By Don Willenburg & Tyler Paetkau
Don Willenburg is a partner in the San Francisco office of Gordon Rees.
Tyler Paetkau co-chairs Procopio's Labor and Employment Practice Team.
A Code of Civil Procedure section 998 offer can be a powerful tool. If the other side does not accept and fails to obtain "a more favorable judgment," then the non-accepting party becomes liable for the offeror's costs, which may include expert fees.
Section 998 involves multiple policies. Judicial decisions applying section 998 sometimes emphasize concerns particular to the statute, sometimes the strong policy favoring settlements, and sometimes straightforward contractual interpretation. Three recent cases illustrate these policies.
Comparing the value of the judgment to that of the offer can be less straightforward than one might think. In one recent case, Khosravan v. Chevron (2d Dist., Div. 7, 2021) 66 Cal.App.5th 288, even a defense judgment was not enough to shift costs, because the defendant's offer contained terms with uncertain and potentially high monetary value.
Chevron won summary judgment, and then sought costs including payment of expert witness fees under section 998. The trial court awarded fees based on Chevron's facially-reasonable argument that plaintiffs failed to obtain a more favorable judgment than the offer. Chevron's offer was for a waiver of costs plus a "release of all future claims based on the allegations in the complaint, including, but not limited to, claims for wrongful death, and indemnity in the event such claims are filed by non-parties to this case." (Khosravan, at p. 292.)
The Court of Appeal reversed. The indemnity had such an indeterminate and potentially large value that the court could not conclude that the judgment — under which plaintiffs took nothing and were liable for costs — was less favorable than the offer.
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Chevron lost the benefit of section 998 not because of the release, but because of the indemnity provision. "A valid section 998 offer may include terms requiring the release of all claims (by parties or nonparties) arising from the injury at issue in the lawsuit. [Citations omitted.] Thus, the inclusion of terms in the Chevron defendants' settlement offers requiring the Khosravans to release all claims based on the allegations of the complaint does not by itself invalidate the section 998 offers. But the offers' inclusion of a requirement that the Khosravans indemnify the Chevron...
