Opinion
NOT TO BE PUBLISHED
APPEALS from a judgment and orders of the Los Angeles County No. BC231997, Superior Court. Susan Bryant-Deason, Judge.
Akin Gump Strauss Hauer & Feld, Stephen R. Mick and Robert N. Treiman for Defendants, Appellants, Respondents and Cross-Appellants.
Rosen Saba, James R. Rosen and Adela Carrasco for Plaintiff, Respondent, Appellant and Cross-Respondent.
COOPER, P. J.
INTRODUCTION
Prior to trial in this extremely contentious litigation between former shareholders of a corporation, the defendants made a joint Code of Civil Procedure section 998 (section 998) offer of judgment. The plaintiff rejected the offer, prevailed at trial, but did not recover an amount greater than the amount of the statutory settlement offer. Defendants moved for fees under section 998. The trial court found the section 998 offer invalid, denied the motion and made an award of attorney fees and costs to the plaintiff as the prevailing party. In a prior appeal, we concluded the trial court erred, and remanded the matter for a determination as to whether the legally valid offer was reasonable and whether the plaintiff had obtained a more favorable judgment. (Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1172 (Persson I).)
On remand, defendants filed a successful peremptory challenge against the first trial judge, and the matter was transferred. The trial court determined the section 998 offer was reasonable and that plaintiff had not recovered a judgment more favorable than the amount of the offer. The court made awards of preoffer attorney fees and costs to the plaintiff, and postoffer attorney fees and costs to the defendants. In the first of these appeals (Case No. B188067), defendants contend the new trial judge erred in independently determining the amount of preoffer fees awarded to plaintiff based on a one-sided and inappropriately deferential evidentiary standard, and further erred by applying a 50 percent lodestar reduction to defendants’ postoffer fee award. We will affirm.
Following the rulings on attorney fees, another dispute developed. The second appeal (Case No. B190689) involves the trial court’s refusal to grant plaintiff’s request for postjudgment interest, its award of attorney fees to plaintiff as the prevailing party, and its refusal to award attorney fees to the defendants under section 998. In that matter we conclude the trial court correctly denied postjudgment interest. However, we also conclude section 998 requires that the trial court deny plaintiff’s request for attorney fees as the prevailing party, and grant defendants’ motion for attorney fees.
FACTUAL AND PROCEDURAL BACKGROUND
B188067 – Nokes and Smart Invention’s appeal of Persson’s preoffer fee award
These appeals (which we agreed to consolidate for purposes of oral argument and decision) are the latest in a string of proceedings in this hard-fought action between Thomas Persson and Jon Nokes, the founders of and once equal shareholders in Smart Inventions, Inc. (Smart Inventions, or the corporation). In an August 1999 buyout agreement, Smart Inventions redeemed Persson’s shares in the corporation for $1.4 million, leaving Nokes the sole remaining shareholder. On the day the buyout agreement was executed, the corporation began test marketing a new product – the Tap Light – which became an instant unmitigated success and generated millions in revenue within a very short time.
Persson sued Nokes and Smart Inventions for common law and securities fraud, negligent and intentional misrepresentation and breach of fiduciary duty. He sought damages in excess of $10 million. Approximately 10 months before trial, Nokes and Smart Inventions made an offer, under section 998 to Persson “to allow judgment to be taken against them . . ., jointly and severally, in the total amount of $500,000.00, inclusive of any and all costs and attorneys’ fees.” Persson rejected the offer.
Statutory references are to the Code of Civil Procedure.
After various pretrial motions and proceedings, a three week jury trial was conducted in Summer 2002 on theories of fraud, negligent misrepresentation and breach of fiduciary duty. The securities fraud claim was dismissed, and the jury rejected the claims of misrepresentation against both defendants. It also rejected the fraud claim against the corporation. However, it found Nokes had concealed or suppressed material facts and awarded $218,000 damages to Persson. The jury made an advisory finding and additional award of $88,000 against Nokes on the fiduciary duty claim, which the trial court adopted. The trial court also granted Persson’s motion for judgment notwithstanding the verdict, and found Nokes and the corporation jointly and severally liable for fraud.
Persson filed a posttrial motion seeking recovery of contractual attorney fees and costs pursuant to a provision of the buyout agreement. Nokes and Smart Inventions also moved for attorney fees and other costs, premised on the same contractual provision and the fact that their $500,0000 section 998 offer exceeded Persson’s judgment.
Paragraph 7(g) of the buyout (Stock Redemption) agreement provides: “In the event of any claim, dispute or controversy arising out of or relating to this Agreement . . ., the prevailing party in such action . . . shall be entitled to recover court costs and reasonable out-of-pocket expenses . . . including, but not limited to, . . . reasonable attorneys’ fees to be fixed by the court. Such recovery shall include court costs . . . and attorneys’ fees on appeal, if any. . . .”
The trial court found the joint section 998 offer invalid, and denied Nokes and Smart Invention’s motion for fees and costs.
Persson’s motion was granted in part. The trial court reduced the amount of time spent by, and billing rates for attorneys at the Law Offices of James R. Rosen (Rosen firm), one of two firms that represented Persson in the litigation. The court also reduced the total amount of fees awarded Persson by applying a 50 percent lodestar multiplier, because many of his claims never made it to trial and the amount of damages the jury awarded was a small fraction of the millions he had sought to recover. The trial court awarded costs to Persson after making some adjustments requested in Nokes’ motion to tax.
For the sake of brevity, Nokes and Smart Inventions will be referred to, collectively, as “Nokes,” where their interests are aligned or it is unnecessary to distinguish them from one another.
The corporation and Nokes appealed the order awarding Persson attorney fees and costs, and denying their fee motion. They argued the trial court erred in (1) invalidating their section 998 offer; (2) double-counting certain cost items; and (3) awarding $344,101 to Persson for services performed by the Rosen firm, because that amount exceeded the fees Persson actually owed the Rosen firm under his contingency agreement with that firm. (See Persson I, supra, 125 Cal.App.4th at pp. 1168-1169.) We agreed with Nokes’ first two contentions. The matter was remanded with instructions to the trial court to (1) decide if the valid $500,000 section 998 offer made by Nokes and Smart Inventions was otherwise reasonable; (2) determine whether Persson had obtained a more favorable judgment; and (3) correct mathematical errors in the cost award. (Persson I, supra, 125 Cal.App.4th at pp. 1172, 1177.)
After remittitur of Persson I issued, Nokes filed a successful peremptory challenge (section 170.6, subd. (a)(2)), to disqualify James Dunn, the original trial judge. The matter was transferred to Judge Susan Bryant-Deason. Judge Bryant-Deason found Nokes’ section 998 offer was reasonable, and determined Persson did not recover a judgment more favorable than the amount of that statutory offer. She awarded Persson preoffer fees in an amount different than Judge Dunn’s earlier award, and awarded Nokes only $380,000 of approximately $814,000 he had sought in postoffer fees and costs. Nokes and Smart Inventions take issue with and appeal from those orders.
B190689 – Persson’s appeal and Nokes and Smart Invention’s cross-appeal
Persson’s appeal of the denial of post-judgment interest
Following rulings on the parties’ motions for attorney fees, another dispute arose regarding the form and amount of the amended judgment. Persson insisted the judgment should reflect a total amount in his favor of $246,482.55, which consisted of: $218,000 (the remaining amount of the jury verdict), plus $263,547.27 (the preoffer attorney fees awarded by Judge Bryant-Deason), plus $144,935.28 (postjudgment interest on his damages and fee awards), minus $380,000 (Nokes’ postoffer cost award). The trial court entered the judgment proposed by Persson.
Of the $144,590.69, $72,444.76 was postjudgment interest on the $218,000 jury award, accrued at a rate of 10 percent per annum, from August 13, 2002 (the date of entry of the jury verdict) through December 8, 2005 (the date on which Judge Bryant-Deason set the amounts for pre and postoffer fees and costs), and $72,490.52 for postjudgment interest, from March 10, 2003 (date of the original order granting Persson’s fees and costs) through December 8, 2005, on Persson’s award of preoffer fees.
Nokes asserted objections, arguing that section 998, subdivision (e) mandated the court deduct Nokes’ $380,000 cost award directly from Persson’s damages, deny Persson any postjudgment interest, and enter a net judgment in Nokes’ favor for $162,000. The trial court adopted Nokes’ position, vacated the judgment and entered the operative second amended judgment in Nokes’ favor for $162,000. The second amended judgment also incorporates an equitable offset from Persson’s preoffer fee award, resulting in a net award in favor of Persson for $101,547.27 ($263,547.27 - $162,000). Persson appeals from the second amended judgment.
Nokes’ cross-appeal of orders regarding attorney fees
Following entry of the second amended judgment, both sides sought attorney fees for posttrial proceedings, including proceedings on remand. The trial court deemed Persson the prevailing party based on his net recovery, and denied Nokes’ motion. Persson’s motion was granted, and he was awarded $71,635 in attorney fees in connection with the proceedings on remand. Nokes appeals.
DISCUSSION
I. Case No. B188067
A. Nokes’ appeal from the October 19 and December 8, 2005 fee awards.
Nokes insists Judge Bryant-Deason erred in independently determining the amount of preoffer fees awarded to Persson based on a one-sided and inappropriately deferential evidentiary standard, and by applying a 50 percent lodestar reduction to Nokes’ postoffer fee award.
1. The trial court did not abuse its discretion in making Persson’s preoffer fee awards.
Nokes contends Judge Bryant-Deason erred in three respects when she awarded Persson preoffer attorney fees in the amount of $250,716. First, she erred in failing to follow Judge Dunn’s findings with respect to the lodestar computation for fees for work done by Persson’s first attorneys, the Ezer, Williamson, Fischbach & Brown, LLP (Ezer firm). Second, Judge Bryant-Deason repeated that mistake and failed to adhere to Judge Dunn’s findings with respect to the fee award for the rates and lodestar adjustments for services performed by the Rosen firm, which took over Persson’s representation after the Ezer firm withdrew. Finally, both errors were compounded when Judge Bryant-Deason applied an improper evidentiary standard by deferentially “viewing the evidence most favorabl[y] to [Persson]” in making the preoffer fee award, rather than objectively weighing the evidence in light of Judge Dunn’s earlier findings. We find no error.
a. The preoffer award for the Ezer firm’s work.
In his order, Judge Dunn determined reasonable attorney fees for the Ezer firm’s efforts were $21,609. Neither side took issue with that ruling in Persson I. Nokes insists Judge Dunn’s original determination should remain binding on Persson in light of his failure to challenge the ruling in an earlier appeal. (Barratt American, Inc. v. Transcontinental Ins. Co. (2002) 102 Cal.App.4th 848, 868 (Barratt) [party’s failure to appeal trial court ruling constituted waiver of the right to challenge ruling on remand].) In addition, Nokes argues there was no evidentiary basis on which Judge Bryant-Deason could reasonably have reached a conclusion other than the one reached by Judge Dunn.
In response, Persson asserts the trial court had no choice on remand but to independently determine the amount of his preoffer attorney fees, once it found the section 998 offer was reasonable. Judge Bryant-Deason was not bound by Judge Dunn’s determination as to the Ezer firm’s fees because Judge Dunn found the section 998 offer invalid. As a result, his award never distinguished between pre and postoffer fees, so there was no ruling by which Judge Bryant-Deason could be bound.
The determination of the amount of reasonable attorney fees lies in the sound discretion of the trial court. (Fed-Mart Corp. v. Pell Enterprises, Inc. (1980) 111 Cal.App.3d 215.) Absent a manifest abuse of discretion on the part of that court, its award will not be disturbed. (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1775; Mustachio v. Great Western Bank (1996) 48 Cal.App.4th 1145, 1151.) Nokes argues Persson is bound by Judge Dunn’s fee computations based on his failure to appeal that issue. Ordinarily, he would be correct. A party’s failure to appeal a trial court’s ruling is typically deemed a waiver of the right to challenge that ruling. (Barratt, supra, 102 Cal.App.4th at p. 868.) But that principle has no application where, as here, no ruling was actually made.
On remand, the trial court is bound to follow the directions of the appellate court, which dictate the scope of issues to be addressed in further proceedings. (Lesny Development Co. v. Kendall (1985) 164 Cal.App.3d 1010, 1020-1021 [where judgment is reversed with directions, jurisdiction of trial court after remittitur is to carry out directions of appellate court].) In Persson I, we found the trial court committed legal error when it deemed the joint section 998 offer invalid. (Persson I, supra, 125 Cal.App.4th at pp. 1169-1170.) We reversed the order awarding Persson attorney fees and remanded for additional proceedings. Specifically, we directed the trial court to decide “whether the [valid section 998] offer was otherwise reasonable and whether Persson obtained a more favorable judgment.” (Id. at p. 1172.) If it found the offer reasonable, the court was required to ascertain the amount of Persson’s preoffer fees in order to determine if he obtained a judgment more favorable than Nokes’ pretrial offer. Authorized attorney fees incurred before a section 998 offer are recoverable as costs, and must be considered in determining whether the judgment exceeds the offer. (Heritage Eng. Construction, Inc. v. City of Industry (1998) 65 Cal.App.4th 1435, 1441-1442.) Judge Dunn’s singular ruling did not distinguish between Persson’s pre or postoffer attorney fees. His analysis on that point ceased once he found the settlement offer invalid. Thus, on remand, assuming the trial court found the valid offer reasonable, as it did, the issue of the amount of Persson’s preoffer fees was squarely within the scope of matters it was required to address. Implicitly conceding the issue of Persson’s preoffer fees was never addressed by Judge Dunn, Nokes insists that, with respect to the Ezer firm, there was no justification for the trial court’s decision to double the fees awarded by Judge Dunn. After all, only Judge Dunn had the benefit of observing that firm’s conduct and the results of its work.
It appears Judge Bryant-Deason may have agreed with Nokes at one point. At one hearing, she observed she didn’t think she was supposed to modify the ruling regarding the Ezer firm’s fees. Later, after she had done just that, she said she may have “made a mistake.” Apparently she ultimately decided she was correct after all; the judgment remained unchanged. The trial court’s potential confusion notwithstanding, we see no basis for reversal. It is a fundamental principle of appellate review that we consider the trial court’s ruling, not its rationale. An order, correct under the appropriate legal standard, will not be reversed if given for the wrong reason so long as it can be supported on any legal theory. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980-981.) In determining if an order may survive, we do “not consider the court’s oral comments or use them to undermine the order ultimately entered.” (Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1451.)
The record supports the trial court’s award of fees paid to the Ezer firm. It contains copies of paid invoices, and a declaration by a member of that firm regarding the reasonableness of fees the firm charged and was paid. The trial court reviewed these records, which showed fees incurred of $53,216.75, and awarded Persson $10,000 less. Where, as here, a fee award is based on time spent, the “[t]estimony of an attorney as to the number of hours worked on a particular case is sufficient evidence to support an award of attorney fees, even in the absence of detailed time records.” (Martino v. Denevi (1986) 182 Cal.App.3d 553, 559.) Nokes has not shown the evidentiary record on this issue was inadequate, or that Judge Bryant-Deason lacked the requisite experience or knowledge to evaluate that record, consider the parties’ renewed arguments and memoranda or determine a reasonable award. An appellant must affirmatively show the trial court committed error. (Rossiter v. Benoit (1979) 88 Cal.App.3d 706, 711-712.) Error is never presumed; a lower court’s order is presumed correct. Nokes has failed to show Judge Bryant-Deason abused her discretion with respect to the amount of fees awarded for work done by the Ezer firm.
b. The preoffer fee award for the Rosen firm’s work.
The trial court awarded Persson $207,500 for preoffer services performed by the Rosen firm. Again, Nokes insists that, unlike the judge who actually presided over the pretrial proceedings, motions and trial, Judge Bryant-Deason had no opportunity to observe work performed by counsel and thus no reason to disturb Judge Dunn’s findings. To that end, Nokes contends Judge Bryant-Deason erred in relying on a February 4, 2003 declaration by Persson’s attorney, James Rosen, detailing his firm’s hours, rates and services. That declaration, purportedly rejected by Judge Dunn as not credible, differed from a November 27, 2002 declaration by Rosen, on which judge Dunn ostensibly relied in making his findings.
We reject Nokes’ unsubstantiated assertion that Judge Dunn rejected the February 2003 declaration for lack of credibility. Judge Dunn would not have relied on the declaration because it was submitted in connection with Nokes’ motion for attorney fees under section 998, a motion he denied.
Finally, pointing again to Barratt, Nokes insists that, even if it was appropriate for Judge Bryant-Deason to reconsider the February 2003 declaration, there was no basis for her to deviate from Judge Dunn’s rulings regarding the Rosen firm’s rates or the downward lodestar adjustment, neither of which Persson appealed. Thus, Nokes claims that, even if all the Rosen firm’s preoffer hours are credited, Persson’s award cannot exceed $84,687.50.
For reasons stated above, we disagree. As was the case with respect to the Ezer firm, Nokes’ peremptory challenge to Judge Dunn and the reassignment of the matter to Judge Bryant-Deason who had not previously presided in the case, made a de novo redetermination of the Rosen firm’s award the correct, and therefore the inevitable, procedure. Nothing in Persson I compelled Judge Bryant-Deason to retain the original award. The opinion remanded the matter for reconsideration and, by necessity, a redetermination of whether the settlement offer we deemed valid, was also reasonable. Depending on the result of that determination, reevaluation of the attorney fees award was a necessary byproduct of that analysis. Thus, the standard of review remains whether the trial court abused its discretion in making its fee award.
Judge Bryant-Deason was free, indeed required, to draw her own reasoned conclusions. She was not bound by Judge Dunn’s determinations (which were actually of no use to her), because his ruling did not take into account pre and postoffer fees and did not break the fee assessments down by date. There was also no requirement that Judge Bryant-Deason apply a downward adjustment to the fee award for the Rosen firm. As Persson notes, Judge Dunn applied that adjustment to fees Persson incurred over the entire span of the litigation to, in effect, penalize him for obtaining a less desirable recovery. If Judge Bryant-Deason applied the same reduction, having already concluded the section 998 offer was reasonable and necessarily reducing Persson’s fee recovery on that basis, the effect would be to inflict a double-penalty on him. The trial court was clearly disinclined to mete out such a harsh punishment. On the contrary, she acknowledged this “litigation was hard fought” and “extremely strategic from day one,” and there was “no question” Persson’s case was “probably more difficult” than Nokes’. An award of $250,716 for 15 months’ work by two law firms was not an unreasonable exercise of the court’s discretion.
Persson also argues Nokes is wrong to assume all time attributed to “trial preparation” by Judge Dunn must be deemed “postoffer.” He claims that assumption ignores the fact the trial date was purportedly continued at least once before it began in July 2002, and Judge Dunn’s allocations are not date specific. The parties have not given us an indication of the date on which trial was originally scheduled to commence, although the record does indicate the trial was twice continued.
c. The court’s use of an evidentiary standard favoring Persson.
Nokes insists the trial court erred by reviewing Persson’s submission on remand for preoffer fees based on an evidentiary standard “most favorable” to Persson. He continues to assert the court was required to adhere to the findings made by Judge Dunn. Alternatively, he argues the court should at least to have made a determination of the merits of Persson’s fee application based on the Supreme Court’s admonition in Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103 (Scott), which requires that “section 998 should be applied symmetrically and evenhandedly to both plaintiffs and defendants.” (Scott, supra, at p. 1115, fn. 4.) Nokes is wrong on both counts.
First, as stated above, in determining the amount of reasonable fees the trial court is afforded wide discretion regarding the reasonableness of attorney hours spent and the hourly rates and costs involved. (Padilla v. McClellan (2001) 93 Cal.App.4th 1100, 1107.) That discretion is not absolute: “ ‘The discretion intended . . . is not a capricious or arbitrary discretion, but an impartial discretion, guided and controlled in its exercise by fixed legal principles. It is . . . a legal discretion, to be exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice.’ [Citation.] An exercise of discretion is subject to reversal on appeal where no reasonable basis for the action is shown.” (Moran v. Oso Valley Greenbelt Assn. (2001) 92 Cal.App.4th 156, 160, quoting Bailey v. Taaffe (1866) 29 Cal. 422, 424.)
Here, the trial court reviewed Persson’s preoffer fee submission on the basis of “the evidence most favorable to [Persson].” Nokes insists this was error because the court was bound to adhere to Judge Dunn’s findings regarding the Ezer and Rosen firms’ hours, rates and lodestar adjustments. As stated above, we conclude otherwise. The trial court was not constricted by rulings never made. Judge Bryant-Deason made an appropriate, de novo and reasonable determination of the merits of Persson’s preoffer fee application, based on the evidentiary record and her own experience and knowledge.
We also reject the assertion that, under Scott, the trial court erred by viewing the evidence in Persson’s favor. For purposes of determining the amount of preoffer fees due Persson was entitled, he was the prevailing party, and Scott does not bear on that determination.
In Scott, supra, 20 Cal.4th 1103, the defendant made a $900,000 settlement offer under section 998, which plaintiff rejected. (Id. at p. 1107.) At trial, plaintiff was awarded approximately $442,000 in damages. Both sides sought attorney fees based on a provision in their contract. (Ibid.) The defendant sought its postoffer fees under section 998, on the ground plaintiff’s recovery failed to exceed the amount of its statutory offer. The trial court found the plaintiff was entitled only to preoffer costs, including attorney fees, and the defendant was due its postoffer costs, including attorney fees. (Ibid.) On appeal, the court affirmed the award to the plaintiff, but reversed the award to the defendant of postoffer attorney fees. (Id. at p. 1108.)
The Supreme Court granted review and reversed the court of appeal’s decision denying the defendant its postoffer fees. (Scott, supra, 20 Cal.4th at p. 1116.) It also rejected the contention that section 998 was intended to cut off a plaintiff’s right to preoffer fees. Its analysis on that point is instructive.
The court first noted that, for over a century, California courts had interpreted section 998 to recognize that a prevailing plaintiff who did not recover a judgment in excess of a defendant’s pretrial settlement offer was nevertheless permitted to recover its preoffer costs. (Scott, supra, 20 Cal.4th at p. 1110.) The Legislature, presumably aware of this long-standing judicial interpretation, accepted this interpretation. In 1997, section 998 was amended “to expressly provide that a prevailing plaintiff who does not obtain a judgment exceeding defendant’s pretrial offer ‘shall not recover his or her postoffer costs.’ (Stats. 1997, ch. 892, § 1, italics added.) In doing so, it made clear that section 998 cuts off only a prevailing plaintiff’s right to postoffer costs, and not the plaintiff’s right to preoffer costs.” (Scott, supra, 20 Cal.4th at p. 1111.) This amendment confirmed, it did not change, preexisting law. (See Sen. Com. on Judiciary, Analysis of Sen. Bill No. 73 (1997-1998 Reg. Sess.) as amended May 1, 1997, p. 3.) In other words, the Supreme Court found that the Legislature’s addition of the word “postoffer” to section 998 was not intended to preclude a prevailing plaintiff from receiving preoffer contractual attorney fees to which it would otherwise be entitled. It was intended to limit the effect of section 998 on a prevailing plaintiff only to postoffer costs. (Scott, supra, 20 Cal.4th at p. 1111.) The rule entitling a plaintiff who rejects a settlement offer that exceeds its ultimate recovery to recoup preoffer costs, including attorney fees, in cases, such as this, in which such fees are an item of recoverable costs under sections 1032 and 1033.5, remains unchanged. In sum, for purposes of determining Persson’s entitlement to preoffer fees, he was the prevailing party (having obtained a favorable judgment) and, the trial court committed no error by treating him as such in making that limited fee determination. Scott requires that the trial court treat a defendant entitled to postoffer costs under section 998, subdivision (c) “as if it were the prevailing party.” (Scott, supra, 20 Cal.4th at p. 1112.) It has no bearing on the manner in which a prevailing plaintiff is treated for purposes of its entitlement to preoffer costs.
Section 998, subd. (c)(1) was amended in 1997; the change is not pertinent here.
2. The 50 percent lodestar reduction of Nokes’ attorney fees request.
Nokes argues Judge Bryant-Deason erred in applying a 50 percent lodestar reduction to his fee request. He claims Judge Bryant-Deason did so because “Judge Dunn applied a 50% percent [sic] lodestar multiplier when he calculated [Persson’s] fees, and [she didn’t] see any reason why that shouldn’t be applied here also . . . . I will apply a 50-percent multiplier just like he did with this, thereby totaling the fees at $356,740.” Nokes asserts this rationale would be credible if this was what Judge Bryant-Deason actually did; it wasn’t. Instead, she abandoned Judge Dunn’s findings, including the lodestar reduction, when making the fee award to Persson.
Persson defends the lodestar reduction as reasonable and within the court’s discretion. He notes Judge Dunn applied a lodestar reduction to his original fee request based on the dismissal of most of his claims and the fact that he recovered only about $200,000 of the almost $12 million in damages he sought. He asserts an equivalent reduction of Nokes’ fee award was both appropriate and within the court’s discretion, because Nokes committed intentional fraud, and also failed to prevail on his principal defense. (Persson I, supra, 125 Cal.App.4th at p. 1146.)
We reject the assertion Judge Bryant-Deason abused her discretion and discriminated against Nokes by reducing his fee request. To reiterate: we review the court’s ruling, not its rationale. (Rappleyea v. Campbell, supra, 8 Cal.4th at pp. 980-981.) After an independent review of this extensive record and the parties’ respective fee requests, Judge Bryant-Deason aptly observed this litigation was strategically conducted from the outset, hard-fought and that each side had both won and lost. She noted there was “no question” Persson’s [burden was heavier and his] case [was probably] more difficult than Nokes,’ and the only reason Nokes was due any fees was because of the mandate of section 998. Also implicit in the court’s ruling is its knowledge that, notwithstanding the fact that Persson overcame large hurdles to prevail at trial, that victory was pyrrhic. He had already been dealt a severe blow by the denial of all postoffer fees and costs by virtue of operation of section 998. There is support in the record for these conclusions. We cannot conclude the court’s decision to apply a lodestar reduction was arbitrary or capricious. Certainly, it did not approach the “palpable abuse of discretion” asserted by Nokes. (See Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 324.) The ruling will stand.
II. Case No. B190689
A. Persson’s appeal regarding the denial of postjudgment interest.
Persson contends the trial court erred by refusing to award him postjudgment interest even though his fraud judgment was upheld, and his attorney fee award ostensibly only modified on appeal. He claims the trial court’s ruling is tantamount to a holding that section 998 supersedes and nullifies his statutory entitlement to postjudgment interest under section 685.020, and was intended by the Legislature to impose a continuing penalty on a plaintiff who fails to accept a section 998 offer but who, nevertheless, obtains a favorable judgment that is affirmed on appeal. He is right.
1. Section 998, subdivision (e) requires Nokes’ fee award be deducted directly from Persson’s damages award.
Section 998, subdivision (e) provides: “costs under this section, from the time of the offer, shall be deducted from any damages awarded in favor of the plaintiff. If the costs awarded under this section exceed the amount of the damages awarded to plaintiff the net amount shall be awarded to the defendant and judgment or award shall be entered accordingly.” The trial court interpreted this provision as a mandate that all accrued statutory postjudgment interest be denied Persson because section 998 requires Nokes’ postoffer cost award first be deducted from Persson’s damages and a net award be entered in Nokes’ favor. Persson argues this interpretation of section 998 defeats the statute’s language and mandate. Section 998 authorizes the shifting of costs mandated by sections 1031 and 1032 to a party that fails to accept a reasonable settlement offer. The statutory penalty suffered by a plaintiff who rejects such an offer is denial of his own postoffer costs and liability for the defendants’ postoffer costs. (§ 998, subd. (c)(1).) However, Persson insists nothing in section 998 authorizes denial of postjudgment interest, the accrual of which is independently provided for by section 685.020, as an additional penalty to be suffered by a plaintiff who fails to accept a statutory settlement offer. Rather, the fact that section 998 was enacted as a cost-shifting statute makes it clear the penalties imposed are intended to be limited to postoffer costs only through trial, not the additional penalty of denial of postjudgment interest.
Nokes claims Persson has mischaracterized the issue. He maintains the issue of postjudgment interest arises by statute, and there is no right or need to have it embodied in the judgment itself. More importantly, Nokes contends section 998, subdivision (e) explicitly requires the trial court do exactly as it did, viz., to deduct his section 998 cost award directly from Persson’s damages award and, in the event the section 998 award was greater, enter a net judgment in Nokes’ favor. Nokes is correct.
The purely legal issue of statutory construction is reviewed de novo. (Connerly v. State Personnel Bd., supra, 37 Cal.4th at p. 1175.) Section 998, subdivision (e) required the trial court to deduct Nokes’ $380,000 in postoffer costs from Persson’s $218,000 damages award, leaving Nokes a net judgment of $162,000 and a separate cost award for Persson. This result is predicated on the plain language of section 998: “costs . . . from the time of the offer, shall be deducted from any damages awarded in favor of the plaintiff. If the costs . . . exceed the amount of the damages awarded to the plaintiff the net amount shall be awarded to the defendant and judgment or award shall be entered accordingly.” (§ 998, subd. (e), italics added.) Thus, the Legislature expressly requires that any costs awarded a defendant under section 998 be reduced directly from any damages award the plaintiff receives. Moreover, if the amount of the defendant’s cost award exceeds the amount of damages awarded the plaintiff, the Legislature clearly and expressly requires a net amount or judgment be entered in defendant’s favor. It is a well-established principle of statutory interpretation that, so long as its literal meaning is consistent with its legislative purpose, a statute’s plain and ordinary meaning controls and there is no need for construction. (Mesa Forest Products, Inc. v. St. Paul Mercury Ins. Co. (1999) 73 Cal.App.4th 324, 329-330.) The purpose of section 998 is to penalize a party who refuses to make a realistic early assessment of the value of his case and accept a reasonable offer of judgment, and then fails to recover more at trial. (Harvard Investment Co. v. Gap Stores, Inc. (1984) 156 Cal.App.3d 704, 713.)
2. If a judgment is reversed on appeal, interest runs from the date of the new judgment.
Section 685.020, subdivision (a), which says interest begins to accrue on money judgment on date of its entry, does not alter the rule of Stockton Theaters, Inc. v. Palermo (1961) 55 Cal.2d 439, 442-443 (Stockton Theaters, Inc.): “A judgment bears legal interest from the date of its entry in the trial court even though it is still subject to direct attack. [Citation.] When a judgment is modified upon appeal, whether upward or downward, the new sum draws interest from the date of entry of the original order, not from the date of the new judgment. [Citations.] On the other hand, when a judgment is reversed on appeal the new award subsequently entered by the trial court can bear interest only from the date of entry of such new judgment.”
In Persson I, we affirmed Persson’s fraud judgment. However, after concluding the trial court erred in invalidating the joint section 998 offer, we reversed and remanded that portion of the judgment related to attorney fees which was “not addressed by the trial court,” i.e., “whether the offer was otherwise reasonable and whether Persson obtained a more favorable judgment.” (Persson I, supra, 125 Cal.App.4th at p. 1172.) A judgment for attorney fees is, in force and effect, a separate and complete judgment governed by the law applicable to judgments generally. (Stockton Theaters, Inc. supra, 55 Cal.2d at p. 443.) Our reversal did not modify the fee award up or down. It remanded the matter for redetermination, which required the trial court to conduct a new hearing on the facts, exercise its discretion and make a new award. If, in Persson I, we had relied on the appellate record, altered the amount of the fee and cost award, and ordered the trial court to enter a judgment reflecting that new amount, that disposition would have been a modification. We did not. Instead, Persson I reversed the award and remanded the matter for a new hearing, determination of new issues and a new exercise of the trial court’s discretion. That disposition was, in substance, a reversal, not a modification. (See Snapp v. State Farm Fire & Cas. Co. (1964) 60 Cal.2d 816, 820; Ehret v. Congoleum Corp. (2001) 87 Cal.App.4th 202, 210.) Thus, any interest commenced to accrue on the award to Persson of attorney fees and costs from the date of the new judgment.
Persson insists he is entitled to postjudgment interest on any amount of the original $218,000 judgment which survived, and that interest runs from the date of entry. (§ 685.020, subd. (a); Stockton Theaters, Inc., supra, 52 Cal.2d at pp. 442-443.) He correctly states the legal principle. However, Persson obfuscates the real issue which is, how much, if any, of his fraud judgment survived application of section 998, subdivision (e) on remand. None did. Section 998, subdivision (e) required Nokes’ $380,000 cost award be deducted from those damages. Thus, the question of the date from which postjudgment interest runs is irrelevant where, as here, there is no longer a surviving judgment on which to collect.
3. Persson is not entitled to interest on the original fee award.
Persson argues the trial court erred in denying him $72,490 for approximately three years’ worth of interest on a March 2003 fee award. This argument too rests on the faulty premise that our decision in Persson I modified rather than reversed the trial court’s original order. Persson’s entitlement to postjudgment interest runs only from the date of the new award.
Once again, Stockton Theaters, Inc., supra, 55 Cal.2d 439, controls. There, the Supreme Court repeated well-established principles governing the effect of reversals and modifications on interest on judgments generally. It held those principles also govern cases involving judgments for costs which, are “in fact, separate and complete judgments in themselves.” (Id. at p. 443.) “A judgment bears legal interest from the date of its entry in the trial court even though it is still subject to direct attack. [Citation.] When a judgment is modified upon appeal, whether upward or downward, the new sum draws interest from the date of entry of the original order . . . . [Citations.] On the other hand, when a judgment is reversed on appeal the new award subsequently entered by the trial court can bear interest only from the date of entry of such new judgment. [Citation.]” (Ibid.)
In the instant action, we deemed the section 998 offer valid and remanded the matter to the trial court “for further proceedings consistent with [our] opinion,” i.e., to determine if the offer was reasonable. If so, the court had to determine whether Persson had obtained a more favorable result. (Persson I, supra, 125 Cal.App.4th at pp. 1171-1172, 1178.) We did not modify Judge Dunn’s earlier award by directing a specific amount of fees or costs be paid. We reversed that court’s ruling, and remanded the matter for a new hearing and determination. This was a legal reversal; any interest owed Persson runs only from the date of the new award. (See Stockton Theaters, Inc., supra, 55 Cal.2d at p. 443 [reversal of cost award with directions to trial court to conduct a hearing, pass on question of necessity of expenditure at issue, and make a new cost award constitutes a legal reversal such that interest on that award runs only from the date of its entry].)
Our conclusion that the fee award was reversed, not modified, and that there was no net award on which postjudgment interest could accrue, renders it unnecessary for us to address Nokes’ argument that interest must be computed differently for different defendants, or that Persson is improperly seeking compound interest.
B. Nokes’ cross-appeal
1. Persson is not entitled to attorney fees as the “prevailing party.”
Nokes contends the trial court erred in awarding Persson contractual postoffer attorney fees as the “prevailing party.” He insists such an award is barred by the statute which states a plaintiff who fails to obtain a judgment in excess of a section 998 offer “shall not recover his or her postoffer costs . . . .” (§ 998, subd. (c)(1).) “Costs” include attorney fees authorized by contract. (§§ 1032, subd. (b), 1033.5, subd. (a)(10)(A); Scott, supra, 20 Cal.4th at p. 1113.) He is correct.
Persson’s right to recover attorney fees as costs under section 1032, subdivision (b) is cut off by section 998. Specifically, section 998, begins with the proviso that “[t]he costs allowed under Section[] . . . 1032 shall be withheld or augmented as provided in this section.” (§ 998, subd. (a).) Persson’s postoffer attorney fees – otherwise recoverable as costs under section 1032 – must be withheld under section 998, subdivision (c), because, as the trial court correctly determined, Persson failed to obtain a judgment in excess of the amount of Nokes’ section 998 settlement offer. Nothing in the language or Legislative history of section 998 suggests an intent to limit the statute’s application to proceedings before appeal and remand. Application of section 998 to recovery of attorney fees on appeal is consistent with the “rule that statutory attorney fee provisions are interpreted to apply to attorney fees on appeal unless the statute specifically provides otherwise.” (Morcos v. Board of Retirement (1990) 51 Cal.3d 924, 929.) It is also consistent with the statute’s goal of encouraging settlement by providing a strong financial disincentive to a party to reject reasonable settlement offers, and “penalizing a party who fails to accept what, in retrospect, is seen to have been a reasonable offer.” (Havard Investment Co. v. Gap Stores, Inc., supra, 156 Cal.App.3d at p. 713; Scott, supra, 20 Cal.4th at pp. 1112, 1114.)
In sum and as applied here, “[t]he basic premise of section 998 is that plaintiffs who reject reasonable settlement offers and then obtain less than the offer should be penalized for continuing the litigation. The harsh result of section 998 is that the plaintiff not only loses the right to recover his or her [postoffer] costs, but must also pay the defendant’s postoffer costs.” (Meister v. Regents of University of California (1998) 67 Cal.App.4th 437, 450.) Again, section 998 “penalizes a plaintiff who fails to accept what, in retrospect, is seen to have been a reasonable offer.” (Harvard Investment Co. v. Gap Stores, Inc., supra, 156 Cal.App.3d at p. 713.) There is no indication the Legislature intended to exclude appeals or proceedings on remand from that purpose or penalty. We are certain that, had the Legislature intended to limit section 998’s application to trial court proceedings, it could easily have done so. Moreover, the admittedly harsh result of the application of section 998 to a plaintiff who, like Persson, “prevailed” at trial, is entirely consistent with the statute’s plain language and punitive purpose.
a. Applying section 998, subdivision (e) to appeals will not deny a plaintiff’s access to justice.
For several reasons, we reject Persson’s assertion that application of section 998 to the appellate process will result in denial of access to justice to a plaintiff who rejects a reasonable settlement offer because, win or lose, he remains liable for the defendant’s appellate costs and fees and is forever barred from recovering his own. Under this scenario, a plaintiff will always abandon meritorious claims or settle a case without regard to the reasonableness of the section 998 offer for fear he will be barred in perpetuity from recovering his own costs and forever liable for the defendant’s postoffer costs.
First, the prospect of a party maintaining a right to recover fees after trial, regardless of the outcome of an appeal, is not at all unusual or inconsistent. That happens in any case involving a contractual attorney fees clause when a party wins, but nevertheless appeals arguing it should have recovered greater damages or attorney fees. Its entitlement to fees as prevailing party continues throughout the appellate process without regard to whether it prevails on these theories on appeal. The prospect of a continuing right to recover fees involving contractual attorney fees provisions exists in every fee case. A plaintiff or defendant who prevails at trial is entitled to fees (as costs) under sections 1032 and 1033.5 throughout the appeal and on remand, even if that party loses some ground on appeal, but nevertheless retains an affirmative net recovery. (See Morcos v. Board of Retirement, supra, 51 Cal.3d at p. 929 [“statutory attorney fee provisions are interpreted to apply to attorney fees on appeal unless the statute specifically provides otherwise”]; Serrano v. Unruh (1982) 32 Cal.3d 621, 634-639 [party entitled to fees in underlying litigation is also entitled to fees on appeal and in pursuing its fee application]; Jones v. Union Bank of California (2005) 127 Cal.App.4th 542, 550 [affirming attorney fees award in trial court for proceedings on prior appeal and remand]; Mustachio v. Great Western Bank, supra, 48 Cal.App.4th at pp. 1149-1150 [contractually authorized attorney fees apply to both appellate and trial proceedings].) Similarly, a plaintiff whose recovery exceeds a section 998 offer of judgment has a continuing right to recover fees, even if it loses ground in an appeal, so long as its recovery continues to exceed the threshold amount of the statutory offer of judgment.
Second, Scott requires that section 998 “be applied symmetrically and evenhandedly to both plaintiffs and defendants.” (Scott, supra, 20 Cal.4th at p. 1115, citing Bank of San Pedro v. Superior Court (1992) 3 Cal.4th 797, 804-805.) If a prevailing plaintiff, whose recovery exceeded a section 998 offer, maintains the right to recover prevailing plaintiff attorney fees on appeal and remand, it would be unfair if a defendant, entitled to fees under section 998, was not afforded a similar entitlement. The Supreme Court has determined section 998 must be interpreted to avoid such asymmetry. Defendants may recover fees under the statute in circumstances and to the same extent in which plaintiffs would also recover fees if their recovery exceeded the statutory offer of judgment. (Scott, supra, 20 Cal.4th at pp. 1115-1116.)
Third, we see little danger of the circumstance Persson theorizes that a defendant will continue to file nonmeritorious appeals in perpetuity to pad its entitlement to postoffer fees. Courts retain the ability and discretion to determine both that an appeal is frivolous and/or that fees for which recovery is sought were not reasonably expended, or should be denied or severely reduced because an appeal lacked merit or was downright futile. The prospect of a defendant obtaining additional substantial fee awards under section 998 for meritless appeals is not a legitimate concern.
Finally, there is no merit to Persson’s claim that plaintiffs in such cases will be denied meaningful access to the courts and will abandon meritorious claims or appeals for fear of automatic liability for fees regardless of the reasonableness of the section 998 offer. A plaintiff suing in a case in which contractual attorney fees are involved must always weigh the risk it may be liable for the defendant’s attorney fees. This is nothing new. The only difference in a case that also involves section 998 is that the decision point is shifted. Instead of weighing its case against a recovery of $0, the plaintiff must weigh it against a recovery equal to the amount of the section 998 offer. The consequences do not change: If plaintiff miscalculates, it is liable for defendant’s subsequent fees. Moreover, it is not the case that a plaintiff’s liability for fees continues whether or not it wins or loses on appeal. If the result on appeal is such that the amount of damages shifts, it can change the section 998 calculation and thus, plaintiff’s liability for fees. Finally, we lend little credence to the argument that a plaintiff, on the hook for section 998 attorney fees at the trial level, will refrain from appealing a legitimate claim it would otherwise have pursued for fear of incurring additional liability. In the vast majority of cases, a plaintiff’s potential liability for section 998 fees at the trial level will dwarf its exposure for fees in the more limited appellate process.
For example, if the plaintiff wins on appeal and obtains a sufficiently higher damages award, or the right to retry its case, the result shifts the section 998 measurement in its favor.
The trial court erred in awarding Persson prevailing party attorney fees on remand.
2. The court erred by denying Nokes’ postoffer attorney fees.
Similarly, we conclude the trial court erred by denying Nokes’ motion for postoffer attorney fees based on its conclusion Persson was the prevailing party. Section 998, subdivision (c) supersedes section 1032 in this action. (See Scott, supra, 20 Cal.4th at p. 1112 [“Section 998 modifies the general rule . . . that only the prevailing party recovers its costs”].)
Persson’s failure to accept Nokes’ settlement offer and to obtain a better judgment at trial resulted in the requirement that he pay Nokes’ postoffer costs, including his contractual attorney fees incurred on appeal and on remand. (§§ 998, subd. (c)(1); 1033.5, subd. (a)(10)(A); Scott, supra, 20 Cal.4th at p. 1113; Jones v. Union Bank of Cal., supra, 127 Cal.App.4th at p. 550.) Scott mandates that Nokes is entitled to his postoffer costs under section 998 regardless of who would be the prevailing party under section 1032 in the absence of a statutory offer of judgment. (Scott, supra, 20 Cal.4th at p. 1114.)
DISPOSITION
The judgment in appeal Case No. B188067 is affirmed. In appeal Case No. B190689, the orders awarding Persson attorney fees is reversed, and the order denying the motion of Nokes and Smart Inventions for attorney fees is reversed, and the matter remanded for a hearing to determine the amount of postoffer attorney fees and costs. In all other respects, the judgment in appeal Case No. B190689, is affirmed. Each party shall bear its own costs of appeal.
I concur: EGERTON, J. RUBIN, J.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
I concur in the judgment.