Charles M. Kagay
Of Counsel, Complex Appellate Litigation Group LLP
Appellate Law (Certified)
96 Jessie Street
San Francisco , CA 94105
Phone: (415) 649-6700
Fax: (415) 362-1431
Email: charles.kagay@calg.com
Harvard Law School
Charles has decades of experience handling appeals that involve complex or novel legal questions and is certified by the State Bar as a California appellate specialist. Find out more about Charles and the Complex Appellate Litigation Group LLP at www.calg.com. Appellate Zealots is a monthly column on recent appellate decisions and appellate issues written by the attorneys of the Complex Appellate Litigation Group LLP.
APPELLATE ZEALOTS
These days most lawsuits settle in the trial court and therefore never go up on appeal. Code of Civil Procedure Section 998 is designed to encourage settlement by creating an incentive for parties to make and to accept settlement offers, and therefore at first blush might seem to reduce the opportunities for appellate attorneys. The reality, though, is that Section 998 offers seem to create a fertile ground for appeals.
Conceptually, the Section 998 settlement procedure is simple. Either party can make a written 998 offer to the other. If the offer is not accepted within 30 days after it is made (extended by five days if served by mail) or prior to trial or arbitration, whichever occurs first, it is deemed withdrawn. Generally, if a party does not accept a 998 offer and the ultimate judgment is less favorable to that party than the offer, it cannot recover postoffer costs and must pay the other side's postoffer costs -- including attorney fees, if they are recoverable in the action as costs. A personal injury plaintiff who makes an unaccepted offer fares even better -- if the judgment exceeds the offer, he or she is awarded prejudgment interest on the entire judgment at the annual rate of 10% from the date of the offer. Civ. Code Section 3291.
Sometimes the most consequential effect of a party's declining a 998 offer and suffering a worse judgment is that the court has the discretion to (and often does) require it to pay the offering party's postoffer expert witness expenses -- frequently a big-ticket item dwarfing the other costs. For example, in People ex rel. Lockyer v. Fremont General Corp., 89 Cal. App. 4th 1260 (2001), the court awarded and the Court of Appeal affirmed over $500,000 of expert witness expenses pursuant to Section 998.
In practice, there are a lot of ways the Section 998 process can go wrong, and these seem to generate a lot of appeals. The most common question is whether the offer was properly made. If not, and the offer was accepted, then the case didn't really settle. If not, and the offer was not accepted, then the statute's cost-shifting can't go into effect.
Making a proper offer seems simple enough. The statute spells it out: "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." Even better, the Judicial Council has a simple fill-in-the-blanks form for making the offer. But, attorneys being attorneys, the creative urge often comes to the fore, and they draft up their own personalized 998 offers, with unexpected results.
The requirement that the offer must contain the "terms and conditions of the judgment or award" seems obvious enough, but it is sometimes overlooked. In Sanford v. Rasnick, 246 Cal. App. 4th 1121 (2016), defendant's 998 offer was for $130,000, in exchange for a "written settlement agreement and general release." The offer lapsed without acceptance, and plaintiff obtained a judgment of just $122,000. The trial court held the 998 offer valid and awarded expert witness fees and other costs to defendant. But the Court of Appeal reversed, because the 998 offer did not say what would be in the requested settlement agreement. The appellate court agreed with plaintiff that if the court were to allow "jack-in-the-box settlement agreements" to be hidden in 998 offers, "havoc would ensue," "open[ing] a Pandora's box of post-trial litigation and appeals." This dire outcome can be avoided through the simple expedient of attaching the proposed settlement agreement to the 998 offer. Auburn Woods I Homeowners Association v. State Farm General Insurance Company, 56 Cal. App. 5th 717, 727 (2020).
One 998 requirement that comes up rather often in the reported decisions is the inclusion of a provision for the accepting party to accept the offer by signing it. This is an easy item to include, but it is also an easy one to overlook because it seems superfluous -- any attorney worth his or her salt can think of a way to accept a settlement offer, even if the offer does include a signature line for doing so. In fact, Section 998 says upfront that the offer can be accepted in "a separate document of acceptance." But the requirement that the offer itself contain an acceptance provision is rigorously enforced.
For example, in Boeken v. Philip Morris USA Inc., 217 Cal. App. 4th 992 (2013), a personal injury case, plaintiff served a 998 settlement offer of $4.95 million, defendant did not accept, and plaintiff received a judgment of $12.8 million. However, when plaintiff tried to claim prejudgment interest because of defendant's failure to accept the offer, the trial and appellate courts told him no -- simply because the offer had not included an acceptance provision. The decision does not state how much time passed between the offer and the judgment, but 10% annual interest on $12.8 million for any length of time surely merits adding a few lines to the 998 offer.
The requirement that a 998 offer include an acceptance provision is so strong that it can even work to the benefit of the litigant who neglects to include it. This was the somewhat surprising result earlier this month in Mostafavi Law Group, APC v. Larry Rabineau, APC, 2021 DJDAR 2098 (Cal. Ct. App., Mar. 3, 2021). In this litigation between two law firms, defendant served plaintiff with a 998 offer that had no acceptance provision. Plaintiff's counsel was willing to overlook this shortcoming; he handwrote his acceptance onto the offer and filed a notice of acceptance with the trial court. The court duly entered judgment in the amount of defendant's offer. But defendant later thought better of the matter and brought a motion to set aside the judgment, which the court granted.
The Court of Appeal affirmed, holding that a 998 offer without an acceptance provision cannot have effect, even if the party taking advantage of the omission was the one that did the omitting. The court rejected the idea that defendant should not be allowed to benefit from its own errors, because clear statutory language trumped any claim of unfairness.
The lesson seems clear. If you really want to end your case once and for all with a settlement, craft your 998 offer carefully. If you would rather just wing it, we in the appellate bar stand by to greet you.