
Gary A. Watt
Partner Hanson Bridgett LLP
State Bar Approved, Certified Appellate Specialist
Email: gwatt@hansonbridgett.com
Gary chairs Hanson Bridgett's Appellate Practice. He is a State Bar-approved, certified appellate specialist. In addition to writs and appeals, his practice includes anti-SLAPP and post-trial motions as well as trial and appellate consulting. His blog posts can be read at www.appellateinsight.com.
Settlement offers made pursuant to Code of Civil Procedure § 998
can turn victory into defeat, defeat into victory. Section 998 is designed to
"encourage both the making and the acceptance of reasonable settlement offers"
prior to trial. Scott Co. of Cal. v. Blount, Inc., 20 Cal.4th 1103, 1114
(1999) (Scott).) Section 998's cost-shifting provisions create both
a financial incentive to make reasonable settlement offers and a corresponding disincentive
against rejecting reasonable offers. § 998, subds. (c)(1) & (d).
The statute has long been described as both "carrot" and
"stick." Bank of San Pedro v. Superior Court, 3 Cal.4th 797, 804 (1992).
The "carrot" refers to the need to make sure offers are "reasonable" in order to qualify for statutory cost shifting (including
expert witness fees). Id. at 804. The "stick," is the danger of
offerees being hit with cost-shifting which, in theory, maximizes incentives to
accept such reasonable offers. Id.
Hammer might be a better word than "stick," especially when
costs under § 998 include attorney fees. For example, in Scott, the
plaintiff's verdict, pre-offer costs (including pre-offer expert witness fees),
and pre-offer attorney fees (contractual fee provision) totaled $668,000 an
amount less favorable than defendant's $900,000 offer. The statutory hammer
dropped: Defendant's post-offer costs (including post-offer expert and attorney
fees) of $881,000 resulted in a net payment to defendant of
$213,000. Scott, 20 Cal.4th at 1107-08. Plaintiff's trial victory went
up in smoke.
Section 998 offers must be "valid," but what does that mean?
Validity has some technical statutory components, such as being "in writing,"
including "a provision that allows the accepting party to indicate acceptance
of the offer by signing a statement that the offer is accepted," and offers
must be timely. § 998 subd. (b). But validity also has some qualitative
components too. And naturally, this is where the water gets deep and murky.
Certainty, the cases say, is essential. Offer terms and
conditions must be "sufficiently certain" or "specific" or "definite" to
justify statutory cost shifting. Fassberg Construction Co. v. Housing
Authority of City of Los Angeles, 152 Cal.App.4th 720, 764-765 (2007) (Fassberg). Furthermore,
998 offers must be made in good faith, meaning fall in the "range of reasonably
possible results." Licudine v.
Cedars-Sinai Medical Center, 30 Cal.App.5th 918, 924-925 (2019). The burden
is on the offeror to demonstrate the offer is valid under section 998.
[Citation.]" Ignacio v. Caracciolo, 2
Cal.App.5th 81, 86 (2016).
Certainty has two different components. First, offeree
certainty, meaning the terms and conditions are sufficiently clear that while
the offer is pending, recipients can "evaluate the worth of the offer and
make a reasoned decision" whether to accept it. Fassberg, 152
Cal.App.4th at 764. Second, there is judicial certainty such that after trial,
the court can "determine whether the judgment is more favorable than the
offer." Id. An offer requiring a court to "undertake extraordinary
efforts to attempt to determine whether the judgment is more favorable" fails
the judicial certainty requirement. Id.
at 766; see also Barella v. Exchange
Bank, 84 Cal.App.4th 793, 800-801
(2000). A failure of either kind of certainty will render the 998 offer inoperative.
Simultaneous 998 offers prohibited
Despite its long existence and relatively brief text, new § 998
issues steadily emerge. In Gorobets v. Jaguar Land Rover North America, LLC (2d
Dist., Div. 2, October 10, 2024) 105 Cal.App.5th 913, the Court of Appeal
concluded that making two or more valid 998 offers simultaneously
will render the offers invalid.
In Gorobets, plaintiff brought suit
under California's Lemon Law. Land Rover served plaintiff with a two-option 998
offer. Plaintiff could accept $85,000 (plus attorney fees and costs incurred to
date). Or plaintiff could accept a statutory damages components-based offer
featuring subcategories of restitution as well as any incidental or
consequential damages. This offer required plaintiff
to fill in the amounts and substantiate them, but Land Rover could dispute any
items. Disputed items would go to a dispute resolution process. Plaintiff did
not accept either of the options.
At trial, plaintiff recovered $76,000 in damages. Land Rover
sought to recover post-offer costs under § 998. The trial court ruled that the
$85,000 lump sum offer was "sufficiently specific and unconditional," and was
more favorable than plaintiff's trial recovery. (Since Land Rover's 998 offer
included payment of attorney fees and costs to date, the court need only
compare the $76,000 in damages obtained at trial with the $85,000 lump sum
offer.)
Despite prevailing, plaintiff could only recover $5,200 in
pre-offer costs, while Land Rover would recover its post-offer costs of
$14,600. But that was not the end of it. Plaintiff also moved for over $500,000
in statutory attorney fees. But due to the operation of § 998, could only
recover pre-offer attorney fees--a mere $22,500. (Land Rover could not obtain
post-offer attorney fees because the Lemon Law is a remedial statute awarding
fees solely to prevailing purchasers, not sellers. See, e.g., Duff v. Jaguar
Land Rover North America, LLC, 74 Cal.App.5th 491, 501 (2022).)
On appeal, Gorobets found that offeree certainty was not
the problem with statutory components offer. "[A]n offer is not uncertain
merely because it calls upon the offeree to fill in the blanks and do the math.
Because an offer that promises to pay unspecified amounts corresponding to
various statutory categories of damages merely calls upon the offeree to do the
math, such an offer is sufficiently certain to
the offeree deciding whether to accept that offer." Id. at 931.
However, Gorobets found judicial certainty lacking. Since
the 998 offer was never accepted, the number to be compared to plaintiffs'
trial outcome was an unknown, making the statutory comparison impossible. A
court would have to speculate as to "what [amounts] the parties might have
agreed was undisputed," and "what the selected third-party arbiter might have
determined as to any disputed issues ... ." Id. at
933. The trial court would have to, "engage in wild speculation bordering on
psychic prediction." Id. at 934, internal quotations and citation
omitted.
Doctrinally, Gorobets concluded that making simultaneous
valid offers would encourage offerors to game the system. "[P]articularly
Machiavellian litigants will be sure to cover the waterfront by making
simultaneous offers for all possible outcomes in an attempt to ensure that at
least one of those offers will trigger cost shifting under section 998." Id.
at 929. Thus, Gorobets announced a bright line rule: "simultaneous [valid]
offers to the same party are not effective under section 998 ... ." Gorobets, 105 Cal.App.5th at 928, emphasis
added.
But unfortunately for plaintiff, the new rule did not apply.
Since Gorobets found the statutory components offer invalid, effectively
speaking, plaintiff had only a single valid offer before it--the lump sum offer.
It also meant that on the back end, the trial court had no certainty
problem--there was only one offer to consider.
There was a dissent in Gorobets. The dissent would have
prohibited simultaneous offers irrespective of whether a single valid offer
remains after other options are found invalid. Id. at 937-38. "Even with
the benefit of now knowing that simultaneous offers are banned, plaintiff could
not have known that the majority would not employ the general prohibition
against simultaneous offers in this case." Id. at 938. To the dissenting
justice, allowing Land Rover to benefit because it incorrectly drafted one of
the two 998 options defeated the purpose of the majority's new rule. To this
article's author, the phrase "better lucky than good" comes to mind.
Simultaneous 998 offers permitted
Another recent decision involving simultaneous 998 offers is Zavala
v. Hyundai Motor America, 2024 WL 5135020, *1 (4th Dist., Div. 1, December
17, 2024). Zavala is another Lemon Law case involving simultaneous 998
offers similar to those in Gorobets. The first
option was a lump sum of $65,000 plus attorney fees and costs to date. The
second option was for statutory damages components subject to proof, and included a dispute resolution provision.
Plaintiff prevailed at trial and in addition to $23,000 in
damages, was awarded costs and attorney fees of $276,000. The trial court
recognized that the $65,000 lump sum offer was valid. However, the court found
both 998 offers inoperative because the statutory damages option was uncertain
in actual amount and for that reason, refused to apply the lump sum offer. The
trial court concluded that, "[f]orcing plaintiff to choose between this
uncertain amount and [the lump sum of] $65,000 makes the offer invalid." Id.
at *3.
The Court of Appeal reversed. As to the bright line rule, Zavala
disagreed with Gorobets, seeing "no persuasive reason" for
prohibiting simultaneous 998 offers. Zavala, 2024 WL 5135020 at *9. Gorobets
should not have created a rule prohibiting simultaneous offers because "[w]hen
faced with two simultaneous offers, a trial court can simply look at each offer
separately to determine whether either of them exceeded the amount of
the verdict." Id. at *9, emphasis original. "When, as here, a defendant
has extended multiple simultaneous settlement offers ... a trial court may
separately evaluate each offer to determine (1) whether it is sufficiently
specific and certain to be valid for triggering cost shifting ... and (2) if it
is a valid offer, whether the plaintiff obtained a more favorable judgment or
award." Id. at *10.
Zavala supported the permissive rule by, among other
things, concluding it would "encourage parties to put all possible approaches
to settlement on the table early in
the litigation." Zavala, 2024 WL 5135020 at *11. Fielding simultaneous
offers would also "incentivize[]" offerees to
"seriously consider any offer made at an early stage in the litigation." Id.
Moreover, Gorobets' policy concerns were "not well-founded, and any
downsides are outweighed by the benefit of promoting early settlement." Id. at
*12.
Zavala concluded the trial court erred by refusing to
evaluate each 998 offer option separately. So while Zavala agreed that the statutory components
offer was invalid, the $65,000 offer was sufficiently certain to shift
costs under § 998. Id. at *4-*6. Interestingly, in finding the components based offer invalid, Zavala not only found
a lack of judicial certainty like Gorobets, but unlike Gorobets,
also found a lack of offeree certainty. "Because the Statutory Option did not
contain any specific monetary amounts and left the value of the offer '[s]ubject
to proof' to be provided by Zavala, with any disputes to be resolved through a
court proceeding, Zavala was not 'able to clearly evaluate the worth of the
extended offer.'" Zavala, 2024 WL 5135020 at *6, quoting Berg
v. Darden, 120 Cal.App.4th 721, 727 (2004).
Which bright line rule?
Doctrinally, what have we got here? The Zavala rule
allowing service of simultaneous 998 offers, the Gorobets rule
prohibiting service of simultaneous valid offers, and even the Gorobets
dissent's proposed rule--barring simultaneous offers altogether irrespective
of whether a single valid one is in the mix. The Supreme Court could resolve
these competing rules. Indeed, a petition for review is already pending in Gorobets.
Until then, the bottom line is that § 998 offers must be painfully scrutinized.
That is not news. Indeed, as Gorobets and Zavala reveal,
sometimes careful scrutiny can still result in harsh
surprises.
But are such surprises fair? One pillar of section 998 is
offeree certainty. Can there really be offeree certainty if the rules of the
simultaneous offer game are unknown until years later when these adverse
appellate decisions come out? And going forward, if the "offer" consists of
multiple options, limited in number solely by the offeror's creative impulses,
is there really offeree certainty? Litigation lasts years. Section 998 offers
last 30 days. Are simultaneous offers really necessary?
And if so, why not just make them as settlement offers, not 998 offers?
And what of judicial certainty? Is there really
judicial certainty if judges making the cost shifting calculation have
to contemplate two, three, or even more offers served simultaneously?
Should the trial courts, already shorthanded, be burdened with this
weaponization of § 998?
As for Zavala's incentivization principle, what more
incentive have offerees ever needed than the potential
for cost-shifting itself. Going forward, under Zavala's rule, there's
now a game of "gotcha!" with 30 days for offerees to decide on multiple offers.
Are such games consistent with the statutory principles justifying cost
shifting?
How about a third type of certainty: offeror certainty.
The dissent in Gorobets would have held that serving multiple 998 offers
simultaneously violates the spirit of the statute, incentivizes
gamesmanship, and for those reasons, all offers served simultaneously
should be invalid--no matter whether any one of them is valid. Such a bright
line rule would incentivize offerors to decide what their current offer
should be, and make it, early in the litigation. If better ideas develop--serve
another offer--serially. Indeed, if they no longer like the current offer while
it is still pending, they can immediately issue a different one.
Under such a simple, powerful, bright line rule, there is no
room left for luck, pluck, or connivance. Offerees will not be squeezed by
multiple offers running at the same time, and overworked judges need not
decipher multi-option offers served simultaneously. Isn't that kind of
three-way clarity the core justification for § 998's carrot and stick?