Madrigal v. Hyundai Motor America

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Contributors

Under California’s general cost recovery rule, the prevailing party in a civil action or proceeding is entitled to recover its litigation costs, including attorney fees, when authorized by statute. Code of Civil Procedure (“C.C.P.”) §§1032, 1033.5. Section 998 modifies the general rule outlined in §1032. To encourage early settlement, §998 shifts liability for costs under certain circumstances. Courts have grappled with how to apply this statute, particularly in the context of settlements that provide that the plaintiff may seek costs (including attorney’s fees) by motion. Bringing some clarity, in the recent California Supreme Court decision, Madrigal v. Hyundai Motor America, No. S280598, 2025 WL 943693 (Cal. Mar. 20, 2025), the California Supreme Court held that when a plaintiff rejects or fails to timely accept a qualifying Section 998 defense offer, and then fails to obtain a more favorable judgment or award, the plaintiff is not entitled to its post-offer litigation costs and must pay some or all of the defendant’s post-offer costs. §998(c)(1).

In Madrigal v. Hyundai Motor America, the plaintiffs who purchased a car sued the manufacturer of the car under California’s Song-Beverly Consumer Warranty Act for breach of warranties. Id. After the defendant made two §998 offers, which plaintiffs rejected, the parties ultimately settled the case, pre-trial. Id. at *2. The settlement agreement of the parties left the issue of costs and fees to the discretion of the Court based on the plaintiffs’ assertion of attorney’s fees and costs under the Song-Beverly Consumer Warranty Act. Id. The ultimate settlement agreement was not as favorable as the second §998 offer that defendant presented to plaintiffs and which was rejected by them. Id. The defendant contended that the plaintiffs were not entitled to their costs after the second 998 offer as they had failed to obtain a more favorable judgment by settling for less than what had previously been offered. Id. The Court held that if a plaintiff rejects a §998 offer and fails to obtain a more favorable judgment or award— either at trial or via pre-trial settlement—§998(c)(1) overrides the general rule that the prevailing plaintiffs are entitled to recover their costs. Id. at *4-8. The Court reasoned that a party who rejects a reasonable Section 998 offer should be penalized for continuing to litigate, giving force to §998’s purpose of encouraging reasonable settlement offers and acceptances. Id.

Takeaways

  • Madrigal v. Hyundai Motor America clarifies the scope and applicability of Section 998 as it pertains to pre-trial settlements.
  • The case may provide incentives to plaintiffs to accept reasonable settlement offers from defendants.
  • The case may encourage parties to address the issue of allocation of costs and fees in pre-trial settlement agreements to avoid the application of section 998’s cost shifting paradigm.