998 Update: Avoiding the Wreckage
Evaluating Code of Civil Procedure section 998 offers brings to mind the partner that every associate meets – the one that ends the assignment with, “It shouldn’t take long – it’s a no-brainer.” Of course, that assignment is always anything but a “no-brainer.” The same can be said about analyzing 998 offers. While the statute’s principles are easily understood, its operation can be devilish. In reality, analyzing 998 offers is complex, key details are easily overlooked and mistakes, costly.
Quite often, multiple offers are made during the course of litigation. This is deep water, strewn with the wreckage of parties making erroneous conclusions about the viability of prior offers. A recent decision, Martinez v. Brownco Construction Company, Inc. 2012 Cal.App. LEXIS 122, drives home the risk of being wrong on the law.
In Martinez, the plaintiff made a 998 offer for $250,000 which expired without being accepted by the defendant. About two-and-a-half years later, the plaintiff made another 998 offer, this time for $100,000, also ignored by the defendant. At trial, the plaintiff obtained a judgment of $250,000. Because the defendant-offeree did not obtain a more favorable judgment at trial, the plaintiff sought expert witness fees from the date of the earlier 998 offer. The trial court, however, concluded that plaintiff’s second 998 offer “extinguished the first for all purposes.”
The Court of Appeal reversed. It concluded that when a plaintiff makes two or more reasonable 998 offers, all of which are valid and expire by operation of law, the plaintiff can shift expert witness fees from the earliest offer. As Martinez put it, “this rule encourages early settlement . . . .” And after examining contrary authority, the Martinez court concluded that “no principle requires a different result simply because [the plaintiff] made the second offer.”
Interestingly, Martinez did not discuss One Star, Inc. v. Staar Surgical Company (2009) 179 Cal.App.4th 1082. One Star held that in multiple offer cases, “the party’s last [valid] section 998 offer is effective unless expressly revoked.” (Emphasis added.) So which is it? The earliest valid offer as stated in Martinez or the last valid offer as stated in One Star? While the two holdings appear at odds, with some close scrutiny, they might be reconciled.
In One Star, revocation of a second pending offer brought the offeror’s earlier, expired 998 offer back into play. The offeree argued that making the second offer rendered the earlier offer irrelevant for cost/fee shifting purposes. The trial court agreed. But the Court of Appeal reversed. After discussing the settlement purposes of section 998, One Star held that if a valid 998 offer is not accepted and a subsequent offer is revoked while pending, the earlier offer is still in play after trial.
One Star contrasted the situation in Palmer v. Schindler Elevator Corp. (2003) 108 Cal.App.4th 154 that takes an earlier offer out of play. There, a second offer was made while the first offer was still pending. As a result, the second offer superseded the first one. When that second offer turns out to be invalid, the offeror cannot fall back on the first offer because the offeree was deprived of the full statutory time to consider and accept the earlier offer. From a policy perspective, Palmer makes sense.
Where’s that reconciliation? One Star was not considering two prior, valid offers. If it had been, then to the extent the court held that the last valid offer controls, One Star and Martinez have irreconcilable differences. That’s an interesting dilemma considering both cases come from the Second District (Division Four and One, respectively). But cases are not authority for propositions not considered and in One Star, only a single valid offer was at issue. If its holding is limited to its facts – a single, prior valid offer followed by a second offer that is revoked – then One Star does not conflict with Martinez – both cases involve fee shifting by the “earliest” valid offer.
But one thing is clear; the two cases aptly demonstrate that even appellate justices grapple with section 998's operation. So while understanding its foundational principles may be a “no-brainer,” the actual operation of the statute is no simple matter. It’s also no laughing matter. In Martinez, the plaintiff stood to recover $253,000 in expert witness fees dating from the first 998 offer. That included $188,000 in expert fees already incurred while the defendant was pondering the second 998 offer of $100,000.
Given the state of the law prior to Martinez, defendant’s counsel may have reasonably believed that fees could only shift from the date of the second offer. But the 998 decisions keep on coming and that belief was not only wrong, but costly. And if attorneys do not understand the rules, how can the clients know how much skin is in the game? A thorough and current understanding of section 998 will help lawyers, and their clients, avoid the wreckage.
