Wednesday, April 1, 2020

The majority of litigated cases settle.  One useful settlement tool in California is section 998 of the California Code of Civil Procedure.

The 998 is mostly used by a defendant to settle a case early. Public policy encourages settlement.  For the vindictive plaintiff, the 998 may put some closure to a bitter situation because it may be interpreted as a judgment rather than a settlement, and it is public, not confidential.  With courthouses making public its records on the Internet, a defendant can be shamed for life with a public judgment.  Further, the world sees the settlement amount.  This lets people know the extent of the defendant’s liability and their desire to get out of a lawsuit.

The 998 statute may also allow a defendant shift to costs, including expert witness fees and attorneys’ fees. When a 998 is not accepted and the other side does not do better at trial or arbitration, the cost shifts to the offeree.

In personal injury cases, where interest usually is not awarded, section 998 can be a dagger when the first offer made pursuant to the statue triggers the recovery of prejudgment interest at 10 percent per year.  Interest accrues until the judgment is satisfied (Cal. Civil Code § 3291).

When the parties learn more through discovery, a party making a 998 offer may revise the offer. Though the 998 involves offer and acceptance, contract law does not apply.  When a 998 is not accepted within a certain number of days, the offer expires automatically, but a prior settlement offer is not extinguished by a subsequent settlement offer to the same party (Wilson v. Wal-Mart Stores, Inc., 72 Cal.App.4th 382, 389-391 (1999); Distefano v. Hall, 263 Cal.App.2d 380, 385 (1968)).

For example, a party makes two 998 offers over several years and incurs $188,536.86 in expert fees in the time between the two offers.  When the case goes to trial, the offeror who meets the terms of both offers may request expert fees for the period between the two offers. The second offer does not extinguish the first offer. 

The California Supreme Court placed settlement enhancement ahead of contract law in its unanimous opinion in Martinez v. Brownco Construction Co., 56 Cal.4th 1014, 1026 (2013):

“In cases such as this, section 998’s policy of encouraging settlements is better served by not applying the general contract principle that a subsequent offer entirely extinguishes a prior offer. … Not only do the chances of settlement increase with multiple offers … but to be consistent with section 998’s financial incentives and disincentives, parties should not be penalized for making more than one reasonable settlement offer. Nor should parties be rewarded for rejecting multiple offers where each proves more favorable than the result obtained at trial. Accordingly, we hold that where, as here, a plaintiff serves two unaccepted and unrevoked statutory offers, and the defendant fails to obtain a judgment more favorable than either offer, the trial court retains discretion to order payment of expert witness costs incurred from the date of the first offer. “


Read a more detailed discussion of section 998 here.