Section 998 Pretrial Settlement Offers Explained
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California Code of Civil Procedure § 998 governs offers to compromise and allows any party to serve an offer in writing upon any other party, not less than 10 days prior to the commencement of trial or arbitration, to effectuate judgment to be taken or an award to be entered in accordance with the terms and conditions of the offer. The compromise must contain a statement of the offer, which should include the terms and conditions of the judgment or award, and a provision for accepting the offer. The offer must be made in good faith and carry a reasonable prospect of acceptance under the particular circumstances of the case. It should also be sufficiently specific to allow the recipient to make a rational decision, weighing the advantages of continuing litigation against the potential liabilities and costs.
If an offer is not accepted prior to trial or arbitration, or within 30 days after it is made, whichever comes first, it is considered withdrawn. If an offer made by a defendant is not accepted, yet the plaintiff fails to obtain a more favorable judgment or award down the line, the plaintiff incurs the defendant’s costs from the time of the offer and may be required to cover post-offer costs of the services of expert witnesses (and vice versa). The costs from the time of the offer are deducted from any damages awarded to the party who did not accept the offer and failed to obtain a more favorable judgment or award.
CCP § 998 facilitates reasonable settlement offers and shields parties from the potential uncertainties and expenses associated with litigation or arbitration. As such, the statute does not prohibit multiple offers from being made throughout the litigation process, even if they are repeatedly advanced by the same party. This cost-shifting statute differs from other settlement mechanisms due to the mandatory and discretionary penalties that a party may incur if a reasonable, good faith offer is rejected, yet a desired outcome is still not reached. Thus, it is advisable for a recipient to carefully consider a valid offer, before electing to continue litigation.
Notably, while CCP § 998 does not independently create a right to shift attorney’s fees, they can be shifted if there is a contractual basis for it and the offer explicitly includes a provision for attorney’s fees. The statute specifically states that the Legislature’s intent is to supersede a holding in Encinitas Plaza Real v. Knight (1989) 209 Cal.App.3d 996, which attempted to categorize attorney’s fees as part of the judgment, rather than costs, for purposes of this statute. A more recent case, Etcheson v. FCA US LLC (2018) 30 Cal.App.5th 831, specifically states that costs recoverable for failure to accept a reasonable pretrial settlement offer may include attorney’s fees where authorized by CCP § 998.
Contact Schwartz Semerdjian for any further questions, assistance, or advice about the most effective dispute resolution strategies for your case. This article was written by law clerk, Anastasia Whittemore.