Lakin v. Watkins Associated Industries

Facts

The statutory framework. Three provisions drive the opinion. First, former Code of Civil Procedure section 2033, subdivision (o), authorized a cost-of-proof sanction: “If a party fails to admit the … truth of any matter when requested to do so under this section, and if the party requesting that admission thereafter proves the … truth of that matter, the party requesting the admission may move the court for an order requiring the party to whom the request was directed to pay the reasonable expenses incurred in making that proof, including reasonable attorney’s fees.” (Lakin, supra, 6 Cal.4th at pp. 650–651.) Second, Code of Civil Procedure section 904.1, subdivision (b), provides that an appeal may be taken “[f]rom an order made after a judgment made appealable by subdivision (a).” (Id. at p. 651, fn. 2.) Third, Civil Code section 3291 allows a personal-injury plaintiff who beats her own section 998 offer to recover prejudgment interest: if the plaintiff “obtains a more favorable judgment, the judgment shall bear interest at the legal rate of 10 percent per annum calculated from the date of the plaintiff’s first offer.” (Id. at pp. 656–657.)

The accident and the cover-up. A truck operated by the defendant driver on behalf of the defendant trucking company struck the plaintiff’s car. At the scene, “the driver identified himself falsely to plaintiff and gave her false insurance information,” and later “a company official denied the accident had occurred and accused plaintiff of fabricating her claim.” (Lakin, supra, 6 Cal.4th at p. 649.) The plaintiff sued for negligence and intentional infliction of emotional distress. (Ibid.)

The unanswered request for admission. Under Code of Civil Procedure section 2033, the plaintiff “requested that defendants admit a collision had occurred between their truck and her car,” and the defendants “replied that they had insufficient facts to admit or deny the truth of the request.” (Lakin, supra, 6 Cal.4th at p. 649.) More than two years before trial, the plaintiff served a section 998 offer to compromise on the company for $89,000, which the company did not accept. (Ibid.) At trial, the plaintiff “proved that the company’s own dispatch records placed the truck driver at the scene of the accident on the day in question and that the company had conducted an internal investigation at the time of the accident — two years before her request for admission — and had concluded the collision had in fact occurred.” (Ibid.)

The verdict. “The jury found for plaintiff, awarding her a total of $100,000 against the company, including both compensatory and punitive damages.” (Lakin, supra, 6 Cal.4th at p. 649.) A special verdict broke the award down: $5,000 in compensatory damages “as a result of the collision,” $15,000 in compensatory damages as a result of the driver’s false identity and insurance information, and $80,000 in punitive damages. (Id. at pp. 659–660 & fn. 10, 661.) The verdict, however, “did not state what portions were attributed to personal injury or to property damage.” (Id. at p. 660.)

The postjudgment motions. After entry of judgment, the plaintiff moved for attorney fees “incurred in proving facts that defendants had refused to admit — specifically, the fact of the collision,” and for prejudgment interest on the ground that her pretrial offer was less than the eventual judgment. (Lakin, supra, 6 Cal.4th at p. 649.) The trial court denied both motions on threshold grounds: fees were denied because the court believed the punitive award already reimbursed the plaintiff’s fees, and interest was denied because the plaintiff “did not demand such interest in her complaint.” (Id. at pp. 649–650.)

Procedural history

The plaintiff appealed from the postjudgment order. (Lakin, supra, 6 Cal.4th at p. 650.) The Court of Appeal, Second District, Division Seven, split the appeal. As to the denial of attorney fees, it “held it was nonappealable and dismissed that portion of her appeal.” (Ibid.) As to prejudgment interest, the Court of Appeal held that section 3291 does not require a plaintiff to demand interest in the complaint, rejecting the trial court’s procedural rationale, “but nevertheless affirmed the denial of prejudgment interest, reasoning that plaintiff failed to prove the damages were awarded exclusively for personal injury.” (Ibid.)

The Supreme Court granted review to decide three issues: the appealability of an order denying section 2033, subdivision (o), fees; the allocation of the burden of proof on section 3291 interest; and whether section 3291 interest may be assessed on punitive damages. (Lakin, supra, 6 Cal.4th at pp. 648–649.) Justice Mosk wrote for a unanimous court. (Id. at pp. 648, 664.)

Issue

The court framed three questions. “First, we must determine whether … a postjudgment order denying an award of attorney fees under Code of Civil Procedure section 2033, subdivision (o), is appealable.” (Lakin, supra, 6 Cal.4th at p. 648.) “Second, we must determine where the burden of proof lies when a plaintiff in a personal injury case claims prejudgment interest, under Civil Code section 3291, on a judgment more favorable than her offer to compromise under Code of Civil Procedure section 998, subdivision (b).” (Id. at pp. 648–649.) “Finally, we must determine whether prejudgment interest under Civil Code section 3291 may be awarded on punitive damages.” (Id. at p. 649.)

Holding

Reasoning

The “neither adds nor subtracts” test is not exclusive. The Court of Appeal had treated the denial of fees as nonappealable because the order “leaves the judgment intact and neither adds to it nor subtracts from it.” (Lakin, supra, 6 Cal.4th at p. 652.) The Supreme Court agreed that an appealable postjudgment order must satisfy two requirements — the issues must “be different from those arising from an appeal from the judgment,” and the order “must either affect the judgment or relate to it by enforcing it or staying its execution” — but held that the “neither adds nor subtracts” yardstick “has never been an exclusive statement of the necessary relationship between a judgment and an appealable postjudgment order.” (Id. at pp. 651–653.) “[T]he effect on, or relationship to, the judgment required to make a postjudgment order appealable is not limited to a simple mathematical calculation.” (Id. at p. 653.)

Denials are as appealable as grants. The court exposed the asymmetry in the lower court’s logic: it would mean “that a postjudgment order awarding attorney fees — thereby adding to the judgment — was appealable, while a postjudgment order denying attorney fees — neither adding to nor subtracting from the judgment — was not. This is not the law.” (Lakin, supra, 6 Cal.4th at pp. 653–654.) “Appealable postjudgment orders include both those granting affirmative relief and those denying it.” (Id. at p. 654, fn. 4.) Surveying a century of authority, the court explained that the orders it had found nonappealable shared a common trait — they were “preliminary to a later judgment, at which time they will become ripe for appeal” — whereas appealable orders made “a final determination of rights or obligations of parties even though they did not necessarily add to or subtract from the judgment.” (Id. at pp. 653–654.) The fee denial fell on the appealable side: “it is not preliminary to future proceedings and will not become subject to appeal after a future judgment,” but “finally determines the rights of the parties arising from the judgment.” (Id. at p. 654.)

No special procedural barrier for section 2033 fees. The defendants tried to distinguish section 2033, subdivision (o), fees from other categories of appealable fee orders. The court refused: while the substantive issues might differ, “[w]e see no reason … to erect unique procedural barriers to recovery of the latter,” because to do so “would thwart the Legislature’s intent in enacting the statutory scheme that makes them available in the first place.” (Lakin, supra, 6 Cal.4th at p. 655.) The court found the defendants’ lead authority, Lubetzky v. Friedman (1991) 228 Cal.App.3d 35, unpersuasive given its “dissimilar procedural stance,” its own “equivocation” about appealability, and the special appeal rules for sanction orders. (Id. at pp. 655–656.) Having found the order appealable on this ground, the court declined to reach the plaintiff’s alternative “collateral order” theory. (Id. at p. 656, fn. 6.)

Section 3291 reaches this personal-injury action. Turning to interest, the court first confirmed the action fell within section 3291. Distinguishing Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121 — where bad-faith damages sought redress for “interference with a property right, not for personal injury” — the court held that here the plaintiff’s “claims of emotional distress were not incidental to ‘a substantial invasion of property interests’ … rather, they were at the heart of her case.” (Lakin, supra, 6 Cal.4th at p. 657.) That some property damage occurred “alone does not defeat her claim for damages under a personal injury theory.” (Ibid.)

Interest runs only on personal-injury damages — harmonizing the statute. Although the second paragraph of section 3291 says “the judgment shall bear interest,” which “[t]aken literally” would apply to the entire award “regardless of how much or how little of the award consisted of personal injury damages,” the court refused a literal reading. (Lakin, supra, 6 Cal.4th at pp. 658–659.) Invoking the canon that “provisions relating to the same subject matter must be harmonized” and that “[a]n interpretation that renders related provisions nugatory must be avoided,” the court read the first paragraph’s narrower phrase — “any action brought to recover damages for personal injury” — as limiting the broader second paragraph. (Id. at p. 659.) The broader reading “gives a windfall to plaintiffs who happen to attach claims for personal injury damages to claims for other kinds of damages,” so the court concluded “section 3291 authorizes courts to award prejudgment interest only on damages attributable to personal injury.” (Ibid.)

The plaintiff bears the burden — and gets a remand to carry it. Applying Evidence Code section 500’s default rule that a party bears the burden of proof on each fact “essential to the claim for relief … that he is asserting,” the court held the plaintiff must prove “the amount or proportion of personal injury damages in the judgment.” (Lakin, supra, 6 Cal.4th at pp. 660–661.) It rejected the plaintiff’s argument that, once she showed any portion was personal injury, the burden shifted to the defendant to prove apportionment: defendants “possess no special knowledge of the basis of a jury’s award,” and plaintiffs “can request special verdicts or devise other means of identifying damages awarded for personal injury.” (Id. at p. 661.) Yet the court parted with the Court of Appeal on the remedy: the plaintiff had “never had an opportunity to carry” the burden because the trial court denied her motion on procedural grounds, so the proper course was a remand to the trial court — which is “ordinarily better able to make” such a fact-bound determination — not an outright denial. (Id. at pp. 661–662.)

No interest on punitive damages. Reaching an issue it had reserved in Gourley, the court held section 3291 “does not authorize the award of prejudgment interest on punitive damages in personal injury cases.” (Lakin, supra, 6 Cal.4th at p. 662.) The settlement-incentive purpose of the statute was “too attenuated and speculative” as applied to punitive damages, and prejudgment interest’s further, compensatory purpose — “to make the plaintiff whole as of the date of the injury” — could not be served by punitive awards, which are imposed “for the sake of example and by way of punishing the defendant” and are “not intended to make the plaintiff whole.” (Id. at pp. 663–664.) Interest on a punitive award “would therefore give a windfall to the plaintiffs.” (Id. at p. 664.) The court disapproved contrary holdings in Greenfield v. Spectrum Investment Corp. (1985) 174 Cal.App.3d 111, Bihun v. AT&T Information Systems, Inc. (1993) 13 Cal.App.4th 976, and Morin v. ABA Recovery Service, Inc. (1987) 195 Cal.App.3d 200, to that extent. (Id. at p. 664.)

Punitive damages still count for the “more favorable judgment” comparison. The court rejected the defendant’s related argument that, with the $80,000 in punitive damages stripped out, the plaintiff’s $20,000 in compensatory damages fell below her $89,000 offer and so was not a “more favorable judgment.” (Lakin, supra, 6 Cal.4th at p. 662, fn. 13.) The threshold comparison is “a simple comparison … between the judgment and the offer to compromise,” undivided; the Legislature did not intend “the judgment and the offer to compromise to be apportioned between personal injury damages and other kinds of damages.” (Ibid.) Thus the plaintiff cleared the eligibility threshold even though, on remand, interest would attach only to the personal-injury slice of the compensatory award. (Id. at pp. 661–662 & fn. 13.)

Significance

Lakin is a foundational appealability and damages precedent that every California trial lawyer relies on, including in employment cases taken to verdict. Its appealability holding is the canonical refutation of the “neither adds nor subtracts” shorthand: the modern two-part test — distinct issues plus a final effect on or relationship to the judgment — descends directly from this opinion, and Lakin remains the lead citation for the appealability of postjudgment fee and cost orders. (Lakin, supra, 6 Cal.4th at pp. 651–656.) Because FEHA and wrongful-termination plaintiffs routinely recover statutory fees and costs by postjudgment motion, the holding governs the timing and route of their appeals.

The prejudgment-interest holdings are equally consequential and, notably, the opinion itself signals the employment application: the court cited Bihun for the proposition that a FEHA “action for sexual harassment in the workplace … is an action for personal injury within the meaning of [section] 3291.” (Lakin, supra, 6 Cal.4th at pp. 657, 664.) After Lakin, a plaintiff who beats a section 998 offer must build a record — ideally a special verdict — segregating personal-injury damages from property, economic, and other damages, and may not recover section 3291 interest on any punitive component. The opinion’s disapproval of Greenfield, Bihun, and Morin on the punitive-damages point realigned a fractured body of Court of Appeal authority into a single rule.

Subject-area note. Despite this being a wrongful-termination publication, the case is not a harassment or “supervisor”/agent-liability decision and has nothing to do with CACI Nos. 2521A–2522C; it is a civil-procedure and damages opinion arising from a vehicle-collision tort. Its relevance here is transactional, not substantive — it controls how prejudgment interest, section 998 cost-shifting, and postjudgment fee appeals work in any personal-injury-flavored case, FEHA matters among them.

Key quotes

“[P]ostjudgment orders that neither literally add to nor subtract from the judgment can nevertheless be appealable, as long as they affect the judgment or relate to its enforcement.” (Lakin, supra, 6 Cal.4th at p. 655.)

“We conclude that section 3291 authorizes courts to award prejudgment interest only on damages attributable to personal injury.” (Id. at p. 659.)

“To award prejudgment interest on punitive damages arising from personal injury actions would therefore give a windfall to the plaintiffs in those actions.” (Id. at p. 664.)

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Practice pointer

Open questions

Whether double recovery can justify denying section 2033 fees. The trial court denied fees out of concern that an award “would constitute double recovery,” reasoning the punitive award already reimbursed the plaintiff’s fees. The Supreme Court expressly reserved the merits: “We do not decide whether a court would be powerless to deny a motion for attorney fees under Code of Civil Procedure section 2033, subdivision (o), when such an award would result in double recovery.” (Lakin, supra, 6 Cal.4th at p. 651 & fn. 1.) It remanded for the Court of Appeal to address the merits in the first instance. (Id. at p. 656.)

How the personal-injury portion is to be proved on remand. The court held the plaintiff bears the burden but left the proof method open, observing that special verdicts are “the most direct and effective means” yet “are not necessarily the sole means”; “[f]acts and circumstances peculiar to [the] case, possibly including … the parties’ theories of the case, uncontroverted evidence or jury instructions, may permit determination of the fact and amount of personal injury recovery.” (Lakin, supra, 6 Cal.4th at pp. 661–662.) Exactly how a trial court reconstructs that allocation from a general or ambiguous verdict was left to the trial court’s judgment on remand.