Civil Procedure: CCP Section 998 Offers to Compromise

Author: David Ramirez

In the recent case, Certain Underwriters at Lloyds, London v. Arch Specialty Insurance (April 11, Conditional Offers to Compromise under Code of Civil Procedure Section 998 are the norm.  We often take it for granted when including a provision as to the opposing party executing a proposed Settlement & Release Agreement as part of the process.  However, as noted, any proposed Settlement & Release Agreement will need to be detailed pursuant a recent court of appeal case.

In Sanford v. Rasnick, (2016) 246 Cal.App.4th 1121, the First Appellate District addressed whether a C.C.P. § 998 Offer to Compromise requiring plaintiff to execute a release and enter into a separate settlement agreement was valid.  Because the settlement agreement could potentially contain additional terms not stated in the C.C.P. 998 Offer, the Court of Appeal held that it was not.

Facts of the Case:

Plaintiff alleged he was injured when the Defendant ran a stop sign and struck his motorcycle. Plaintiff sued the Defendant and his father (the owner of the vehicle) for vehicular negligence and general negligence.

Just after discovery closed, defendants jointly served a C.C.P. § 998 Offer to Compromise to plaintiff in the amount of $130,000.  The offer contained a condition requiring that in order to accept, plaintiff must provide a “notarized execution and transmittal of a written settlement agreement and general release. Each party will bear its own fees, costs and expenses.”

The offer lapsed and the case went to trial.  At the conclusion of the trial the jury returned a special verdict finding defendants negligent and setting plaintiff’s damages at $143,795.  Because the jury also found plaintiff 20% at fault, however, those damages reduced his net award to $115,036.

Following judgment, plaintiff and defendants each filed motions to tax costs. Defendants’ motion objected to every item on plaintiff’s cost bill.  Plaintiff’s motion objected to the validity of defendants’ 998 offer and requested defendants’ cost bill be stricken entirely.  The trial court granted defendants’ motion and denied plaintiff’s because, among other reasons, plaintiff “did not obtain a judgment more favorable than the C.C.P. 998 Offer to Compromise.”  Of course, Plaintiff appealed.

Ruling:

When a party prevails at trial but obtains a judgment less favorable than a pre-trial C.C.P.  998 settlement offer submitted by an opposing party, the prevailing party may not recover its own post-offer costs, and must pay the offering party’s post offer costs, potentially including expert witness costs. C.C.P.  998(c)(1).  While a C.C.P.  998 offer may include nonmonetary terms and conditions, to be valid, the offer must be unconditional – meaning it cannot be conditioned on terms not explicitly stated in the offer itself.

On appeal, plaintiff argued defendants’ C.C.P.  998 offer was invalid because it contained a provision that plaintiff enter into a “settlement agreement and general release” as a condition of acceptance.  Plaintiff argued the condition requiring he subsequently enter into a “settlement agreement” with unspecified terms deemed the offer invalid.

Defendants countered:

1) California case law allowed for conditional settlements/releases as part of a C.C.P.  998 offer; and

2) such language in C.C.P.  998 Offers were “standard in the automobile insurance defense context.”

The Court of Appeal was not convinced, distinguishing the case law defendants cited as only allowing conditional language in a C.C.P.  998 offer calling for “a mutual release of all claims” or “execution of a General Release.”  In the Court’s view, those terms specifically identify the terms of acceptance.  Adding the term settlement agreement, however, meant that to accept, plaintiff must also enter into a wholly separate agreement which could contain more than several terms not explicitly stated in the C.C.P.  998 offer.

The Court held defendants’ argument that its C.C.P.  998 offer terms were “a standard, insurance defense offer” did not carry weight.  In the Court’s view, “(m)aybe it is commom. Or standard. Maybe not. That does not make it valid.”  Accordingly, the Court held defendants’ C.C.P.  998 offer was not valid, thereby reversed the lower court’s ruling, and remanded the matter to grant plaintiff’s motion to tax defendants’ costs.

Tip:

When issuing a statutory Offer to Compromise, you must specify the terms of acceptance.  Conditions must be explicitly stated in the offer such that the acceptance is not interpreted as being conditioned on some unknown event or terms.  As this opinion makes too clear, because an offer will always be construed against the drafting party, even the inclusion of the seemly innocuous term “settlement agreement” could invalidate a C.C.P. 998 Offer to Compromise; a C.C.P.  998 Offer must always be full and complete in and of itself.

ABOUT THE AUTHOR: David P. Ramirez is Senior Counsel at TYSON & MENDES, LLP, and primarily represents clients in complex litigation, including construction defect, insurance law, property disputes, and product liability.  Mr. Ramirez was named as a “Top Lawyer” in San Diego for “Complex Litigation” in March 2016 by San Diego Magazine & “Top Lawyer in Southern California 2016” by the Los Angeles Times. Contact David at (858) 459-3365 or dramirez@tysonmendes.com.

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