Dykema Guides Subaru to Precedent-Setting Victory in Section 998 Appeal

The California Court of Appeal (Fourth District, Division Three) ruled in favor of Subaru of America in a matter involving the intersection between offers to compromise under California Civil Procedure Code Section 998 and the Song-Beverly Act (a California consumer warranty law). The Dykema team representing Subaru on the appeal was led by James Azadian, co-leader of the firm’s Appellate and Critical Motions Practice, and included Derek Whitefield, and Cory Webster.

The plaintiff sued Subaru alleging violations of the Song-Beverly Act. Subaru presented a Section 998 offer to resolve the dispute, which the plaintiff rejected.

Three years later, after the plaintiff racked up half a million dollars in attorney’s fees, a jury awarded him less than the Section 998 offer. Each party filed a memorandum of costs and a motion to strike or tax the other’s costs. And the plaintiff sought over half a million dollars in attorney’s fees as the prevailing party under the Song-Beverly Act. The trial court ruled in favor of Subaru, finding the Section 998 offer valid and awarding Subaru its post-offer costs. The Court of Appeal affirmed the trial court’s costs award and dismissed the plaintiff’s appeal from the ruling on his motion for attorney’s fees.

By publishing its opinion, the Court of Appeal set important precedent, confirming that fee-shifting provisions in consumer protection laws do not override Section 998’s powerful incentive for parties to accept reasonable offers to resolve disputes.

“This sets an important standard for the industry going forward and we’re happy to see that this matter may now be cited as precedent binding on the state’s trial courts,” said James Azadian, co-leader of the firm’s Appellate and Critical Motions Practice who presented the oral argument to the Court of Appeal and led the matter.

The case is Michael Smalley v. Subaru of America, Inc., Court of Appeal Case Numbers G059904 & G060441.