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Cal Supreme Court Embraces Spirit of Section 998, Cloudy Non-Rule

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By William Peacock, Esq. on June 11, 2013 7:01 AM

We in the law like cases to settle. We like settlements so much that if a party makes a reasonable offer to settle, and the other side declines, and doesn’t land a more favorable verdict at trial, we’ll make them pick up part of the tab, specifically for expert witness testimony. You might know this as Section 998, though old-timers might recall that it was previously known as Section 997.

Where that procedural code remains silent, however, is how the court should treat multiple offers. If the plaintiff makes one reasonable offer, then makes another reasonable offer, which offer counts when the verdict rolls in?

In previous appellate court decisions, the courts applied a contracts-like rule that considered only the final offer. So, if a plaintiff makes a reasonable offer, it isn't accepted within the statutory thirty-day period, and then makes another reasonable offer, only that final offer counts for purposes of the fee-shifting statute.

Of course, such a hard-line rule can lead to some odd results. This case was one of those oddities.

Plaintiff Gloria Martinez made an offer to settle for $250,000. The offer was ignored. She then hired an expert witness at a cost of $188,536.86. Two months later, on the eve of trial, she offered to settle for $100,000. Again, the offer was ignored. The jury sided with Mrs. Martinez and awarded her $250,000. The defendant failed to obtain a more favorable verdict.

She was denied costs, however, as the trial court was bound by Wilson v. Wal-Mart, an appellate court decision that stated, "The most recently rejected offer is the only pertinent offer. All prior offers are extinguished by the subsequent offer."

Since the more recent offer came after the expert witness costs were incurred, she was left with the tab, even though her initial offer was less than the verdict and otherwise met Section 998's requirements.

The appellate court reversed, citing Section 998's "language and purpose." That leaves the Supreme Court with an interesting dilemma: clear rule or "language and purpose."

The redeeming quality of Wilson and even earlier, Distefano v. Hall, was their simplicity. Basic contract rules prevail. If a second offer is made, that extinguishes all prior offers.

That, of course, conflicts with the spirit of 998, which, as California courts have noted repeatedly, is to encourage settlements. The Wilson and Distefano hard-line rule discourages multiple offers, as making a last minute offer, after incurring experts' expenses, puts someone outside of Section 998's benefits. Essentially, the motivation to settle stops once experts have been hired.

A change to the existing law was warranted. But the court's murky holding, limited to exactly these circumstances (multiple offers made, all at-or-below the verdict amount), leaves things unsettled.

What about situations where the first offer is less than the verdict, but the post-expert offer, accounting for costs, is higher? Presumably, the "last offer" rule applies, leaving the prevailing plaintiff with the tab, even though they made a reasonable settlement offer. In that case, why make last-minute settlement offers at all?

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