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WSHB Case Update – Multiple 998 Offers To Compromise: California Supreme Court Holds A Second 998 Offer Does Not Extinguish An Earlier Lapsed Offer For Purposes Of When The Cost-Shifting Benefits Vest

June 19, 2013

Martinez v. Brownco Const. Co. Inc.
(Cal., June 10, 2013, No. S200944) 2013 WL 2460567

 

HOLDING

This case sets the precedent that when a plaintiff has made two unaccepted and unrevoked statutory 998 offers to compromise, and the defendant fails to obtain a judgment more favorable than either offer, the trial court retains discretion to order payment of costs incurred from the earliest date of the 998 offers.

FACTS

Plaintiff Raymond Martinez was injured in an electrical explosion at work. He and his wife sued Brownco Construction Company, Inc. for negligence and loss of consortium.

On August 30, 2007, Mr. Martinez served Brownco with a statutory offer to compromise pursuant to section 998 in the amount of $4,750,000.00. Mrs. Martinez also served a statutory offer to compromise pursuant to section 998 for $250,000.00. Brownco neither accepted nor rejected the offers, and they were withdrawn since the statutory 30-day period had passed.

On February 8, 2010, Mr. Martinez served Brownco with a second statutory offer to compromise for $1,500,000.00. Mrs. Martinez also served a second statutory offer to compromise for $100,000.00. Brownco again took no action on either of these offers, and they were withdrawn by operation of law when the trial began on February 18, 2010.

Following trial, the jury rendered a verdict in favor of Mr. and Mrs. Martinez. Judgment was entered awarding Mr. Martinez $1,646,674.00 for his negligence claim and Mrs. Martinez $250,000.00 for her loss of consortium claim. As such, Brownco did not receive a more favorable judgment under section 998 because the damages award to Mrs. Martinez was more than her second 998 offer and equal to her first 998 offer. Plaintiffs then sought $561,257.14 in itemized costs including $188,536.86 in expert fees incurred between the time the first and second 998 offers were made and $64,555.45 in expert fees incurred after the second 998 offer. Taking the position that her second 998 offer nullified her first, Brownco argued that Mrs. Martinez was not entitled to recovery of the $188,536.86 in expert fees incurred after her first 998 offer but before her second offer.

The California Supreme Court agreed with the Court of Appeal that denying litigants the benefit of earlier offers would actually discourage settlement. The Court noted that if a party knows that making a subsequent offer to compromise will extinguish the benefits potentially gained from the first offer, then that party will not be incentivized to attempt settlement at a later point in the case. In order to promote the goals of section 998 which is to encourage settlements, the Court ruled that a second offer to compromise does not impact a party’s entitlement to costs incurred after a first offer is made.

WHY IS THIS CASE IMPORTANT?

This case offers important strategic lessons for those who litigate in California state courts. Section 998 offers to compromise differ from its federal counterpart in that it allows “any party,” not just the defendant, to invoke the rule. It is a tool either litigant can utilize as leverage to settle cases since the other party can run the risk of paying post-offer costs or foregoing recovery of their costs.

The traditional rule, applying the principles of contract law, is that a subsequent 998 settlement offer effectively revokes the first. Prior to Martinez, attorneys may have reasonably believed that costs and fees could only shift from the date of the last 998 offer. That belief made it easier for clients to reject such second offers. Additionally, it stopped many attorneys from making a second offer. After Martinez, attorneys should expect to start seeing more second 998 offers and will need to advise their clients of the significant risks of rejecting these offers.

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