Personal Injury Settlement Offers in California
Published On: January 26, 2008
Please read the following article regarding Personal Injury Settlement Offers in California. This article explains one of the most powerful negotiating tools in California Personal Injury Litigation. I received this article, via e-mail, from the Los Angeles County Bar Association and wanted to share it with you.
Section 998 Offers of Settlement by Cheryl Johnson-Hartwell
What is a Section 998 Offer?
Code of Civil Procedure Section 998 provides that if a party makes a settlement offer no less than 10 days before a trial or arbitration and the offer is not accepted before the earlier of the commencement of trial or arbitration or the passage of 30 days from the time of the offer, the party making the offer may be entitled to certain benefits if the rejecting party fails to obtain a more favorable result at trial or arbitration. For example, if a plaintiff rejects an offer made by the defendant but does not obtain a more favorable judgment or award, the plaintiff cannot recover any costs he or she accrued after the offer and must pay the costs incurred by the defendant after the offer was made. The court also has the discretion to order the plaintiff to pay a reasonable sum to cover the costs of the services of an expert witness used by the defendant. The converse is true for a defendant who rejects a reasonable offer from the plaintiff.
What Must a Section 998 Offer Contain?
Section 998(b) states, in part, “The written offer shall include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted.” The statute goes on to say, at Section 998(b)(1), “If the offer is accepted, the offer with proof of acceptance shall be filed and the clerk or the judge shall enter judgment accordingly. In the case of an arbitration, the offer with proof of acceptance shall be filed with the arbitrator or arbitrators who shall promptly render an award accordingly.”
Is a Court Judgment or Arbitration Award Required?
Can a defendant submit an offer under Section 998 or agree to accept an offer under Section 998 without having a judgment entered? Those who may consider arguing that an offer is not valid without an entry of judgment should know, however, that more than one court has interpreted this language as not requiring entry of judgment for an offer to be valid under Section 998.
Section 998 was enacted to encourage settlement by providing a strong financial incentive to a party to present a reasonable settlement offer and an opposing financial disincentive for the offeree to reject such a reasonable settlement offer.1 To further these purposes, the offer must be clear and specific. A clear offer allows the offeree an adequate opportunity to meaningfully evaluate the offer and determine whether it should be accepted or rejected. In addition, an offer must be specific because the court lacks the authority to adjudicate a dispute over the terms of the offer and subsequent agreement, and can only perform the ministerial task of entering the judgment according to the terms of the offer. However, despite this preference for clear and specific terms, there is no requirement that the offer contain a particular method by which the case will be resolved—judgment against the defendant, entry of an award, or dismissal with prejudice. 2
In Goodstein v. Bank of San Pedro, the plaintiff challenged an order granting the defendant’s motion to recover expert witness fees and other fees and costs based upon a settlement offer that the plaintiff had rejected. The plaintiff argued that the offer was ineffective as a Section 998 offer because it proposed a voluntary dismissal with prejudice and did not allow judgment to be taken. The court rejected the plaintiff’s distinction and found that a voluntary dismissal proposed in a settlement offer operated as the equivalent of a “judgment” within the meaning of Section 998.3
There was a similar result in American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, in which the defendants submitted a settlement offer that proposed payment of funds by the defendants in return for dismissal of the lawsuit with prejudice. When the plaintiff failed to obtain a more favorable judgment at trial, it disputed the defendants’ right to obtain reimbursement for costs and expert witness fees because the Section 998 offer did not specifically provide for entry of judgment as a condition of settlement. The American Airlines court rejected the plaintiff’s argument and held that if the settlement offer addressed some disposition of the lawsuit that functioned as the legal equivalent of a judgment, then actual entry of judgment was not required for the Section 998 offer to be effective.4
In 2004 in Berg v. Darden, the court even noted that the legislature’s amendment of Section 998 after the Goodstein opinion indicates legislative approval of the result in that case and the intention that Section 998 cover any termination of an action between the parties to an agreement. Thus, it appears that there is no magic language required to make an effective Section 998 offer as long as it is a clear, written offer that is intended to result in a final disposition of the action.5
1 Bank of San Pedro v. Superior Court, 3 Cal. 4th 797, 804, 12 Cal. Rptr. 2d 696, 838 P. 2d 218 (1992).
2 Berg v. Darden, 120 Cal. App. 4th 721, 727, 15 Cal. Rptr. 3d 829 (2004).
3 Goodstein v. Bank of San Pedro, 27 Cal. App. 4th 899, 903, 32 Cal. Rptr. 2d 740 (1994).
4 American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, 96 Cal. App. 4th 1017, 1054, 117 Cal. Rptr. 2d 685 (2002).
5 Berg, 120 Cal. App. 4th at 730 n.1, 731-32.
Cheryl Johnson-Hartwell is an attorney with the firm of Waller Lansden Dortch & Davis LLP. This article was first published in Los Angeles Lawyer in May 2005.
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