Two recent California Appellate decisions interpreting the validity of Code of Civil Procedure section 998 Offers to Compromise review, rely, and are decided upon the controlling principles of contract interpretation with interesting results.

In Arriagarazo v. BMW of North America, LLC, plaintiff sustained personal injuries arising out of an automobile accident.ⁱ BMW made an Offer to Compromise of $15,000 pursuant to section 998 in exchange for “settlement of all claims and causes of action against [BMW]” and would “execute a general release of all claims and causes of action against [BMW], with each side to bear their own costs and attorney’s fees.”ⁱⁱ The offer was silent as to how the case was to be finally resolved, i.e., dismissal or entry of judgment.ⁱⁱⁱ

The plaintiff executed the Offer of Compromise and filed a Notice of Settlement indicating, as the judicial council form states, it would be dismissed 45 days after settlement.^iv BMW provided a proposed release which included a confidentiality provision. Plaintiff questioned the necessity of the settlement agreement since it was not part of the offer, and a judgment would be entered. Plaintiff later became amenable to execution of a release if it did not contain a confidentiality provision because the term was not contemplated. BMW provided another release, which included the confidentiality provision and indemnity clauses, and required dismissal of the action within five days of receipt of the settlement funds. The confidentiality provision was non-negotiable.^v

Plaintiff instead prepared and signed a release without the confidentiality or indemnity language but added that a judgment would be entered.^vi BMW acknowledged receipt and stated that it would send the check promptly once it received payee information. Plaintiff then sent a proposed stipulated judgment for the $15,000. Though BMW’s counsel refused to sign the stipulated judgment, the trial court entered it. Further disputes arose out of the entry of the stipulated judgment. Ultimately, BMW moved to vacate the judgment. The judgment was vacated. The trial court was reversed on appeal.^vii

The interpretation of Offers to Compromise is based upon basic contract law principles unless there is a conflict with the statute or applying such principles defeats its purpose.^viii The interpretation is based upon the mutual intent of the parties at the time the contract was formed.^ix The court will look to language and circumstances to assess the mutual intent of the parties.^x Any interpretation is to look to the document as a whole and to use ordinary meaning of the words unless given a special meaning or used in a technical sense.^xi The Offer to Compromise must be strictly construed against the drafter.^xii Most importantly, the court should not alter, rewrite, or add a term on which the contract is silent.^xiii

As is well-established, an Offer to Compromise can require the plaintiff to dismiss the action as a condition of the offer, instead of a judgment.^xiv Here, BMW was silent on if a judgment or dismissal would be entered. As the Offeror, BMW bears the “burden of assuring that the offer is drafter with sufficient precision to permit the recipient to meaningfully evaluate it and make a reasoned decision whether to accept.”^xv

The Arriagarazo Court had a formally accepted Offer of Compromise but was not inclined to modify, alter or add any terms. Since Code of Civil Procedure section 998 contemplates entry of judgment and BMW failed to specify any deviation as to the outcome (dismissal or judgment), the trial court abused its discretion because it modified the terms.

The second case, Khosravan v. Chevron Corporation is a personal injury asbestos case.^xvi Plaintiffs, husband and wife, alleged negligence, premise liability, and loss of consortium, claiming Mr. Khosravan contracted mesothelioma while he was an Iranian citizen working for the National Iranian Oil Company (NOIC).^xvii Plaintiff alleged that NOIC was controlled by the Abadan refinery, an alleged predecessor to Chevron. Chevron claimed it owed no duty and served plaintiffs with an Offer to Compromise, seeking a mutual waiver of costs in exchange for dismissal of all claims, release of all future claims based on the allegations in the complaint (including wrongful death) and “indemnity in the event such claims are filed by non-parties to this case.”^xviii If not accepted in 30 days, the offer would be withdrawn Plaintiffs did not accept the offer.

Chevron proceeded to file a motion for summary judgment on the grounds that it had no duty.^xix The motion was granted because the plaintiffs had not raised a triable issue of fact as to whether Chevron’s predecessors exercised control over the Iranian oil facilities where Khosravan worked. Judgment was granted and was dispositive of the case.^xx

Plaintiff appealed a post-judgment order denying her motion to strike or tax costs with respect to the expert witness fees incurred by Chevron.^xxi The trial court awarded Chevron their expert witness fees as costs based on plaintiffs’ failure to accept the Offer to Compromise. The plaintiffs filed a motion to strike and tax costs which was denied. Plaintiffs filed this appeal. ^xxii

The issue raised on appeal was whether the requirement of indemnity, a non-monetary term, invalidated the Offer of Compromise.^xxiii A non-monetary term, in and of itself, does not render an Offer of Compromise invalid. However, such non-monetary terms or conditions must be sufficiently certain and capable of valuation, at the time of the offer, to allow the Court to determine whether the judgment is more favorable than the offer.^xxiv The Court, when faced with an Offer of Compromise which contains terms that are “exceedingly difficult or impossible to determine the value of the offer,” should not undertake significant efforts to determine if the judgment exceeded the value of the offer.^xxv Once the offeror shows that the Offer of Compromise is valid, the burden shifts to the offeree to show the offer was not made in good faith.^xxvi

Plaintiffs argued that the Offer of Compromise was not valid because the indemnity provision was not capable of valuation.^xxvii Plaintiffs further argued that the judgment was not more favorable than the Offer to Compromise because the requirement to indemnify should have been given a negative value. Chevron argued that the offer could be valued because regardless of who brought the future claims, those claims would be equally meritless.^xxviii

The Khosravan court points out that an Offer of Compromise that requires the Offeree to release all claims based on the allegations of the complaint does not, by itself, invalidate the offer. However, valuation “when the condition mandates surrender of an array of potential lawsuits against not only the defendant but … other parties the task becomes impossible.”^xxix

The Khosravan court thought the indemnity provision had value. Chevron would not have included it, had they thought it did not have value. Even if meritless claims were subsequently filed, the plaintiffs would still be liable for the costs of defending Chevron for these new claims. However, it was not capable of valuation.

The Khosravan court held Chevron failed to show the Judgment was more favorable than the Offer of Compromise because the value of the indemnity provision was speculative.^xxx

These decisions may give us pause to be more specific in our Offer of Compromise, ensuring we identify all critical terms. It may be helpful to attach the release to Offer of Compromise. One must ensure the terms are capable of valuation at the time the offer is made.

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