Equity as a Settlement Offer (Code of Civil Procedure § 998)

underwood-equity-settlement-offer-300x300California Code of Civil Procedure section 998 incentivizes parties in litigation to settle their disputes before trial. The statute provides that up to ten days before trial, either party may submit a written offer to the other to settle the case under specified terms. (CCP § 998(b).) 

If the plaintiff rejects the defendant’s timely offer and, after trial, receives a judgment not more favorable than the one offered by the defendant, then the plaintiff must “pay the defendant’s costs from the time of the offer.” (CCP § 998(c)(1).) In most civil actions, the court also has the discretion to force the plaintiff to cover a “reasonable sum” of the defendant’s costs of using expert witnesses incurred after the offer was made. 

When a defendant rejects the plaintiff’s timely offer and later receives a judgment at trial that is not more favorable than what the plaintiff offered, the court has the discretion to force the defendant to cover a “reasonable sum” of the plaintiff’s costs of using expert witnesses incurred after the offer was made. (CCP § 998(d).) 

What are Section 998’s requirements?

Under the statute, an offer by either party must be made in writing and is only valid if made ten or more days before the start of the trial. (CCP § 998(b).) If the party to which the offer is directed wishes to accept, they must accept it in writing, and their attorney must sign the acceptance. The offer and proof of its acceptance must then be filed with the court. (CCP § 998(b)(1).) 

The terms of the offer “must be sufficiently specific to permit the recipient to meaningfully evaluate it” against the possibility of bearing the opposing party’s post-offer costs. (Berg v. Darden (2004) 120 Cal.App.4th 721, 727.) An offer for an amount of money in exchange for the resolution of the case is a clear example of a § 998 offer that can be easily evaluated by its recipient. 

When the offer includes conditions that involve more than the payment of a certain amount of money, however, it becomes more difficult for the recipient to adequately consider it. Not only must the recipient be given the opportunity to meaningfully consider the offer’s terms, but the court must be able to use the offer’s value as a benchmark to know whether the post-trial judgment is or isn’t “more favorable” than what was offered before trial.

If a party makes an offer for some thing or some 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. For example, a defendant in a personal injury case offers the plaintiff one dollar hoping to recover costs if the plaintiff subsequently loses at trial. Because this offer was clearly made in bad faith – the plaintiff in such a case would likely never consider accepting such a low offer – it cannot trigger § 998. (see Wear v. Calderon (1981) 121 Cal.App.3d 818, 821.)

The offer also must include an explicit “acceptance provision,” meaning that the offer must spell-out what the recipient must do to accept the offer. (Rouland v. Pacific Specialty Ins. Co. (2013) 220 Cal.App.4th 280, 288.) The offer doesn’t have to “contain any ‘magic language.’” (Berg, 120 Cal.App.4th at 731.) Indeed, one appellate court confirmed that Section 998 offers don’t have to include a signature line for the recipient party as long as the offer instructs the recipient how to proceed if they wish to accept. (Rouland, 220 Cal.App.4th at 288.)

Can an offer of equity in property qualify as a § 998 offer?

An offer to compromise under section 998 must be sufficiently specific to allow the recipient to evaluate the worth of the offer and make a reasoned decision whether to accept the offer. (Fassberg Construction Co. v. Housing Authority of City of Los Angeles (2007) 152 Cal.App.4th 720, 764.) The inclusion of nonmonetary terms and conditions does not render a Section 998 offer invalid; but those terms or conditions must be sufficiently certain and capable of valuation to allow the court to determine whether judgment is more favorable than the offer. (Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 799-801.) 

From the perspective of the offeree, the offer must be sufficiently specific to permit the recipient meaningfully to evaluate it and make a reasoned decision whether to accept it, or reject and bear the risk he may have to shoulder his opponent’s litigation costs and expenses. Thus, the offeree must be able to clearly evaluate the worth of the extended offer. (Berg v. Darden (2004) 120 Cal.App.4th 721, 727.) 

Thus, as long as the equity is capable of valuation, which certainly applies to real estate that is commonly and routinely valued by appraisers, such an offer would be able to satisfy the requirements for Section 998. 

What is an Example?

Consider the following example. Shawn filed an action against Julie to partition a piece of property that they co-own. To avoid a trial, Julie wants to submit a § 998 offer to Shawn for 50% equity in the property. Julie’s written offer specifies that in exchange for this equity, Shawn would be required to drop his partition suit, and the offer complies with all of § 998’s other requirements. 

Assuming Shawn can reasonably consider the offer’s value, if he fails to accept it, § 998’s cost-shifting provisions will apply. In other words, if Shawn rejects Julie’s offer but later the court determines he is entitled to 50% or less than 50% equity in the property, Shawn will have “fail[ed] to obtain a more favorable judgment” than what Julie offered him. In this situation, Shawn would be required to pay all of Julie’s litigation costs she incurred after making the offer to Shawn. 

How Underwood Law Firm can help

Real estate disputes are tricky, and a death of a loved one adds new layers of complexity. If you are a representative of an estate and believe you need to initiate the partition of real property, it is vital that you seek out a knowledgeable and credible probate and partition attorney.

In light of the appellate court’s holding in Estate of Sanchez, it is important to recognize that personal representatives can only proceed without an attorney in disputes arising from estate distribution in limited circumstances. Our experienced attorneys can guide you in your role as a personal representative and will be with you every step of the way.

Contact us today to learn more.

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