In California, the parties to a lawsuit are always encouraged to consider a pretrial settlement in an effort to avoid the time and expense of trial, and a number of tools exist to bring litigants to the bargaining table.  One such tool is codified under California Code of Civil Procedure Section 998 (“CCP § 998”), also known as a “998 offer.”

A litigant may be penalized for refusing to accept a reasonable pretrial settlement offer.  CCP § 998 is a cost-shifting statute intended to avoid the time delays and economic waste associated with trials and to reduce the number of meritless lawsuits.  Although the statutory offer to compromise has been around since 1872, courts, attorneys, and litigants continue to challenge the scope and application of pretrial offers made pursuant to this section.

Fundamentals Of CCP § 998 

Under CCP § 998, plaintiffs and defendants alike may be penalized for refusing a reasonable pretrial settlement offer if the refusing party subsequently fails to obtain a more favorable judgment or award.  The penalty?  A plaintiff will be precluded from recovering his or her own post-offer costs, will be required to pay the defendant’s post-offer costs, and may also be ordered to pay a portion of the defendant’s expert witness fees.  Similarly, a defendant who refuses a reasonable 998 offer and later suffers a verdict or judgment greater than the value of the offer may be required to cover the plaintiff’s post-offer expert witness fees and costs.

In practice, CCP § 998 is a complex statute which is complicated even further in cases involving multiple plaintiffs and/or defendants.  For instance, what happens when multiple defendants make a joint pretrial 998 offer and then judgment is entered in favor of only some defendants?  Can the prevailing defendants recover expert witness fees pursuant to CCP § 998 while the case is still pending against the other defendants?

The Second District Court of Appeal recently addressed these questions in Kahn v. The Dewey Group (2015) (“Kahn”).  In Kahn, the plaintiff sued 20 defendants, alleging joint and several liability for personal injuries.  Prior to trial, the 20 defendants made a joint 998 offer to settle for $75,000, which plaintiff declined to accept.  Subsequently, a nonsuit was granted as to 14 of the defendants, and judgment was entered in their favor.  The dismissed defendants then sought to recover costs pursuant to CCP § 998, including post-offer expert witness fees, even though the action was still pending against the remaining 6 defendants.  The trial court awarded the fees to the 14 defendants, but the ruling was reversed on appeal.

In its discussion, Kahn addressed two major approaches to joint offers and multiple judgments: The “absolute prevailing party” approach and the “comparison” approach.  Under the “absolute prevailing party” approach, a defendant who joins in a 998 offer which is rejected and is later determined to be an absolute prevailing party (i.e., completely absolved of any liability), may be awarded costs, even if the litigation is pending as to the defendant’s co-offerors. Alternatively, the “comparison” approach turns on whether and when it can be determined if a judgment or award is more or less favorable when compared to the 998 offer.

The Kahn court ultimately adopted the “comparison” approach, reasoning that it was more consistent with the statutory purpose of encouraging reasonable settlements and avoiding gamesmanship.  Thus, in evaluating whether a verdict or judgment is more or less favorable than a joint 998 offer, is between (a) the offer made by the group of defendants, and (b) the recovery obtained against that same group of defendants.  Where multiple defendants make a joint offer, the offer must be compared to the judgment (or judgments) obtained against all defendants.  Kahn, therefore, concluded that the trial court’s award of expert witness fees was premature.

The Math Of Kahn 

In evaluating the reasonableness of an offer from multiple defendants, a plaintiff must assess the chances of recovery on each of his claims (regardless of which defendants are liable) and add them together.  If the joint offer exceeds that amount, the plaintiff should accept it.  However, it is not only plaintiffs who should be making calculations.  Kahn noted that the defendant(s) who believed the plaintiff did not have a colorable claim against them should have made a separate 998 offer, but because the joint settlement offer was made by all 20 defendants, each had to wait for the final judgment as to the same 20 defendants before seeking expert witness fees.

Accordingly, all parties to a joint 998 offer should also consider whether to serve an independent settlement offer.  Otherwise, the ability to obtain expert witness fees pursuant to CCP § 998 may be contingent upon the final judgment as to each and every co-offeror.