complaint in this matter) and iv (CSJ's answer to the complaint) and granted that motion. We stated we would decide whether to take judicial notice of exhibits i and ii in connection with the decision on appeal. We now take judicial notice of exhibits i (judg. entered on Mar. 14, 2016) and ii (opn. from Fourth Dist., Div. Two, case No. E065541) as records of a court of this state. (Evid. Code, §§ 452, subd. (d), 459.)
I. Background Facts
Jeremy Asbra and Christene Asbra (together, the Asbras) were the sole shareholders and officers of CSJ. In May 2015, Plaintiffs obtained an arbitration award in the amount of $605,692 against Jeremy for breach of fiduciary duty, securities fraud in violation of California Corporations Code sections 25401 and 25501, and constructive fraud. In March 2016 a judgment in the amount of about $605,692 was entered against Jeremy.
II. Procedural History
In March 2019 Plaintiffs initiated this lawsuit against CSJ, Karen Novorr, William Alan Pezzuto, Denise Desmarais as trustee of the Olive Manford Trust, and Christene Asbra. Plaintiffs asserted causes of action for violation of the Uniform Voidable Transactions Act (Civ. Code, § 3439 et seq), common law fraudulent transfer, conspiracy, and injunctive relief. As remedies, Planitiffs sought money damages (including punitive damages) and an injunction preventing defendants from making further transfers of property, cash, or assets.
As to CSJ, the complaint alleged: "Commencing in November, 2015, and continuing after that date, Jeremy Asbra transferred money to and laundered through CSJ Services, Inc., thousands of dollars in cash. In addition, distributions due Jeremy Asbra from CSJ Services, Inc., were channeled through his wife, Defendant, Christine Nicole Asbra, but Jeremy Asbra benefitted from the distributions. On May 29, 2017, Jeremy Asbra was paid income from a fraudulent loan from CSJ Services, Inc. Defendant CSJ Services, Inc., had knowledge of, ratified and approved the previously described transfers by Jeremy Asbra to it, and is thereby bound by them and complicit in the fraud." These transfers allegedly were made to hinder, delay, or defraud Plaintiffs in enforcing the judgment against Jeremy.
On June 1, 2022, twelve days before the scheduled trial date, CSJ served a statutory offer to compromise pursuant to section 998. The terms of the offer were, "in exchange for a dismissal," CSJ would pay Plaintiff $75,000 in installments according to the following schedule: (1) 50 percent ($37,500) to be paid within 30 days of acceptance; (2) 25 percent ($18,750) to be paid within 90 days of the first payment; (3) 25 percent ($18,750) to be paid within 90 days of the second payment. Plaintiffs did not accept the offer.
On June 16, 2022, after trial had begun, CSJ made another settlement offer. The terms of this offer were that in exchange for a dismissal with prejudice of both CSJ and Christene and a general release, CSJ and Christene would waive all costs of suit and any costs and expert fees that might have been recoverable under section 998. Plaintiffs did not accept this offer.
The trial court denied CSJ's motion for a directed verdict, and the trial proceeded to verdict. The jury returned a verdict against CSJ and awarded Plaintiffs $10,000 in damages and $35,000 in punitive damages.
The trial court granted nonsuits in favor of Christene Asbra and Desmarais. The jury returned verdicts in favor of Novorr and Pezzuto.
CSJ brought a motion for an award of postoffer costs and expert fees under section 998 based on Plaintiffs' failure to accept CSJ's section 998 offer. CSJ sought a total of $24,100.79, which included expert fees of $21,587.50. In opposing the motion, Plaintiffs argued: (1) CSJ's section 998 offer was uncertain because the settlement was to be paid in installments, (2) CSJ's second settlement offer extinguished CSJ's section 998 offer; and (3) CSJ did not sustain its burden of showing its costs were reasonable and necessary.
The trial court granted CSJ's motion and awarded CSJ $2,513.29 in postoffer costs and $21,587.50 in expert fees, for a total award of $24,100.79. The court found the section 998 offer was valid and "the payment terms do not in any way nullify the [section] 998 offer." The court also found the expert fees were actually incurred and reasonably necessary.
Plaintiffs timely appealed from the order granting CSJ's motion for postoffer costs. An amended judgment incorporating those costs was entered in May 2023.
DISCUSSION
I. Law Regarding Section 998 and Standard of Review
As relevant here, section 998, subdivision (b) provides: "Not less than 10 days prior to commencement of trial . . ., any party may serve an offer in writing upon any other party to the action to allow judgment to be taken or an award to be entered in accordance with the terms and conditions stated at that time. The written offer shall include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted."
An offer that is not accepted before trial or within 30 days after the offer is made, whichever occurs first, is deemed to be withdrawn. (§ 998, subd. (b)(2).) "If the offer is accepted, the offer with proof of acceptance shall be filed and the clerk or the judge shall enter judgment accordingly." (Id., subd. (b)(1).)
If the plaintiff does not accept an offer made by the defendant and then fails to obtain a judgment that is more favorable than the offer, then "the plaintiff shall not recover his or her postoffer costs and shall pay the defendant's costs from the time of the offer." (§ 998, subd. (c)(1).) In that situation, the trial court has discretion to require the plaintiff to pay the postoffer costs of the defendant's expert witnesses "actually incurred and reasonably necessary" in preparation for or during trial of the case. (Ibid.)
"The purpose of . . . section 998 is to '"encourage settlement by providing a strong financial disincentive to a party-whether it be a plaintiff or a defendant-who fails to achieve a better result than that party could have achieved by accepting his or her opponent's settlement offer." (Pilimai v. Farmers Ins. Exchange Co. (2006) 39 Cal.4th 133, 139.)
"Our review of the section 998 offer is subject to two different standards of review: Whether the section 998 offer was valid is a question of statutory interpretation we review de novo, and whether the offer was reasonable and made in good faith is reviewed for abuse of discretion." (Smalley v. Subaru of America, Inc. (2022) 87 Cal.App.5th 450, 455.)
II. CSJ's Section 998 Offer Was Invalid
Plaintiffs argue CSJ's section 998 offer was invalid because it could not be valued and compared to the value of the judgment against CSJ. We agree CSJ's section 998 offer was invalid because, as Plaintiffs argue, it was a "no-risk offer" that made only a bare "'promise to pay.'"
CSJ's section 998 offer was to pay $75,000 in three installments with the third installment not due until 210 days after acceptance. The risk and consequences of nonpayment could not be valued and used to compare the offer to a future judgment. Because CSJ made the section 998 offer only 12 days before trial was set to begin, and the first payment would not be due until 30 days after acceptance, the consequences of nonpayment would include loss of a set trial date, delay in going to trial against all defendants, and the cost of counsel preparing a second time for trial.
The risk of nonpayment by CSJ was substantial: The very fact the offer was to be paid in three installments demonstrates CSJ did not have wherewithal to pay the $75,000 when it made the offer. By accepting the offer, Plaintiffs would have taken the chance that CSJ somehow would acquire the means to pay.
In the event of nonpayment of the section 998 offer, Plaintiffs would have no means to enforce it. Once an offeree accepts a section 998 offer, the offer and proof of acceptance are filed with the court clerk, and the clerk is authorized to enter judgment on it "accordingly." (§ 998, subd. (b)(1).) However, the section 998 process is contractual, and, therefore, the parties may agree that acceptance of a section 998 offer will result in a dismissal rather than a money judgment. (Arriagarazo v. BMW of North America, LLC (2021) 64 Cal.App.5th 742, 748.) CSJ's section 998 offer did precisely that: It stated that "in exchange for a dismissal" (italics added) CSJ would pay Plaintiffs $75,000 payable in three installments. We strictly construe the section 998 offer. (Sanford v. Rasnick (2016) 246 Cal.App.4th 1121, 1129-1130.) The word dismissal cannot be construed to mean a money judgment.
CSJ's section 998 offer did not stipulate that dismissal would be entered upon payment of the third installment. Thus, had Plaintiffs accepted the offer, CSJ would have been able to file the offer and the signed acceptance before even the first installment was paid. According to the terms of the offer, a dismissal of CSJ, not a money judgment, would have been entered by the court clerk. Because a dismissal takes effect immediately (Pittman v. Beck Park Apartments Ltd. (2018) 20 Cal.App.5th 1009, 1022), the dismissal of CSJ would have taken effect before any installment payment would be due. If CSJ failed to make an installment payment, Plaintiffs would not have a money judgment to enforce against CSJ.
The terms permitting installment payments and requiring a dismissal rather than a judgment made it "'exceedingly difficult or impossible to determine the value of'" CSJ's section 998 offer to Plaintiffs. (Khosravan v. Chevron Corp. (2021) 66 Cal.App.5th 288, 295.) The value of CSJ's section 998 offer was not $75,000: The value was $75,000 discounted for the risk and consequences of CSJ's failure to pay an installment. CSJ, which bore the burden of demonstrating its section 998 offer was valid (Rojas v. HSBC Card Services, Inc. (2023) 93 Cal.App.5th 860, 893), presented no evidence of the offer's true value (see Hurlbut v. Sonora Community Hospital (1989) 207 Cal.App.3d 388, 409 [§ 998 offer was invalid because it offered a structured settlement consisting of a lump-sum payment and monthly annuity for the life of the plaintiff and no evidence was presented as to the offer's present value]). We therefore conclude the offer was not sufficiently certain to be valid.
III. CSJ's Section 998 Offer Was Not Made in Good Faith
We also conclude CSJ's section 998 offer was not made in good faith. "Only settlement offers made in good faith are effective under section 998." (Covert v. FCA USA, LLC (2022) 73 Cal.App.5th 821, 833 (Covert).)
"Whether an offer is made in good faith is based on whether, at the time it was made, it carried a reasonable prospect of acceptance by the offeree." (Glassman v. Safeco Ins. Co. of America (2023) 90 Cal.App.5th 1281, 1314.) It has been held a reasonable prospect of acceptance by the offeror should be evaluated under two considerations: "'First, was the [section] 998 offer within the "range of reasonably possible results" at trial, considering all of the information the offeror knew or reasonably should have known? [Citation.] Second, did the offeror know that the offeree had sufficient information, based on what the offeree knew or reasonably should have known, to assess whether the "offer [was] a reasonable one" . . . ?'" (Covert, supra, 73 Cal.App.5th at p. 834.)
CSJ's section 998 offer did not carry a reasonable prospect of acceptance by Plaintiffs. As to the first consideration, CSJ's section 998 offer was not within the "'range of reasonably possible results' at trial." (Covert, supra, 73 Cal.App.5th at p. 834.) Although, an actual judgment that is more favorable to the offeror is prima facie evidence of the offer's reasonableness (id. at pp. 833-834), here, the value of CSJ's section 998 offer could not be compared to the value of Plaintiffs' judgment against CSJ. Further, juries do not render verdicts for promises to make future installments payments. Juries award damages, and jury verdicts are reduced to money judgments which, unlike dismissals, can be enforced through statutory enforcement mechanisms.
Plaintiffs had no reason to know the offer was reasonable because they could not have known or have had reason to know whether CSJ intended to make the installment payments. "If the offeree has no reason to know the offer is reasonable, then the offeree cannot be expected to accept the offer." (Elrod v. Oregon Cummins Diesel, Inc. (1987) 195 Cal.App.3d 692, 699.) Plaintiffs had obtained an arbitration award against Jeremy for breach of fiduciary duty, securities fraud, and constructive fraud and the present lawsuit included claims that Jeremy and Christene, who controlled CSJ, had fraudulently conveyed assets to defraud Plaintiffs. Those circumstances would have led to a reasonable belief that CSJ would not likely make the installment payments.
We infer the trial court made an implied finding that CSJ's section 998 offer was reasonable. (See, e.g., Moreno v. City of King (2005) 127 Cal.App.4th 17, 30 [findings implied for order on motion to tax costs].) Although a determination that a section 998 offer was reasonable is reviewed for abuse of discretion (Najah v. Scottsdale Ins. Co., supra, 230 Cal.App.4th at p. 144), a finding that CSJ's section 998 was reasonable under the circumstances would not be within "'"the permissible range of options set by the legal criteria"'" (Deck v. Developers Investment Co., Inc. (2023) 89 Cal.App.5th 808, 824).
DISPOSITION
The postjudgment order granting CSJ's motion for an award of postoffer costs and expert fees is reversed. Plaintiffs shall recover costs on appeal.
WE CONCUR: GOETHALS, ACTING P. J. MOTOIKE, J.