Mediation Message No. 88

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 88

MULTIPLE SECTION 998 SETTLEMENT OFFERS

In recently decided Martinez v. Brownco Construction Co. (June 10, 2013) 56 Cal.4th 1014, the California Supreme Court held that when a plaintiff makes two successive Code of Civil Procedure section 998 offers, the defendant does not accept either offer and fails to obtain a judgment more favorable than either offer, allowing recovery of expert fees incurred from the date of the first offer is consistent with section 998‘s language and best promotes the statute’s purpose to encourage settlements.

The plaintiffs in Martinez served two section 998 settlement offers. In 2007, Mr. Martinez offered to compromise his negligence claim for $4.75 million and Mrs. Martinez offered to compromise her loss of consortium claim for $250,000. Brownco neither accepted nor rejected these offers within the statutory 30-day period. Just before the 2010 trial, Mr. Martinez and Mrs. Martinez served reduced compromise offers of $1.5 million and $100,000, respectively. Again, Brownco did not respond to these offers. At trial, Mr. Martinez obtained a judgment of $1,646,674 and Mrs. Martinez obtained a $250,000 judgment. Brownco sought an order disallowing Mrs. Martinez’s recovery of $188,536.86 in expert fees incurred after her first and before her second settlement offer. The trial court sided with Brownco and entered an order taxing the disputed expert fees. It found that the 2010 offer was the only effective one and that all prior offers had been extinguished. The Court of Appeal reversed the trial court and ordered a remand to the trial court for its discretionary determination of Mrs. Martinez’s entitlement to expert witness fees. The Supreme Court affirmed that judgment.

Before the Martinez ruling, Wilson v. Wal-Mart Stores, Inc. (1999) 72 Cal.App.4th 382 (which the trial court in Martinez relied on) and Distefano v. Hall (1968) 263 Cal.App.2d 380 had held, under the “last offer” rationale, that when a party makes successive unrevoked and unaccepted section 998 offers, the last offer is the only operative one. In concluding that the last 998 offer does not invalidate an earlier one, Martinez held it unnecessary to find the last offer rule or the first offer rule controlling in every circumstance. “Indeed, for present purposes we may assume the propriety of applying the last offer rule where, as in Distefano and Wilson, an offeree obtains a judgment or award less favorable than a first section 998 offer but more favorable than the later offer.”

Martinez examined the policy behind section 998 offers and found that allowing recovery from the first offer furthers the goals of the statute. It explained, “the Legislature sought to encourage settlement by affording the benefit of enhanced costs to parties who make reasonable settlement offers and imposing the burden of those costs on offerees who fail to obtain a result better than they could have achieved by accepting such offers. (Citation.) This purpose would be more fully promoted if the statutory benefits and burdens were to operate whenever the judgment or award is not more favorable than any of the statutory offers made. Conversely, if the statutory benefits and burdens were to run only from the date of the last offer in circumstances such as these, plaintiffs may be deterred from making early offers or from later adjusting their demands. This would inhibit settlement opportunities and be at direct odds with our prior recognition that ‘[t]he more offers that are made, the more likely the chance for settlement.’” The Court also found that the making of more settlement offers promotes the public policy of compensating injured parties.

Although defendants are not perceived ordinarily as “injured parties,” the public policy of compensating injured parties was not the principal focal point of the Martinez decision. Therefore, while Martinez held only that plaintiffs may take advantage of either their first or second 998 offers, allowing defendants to also recover their costs in such situations should be permitted since that result is also consistent with section 998‘s language and promotes the statutory purpose to encourage settlements.

Finally, Martinez reminded that, ultimately, the trial court, pursuant to statute, still retains discretion to order payment of expert witness costs incurred from the date of a first offer when a plaintiff serves two unaccepted and unrevoked statutory offers, and the defendant fails to obtain a judgment more favorable than either offer. And, in this exercise of discretion, Martinez also provided that the trial court can address any concerns it may have when considering what post-offer expert fees to award if a successful section 998 offer “results in mischief or confusion, or any gamesmanship appears.”

Judge Michael D. Marcus (Ret.)

ADR Services, Inc.

1900 Avenue of the Stars. Suite 250

Los Angeles, California 90067

(310) 201-0010

Copyright, Michael D. Marcus June 2013

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