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Court of Appeal upholds cost-shifting under Code of Civil Procedure section 998 in a case involving a joint, unallocated offer by two sets of plaintiffs to settle two wrongful-death claims

Despite other cases holding that joint offers may render statutory offers to compromise under section 998 of the Code of Civil Procedure invalid, the Second District Court of Appeal just upheld cost-shifting under a joint offer.

In Gonzalez v. Lew, Cal. Ct. App. 2d Dist. no. B271312 (Feb. 1, 2018) (slip op. linked here), two people died in a fire that consumed the rental home in which they were living. Both sets of the decedents' heirs sued the homeowners, and both sets of plaintiffs made a joint offer to settle both wrongful-death claims for $1.5 million. The defendants did not accept. Slip op. at 2-3. 

At trial, the jury returned a verdict of $2,254,300 to one set of heirs for the death one of one decedent and $357,100 to another set of heirs for the death of the other decedent, and damages were then slightly reduced for a fifteen-percent comparative-fault finding. Slip op. at 3-4.

After trial, the plaintiffs jointly submitted a memorandum of costs seeking expert-witness fees ($76,931.50) and interest ($347,595.14) from the date the joint 998 offer expired. The defendants moved to tax these costs, arguing that the joint 998 offer was invalid. The trial court ruled that the 998 offer was valid. Slip op. at 4.

For those unfamiliar, section 998 of the Code of Civil Procedure provides for a special form of settlement offer, commonly referred to as a "998 offer." The purpose of section 998 is to incentivize settlements. See slip op. at 6. An offer to compromise under that section must follow certain requirements, including that the offer must remain open for a certain time, the offer must be reasonable, the offer must be capable of valuation, etc. The effect of a defendant failing to accept the offer is that if the plaintiff secures a more favorable judgment, the court may add the plaintiff's post-offer expert-witness fees to the judgment. And in personal-injury cases, the court may also add prejudgment interest at ten percent beginning from the date of the 998 offer (this can be a very large amount depending on how long before trial the offer was made). See Civ. Code § 3291. 

Where there are multiple parties on one side, a joint settlement offer does not always trigger section 998 penalties. For example, "an unallocated offer from a defendant to multiple plaintiffs with separate claims where the offer is conditioned on acceptance by all" is invalid under section 998. Slip op. at 7. When a settlement offer is unallocated between multiple plaintiffs, "a party receiving a joint unallocated offer may not be able to prove, as section 998 requires, that he or she obtained a more favorable result at trial," as in the case where some but not all plaintiffs prevail, or the plaintiffs prevail with different amounts awarded to each. See, e.g., slip op. at 7-9, citing and quoting Meissner v. Paulson, 212 Cal. App. 3d 785 (1989), and Randles v. Lowry, 4 Cal. App. 3d 68 (1970). Another problem with an unallocated offer to multiple plaintiffs is the issue that the plaintiffs have to evaluate the risk of a failure to reach agreement on an allocation between them once should the offer be accepted. See slip op. at 9. The same is true for unallocated offers by a plaintiff to multiple defendants. See id. at 9-10 (discussing Taing v. Johnson Scaffolding Co., 9 Cal. App. 4th 579 (1992) (where an injured plaintiff made a joint offer to three defendants but later secured a jury verdict larger than the 998 offer but against only one of the defendants, the 998 was invalid because the unapportioned offer required the defendants to reach separate agreements with the codefendants, which cannot required under section 998).

The Gonzalez court then discussed cases where unallocated offers were held valid under section 998, including where an unallocated offer to spousal plaintiffs who have a unity of interest due to injury to community property. See slip op. at 10-11.

Turning to this case, the Gonzalez court noted that the courts have not been uniform in applying section 998 where joint settlement offers were made by multiple parties. See id. at 19. Where multiple parties receive a joint unallocated settlement offer, as discussed above, they face the problem of having to reach agreement with each other regarding allocation, and it would also be unfair to impose 998 penalties against one party who wanted to settle but could not because the other parties did not agree. Id. at 14-15, 19-20.

But where an unallocated offer is made by multiple plaintiffs to a single defendant, these concern don't exist---the defendant does not have to obtain the consent of any other party to settle. Id. at 15, 19-20. And while it might be the case that after trial it might be impossible to determine whether an individual plaintiff "beat" the 998 offer, this might not always be the case. Id.

Here, the plaintiffs made an offer to settle both wrongful-death claims for $1.5 million and collectively recovered more than $2.6 million. The defendants only had to evaluate their exposure on both claims and add them together; "[i]f they fared better under plaintiffs’ offer, it would have been prudent to accept it." Id. at 23. In the Gonzalez court's determination, "Plainly, the [defendants] did not anticipate that either wrongful death claim, standing alone, would exceed the settlement offer." Id. "And this is precisely the situation in which an additional cost award under section 998 is appropriate and in furtherance of the goal of encouraging parties to accept reasonable settlement offers." Id. 

In affirming the trial court's ruling on the motion to tax costs, the Gonzalez court left us with this: "If plaintiffs with disparate claims want to make a global settlement offer which would put an end to the litigation at hand (and work out the details among themselves), they should be encouraged to do so." See id. at 24.

Update: California Supreme Court grants review in Lawson v. Z.B., N.A.

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