Mediation Message #161


The following appellate decisions from 2018 and 2019 concerning Code of Civil Procedure section 998 offers to compromise, an integral part of the civil settlement process, reflect many interesting subtleties, modifications and revisions to the procedure:

Arbitration and 998 Offers 

(A 998 offer may be made after an arbitration award) Heimlich v. Shivji (2019) 7 Cal.5th 350: “We hold  a request for costs under section 998 is timely if filed with the arbitrator within 15 days of a final award.” (Id. at p. 356.) “With certain limits, evidence of a 998 offer may be presented before or after an arbitrator’s final award on the merits.” (Id. at p. 359; emphasis in the original.)

Attorney’s Fees in 998 Matters

(“Exclusive of reasonable costs and attorney fees if any” language is not ambiguous) Timed Out LLC v. 13359 Corp. (2018) 21 Cal.App.5th 933: “(T)he usual and ordinary meaning of the term “exclusive of” in defendant’s section 998 offer is that the settlement amount did not include attorney fees and costs. (Id. at p. 943.) “ It is black letter law that when a section 998 offer is silent as to recovery of attorney fees and costs, those fees and costs may be recovered in a later motion. The theory of these cases is that for attorney fees and costs to be waived, the waiver must be express and not by implication. (Id. at p. 944.)” (D)efendant’s section 998 was not ambiguous and the trial court did not err in applying the penalties for not accepting that offer in Code of Civil Procedure section 998, subdivision (c)(1).” (Id. at p. 946.)

(In a Consumer Warranty Act matter, the trial court erred by cutting off attorney’s fees after an unreasonable first, unsuccessful 998 offer) Etcheson v. FCA US LLC (2018) 30 Cal.App.5th 831, 852: “Where a section 998 offer is invalid it will not operate to cut off a plaintiff’s costs. ¶ None of the factors triggering Code of Civil Procedure section 998’s penalty warranted its application here. Under the circumstances, the court’s use of the March 13, 2015 date to cut off plaintiffs’ attorney fees was arbitrary and unsupportable.”  

(Recovery of attorney’s fees allowed pursuant to a successful 998 offer where authorized by contract, statute or law) Linton v. County of Contra Costa (2019) 31 Cal.App.5th 628, 632-633: “(A) section 998 offer that is silent as to attorney fees cannot reasonably be interpreted as excluding such recovery to the prevailing party, provided attorney fees are authorized by statute or contract. … The litigation costs a prevailing party may recover include attorney fees when recovery of such fees is authorized by contract, statute, or law.” (Emphasis in the original.) 

(Attorney’s fees recoverable for actions after issuance of 998 offer) Hanna v. Mercedes-Benz USA, LLC (2019) 36 Cal.App.5th 493, 508: “Where a party continues to litigate after receiving a settlement offer, absent a finding that failure to resolve the case through negotiation was unreasonable or solely attributable to counsel’s desire to generate more fees, additional fees incurred to establish liability or damages, including evidence of willfulness necessary to recover civil penalties, are properly included in an award of fees under Civil Code section 1794, subdivision (d). … Far from finding Hanna’s attorneys continued to litigate simply to generate more fees, the court recognized the efforts of Hanna’s counsel … were responsible for a substantial increase in her recovery and thus ‘a part of reasonably incurred fees.’” 

Costs Calculations in 998 Offers

(Inclusion of all costs to damages awarded can make the claimant a “prevailing party”) Hersey v. Vopava (2019) 38 Cal.App.5th 792, 801: “(W)e hold that where an offeree achieves a judgment more favorable than a first offer, the determination of whether an offeree obtained a judgment more favorable than a second offer should include all costs reasonably incurred up to the date of the second offer.”

FEHA Cases and 998 Offers

(No recovery of costs and/or attorney’s fees by prevailing defendant in a non-frivolous FEHA action) Scott v. City of San Diego (2019) 38 Cal.App.5th 228 – Appellate court reversed an award of costs and attorney’s fees to the prevailing City of San Diego in a FEHA action where the employee rejected a $7,000 998 offer to compromise and the City later prevailed because, while the appeal was pending, the Legislature amended FEHA‘s cost provision statute (Gov. Code, § 12965, subd. (b)) to specifically state that, “notwithstanding section 998 of the Code of Civil Procedure, a prevailing defendant shall not be awarded fees and costs unless the court finds the action was frivolous, unreasonable or groundless when brought.”. Huerta v. Kava Holdings, Inc. (2018) 29 Cal.App.5th 74, like Scott, supra, held that section 998 does not apply to nonfrivolous FEHA actions and reversed an order awarding defendant costs and expert witness fees pursuant to that statute. 

Multiple Party 998 Offers

(Decedent’s’ heirs joint 998 offer to settle wrongful death claims was valid) Gonzalez v. Lew (2018) 20 Cal. App. 5th 155: Plaintiffs jointly offered to settle both of their wrongful death claims for $1.5 million and collectively recovered more than $2.6 million. “(O)ur courts have noted some situations in which an unallocated offer made to multiple parties is valid under section 998. (Id. at p. 163.) “These decisions impliedly, though not explicitly, reject the argument … that an unallocated joint offer from multiple parties should always be invalid because it precludes the receiving party from evaluating the claims of the offering parties separately. (Id. at p. 169.) 

Prejudgment Interest in 998 Offer

(Prejudgment interest allowed from the date of the 998 offer) Lewis v. Ukran (2019) 36 Cal.App.5th 886, 898:Ukran had the opportunity to evaluate Lewis’s offer, but failed to do so. Accordingly, the court did not abuse its discretion in granting Lewis’s motion for prejudgment interest from the date of his section 998 offer.”


Resolving Ambiguities in a 998 Offer

(The parties may clarify a 998 offer to resolve ambiguities in the offer) Prince v. Invensure Ins. Brokers, Inc. (2018) 23 Cal.App.5th 614: While 998 offers should be strictly interpreted, “nor do we interpret § 998 to honor form over substance.” (Id. at p. 622.) Accordingly, “If the offeree is uncertain about some aspect of the offer, … he is free to explore those matters with the offeror, or even to make counterproposals during the period in which the statutory offer remains outstanding.” (Id. at p. 622-623.) “(W)here two sophisticated parties are represented by counsel, allowing an offer to compromise to be clarified in writing after the offer was made serves the purposes of section 998. Such clarification encourages reasonable settlement offers to be accepted. Permitting a rule of overly strict construction of the language of the offer, despite the parties’ actual knowledge of the other’s intent, would frustrate this purpose rather than serve it. It would allow the party declining the (as hindsight demonstrated) very reasonable settlement offer to assert a “Gotcha!” defense to the statutory requirement to pay the offering party’s postoffer costs.” (Id. at p. 623.)

Third Party Responsibility for 998 Offer

(Insurance company responsible for the 998 costs payment) Meleski v. Estate of Albert Hotlen (2018) 29 Cal.App.5th 616, 621: An insurance company, as the entity controlling the litigation and incurring the risk of loss, was a de facto party under Probate Code sections 550 through 555 in “an action to establish [a] decedent’s liability for which the decedent was protected by insurance.”

Timing of a 998 Offer

(Section 998 offers cannot be too early in the litigation process) Licudine v. Cedars-Sinai Medical Center (2019) 30 Cal.App.5th 918: A 998 offer is made in good faith only if the offer is ‘realistically reasonable under the circumstances of the particular case’ (citation) – that is, if the offer ‘carr[ies] with it some reasonable prospect of acceptance’ (Citation).” (Id. at p. 924.) “(T)hree factors are especially pertinent (in deciding whether the offeree had enough facts to evaluate the offer): (1) how far into the litigation the 998 offer was made; (2) the information available to the offeree prior to the 998 offer’s expiration; and (3) whether the offeree let the offeror know it lacked sufficient information to evaluate the offer, and how the offeror responded.” (Ibid; see Mediation Message no. 158 for a full discussion of Licudine.)

Trial Court’s Discretion in 998 Matters

(Trial court has discretion to determine whether a 998 award is appropriate under all of the circumstances) LAOSD Asbestos Cases (2018) 25 Cal.App.5th 1116: In a product case alleging mesothelioma as a result of alleged exposure to asbestos in talcum powder products, the losing plaintiff had rejected a 998 offer to compromise. The appellate court found that the trial court had abused its discretion in denying Colgate’s request for over $300,000 in costs because plaintiff had no ability to pay and it would be unjust to impose a large cost award under the circumstances. “We agree that the trial court abused its discretion in denying all costs requested by Colgate and therefore reverse. The trial court also erred in failing to determine whether Colgate made its section 998 offer in good faith. We therefore remand to allow the trial court to reach that issue in the first instance.” (Id. at p. 1119.) As to costs sought under C.C.P. sections 1032 and 1033.5, the cases “focus on whether certain claimed costs were reasonable or necessary.” (Id. at pp. 1124-5.) “In contrast to the restrictions in section 1032, courts have interpreted the discretionary authority in section 998 to allow the consideration of a party’s ability to pay when determining the appropriate recovery under that statute. … In order to properly exercise its discretion regarding what amount, if any, it was reasonable for (plaintiff) to pay, the court was required to consider all of the relevant factors. Thus, the court could consider (plaintiff’s) financial circumstances, but it also should have assessed whether the offer to compromise was reasonable and made in good faith, and if so, whether the fees requested by Colgate were incurred and reasonably necessary to the litigation. Here, the trial court expressly declined to make these findings and therefore failed to properly evaluate whether any award was appropriate under section 998.” (Id. at p. 1127.)

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

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