A Guide to Statutory California Settlement Offers (Code of Civil Procedure Section 998)

underwood-guide-statutory-settlement-offers-300x300California Code of Civil Procedure section 998 encourages parties involved in legal disputes to settle prior to trial. According to this law, either party can present a written settlement offer to the other party up to ten days before the trial begins. (CCP § 998(b).) 

If the plaintiff declines a timely offer from the defendant and subsequently receives a judgment at trial that isn’t more favorable than the defendant’s offer, the plaintiff must “pay the defendant’s costs from the time of the offer.” (CCP § 998(c)(1).) Moreover, in many civil cases, the court may also require the plaintiff to pay a reasonable amount of the defendant’s expert witness expenses incurred after the offer was presented.  

Likewise, if the defendant rejects the plaintiff’s timely offer and later gets a judgment at trial that isn’t more advantageous than what the plaintiff offered, the court has the authority to require the defendant to pay the plaintiff a reasonable portion of their costs related to expert witnesses incurred after the offer was made. (CCP § 998(d).) 

When are Section 998s provisions triggered?

Under section 998, a written offer from either party is required and is considered valid only if it is made at least ten days before the start of trial. (CCP § 998(b).) If the party receiving the offer chooses to accept it, they must do so in writing and have it signed by their attorney. Next, the offer and acceptance must be submitted to the court. (CCP § 998(b)(1).)

The offer’s terms must be sufficiently detailed to allow the other party “to meaningfully evaluate it” in light of their potential costs following the offer. (Berg v. Darden (2004) 120 Cal.App.4th 721, 727.) For example, an offer specifying a monetary amount for resolving the case is a § 998 offer that can be easily weighed by the recipient. 

One example of a non-monetary offer that will not trigger section 998’s cost-shifting provisions is an offer or response to an offer conditioning its acceptance on the settlement terms being confidential. (Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 801.) The court in Barella held that the “value” of confidentiality “is so highly subjective and elusive that no court can determine its monetary worth.” (Id.)

What constitutes a “bad faith” offer under Section 998?

A party may not, however, make an offer under section 998 to take advantage of its cost-shifting penalties knowing the other party would never accept the offer. In other words, if a party offers an amount that is so unreasonable in comparison to the facts and claims in the case, the cost-shifting provisions in section 998 will not apply.

Consider the case of Wear v. Calderon. In a personal injury action arising out of a car accident, the defendant offered the plaintiff one dollar to settle the claims hoping to recover their costs if the plaintiff later does not get a more favorable judgment at trial. While the plaintiff did not specify how much in damages they were seeking, the jury found that another defendant was liable to the plaintiff for over $18,000. Because the plaintiff did not recover a judgment more favorable than one dollar from the offering defendant, the offering defendant sought payment of their costs incurred after the offer was made pursuant to section 998. 

The trial court awarded the defendant these costs, but the appellate court disagreed believing that “a good faith requirement must be read into section 998.” (Wear v. Calderon (1981) 121 Cal.App.3d 818, 821.) The plaintiff’s ultimate recovery of over $18,000 (albeit from another co-defendant) confirmed that no reasonable plaintiff in these circumstances would ever consider accepting an offer of one dollar. 

The defendant’s “token” offer of one dollar showed that the defendant knew the plaintiff wasn’t going to accept it. Thus, the “sole purpose of the offer was to make [defendant] eligible for the recovery of large expert witness fees at no real risk.” (Id. at 822 (quoting Pineda v. Los Angeles Turf Club, Inc. (1980) 112.Cal.App.3d 53, 63.) Because the offer was clearly made in bad faith, it could not trigger section 998. 

Not all bad faith offers are as clearly unreasonable as the one in Wear was. Even so, a settlement offer of $15,001 was a bad faith offer because it was unreasonable considering the plaintiff’s damages were determined to be over $1 million. (Elrod v. Oregon Cummins Diesel, Inc. (1987) 195 Cal.App.3d 692, 701-02.) But just because a plaintiff’s projected damages substantially exceed a defendant’s section 998 offer, the defendant’s offer is not automatically considered to be in bad faith. (Santantonio v. Westinghouse Broadcasting Co. (1994) 25 Cal.App.4th 102, 118.)   

How can the attorneys at Underwood Law Firm, P.C. help?

Most bad faith section 998 offers occur in cases with more than one defendant where one defendant anticipates they will not be held liable and another co-defendant will. This is because in a case with a single defendant where the defendant offers an unreasonably low amount to settle, the plaintiff will not be responsible for the defendant’s post-offer costs because it is highly likely that the plaintiff will obtain a settlement greater than the offer. When the plaintiff gets a judgment more favorable than the defendant’s offer, the cost-shifting penalties of section 998 will not apply. 

Code of Civil Procedure section 998 is a useful tool that motivates parties to come to a mutual agreement without burdening the parties and the judicial system with a full trial. But it is important to understand section 998’s requirements to ensure you make the most strategic decision when approaching a section 998 offer. 

Additionally, it is helpful to know when a section 998 offer might be made in bad faith and therefore will not trigger section 998’s cost-shifting penalties. The knowledgeable and experienced attorneys at Underwood Law Firm, P.C. can help guide you and make sure you are aware of all your options if you are facing or considering making a section 998 offer. Contact us today

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