Covert v. FCA USA

Filed 1/4/22; Modified and certified for publication 1/11/22 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

ERIC ALVIN COVERT, B303663

Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC629240)
v.

FCA USA, LLC,

Defendant and Appellant.

APPEAL from orders of the Superior Court of Los Angeles
County, Michelle Williams Court, Judge. Reversed and
remanded with directions.
Horvitz & Levy, Lisa Perrochet, John A. Taylor, Jr.;
Hawkins Parnell & Young, Barry R. Schirm and Ryan K. Marden
for Defendant and Appellant.
Knight Law Group, Steve Mikhov, Roger Kirnos, Amy
Morse; Century Law Group, Edward O. Lear, Rizza Gonzales;
Greines, Martin, Stein & Richland and Cynthia E. Tobisman for
Plaintiff and Respondent.
___________________________
 A jury held automaker FCA US, LLC (FCA) liable to
Eric Alvin Covert for breach of warranty under the Song-Beverly
Consumer Warranty Act (Civ. Code, § 1790 et seq.; the
Song-Beverly Act) and awarded Covert $48,416 in damages and
penalties. About two months after Covert filed the lawsuit, FCA
served Covert with a settlement offer pursuant to Code of Civil
Procedure1 section 998 for $51,000, plus reasonable attorneys’
fees and costs, in exchange for dismissal of the action with
prejudice. Covert filed objections to the section 998 offer. Fifteen
months later FCA served Covert with a second section 998 offer
for $145,000 with otherwise identical terms. FCA appeals from
postjudgment orders denying its motion to tax costs incurred by
Covert, including expert witness fees; granting Covert’s motion to
tax costs incurred by FCA; and granting Covert’s motion for
attorneys’ fees pursuant to Civil Code section 1794,
subdivision (d).
On appeal, FCA contends both of its section 998 offers were
valid, and because the jury awarded Covert less than the amount
of either offer, the trial court erred in awarding Covert attorneys’
fees and costs and denying FCA its costs. Covert responds that
both offers were invalid for the reasons set forth in his objections,
and the first offer was not in good faith because it was
premature. We agree with FCA that both offers were valid.
However, the trial court abused its discretion in failing to
consider whether the first offer was made in good faith. As to the
second offer, Covert did not meet his burden to show it was not
made in good faith.

1 Further undesignated statutory references are to the Code
of Civil Procedure.

2
 Accordingly, we reverse the trial court’s orders and remand
for the court to consider whether FCA’s first offer was made in
good faith. If the trial court finds the first offer was made in good
faith, the court shall award FCA its costs reasonably incurred
after the first offer was served and deny Covert his attorneys’
fees and costs. If the court finds the first offer was not made in
good faith, it shall award Covert his attorneys’ fees and costs
reasonably incurred prior to the date the second offer was served
and award FCA its costs, including expert witness fees,
reasonably incurred thereafter.

BACKGROUND AND PROCEDURAL HISTORY

A. The Complaint
On August 3, 2016 Covert filed this action against FCA and
H.W. Hunter, Inc.,2 asserting causes of action for breach of
express warranty and breach of implied warranty in violation of
the Song-Beverly Act, and a cause of action for fraudulent
concealment. As alleged in the complaint, Covert purchased a
2011 Dodge Ram 2500 pickup truck (the vehicle) from FCA
through a Hunter dealership in Lancaster. The vehicle suffered
from numerous defects, and between April 2011 and October
2015, Covert brought the vehicle to a licensed repair facility on
15 occasions for warranty repairs. Covert’s complaints included
problems with the vehicle’s oxygen sensor, loss of power, engine
noise, difficulty starting the engine, and multiple recalls, and on

2 Hunter joined in both of FCA’s section 998 offers to Covert,
but it did not participate in the trial and is not a party to the
appeal.

3
at least six occasions the check engine light was illuminated. The
complaint further alleged FCA knew and failed to disclose to
Covert that the vehicle’s integrated power module suffered from
defects that had led to irregular transmission activity and
frequent illuminations of the check engine light in dozens of FCA
vehicle models, and these defects were the subject of multiple
regulatory investigations, recalls, technical service bulletins,
consumer complaints, and a federal class action lawsuit filed in
2013.
On his causes of action under the Song-Beverly Act, Covert
sought rescission of the vehicle contract and reimbursement of
his purchase money, consequential damages, prejudgment
interest, attorneys’ fees and costs, and a civil penalty of up to two
times his actual damages due to FCA’s willful misconduct.
Covert also sought punitive damages and prejudgment interest.3

B. FCA’s Section 998 Offers
On October 5, 2016—63 days after Covert filed the
complaint—FCA served an offer to compromise pursuant to
section 998 (first section 998 offer). The offer stated in

3 The Song-Beverly Act provides in relevant part, “If the
manufacturer or its representative in this state is unable to
service or repair a new motor vehicle . . . to conform to the
applicable express warranties after a reasonable number of
attempts, the manufacturer shall either promptly replace the
new motor vehicle . . . or promptly make restitution to the buyer.”
(Civ. Code, § 1793.2, subd. (d)(2).) Although not specified in the
complaint, we assume Covert’s prayer for punitive damages was
based on his cause of action for fraudulent concealment because
the Song-Beverly Act provides for civil penalties, but not punitive
damages.

4
substantial part: “Pursuant to [section] 998, defendants [FCA]
and [Hunter], jointly, without admitting liability, offers [sic] to
pay in exchange for dismissal of this action with prejudice in its
entirety and return of the vehicle that is the subject of this
lawsuit, the sum of $51,000.00. In addition, [FCA and Hunter],
jointly offer to pay reasonable costs, expenses and attorneys’ fees
based on actual time expended pursuant to . . . section 1794(d) as
stipulated by the parties or, if the parties cannot agree, upon
motion to the Court having jurisdiction over this action. [¶]
Except as set forth herein, above, each party shall bear its own
attorneys’ fees and costs of suit.” The offer provided that it was
made pursuant to Goodstein v. Bank of San Pedro (1994)
27 Cal.App.4th 899 (Goodstein) “in that a judgment will not be
entered. Rather the Complaint will be dismissed.”4 The offer
described the mechanism for acceptance of the offer, but it did not
provide any details about the mechanics of payment, return of
the vehicle, or dismissal of the action.
On November 7, 2016 Covert served objections to the first
section 998 offer, contending the offer was vague, ambiguous, and

4 In Goodstein, supra, 27 Cal.App.4th at pages 905-906 and
footnote 4, this court concluded a defense settlement offer
providing for dismissal of the action with prejudice was subject to
former section 998, subdivision (b), which at the time applied to
offers “to allow judgment to be taken in accordance with the
terms and conditions stated at that time.” This court reasoned,
“[A]s between the parties thereto and for purposes of enforcement
of settlement agreements, a compromise agreement
contemplating payment by defendant and dismissal of the action
by plaintiff is the legal equivalent of a judgment in plaintiff's
favor.” (Id. at p. 907.)

5
uncertain because it failed to: (1) specify whether it included
post-acceptance attorneys’ fees and costs; (2) address entitlement
to prejudgment or postjudgment interest; (3) specify whether
Covert was required to sign a separate release agreement;
(4) contain a “good faith and reasonable offer component”;
(5) specify the date on which Covert would receive payment; and
(6) specify the date by which Covert would be required to
surrender the vehicle. Covert also objected that the offer was
unreasonable given the early stage of the litigation: “[Covert] is
unable to fully analyze the value of [Covert’s] claims against
Defendants, such as the willfulness and maliciousness of
Defendants’ actions, as the complaint was filed less than three (3)
months ago, and adequate discovery has not taken place.”
On January 5, 2018, three weeks before the date then set
for trial, FCA served a second section 998 offer. The offer was
identical in all material respects to the first section 998 offer,
except the settlement payment was raised to $145,000. Covert
did not serve objections to the second offer and did not accept it
before it lapsed.

C. Jury Verdict and Judgment
After an eight-day jury trial, starting on May 6, 2019, the
jury returned a special verdict finding FCA liable for breach of
express written warranty and not liable for breach of implied
warranty and fraudulent concealment. The jury awarded Covert
$42,416 in damages based on its finding that Covert paid $49,726
for the vehicle and incurred $5,500 in incidental and
consequential damages, less $12,810 for the value of Covert’s use
of the vehicle based on the 27,836 miles driven. The jury also
imposed a penalty of $6,000, for a total award of $48,416. On

6
June 12, 2019 the trial court entered judgment on the jury’s
verdict, leaving open the determination of prejudgment and
postjudgment interest, attorneys’ fees, and costs, which would be
included in an amended judgment.

D. Postjudgment Motions for Attorneys’ Fees and Costs
Following entry of judgment, Covert filed a memorandum
of costs seeking $55,015 in costs, including $27,630 in expert
witness fees, and a motion for $294,433 in attorneys’ fees (using a
lodestar of $196,289 with a 50 percent enhancement). Covert
also filed a motion for prejudgment interest of at least $14,206.5
FCA filed its own memorandum of costs, seeking $69,178 in costs,
including $66,951 in expert witness fees.
FCA filed a motion to tax Covert’s costs, arguing
section 998, subdivision (c)(1), precluded Covert’s recovery of
costs, including expert witness fees, incurred after the first
section 998 offer because FCA’s offer of $51,000 exceeded Covert’s
total award of $48,416.6 FCA likewise opposed Covert’s motion
for attorneys’ fees, arguing Covert’s recovery was less than either

5 Covert sought prejudgment interest calculated either from
the date of the purchase of the vehicle ($37,414) or from the filing
of the complaint ($14,206).
6 FCA also objected to many of the costs claimed by Covert as
nonrecoverable under section 1033.5, subdivision (b). In its
opposition to Covert’s motion for attorneys’ fees, FCA also
challenged the reasonableness of the attorneys’ bills, the
severability of fees billed to the unsuccessful fraud cause of
action, the lodestar, and the application of a multiplier. FCA
does not raise these challenges on appeal.

7
of FCA’s section 998 offers, and therefore the subsequent
attorneys’ fees were not reasonably incurred.
FCA argued that both its offers were valid and Covert’s
attorneys had executed almost identical section 998 offers made
by FCA in prior lawsuits, which showed that Covert’s attorneys
were capable of evaluating these offers but instead “determined
to risk it all at trial, rather than earnestly contemplate the true
value of their clients’ case.”
Covert opposed FCA’s motion to tax costs and moved to tax
FCA’s costs on the basis both section 998 offers were invalid on
the grounds set forth in his objections to the first offer, and the
first section 998 offer was premature and not ascertainable.7 In
his reply brief in support of his motion for attorneys’ fees, Covert
highlighted that the failure of the offers to specify when FCA
would pay and when Covert would need to surrender the vehicle
were problematic because in similar lawsuits FCA had often
delayed this process for months, forcing plaintiffs’ attorneys
regularly to file motions to enforce the settlements and to seek
sanctions.8

7 Covert also argued in his motion to tax FCA’s costs that
even if FCA’s first section 998 offer was valid, his recovery would
ultimately exceed the offered $51,000 because it would include at
least $14,206 in prejudgment interest. However, the trial court
denied prejudgment interest.
8 Covert requests we take judicial notice of a writ of
execution, declaration of accrued interest, and declaration in
support of calculation on interest accrued on unpaid judgment
that Covert filed in the trial court after this appeal was taken,
which he contends is evidence he was reasonably concerned FCA
would fail to perform its payment obligations under the

8
 After a hearing, on November 26, 2019 the trial court
issued a three-page order ruling on the parties’ respective
motions to tax costs and Covert’s motions for attorneys’ fees and
prejudgment interest. The court denied FCA’s motion to tax
costs, finding Covert was the prevailing plaintiff on his
Song-Beverly Act claim, and thus, entitled under Civil Code
section 1794, subdivision (d), to recover all reasonable costs and
expenses, and further, Covert’s claimed costs were reasonable.
The court granted Covert’s motion for attorneys’ fees in part,
finding the bills and rates were reasonable and Covert was
entitled to recover $196,289 in fees billed, but without a
multiplier. The court granted Covert’s motion to tax FCA’s costs,
sustaining Covert’s objections to the first section 998 offer on the
grounds it “was vague, ambiguous and uncertain, did not address
[Covert’s] entitlement to prejudgment or postjudgment interest,
did not specify whether it would require [Covert] to sign a
separate release, did not include a provision concerning good
faith settlement, and was unreasonable.” The court did not
address FCA’s second section 998 offer. Finally, the court denied
Covert’s motion for prejudgment interest, finding the vehicle’s
defects and the mileage at which the defects presented were
contested issues not ascertainable before trial.

section 998 offers absent a term specifying the time for payment.
We deny Covert’s request because the documents were not before
the trial court and are not relevant on appeal. (See Vons
Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444,
fn. 3 [“Reviewing courts generally do not take judicial notice of
evidence not presented to the trial court.”]; Coyne v. City and
County of San Francisco (2017) 9 Cal.App.5th 1215, 1223, fn. 3
[denying judicial notice as to documents that were not relevant to
court’s analysis].)

9
 FCA timely appealed from the November 26, 2019 orders.9

DISCUSSION

A. Recovery of Costs Under Section 998
“‘“[C]osts” of a civil action consist of the expenses of
litigation . . . . The right to recover any such costs is determined
entirely by statute.”’ (Olson v. Automobile Club of Southern
California (2008) 42 Cal.4th 1142, 1148; accord, Khosravan v.
Chevron Corp. (2021) 66 Cal.App.5th 288, 294 (Khosravan).)
Section 998, subdivision (b), provides, “Not less than 10 days
prior to commencement of trial or arbitration . . . , 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

9 Although FCA’s notice of appeal listed only Covert’s motion
for attorneys’ fees and Covert’s motion to tax costs, we construe
the notice to include FCA’s appeal from the trial court’s denial of
FCA’s motion to tax costs because the notice stated FCA was
appealing from the orders entered on November 26, 2019. (See
Cal. Rules of Court, rule 8.100(a)(2) [“The notice of appeal must
be liberally construed.”]; K.J. v. Los Angeles Unified School Dist.
(2020) 8 Cal.5th 875, 882 [“Rule 8.100(a)(2)’s liberal construction
requirement reflects the long-standing ‘“law of this state that
notices of appeal are to be liberally construed so as to protect the
right of appeal if it is reasonably clear what [the] appellant was
trying to appeal from, and where the respondent could not
possibly have been misled or prejudiced.”’”])

10
acceptance of the offer by signing a statement that the offer is
accepted.” Section 998, subdivision (c)(1), provides, “If an offer
made by a defendant is not accepted and the plaintiff fails to
obtain a more favorable judgment or award, the plaintiff . . . shall
pay the defendant’s costs from the time of the offer. In
addition, . . . the court . . . , in its discretion, may require the
plaintiff to pay a reasonable sum to cover postoffer costs of the
services of expert witnesses, who are not regular employees of
any party, actually incurred and reasonably necessary in either,
or both, preparation for trial . . . , or during trial . . . , of the case
by the defendant.” Section 998 thus modifies the general cost
recovery provisions of sections 1031 and 1032. (§ 998, subd. (a)
[“The costs allowed under Sections 1031 and 1032 shall be
withheld or augmented as provided in this section.”].)
On a motion to strike or tax costs, “[t]he burden is on the
offering party to demonstrate that the offer is valid under
section 998.” (Ignacio v. Caracciolo (2016) 2 Cal.App.5th 81, 86;
accord, Khosravan, supra, 66 Cal.App.5th at p. 294.) “The offer
must be strictly construed in favor of the party sought to be
bound by it.” (Ignacio, at p. 86; accord, Khosravan, at p. 295.)
“‘We independently review whether a section 998 settlement offer
was valid. In our review, we interpret any ambiguity in the offer
against its proponent.’” (Prince v. Invensure Ins. Brokers, Inc.
(2018) 23 Cal.App.5th 614, 622; accord, Menges v. Department of
Transportation (2020) 59 Cal.App.5th 13, 20 (Menges) [the
validity of an offer to compromise under section 998 “is subject to
de novo review”].)
“‘An offer to compromise under . . . section 998 must be
sufficiently specific to allow the recipient to evaluate the worth of
the offer and make a reasoned decision whether to accept the

11
offer.”’ (Menges, supra, 59 Cal.App.5th at p. 26; accord,
Khosravan, supra, 66 Cal.App.5th at p. 295.) “The inclusion of
nonmonetary terms and conditions does not render a section 998
offer invalid; but those terms or conditions must be sufficiently
certain and capable of valuation to allow the court to determine
whether the judgment is more favorable than the offer.” (Menges,
at p. 26; accord, Khosravan, at p. 295; Valentino v. Elliott Sav-On
Gas, Inc. (1988) 201 Cal.App.3d 692, 697 (Valentino) [“[A]n ‘offer’
includes all its terms and conditions and must be evaluated in
the light of all those terms and conditions.”].)
“‘To further the purposes of promoting reasonable
settlement under section 998, we must consider the validity of
section 998 offers as of the date the offers are served.’”
(Khosravan, supra, 66 Cal.App.5th at p. 295; accord, Valentino,
supra, 201 Cal.App.3d at p. 698 [the value of terms and
conditions of a section 998 offer must be evaluated “as of the
time” the offer was made “without the benefit of hindsight”].)
“Where a defendant’s settlement offer contains terms that make
it ‘exceedingly difficult or impossible to determine the value of
the offer to the plaintiff[,] . . . a court should not undertake
extraordinary efforts to attempt to determine whether the
judgment is more favorable to the plaintiff. Instead, the court
should conclude that the offer is not sufficiently specific or certain
to determine its value and deny cost shifting under Code of Civil
Procedure section 998.’” (Khosravan, supra, 66 Cal.App.5th at
p. 295; accord, Fassberg Construction Co. v. Housing Authority of
City of Los Angeles (2007) 152 Cal.App.4th 720, 766 (Fassberg);
see Valentino, at p. 700 [courts should not “engage[] in pure
guesswork”].)

12
 Once the offeror shows the section 998 offer is valid, the
burden shifts to the offeree to show the offer was not made in
good faith. (Licudine v. Cedars-Sinai Medical Center (2019)
30 Cal.App.5th 918, 926 (Licudine); Adams v. Ford Motor Co.
(2011) 199 Cal.App.4th 1475, 1484 (Adams).) Only settlement
offers made in good faith are effective under section 998.
(Licudine, at p. 924; Elrod v. Oregon Cummins Diesel, Inc. (1987)
195 Cal.App.3d 692, 698 (Elrod) [“[w]e therefore conclude the
Legislature intends that only good faith settlement offers qualify
as valid offers under section 998”].) “‘“Where . . . the offeror
obtains a judgment more favorable than its offer, the judgment
constitutes prima facie evidence showing the offer was reasonable
and the offeror is eligible for costs as specified in section 998.”’”
(Adams, at p. 1484; accord, Khosravan supra, 66 Cal.App.5th at
p. 295.)
However, an offer is only made in good faith if the offer
“‘“carr[ies] with it some reasonable prospect of acceptance.”’”
(Licudine, supra, 30 Cal.App.5th at p. 924; accord, Adams,
supra,199 Cal.App.4th at p. 1483.) “Whether a section 998 offer
has a reasonable prospect of acceptance is a function of two
considerations, both to be evaluated in light of the circumstances
‘“at the time of the offer’” and ‘“not by virtue of hindsight.’”
[Citations.] First, was the 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,’ such that the offeree had a ‘fair opportunity to

13
intelligently evaluate the offer’?” (Licudine, at pp. 924-925;
accord, Adams, at p. 1485.)
“Although the party making a 998 offer generally has the
burden of showing that [the] offer is valid [citations], it is the 998
offeree who bears the burden of showing that an otherwise valid
998 offer was not made in good faith.” (Licudine, supra,
30 Cal.App.5th at p. 926; accord, Elrod, supra, 195 Cal.App.3d at
p. 700.) “Whether a section 998 offer was reasonable and made in
good faith is a matter left to the sound discretion of the trial
court, and will not be reversed on appeal except for a clear abuse
of discretion.” (Najera v. Huerta (2011) 191 Cal.App.4th 872, 877;
accord, Licudine, at p. 923.)

B. The Interplay Between Code of Civil Procedure Section 998
and Civil Code Section 1794
Civil Code section 1794, subdivision (d), provides that a
prevailing buyer in an action under the Song-Beverly Act “shall
be allowed by the court to recover as part of the judgment a sum
equal to the aggregate amount of costs and expenses, including
attorney’s fees based on actual time expended, determined by the
court to have been reasonably incurred by the buyer in
connection with the commencement and prosecution of such
action.” (Accord, Hanna v. Mercedes-Benz USA, LLC (2019)
36 Cal.App.5th 493, 506.)
FCA contends the cost-shifting provisions of section 998
supersede a buyer’s entitlement to attorneys’ fees under Civil
Code section 1794, subdivision (d), citing Duale v. Mercedes-Benz
USA, LLC (2007) 148 Cal.App.4th 718 (Duale). In Duale, the
Court of Appeal analyzed the interplay between Code of Civil
Procedure section 998 and Civil Code section 1794 and concluded

14
the trial court erred in declining to apply section 998 to limit the
prevailing Song-Beverly Act plaintiffs’ recovery of attorneys’ fees
where the defendants’ section 998 offer exceeded the verdict for
the plaintiffs. The court based its analysis on Murillo v.
Fleetwood Enterprises, Inc. (1998) 17 Cal.4th 985, 1000 (Murillo),
in which the Supreme Court held with respect to prevailing
defendants that Civil Code section 1794 “provides no exception to
the provisions of section 998.”
In Murillo, the defendant sellers of mobile homes prevailed
at trial on the plaintiff buyer’s Song-Beverly Act claims.
(Murillo, supra, 17 Cal.4th at pp. 988-989.) The trial court
denied the buyer’s motion to strike or tax costs and awarded the
sellers their prevailing party costs under Code of Civil Procedure
section 1032, subdivision (b), and, because the buyer rejected the
sellers’ settlement offer, the court awarded the sellers their
expert witness fees under Code of Civil Procedure section 998.
The Supreme Court upheld the trial court’s ruling, rejecting the
buyer’s contention that Civil Code section 1794 provided the
exclusive mechanism for cost recovery in a Song-Beverly Act case
and precluded recovery of costs under Code of Civil Procedure
sections 998 and 1032. (Murillo, at pp. 988, 990.) Applying
principles of statutory construction, the Supreme Court explained
that Code of Civil Procedure section 1032, subdivision (b), grants
a prevailing party the right to recover costs “‘[e]xcept as
otherwise expressly provided by statute,’” and Civil Code
section 1794, subdivision (d), did not expressly prohibit prevailing
sellers from recovering their costs. (Murillo, at pp. 990-991,
italics omitted.)
In response to the buyer’s contention the three cost-
recovery provisions were inconsistent, the Murillo court reasoned

15
the sections could be reconciled: “On the one hand, if a buyer
should prevail in an action under the [Song-Beverly] Act, he or
she is entitled to costs, expenses, and attorney fees as set forth in
Civil Code section 1794(d). On the other hand, if a seller should
prevail in an action brought under the Act, it is entitled to costs
under section 1032(b). We thus perceive no conflict or
inconsistency . . . .” (Murillo, supra, 17 Cal.4th at p. 992.)
Further, “[h]aving concluded Civil Code section 1794(d) fails to
set forth an express exception to the general cost-recovery rule
set forth section 1032(b), we likewise conclude it provides no
exception to the provisions of section 998. Section 998 explicitly
states that it ‘augment[s]’ section 1032(b). Thus, the
requirements for recovery of costs and fees under section 998
must be read in conjunction with section 1032(b), including the
requirement that section 998 costs and fees are available to the
prevailing party ‘[e]xcept as otherwise expressly provided by
statute.’” (Murillo, at p. 1000.)
In Duale, the Court of Appeal acknowledged that “Murillo
did not consider the situation posed here, i.e., when a seller who
does not prevail at trial claims entitlement to section 998 costs
and fees.” (Duale, supra, 148 Cal.App.4th at p. 727.) The court
nonetheless concluded, “We see no reason not to extend the
Supreme Court’s reasoning in Murillo to include the
circumstances posed here. Nothing in the relevant statutes or
applicable case law suggests the Legislature intended to exempt
lemon law plaintiffs from the ‘carrot and stick’ of section 998’s
provisions encouraging settlement of pending cases. [Citation.]
Nor is the Song-Beverly Act’s purpose inconsistent with the
application of the section 998 provision restricting the ability of
prevailing plaintiffs to recover attorney fees and costs if they fail

16
to recover more at trial than a rejected pretrial settlement offer.
The [A]ct allows prevailing injured car buyers to recover attorney
fees and costs in order to render such lawsuits ‘economically
feasible’ [citing Murillo, supra, 17 Cal.4th at p. 994]; but
declining to award such a buyer postoffer attorney fees and costs
if he has refused a reasonable pretrial settlement offer does not
defeat that purpose. An injured plaintiff may be encouraged to
sue by the prospect of recovering his costs if successful, but no
articulated public policy is served by allowing him to maintain a
lawsuit that loses its economic viability by virtue of the seller’s
willingness to settle on terms better than those a jury will
award.” (Duale, at p. 728.)
In his respondent’s brief, Covert contends we should reject
Duale’s “unsound expansion of Murillo” because the Supreme
Court’s holding in Murillo was based on the court’s reconciliation
of the cost-recovery statutes in the context of a prevailing seller,
but where the buyer prevails, there is a conflict between Civil
Code section 1794 and the cost-recovery provisions of Code of
Civil Procedure sections 998 and 1032. We agree with Covert
that Murillo’s finding that there is no conflict between Civil Code
section 1794 and Code of Civil Procedure sections 998 and 1032
does not hold true in the context of a prevailing buyer who rejects
a section 998 offer. In that situation, the prevailing buyer would
be entitled to attorneys’ fees and costs under Civil Code
section 1794, but the seller would be entitled to its costs,
including expert witness fees, under Code of Civil Procedure
sections 998 and 1032, as long as it made a valid good faith offer
that exceeded the buyer’s recovery.
However, Covert’s argument still fails because, as the
Court of Appeal explained in Duale, supra, 148 Cal.App.4th at

17
page 728, the Supreme Court’s holding in Murillo was also
premised on the Legislature’s expressed intent in section 998 to
encourage settlement. (Murillo, supra, 17 Cal.4th at p. 1001.)
“‘If we find the statutory language ambiguous or subject to more
than one interpretation, we may look to extrinsic aids, including
legislative history or purpose to inform our views.’” (In re A.N.
(2020) 9 Cal.5th 343, 351-352; accord, ZB, N.A. v. Superior Court
(2019) 8 Cal.5th 175, 189.) As the Murillo court explained with
respect to the legislative intent of the Song-Beverly Act and Code
of Civil Procedure section 998, “Although the Legislature’s
purpose in enacting the Song-Beverly Act was admittedly to
encourage consumers to enforce their rights under the Act,
nothing in Civil Code section 1794(d) suggests this legislative
purpose should override the Legislature’s desire—expressed in
section 998—to encourage the settlement of lawsuits.” (Murillo,
at p. 1001.)
Regardless of which party prevails at trial, there is no
conflict between the Song-Beverly Act’s incentives that are
designed to make it economically feasible for a buyer to seek
redress through litigation, notwithstanding that his or her
damages will generally be limited to include only the vehicle’s
value, civil penalties up to double the amount of damages, and
incidental damages (thus providing for only limited attorneys’
fees under a contingency fee agreement), and Code of Civil
Procedure section 998’s incentive to encourage fair pretrial
settlements. (Duale, supra, 148 Cal.App.4th at p. 728.) Indeed,
the two provisions working in tandem create a more efficient
mechanism for bringing consumers substantial relief by
incentivizing the filing of an action to seek redress while
encouraging a reasonable settlement that reduces the delay and

18
legal expenses of trial. Accordingly, we conclude that a valid and
reasonable section 998 offer by the seller, where the buyer
recovers less than the offer, precludes recovery by the buyer of
postoffer attorneys’ fees and costs under Code of Civil Procedure
section 1794, subdivision (d).10

C. FCA’s Section 998 Offers Were Valid
FCA contends the trial court erred in sustaining Covert’s
objections to the first section 998 offer and in impliedly
invalidating the second offer with identical nonmonetary terms
on the same grounds.11 Covert responds that the nonmonetary
terms made the offers uncertain, and FCA, as the party seeking
to enforce the offers, failed to meet its burden to demonstrate
their validity. We review the validity of the offers de novo and
conclude they were “‘sufficiently specific to allow the recipient to

10 In Hanna v. Mercedes-Benz USA, LLC, supra,
36 Cal.App.5th at page 508, we upheld an award of attorneys’
fees and costs to the plaintiff buyer on her Song-Beverly Act
claim but reversed the attorneys’ fees award as improperly
calculated. We assumed, but did not specifically reach, that a
defendant’s valid and reasonable section 998 offer would bar a
prevailing Song-Beverly Act plaintiff’s recovery of attorneys’ fees
and costs. We concluded that the plaintiff’s rejection of the
defendant’s section 998 offer did not bar the plaintiff’s recovery of
attorneys’ fees and costs because the offer contained unfavorable
terms, and “[r]ejecting a settlement offer because of unfavorable
terms is neither unreasonable nor a permissible ground for
denying an award of attorney fees under the Song-Beverly Act.”
(Ibid.)
11 We follow the parties’ approach to treat Covert’s objections
as if they were asserted with respect to both section 998 offers.

19
evaluate the worth of the offer and make a reasoned decision
whether to accept the offer.”’ (Menges, supra, 59 Cal.App.5th at
p. 26.)

1. Failure to address post-acceptance attorneys’ fees
The section 998 offers provided, “[D]efendants offer to pay
reasonable costs, expenses and attorneys’ fees based on actual
time extended pursuant to Civil Code section 1794(d) as
stipulated by the parties or, if the parties cannot agree, upon
motion to the Court, having jurisdiction over this action.” Covert
objected that he was “unable to ascertain whether Defendants
are offering to pay post-acceptance fees that may be incurred in
this litigation.” Covert argued that if he were required to pay his
attorneys for “post-offer clarification, enforcement of the offer, or
any appeals or writs following rulings related to any of the
foregoing,” those expenses could “essentially eviscerate” the
monetary offer.
Covert’s objection lacks merit. The payment provision of
the section 998 offers expressly incorporated Civil Code
section 1794, subdivision (d), which provides, “If the buyer
prevails in an action under this section, the buyer shall be
allowed by the court to recover as part of the judgment a sum
equal to the aggregate amount of costs and expenses, including
attorney’s fees based on actual time expended, determined by the
court to have been reasonably incurred by the buyer in
connection with the commencement and prosecution of such
action.” Covert has provided no authority for the proposition that
post-offer attorneys’ fees cannot be recovered in a motion under
Civil Code section 1794, subdivision (d), as fees incurred in the

20
“prosecution of [the] action.” Covert’s entitlement to fees would
end only when prosecution of the action ends upon dismissal.

2. Failure to address prejudgment and postjudgment
interest
Covert objected that FCA’s section 998 offers did “not
address [Covert’s] entitlement to pre-judgment interest or post-
judgment interest.” This objection lacks merit. “Prejudgment
interest is an element of damages, not a cost.” (Warren v. Kia
Motors America, Inc. (2018) 30 Cal.App.5th 24, 43.) Covert’s
complaint included a prayer for damages, including prejudgment
interest, and thus in evaluating the section 998 offer, Covert
necessarily had to weigh the amount offered against his potential
trial recovery, including prejudgment interest. The trial court
ultimately found Covert was not entitled to prejudgment interest
because the amount of damages was a contested issue not
ascertainable before trial. (See Duale, supra, 148 Cal.App.4th at
p. 729 [trial court properly disallowed prejudgment interest on
Song-Beverly Act award because the damages depended on trial
resolution of disputed warranty-related issues].) That Covert’s
right to prejudgment interest was questionable may have made it
difficult for him to estimate his likely trial recovery, but no more
so than the amount of damages he was likely to recover at trial.
Covert’s objection that the section 998 offers did not
address postjudgment interest borders on the frivolous. The
offers provided “that a judgment will not be entered,” and thus,
there would be no unpaid judgment on which interest would be
owed.

21
 3. Failure to specify whether FCA would require a
separate release
Covert objected that the section 998 offers did not specify
whether he would be required to sign a separate release
agreement. This objection fares no better. The section 998 offers
provided for payment “in exchange for dismissal of this action
with prejudice in its entirety and return of the vehicle that is the
subject of this lawsuit.” This language did not create a likelihood
that Covert would have to provide a release any broader than the
lawsuit that was being dismissed. Goodstein, supra,
27 Cal.App.4th 899 is instructive. This court in Goodstein
rejected the plaintiff’s argument that a section 998 offer that
required execution of a general release with a dismissal with
prejudice was invalid because the terms of the release were not
specified. (Id. at p. 907.) Because the offer’s requirement of a
release was preceded by the phrase “‘in full settlement of this
action,’” this court concluded the offer could not reasonably be
construed to require a broader release of present and future
possible causes of action against the defendant. (Ibid.; see
Linthicum v. Butterfield (2009) 175 Cal.App.4th 259, 272 [where
section 998 offer required “‘mutual release of all current claims
against one another’” and “‘mutual dismissal with prejudice of
the parties’ lawsuits against one another,’” offer could be valued
because, construing the language to be valid and enforceable, it
was limited to release of claims in the lawsuit].)
Here, the offers did not include a release requirement at
all. Covert’s contention the absence of a release requirement
could somehow bind him to a broad release is even further afield
from the positions rejected by the courts in Goodstein and

22
Lithicum and is not supported by any reasonable construction of
the offers.

4. Failure to contain an express good faith provision
Covert objected that the offers “fail[ed] to contain an
express good faith and reasonable offer component,” and
therefore was invalid. In its order sustaining the objection, the
trial court characterized the defect as the omission of a provision
“concerning good faith settlement.” On appeal, FCA argues that
section 998 does not require that an offer of compromise contain a
“reasonable offer” or “good faith settlement” provision, and it is
unclear what language Covert believes was required. Covert fails
to address in his respondent’s brief why the lack of a good faith
offer component rendered the offers uncertain, or what such a
component would entail. We reject Covert’s position as lacking
support.

5. Lack of specific payment date
Covert objected that the lack of a specific date by which
FCA was required to make the settlement payment rendered the
section 998 offers uncertain. Covert argued that FCA regularly
delays payment of settlement amounts for months, and in other
Song-Beverly Act lawsuits against FCA, Covert’s attorneys “have
been forced to regularly file motions to enforce settlement and for
sanctions” when the offer does not contain a specific date for
payment. In his respondent’s brief, Covert postulates two
possible scenarios, one in which a section 998 offer requires a
plaintiff to dismiss the action with prejudice 20 days before
payment, and another in which the plaintiff must dismiss the
action with prejudice 20 days after payment, observing that the

23
second scenario is clearly more valuable to a plaintiff. Covert’s
argument is based on a false premise—there is nothing in the
section 998 offer that would require Covert to dismiss his case
before FCA makes its payment.
Moreover, as FCA argues, the Courts of Appeal have
repeatedly upheld the validity of section 998 offers without a
payment date. (See, e.g., Goodstein, supra, 27 Cal.App.4th at
p. 905 [bank’s offer provided that it would pay Goodstein
$150,000 “‘[i]n full settlement of this action’” in exchange for a
request for dismissal and “‘execution and transmittal of a
General Release by [Goodstein] in favor of [Bank],’” with the
parties to bear their own costs and attorneys’ fees]; Auburn
Woods I Homeowners Association v. State Farm General
Insurance Company (2020) 56 Cal.App.5th 717, 726 [offer
provided for payment of $35,000 “‘in full settlement of all
claims . . . asserted by [HOA] in this action against [State Farm]
or Frank Lewis or both’” in exchange for request for dismissal
with prejudice and execution of settlement agreement and release
that would “‘forever end this case and the underlying disputes
between [HOA] and each defendant’”].)
Covert cites no authority for his contention that an offer to
pay money in exchange for a dismissal without a payment date
renders the offer invalid. Further, under FCA’s section 998
offers, Covert controlled when he would dismiss the action, and
he was entitled to recover his attorneys’ fees and costs reasonably
incurred in prosecuting the action. These provisions created a
significant disincentive for FCA to engage in gamesmanship in
delaying payment.

24
 6. Lack of specific vehicle surrender date
FCA offered a monetary payment “in exchange for
dismissal of this action with prejudice in its entirety and return
of the vehicle.” Covert objected the offers “lack[ed] specificity
regarding the date [Covert] will be required to surrender the
Subject Vehicle, thus making the offer uncertain.” Covert agues
in his respondent’s brief that the absence of a term linking FCA’s
payment to Covert’s surrender of the vehicle creates a potential
for abuse because FCA could require Covert to return the vehicle
before making the settlement payment, leaving Covert with no
vehicle and no compensation. As he argues, even if the trial court
were to construe the section 998 offers to require FCA to perform
within a reasonable amount of time, “what is reasonable to a
global corporation is not necessarily reasonable to an individual
consumer. For example, while corporations may construe a
reasonable time for payment on a commercial account to be
30 days, it is unreasonable to expect a consumer to endure
30 days without any vehicle or the funds to buy a new one.”
(Italics omitted.)
Covert’s objection has superficial appeal because FCA could
refuse to make a settlement payment until the vehicle is
surrendered. But this does not invalidate the offer for lack of
certainty. For a section 998 offer to be valid, “[a]ny nonmonetary
terms or conditions must be sufficiently certain and capable of
valuation to allow the court to determine whether the judgment
is more favorable than the offer.” (Fassberg, supra,
152 Cal.App.4th at pp. 764-765; accord, MacQuiddy v. Mercedes-
Benz USA, LLC (2015) 233 Cal.App.4th 1036, 1050 [“To be valid,
an offer under section 998 may include nonmonetary terms and
conditions, but it must be unconditional.”].) Covert had sufficient

25
information on which to make a reasoned decision whether to
accept FCA’s offers. The risk he identifies—surrendering his car
before being paid—is the same risk posed by entry of a judgment
after trial. As with the payment date, Covert can ensure
compliance before dismissing the action, which increases the
value of the settlement relative to a trial recovery.
MacQuiddy v. Mercedes-Benz USA, LLC, supra,
233 Cal.App.4th at page 1050, relied on by Covert, is not to the
contrary. There, the Court of Appeal concluded a section 998
offer was ambiguous, and thus invalid, where the defendant
offered to repurchase the plaintiff’s vehicle “‘in an undamaged
condition, save normal wear and tear,’” because “[t]his condition
inserted uncertainty into the offer . . . . Whether the car was in
an ‘undamaged condition’ was not defined, nor was it clear what
would happen if [plaintiff] accepted the offer, but [defendant]
subsequently concluded the car was ‘damaged’ beyond normal
wear and tear.” (Ibid.) The court explained it “fail[ed] to see
how, following trial, the [trial] court could compare the value of
obtaining the repurchase of the car without regard to its
condition to the offer requiring that the car be ‘undamaged,’ in
order to determine whether [plaintiff] received a more favorable
judgment than the offer. Such an evaluation would require a
factual determination of whether the car was damaged.” (Ibid.)
Here, by contrast, the lack of a vehicle surrender date did not
prevent Covert from evaluating the value of the offers, even
assuming some delay in payment, against his trial expectations.

26
D. The Trial Court Abused Its Discretion in Failing To
Consider Whether the First Section 998 Offer Was
Premature
Because the section 998 offers were valid, Covert had the
burden to show the offers were not made in good faith in order to
avoid their application.12 (Licudine, supra, 30 Cal.App.5th at
p. 926; Adams, supra, 199 Cal.App.4th at p. 1484.) Covert
objected to the first section 998 offer on the ground it was
“unreasonable at this stage in the litigation” because “[Covert] is
unable to fully analyze the value of [Covert’s] claims against
[FCA], such as the willfulness and maliciousness of [FCA]’s
actions, as the complaint was filed less than three (3) months
ago, and adequate discovery has not taken place.” In sustaining
Covert’s objections, the trial court listed Covert’s six objections,
including that the offer was “unreasonable”; however, the court

12 In his respondent’s brief, Covert argues that even if FCA’s
section 998 offers were enforceable, section 998 did not apply. He
contends the $49,726 judgment was more favorable than the
offers because the judgment established FCA’s liability and
Covert’s right to postjudgment interest and would be enforceable
under the Enforcement of Judgments Law, section 680.010 et seq.
However, these asserted benefits of a judgment over a dismissal
are only valuable if FCA fails to pay the judgment, requiring use
of the enforcement tools and payment of postjudgment interest.
By contrast, with respect to the section 998 offer, Covert can
simply not dismiss the lawsuit until FCA pays, giving him a
superior mechanism to ensure FCA’s compliance. In addition,
Covert’s argument would require us to value a judgment at a
significantly higher amount than a dismissal. To do so would
cast doubt on all section 998 offers predicated on a dismissal
without a judgment, undermining this court’s longstanding
decision in Goodstein, supra, 27 Cal.App.4th at page 905.

27
focused on the arguments relating to validity without addressing
whether the offer was premature, and therefore not in good faith.
FCA urges us to reverse the trial court’s order because
“given that the trial court sustained all of Covert’s objections
across the board, with no finding on the reasonableness of FCA’s
first section 998 offer, the trial court did not exercise any
discretion.” We agree that notwithstanding the court’s statement
the offer was “unreasonable,” it does not appear from the record
that the court considered whether the first section 998 offer—
served 63 days after the complaint was filed—was unreasonable
because it was made prior to adequate discovery on potential
penalties or fraud. This was an abuse of discretion. (See
Fadeeff v. State Farm General Insurance Co. (2020)
50 Cal.App.5th 94, 104 [“A trial court’s failure to exercise
discretion is itself an abuse of discretion.”]; Kim v. Euromotors
West/The Auto Gallery (2007) 149 Cal.App.4th 170, 176 [“A
failure to exercise discretion is an abuse of discretion.”].)
Covert’s argument that the first section 998 offer was
unreasonably premature, which he argued (briefly) in his
objections and posttrial motions, was based on the fact that
discovery had not yet taken place at the time the offer expired for
Covert. Thus Covert did not have sufficient information on which
to assess whether FCA’s violations of the Song-Beverly Act were
willful, supporting civil penalties,13 and whether FCA was liable

13 Under Civil Code section 1794, subdivision (c), a buyer who
establishes a seller’s willful noncompliance with the
requirements of the Song-Beverly Act may receive “a civil penalty
which shall not exceed two times the amount of actual damages.”
A finding of willfulness may be made where the seller “knew of
its obligations but intentionally declined to fulfill them.”

28
for fraud. FCA contends Covert’s detailed, 32-page complaint
shows he had extensive information prior to filing the lawsuit
about the defects in FCA’s integrated power module, and he was
aware that FCA knew these defects had caused other owners of
his vehicle model to have problems similar to those he
experienced.14 However, significant factual issues remain as to

(Ibrahim v. Ford Motor Co. (1989) 214 Cal.App.3d 878, 894.)
Conversely, “a violation is not willful if the defendant’s failure to
replace or refund was the result of a good faith and reasonable
belief the facts imposing the statutory obligation were not
present. This might be the case, for example, if the manufacturer
reasonably believed the product did conform to the warranty, or a
reasonable number of repair attempts had not been made, or the
buyer desired further repair rather than replacement or refund.”
(Kwan v. Mercedes-Benz of North America, Inc. (1994)
23 Cal.App.4th 174, 185; see Robertson v. Fleetwood Travel
Trailers of California, Inc. (2006) 144 Cal.App.4th 785, 815 [trial
court erred in excluding from trial evidence of seller’s belief it
could repair a damaged trailer, “including the nature and details
of those prospective repairs” and whether “it had not yet been
given a reasonable number of repair attempts.”].)
14 FCA cites Whatley-Miller v. Cooper (2013) 212 Cal.App.4th
1103, 1113-1114 for the proposition that a section 998 offer is not
unreasonable when it is served at the outset of litigation. There,
the Court of Appeal concluded the trial court did not abuse its
discretion in rejecting a physician’s argument in a malpractice
action that a plaintiff’s section 998 offer was premature because
it was served two months after the physician responded to the
complaint, where information regarding the decedent patient’s
income and the financial impact of his death had been produced
in pre-offer discovery and the physician did not object to the offer
as premature when it was made. (Ibid.; see Barbra v. Perez
(2008) 168 Cal.App.4th 444, 450-451 [trial court did not abuse its

29
what FCA knew or should have known about Covert’s specific
vehicle based on his repair attempts at an FCA-authorized
facility. For example, was a defect in the integrated power
module in Covert’s car the cause of his vehicle failures, and if so,
was FCA aware of this fact? And did Covert know whether FCA
was aware of this fact? Thus, there is a factual dispute as to
whether the offeror (FCA) knew that the offeree (Covert) had
sufficient information based on what the offeree knew, or
reasonably should have known, “to intelligently evaluate the
offer.” (Licudine, supra, 30 Cal.App.5th at pp. 924-925.) Absent
any findings by the trial court on this issue, we are ill-equipped
to resolve whether FCA’s first section 998 offer was made in good
faith under the circumstances of this case. (See Elrod, supra,
195 Cal.App.3d at p. 699 [“‘If the offeree has no reason to know
the offer is reasonable, then the offeree cannot be expected to
accept the offer.’”]) We remand for the trial court to determine in
the first instance whether the first section 998 offer was
premature and therefore not made in good faith.15

discretion in finding section 998 offer served with complaint was
not premature where the parties had a “close, semi-familial
relationship, and there was free flow of information between
them,” and the plaintiff informed defendant’s agent that he had
incurred about $70,000 in medical bills].)

15 Covert did not argue in the trial court, and does not
contend on appeal, that the second offer was made prematurely
or otherwise was not made in good faith. We note the offer was
made on the eve of trial (and thus, not premature), and the offer
for $145,000 was approximately three times the judgment Covert
obtained at trial. Therefore, Covert did not meet his burden to

30
 DISPOSITION

We reverse the trial court’s November 26, 2019 orders
granting Covert’s motion to tax costs, granting in part Covert’s
motion for attorneys’ fees, and denying FCA’s motion to tax costs.
We remand for the court to consider whether FCA’s first
section 998 offer was premature and therefore not a good faith
offer under section 998. If the court finds the offer was a good
faith offer, it shall award FCA its costs, including expert witness
fees, reasonably incurred after the first offer was served and deny
Covert his attorneys’ fees and costs. If the court finds the first
offer was not made in good faith, it shall award Covert his
attorneys’ fees and costs reasonably incurred prior to service of
the second section 998 offer and award FCA its costs, including
expert witness fees, reasonably incurred after the second offer
was served. The parties are to bear their own costs on appeal.

FEUER, J.
We concur:

PERLUSS, P. J. IBARRA, J.*

show the second offer was not made in good faith. In light of our
holding that the second offer was valid, the trial court did not err
in finding the second section 998 offer was enforceable.
* Judge of the Santa Clara County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

31
Filed 1/11/22
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

ERIC ALVIN COVERT, B303663

Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC629240)
v.

FCA USA, LLC,

Defendant and Appellant.

THE COURT:

The opinion in this case filed January 4, 2022 is modified as
follows: On page 19, in the last sentence of part B, delete Code of
Civil Procedure and replace it with Civil Code, so the sentence
reads: Accordingly, we conclude that a valid and reasonable
section 998 offer by the seller, where the buyer recovers less than
the offer, precludes recovery by the buyer of postoffer attorneys’
fees and costs under Civil Code section 1794, subdivision (d).
Further, the opinion filed January 4, 2022 was not certified
for publication. It appearing the opinion meets the standards for
publication specified in California Rules of Court, rule 8.1105(c),

1
appellant’s request for publication pursuant to California Rules
of Court, rule 8.1120(a) is granted.
IT IS HEREBY CERTIFIED that the opinion meets the
standards for publication specified in California Rules of Court,
rule 8.1105(c); and
ORDERED that the words Not to be Published in the
Official Reports appearing on page 1 of said opinion be deleted
and the opinion herein be published in the Official Reports.

This order does not change the appellate judgment.

*
PERLUSS, P. J. FEUER, J. IBARRA, J.

* Judge of the Santa Clara County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

2