What Every Lawyer Should Know about CCP Section 998 Offers to Compromise When There are Multiple Parties
by Jon D. Holdaway
(County Bar Update, February 2007, Vol. 27, No. 2)

What Every Lawyer Should Know about CCP Section 998 Offers to Compromise When There are Multiple Parties

By Jon D. Holdaway, a business litigator in the Los Angeles office of Arent Fox LLP. The opinions expressed are his own.

1. What is a California Code of Civil Procedure Section 998 offer to compromise?
CCP Section 998 is a statute that gives litigants leverage to settle cases. The mechanism of Section 998 is for a party to make an offer to compromise and settle a case. The offer must be in writing and must offer something in consideration for settlement. This does not necessarily need to be a dollar amount but must be something of value, such as an offer to waive costs.

There can be significant consequences to failing to accept an offer to compromise and then not securing a judgment or award better than the offer. For plaintiffs who refuse a defendant’s offer and then either suffer a defense verdict or a judgment or award less than that offer, they do not recover their post-offer statutory costs normally allowed by CCP Sections 1032 and 1033.5, and they must pay the defendant’s same costs. Further, they may be required to pay the defendant’s “actually incurred and reasonably necessary” expert witness costs, including costs incurred pre-offer.¹ For defendants who reject a plaintiff’s offer and then suffer a verdict or judgment in excess of the value of the offer, they may be required to pay the plaintiff’s statutory costs, as well as post-offer expert witness costs. In personal injury actions, defendants also will be liable for prejudgment interest.²

A statutory offer also can be a strategic tool to force a settlement. Applied with care and foresight, counsel can structure the value of an offer as a reasonable settlement amount, which then puts pressure on the other party to either accept the offer or risk having to reimburse the other side’s regular and expert witness costs.

2. What are the effects of a Section 998 offer by several codefendants to an individual plaintiff?
In the age of Proposition 51, a Section 998 offer can result in complications and confusion. Codified at California Civil Code Sections 1431, et. seq., under Propostition 51, codefendants are jointly liable for a plaintiff’s economic or special damages and severally liable for each defendant’s proportion of noneconomic damages.³ Normally, an offer by several defendants jointly is considered to be an offer by each of the codefendants in their individual capacities.⁴ However, what happens if two defendants make an offer to a plaintiff to take a judgment against them, both jointly and severally, for all claims, including claims for noneconomic damages that are not joint? How can a plaintiff fairly evaluate the chances of recovery against such defendants? The California Court of Appeal recently ruled that a plaintiff who can assess the chances of recovery against each defendant, regardless of the claim or whether the liability is joint and/or several, and compare that to the codefendants’ Section 998 offer, can be subject to a codefendant’s Section 998 offer that is being offered jointly and severally.⁵

Persson v. Smart Inventions, Inc. suggests that there is no need for codefendants to make an apportionment among themselves for potential liability, either joint or several, meaning that their Section 998 offers to compromise need not be specific as to which defendant assumes liability for which claims or whether the settlement includes economic and/or noneconomic damages.⁶

3. What are the effects of an offer made by a defendant to several plaintiffs?
The principle laid out in Persson does not work in reverse if a defendant or defendants serve a Section 998 offer on several plaintiffs jointly. In this case, without an apportionment, each plaintiff is unable to ascertain how much each would individually receive versus their potential recovery at trial.⁷

4. What are the effects of a Section 998 offer by a plaintiff to several codefendants?
Just as in the case where an offer made to several plaintiffs without apportionment cannot be made by a defendant, an offer by one or more plaintiffs to multiple defendants is invalid if each defendant is not able to determine the amount the plaintiff is seeking from that individual defendant.⁸ This can be avoided by making a separate offer to each defendant individually. In this case, the total verdict or judgment amount can be held up against each offer individually. For example, if a plaintiff’s offer to defendant A is $10,000 and his offer to defendant B is $12,000 and the jury verdict is $13,000, plaintiff is entitled to the benefit of Section 998 against both defendants.⁹ Even if the verdict were only $11,000, plaintiff would still be able to recover his costs and expert witness fees against defendant A.

5. What are the effects if a Section 998 offer is made by several plaintiffs to one or more defendants?
Once again, if the offeree cannot determine the exact amount he or she is liable to one or more of the offerors, then the courts will not uphold the Section 998 offer against the offeree. In this case, a defendant must be able to ascertain some sort of apportionment of the liability to the various plaintiffs so that if a plaintiff’s verdict is obtained at trial, it can be determined whether the plaintiff’s recovery at trial was more favorable than the offer.¹⁰ However, where it is obvious that a particular plaintiff obtained a more favorable verdict than the Section 998 offer (e.g., joint plaintiff demand of $1 million vs. verdict of $23 million), then the courts will uphold the offer by multiple plaintiffs against the defendant.¹¹

¹ Regency Outdoor Advertising, Inc. v. City of Los Angeles (2006) 39 Cal.4th 507, 531-3.

² Cal. Civ. Code §3291.

³ See Taing v. Johnson Scaffolding Co. (1992) 9 Cal.App.4th 579, and Bihun v. AT&T Information Systems, Inc. (1993) 13 Cal.App.4th 976 for a discussion of the complications in apportioning economic and noneconomic damages liability in the context of personal injury cases and Section 998.

⁴ Brown v. Nolan (1979) 98 Cal.App.3d 445, 451.

⁵ Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1171-72.

⁶ Id. (“[The plaintiff] could easily assess his chances of obtaining a judgment from either or both defendants totaling more than the offer, and it is likewise easy in retrospect to determine whether the judgment is more favorable than the offer.”)

⁷ Meissner v. Paulson (1989) 212 Cal.App.3d 785, 791.

⁸ Burch v. Children’s Hospital of Orange County Thrift Stores, Inc. (2003) 109 Cal.App.4th 537, 544-7 (“[Without apportionment] there is no way to determine whether a subsequent judgment against a particular nonsettling defendant is ‘more favorable’ than the offer. [Citation].”) (emphasis in original)

⁹ This is a fact pattern similar to Hilliger v. Golden (1980) 107 Cal.App.3d 394.

¹⁰ Gilman v. Beverly Calif. Corp. (1991) 231 Cal.App.3d 121, 126.

¹¹ Fortman v. Hemco, Inc. (1989) 211 Cal.App.3d 241, 263.

# # #