It Pays to Play: Judge Finds Costs Still Recoverable By Prevailing Employers in FEHA Cases Post-Williams

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On May 4, 2015, the California Supreme Court issued its decision in Williams v. Chino Valley Independent Fire District, holding that unsuccessful FEHA plaintiffs should not be ordered to pay the defendant’s ordinary litigation costs unless, “plaintiff brought or continued litigating the action without an objective basis for believing it had potential merit” (also called “the Christianburg standard”). (2015) 61 Cal. 4th 97, 99-100.  Prior to Williams, the Christianburg standard applied when defendants sought attorneys’ fees after prevailing on the merits of a FEHA claim, but there was a split in authority regarding whether the higher threshold in Christianburg applied to awards of ordinary costs under California Code of Civil Procedure section 1032.  Williams resolved the split and held that FEHA constitutes an exception to section 1032 and that defendants must meet the higher threshold in Christianburg before the court can exercise its discretion in awarding costs.

On May 8, 2015, four days after the Court’s decision in Williams, Plaintiff Ellen Pao filed a motion to strike and tax costs sought by her former employer Kleiner Perkins Caufield & Byers, LLC (“KPCB”) in San Francisco Superior Court, Case No. CGC 12 520719.  After prevailing at trial on all claims, KPCB filed a memorandum seeking costs, including expert fees, under Code of Civil Procedure section 998, which allows the court discretion to award post-offer costs where a plaintiff turns down a reasonable pre-trial settlement offer and ultimately loses at trial.  Pao’s motion argued that under Williams, KPCB was required to meet the Christianburg standard before the court could award costs under section 998.  According to Pao, because section 998 “augmented” costs under section 1032, FEHA was also an exception to section 998 under Williams and therefore Christianburg applied.

KPCB opposed Pao’s motion and argued that Williams did not apply to cost recovery under section 998, relying in large part on a pre-Williams case, Holman v. Altana Pharma US, Inc. (2010) 186 Cal. App. 4th 262.  In Holman, the Court of Appeal expressly addressed whether Christianburg applied to cost recovery in FEHA cases where an unsuccessful plaintiff previously rejected a 998 offer of settlement. While acknowledging the pre-Williams split in authority regarding whether Christianburg applied to ordinary costs under section 1032 for FEHA claims, the Court found that – even assuming Christianburg applied, “[t]his is not the end of the analysis, however.  Even if [Plaintiff’s] FEHA claims were not ‘frivolous, unreasonable, or groundless,’ the trial court was still required to consider [defendant’s] request for recovery of its expert witness fees under Code of Civil Procedure section 998.” Id. at 280. Accordingly, despite the Supreme Court’s recent decision in Williams, KPCB argued, the court can and should award costs, including expert fees, under section 998 even if the Christianburg standard is not met.

On June 18, 2015, the superior court agreed with KPCB and adopted its tentative ruling awarding KPCB costs, holding:

Holman v. Altana Pharma US, Inc., (2010) remains good law that is binding on this court. Holman holds that where, as here, a FEHA defendant makes a section 998 offer that is not accepted and the defendant prevails in the case, the defendant may, in the court’s discretion, be awarded post-offer costs, including expert fees, even though the plaintiff’s lawsuit was not objectively without foundation when brought or the plaintiff continued to litigate after it clearly became so. Williams v. Chino Valley Independent Fire District (2015) 61 Cal. 4th 97 does not implicitly overrule or undermine Holman, as made clear both by the favorable citation to Holman in Williams and the discussion of Chavez v. City of Los Angeles (2010) 47 Cal. 4th 970 in Williams. Ms. Pao’s statutory interpretation argument focusing on the word “augmented” lacks merit since that word in the context of section 998 clearly contemplates an “augmentation” or addition to a section 1032 award of zero. When a positive number is added to zero, zero is “augmented” by the positive number.

This decision reinforces the importance of considering early offers of settlement under C.C.P. 998 in FEHA cases and confirms that costs may still be recoverable by prevailing employers – despite the Supreme Court’s recent decision in Williams.