CCP § 998: The Nuts and Bolts of the Potent Settlement Device

Nick Casper

Statutory offers to compromise under Code of Civil Procedure § 998 represent a powerful tool in the work belt of the California civil litigator. The statute is so commonly invoked that you need only hang around the second floor of 725 Court St. in Martinez for a short time before you will overhear hushed attorney deliberation over whether “we can beat the 998.”

The statute is, in essence, a settlement offer “with teeth,” allowing for dramatic cost-shifting when the verdict (or award, in arbitration cases) is more or less favorable than the § 998 offer. This advances the statute’s intent: to encourage settlements. As stated in Mangano v. Verity, Inc. (2008) 167 Cal.App.4th 944, 948, “[t]he purpose of section 998 is to encourage settlement by providing a strong financial disincentive to a party – whether it be a plaintiff or a defendant – who fails to achieve a better result than that party could have achieved by accepting his or her opponent’s settlement offer.”

But § 998 is also rife with potential and unforeseen pitfalls that can beset even the experienced practitioner. A thorough understanding of § 998 is imperative to avoid falling victim to an opponent’s § 998, or worse: getting hoisted with your own petard by serving an invalid § 998.

How does it work?

Statutory offers operate in the following manner, depending on which party issues the § 998: If the defendant makes a § 998 offer that is rejected and the plaintiff fails to obtain a judgment that is more favorable than the offer amount, then the plaintiff is not entitled to post-offer costs AND must pay the defendant’s post-offer costs. CCP § 998(c)(1).

In addition, the plaintiff may be ordered, in the discretion of the court, to pay a sum to cover the defendant’s reasonably necessary expert witness fees actually incurred. This provision of CCP § 998(c)(1) provides the real hammer hanging over the head of the plaintiff, as expert witness fees can total in the thousands or tens of thousands of dollars. Furthermore, unlike litigation costs, the court’s discretionary power is not limited to those expert witness fees incurred post-offer, but “in preparation for trial.” Regency Outdoor Adver., Inc. v. City of Los Angeles (1996) 39 Cal.4th 507, 532 (“[A]wards of expert witness fees [under § 998(c)] have never been tied to when these fees were incurred relative to a compromise offer.”)

In other words, even if the plaintiff obtains a plaintiff’s verdict, but it is less than the § 998 offer, the net result may be a judgment to the defendant once the defendant’s expert witness fees and post-offer costs are awarded. CCP § 998(e). Conversely, when the defendant rejects the plaintiff’s § 998 offer and the plaintiff obtains a more favorable judgment, the plaintiff is entitled
to reasonable expert witness fees, but these are limited to those incurred post-offer. CCP § 998(d).

There is no shifting of litigation costs, since the plaintiff is entitled to all of his or her customary costs as the prevailing party pursuant to CCP § 1032. In personal injury actions, plaintiffs are also entitled to 10% per annum interest on the judgment from the date of the plaintiff’s § 998. Civil Code § 3291. Courts have held that cases brought under the Fair Employment and Housing Act (“FEHA”) are actions for “personal injury” for purposes of § 3291. Bihun v. AT&T Info. Sys., Inc. (1993) 13 Cal. App.4th 976, 1004.

How do I do it?

A § 998 offer must be made in writing and served upon the opposing party up to 10 days before the trial date; the § 998 is not filed with the court. Serving by mail adds five days, so if you are serving at the “11th Hour”, be sure to hand-serve! A § 998 offer remains open for 30 days or the first day of trial, at which time the offer is deemed withdrawn by operation of law. CCP § 998(b)(2).

Overruling a string of decisions upholding oral acceptance, a § 998 must be accepted in writing and signed. CCP § 998(b). If accepted, the § 998 is filed with the court and judgment is entered accordingly, thereby ending the litigation.

The offer must be made in terms capable of valuation, i.e., a dollar amount, and the presence of non-monetary conditions in the § 998 may invalidate it altogether. Courts have held that the inclusion of a confidentiality clause (Barella v. Exch. Bank (2000) 84 Cal.App.4th 793) or a waiver of a litigant’s potential insurance bad faith suit (Valentino v. Elliott Sav-On Gas, Inc. (1988) 201 Cal.App.3d 692) acted to nullify a §998. In a colorful decision, the Valentino court remarked that demanding that a settlement be paid in “Confederate dollars” or requiring the plaintiff to “move to another state” would similarly amount to invalid § 998 offers. Id. at 697-8.

A surprisingly common mistake by defendants is to serve a § 998 that is silent as to costs. In this case, the plaintiff can accept the § 998, then move for costs and attorney fees (where authorized) as the prevailing party. For this reason, it is advisable that a § 998 state that the offer includes, or that each party is to bear its own, fees and costs.

A § 998 offer to settle must be reasonable and made in good faith in order to be enforceable, and courts, in their discretion, may not award a party its § 998 costs if these touchstones are not met. Nelson v. Anderson (1999) 72 Cal.App.4th 111, 134. Typically, this scenario arises with regard to the timing of the offer: if a party is not provided adequate time to assess whether the offer is reasonable, a court may decline to give effect to the cost-shifting provisions. Thus, serving a § 998 along with the summons and complaint is typically a bad idea, unless there has been significant pre-litigation sharing of information to allow the defendant to determine whether the offer is, in fact, reasonable. Najera v. Huerta (2011) 191 Cal.App.4th 872, 878-9. On the other hand, there is an advantage to serving the § 998 as early as practicable, particularly for plaintiffs, so as to start the clock on interest and to capture as many post-offer expert costs as possible.

Did I beat the § 998?

The issue of whether a judgment is “more favorable” than the § 998 can involve some intricacies. When the defendant’s § 998 is rejected, the plaintiff’s post-offer costs are excluded from the calculation of whether the judgment is more favorable than the offer. CCP § 998(c) (2)(A). Courts have held that this implicitly means that the plaintiff’s pre-offer costs are to be factored into the determination of whether the plaintiff “beat” the § 998 offer. Heritage Eng’g Const., Inc. v. City of Indus. (1998) 65 Cal.App.4th 1435, 1441. In cases where attorney fees are authorized, such as suits brought under FEHA, the plaintiff’s pre-offer attorney fees are considered part of the judgment for determining whether the judgment is more favorable than the statutory offer. Wilson v. Safeway Stores, Inc. (1997) 52 Cal.App.4th 267, 271-2.

When the plaintiff’s § 998 is rejected, the plaintiff’s pre- and post-offer costs, including attorney fees where authorized, are included in calculating whether the judgment exceeds the § 998. “In this case it is the defendant who has impeded the statutory purpose by rejecting the offer, thus allowing the plaintiff to incur post-offer costs.” Stallman v. Bell (1991) 235 Cal.App.3d 740, 748.

The issue of whether a judgment is more favorable to a § 998 offer gives rise to the necessity of apportionment in multiple party cases. A defendant’s joint § 998 to multiple plaintiffs is ineffective, as it would be impossible to determine if each plaintiff “beat” the unapportioned § 998. A defendant also may not make separate offers conditioned upon acceptance by all plaintiffs of their respective offers. Hutchins v. Waters (1975) 51 Cal.App.3d 69. Likewise, a plaintiff’s joint § 998 to multiple defendants is void, and separate and apportioned offers cannot be conditioned upon acceptance by all defendants. The only circumstances where a plaintiff’s joint § 998 offer may be enforceable are cases in which the defendants are jointly liable for all of the plaintiff’s damages, such as under respondeat superior.

Although apportionment between offers is almost always advisable, parties are free to make § 998 offers to fewer than all adverse parties. There is no requirement that a § 998 resolve a case in its entirety. Arno v. Helinet Corp. (2005) 130 Cal.App.4th 1019, 1026.

Conclusion

CCP § 998 is a valuable device that can help leverage settlements through its punitive cost-shifting provisions. By forcing an opponent to face the daunting prospect of bearing one’s recoverable § 998 costs, a litigant can dramatically change the settlement calculus. But one should not dive into the § 998 waters head-first, either by hastily serving or rejecting a § 998, without a thorough understanding of the statute’s fundamentals and nuances.


Other articles you may be interested in:

When Timing is Everything – by Christopher Lustig
What to Do if Your Civil Litigation Client Files Bankruptcy – David Schuricht
How To: Writs of Attachment in Financial Elder Abuse Litigation – Andrew Verriere
Ethics Corner: Alternative Litigation Funders – Carol M. Langford


As an associate with Casper, Meadows, Schwartz & Cook since 2007, Nick Casper has been actively involved in litigating many of the firm’s largest cases involving catastrophic injury, wrongful death, medical malpractice, employment discrimination/ harassment, and civil rights violations. Nick has also taken several of the firm’s cases to jury trial.

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