California law provides parties with the opportunity to make a settlement offer without fear of incurring additional fees and costs if the case goes to trial and a less favorable judgment is awarded. That opportunity is found in Code of Civil Procedure section 998. While 998 offers are common in litigation, different issues periodically arise that require judicial review. Two recent appellate decisions provide insight into how to ensure the court will uphold your 998 offer, while also reminding us that 998 offers have very specific requirements to be valid.
Make sure your offer has a valid acceptance provision
In Mostafavi Law Group, APC v. Larry Rabineau, APC, the Court of Appeal considered whether a 998 offer that was accepted could be upheld if the offer did not include a provision indicating how to accept the offer. 61 Cal.App.5th 614, 2021. Defendant made a 998 settlement offer to Plaintiff, but the offer did not include a provision indicating how to accept the offer, as section 998 requires. Id. at 619. Despite this error, counsel for Plaintiff wrote on the 998 offer that Plaintiff accepted the offer. Id. Defendant then filed a notice with the court as to the offer’s acceptance, and a copy of the accepted offer. Id. Defendant then stated that he would send Plaintiff a copy of a settlement agreement for signature. Id.
After the trial court entered judgment in favor of Plaintiff, the parties disagreed as to whether they were required to sign a settlement agreement, in addition to the 998 offer, before Defendant remitted payment to Plaintiff. Id. at 619-620. Defendant subsequently moved to set aside the judgment as invalid because his own 998 offer lacked an acceptance provision. Id. at 620.
The Court of Appeals found that because the offer lacked an acceptance provision, the offer failed to comply with section 998, and thus, was invalid and could not be enforced. Id. at 623. Basing its decision on court precedent, the Court held that “acceptance of an offer that fails to comply with all of section 998’s requirements does not result in a valid judgment.” Id. The Court then held that requiring adherence to such a “bright-line rule will eliminate confusion and uncertainty and encourage settlement” before upholding the trial court decision invaliding the offer. Id.
Make sure your offer is specific enough for valuation
In Khosravan v. Chevron Corporation, the Court of Appeal determined that indemnity clauses must be specific enough to allow for accurate valuation. 2021 WL 2797742 at 6. Chevron had made a 998 offer to Plaintiffs for waiver of costs and a release of all future claims related to the complaint, including claims by non-parties, and an indemnity provision if non-parties filed future claims. Id. at 2. Plaintiffs did not accept the settlement offer. Id. Chevron then filed a motion for summary judgment, which was granted, and were awarded trial costs, including expert witness fees. Id.
Plaintiffs appealed, arguing that the 998 offer was not specific enough to allow them to evaluate the worth of the offer, as required by CCP section 998. Id. at 2. Chevron argued that the value of the release could be determined, but even so, the release had little actual value, and therefore, post-motion costs were appropriately awarded. Id. at 4.
The Court recognized that releases are commonly part of a 998 offer. Id. at 4. However, there is a difference between one’s own claims and an indemnity release, the latter of which would require Plaintiffs to evaluate a series of contingencies for “possible future claims of unidentified parties.” Id. at 5. Furthermore, in this matter, valuation could have exceeded the costs owed. Id at 6. Relying on precedent, the Court then held that “a term in a settlement offer requiring a plaintiff to indemnify a defendant against third party claims defies accurate valuation.” Id. at 6. The Court then reversed the trail court order as to costs and remanded the case to the trial court for recalculation of the award of costs. Id. at 7.
Necessary offer terms to include
When considering what terms you desire to include in your 998 offer, we recommend that you keep in mind that the following terms must be included to maximize the chances that your offer will be upheld in court:
- Be in writing (998(b))
- Contain clear and unambiguous terms and conditions, which must be specific enough for evaluation (998(b); Berg v. Darden ((2004) 120 Cal.App.4th 721.)
- Include a provision on how to accept the offer by signing a statement accepting the offer (998(b))
- Be made at least 10 days prior to trial or arbitration (998(b))
- Include a provision that the plaintiff will dismiss the matter with prejudice (On-Line Power, Inc. v. Mazur (2007) 149 Cal.App.4th 1079.)
- If accepted, the other and proof of acceptance must be filed with the clerk and judgment entered accordingly (CCP 998(b)(1))
- Explicitly reference section 998 to ensure enforcement (Stell v. Jay Hales Develop. Co. (1992) 11 Cal.App.4th 1214.)
- Served the offer on each plaintiff or their counsel individually unless there is a unity of interest as to the issues at hand (Peterson v. John Crane, Inc. (2007) 154 Cal.App.4th 498.)
We also recommend you consider including the following terms in your offer:
- A general release of all related claims
- A confidentiality clause as to whether the judgment will become public
- Whether the offer covers all claims, or only some (Arno v. Helinet Corp. (2005) 130 Cal.App.4th 1020)
- Whether the offer is made to all adverse parties, or only some (Arno v. Helinet Corp. (2005) 130 Cal.App.4th 1020)
- Whether settlement will be by lump sum or periodic payments
- Whether the settlement will cover attorney’s fees and costs, or that will be decided by motion with the court as to who the “prevailing party” is
- A judgment entered pursuant to section 998 prevents findings of wrongful misconduct by Defendant and the case may not be reopened to obtain such findings.
- Whether the offer may include non-monetary terms (i.e. changes to employment policies)
- Whether a waiver of claims in exchange for dismissal is appropriate
- Whether you desire to present a joint offer when there is a co-defendant
- If judgment is entered in favor of Defendant, Defendant is the prevailing party and entitled to court costs (CCP 1032(a)(4); (b).