CCP Section 998 Offers: Plaintiff, Who Won Judicially-Ordered Arbitration But Failed To Obtain A Jury Verdict Exceeding 998 Offer, Properly Assessed Costs

First District, Division Five Provides a Nice Review of CCP 998 Principles in Affirming Trial Court Award of Costs to Defendant After Plaintiff Failed to Beat 998 Offer at Trial.

            At some point, most litigators will (or should) become aware of Code of Civil Procedure section 998, a provision that allows a party to serve an offer of judgment within certain time periods with potentially adverse consequence for the other side-- the opponent failing to accept the offer will have to pay costs from time of the offer (including expert witness fees, which are not usually recoverable as routine costs).  Section 998 is a potent cost-shifting arrow in the litigation quiver for either the plaintiff or defense.  The next case we review has a nice summary of the principles governing assessment of whether a 998 offer is made in good faith and realistically reasonable under the circumstances, which is the guiding standard.  (See Westamerica Bank v. MBG Industries, Inc., 158 Cal.App.4^th 109, 129-130 (2007); Arno v. Helinet Corp., 130 Cal.App.4^th 1019, 1024 (2005).)

            Pettway v. Ross, Case No. A119551 (1^st Dist., Div. 5 Sept. 5, 2008) (unpublished) involved the following facts.  Plaintiff sued defendant for a minor vehicle collision by which plaintiff claimed to have sustained soft tissue injuries and depression.  Throughout the litigation, the defense denied there was any connection between the claimed injuries and the low-impact accident.  After a nonbinding judicial arbitration (frequently ordered in cases under $50,000, see Code of Civil Procedure section 1141.11), plaintiff was awarded $7,575.10 and costs of suit.  Defendant requested a trial de novo.  After a jury trial where plaintiff’s psychotherapist conceded that the accident never came up in any therapy sessions and that the depression arose from non-accident issues, plaintiff only garnered a verdict of $257.  Three months earlier, at a time point after the rejected judicial arbitration award, defendant had sent plaintiff a 998 offer in the amount of $1,501, an offer that expired without acceptance.  (Under section 998, the offer lapses within 30 days of the offer or before trial, depending on when it is served.)  Defendant filed a costs memorandum for over $21,000 (principally composed of expert witness fees), which was entered as a judgment in defendant’s favor by the trial judge.

            The First District, Division Five—in a 3-0 unpublished opinion authored by Justice Needham—rebuffed plaintiff’s challenge to the cost judgment (except to remand for an arithmetic error recalculation). 

            The appellate panel did a nice review of 998 principles, which can be summarized like this:

• Reasonableness of a 998 offer is determined by looking at the circumstances at the time the offer was made (Elrod v. Oregon Cummins Diesel, Inc., 195 Cal.App.3d 692, 699 (1987));
• The deferential abuse of discretion standard is applied in reviewing a lower court’s determination about the good faith of the 998 offer (Arno, supra, 130 Cal.App.4^th at 1025);
• A jury verdict that exceeds a 998 offer constitutes a prima facie showing of reasonableness, with the burden imposed on the rejecting party to show that the 998 offer was not reasonable (Jones v. Dumrichob, 63 Cal.App.4^th 1258, 1264 (1998)); and
• To gauge whether a 998 offer was reasonable at the time it was made, two factors are primarily considered:  (1) whether the offer reflected the defendant’s reasonable prediction, in light of known information, of what the plaintiff might be awarded at trial; and (2) whether the plaintiff knew or should have known the information known to the defendant (Elrod, supra, 195 Cal.App.3d at pp. 695-698).

Because the collision was minor, injuries were minor, and depression causality happened to be contested throughout by defendant, plaintiff should have known that the jury might come down with a verdict less than the 998 offer.  Although plaintiff may have been buoyed by the earlier, high nonbinding arbitration award, that result did not erase the fact that there would be a trial de novo where a jury might award considerably less. 

      BLOG OBSERVATION #1—This case illustrates the importance of burden principles in 998 contests.  Once a defendant wins in a way that makes the 998 offer prevailing in nature, the burden is on plaintiff to rebut the presumption of reasonableness/good faith.  That can be an imposing burden.  The only time this task is made easier is where walkaway or $1.00 offers are made in cases that do present exposure to the defense. 

      BLOG OBSERVATION #2—Elrod, a Third District decision, was relied on extensively in Pettway.  Elrod itself was the subject of divergent application by the Third District in its recently published decision in Barba v. Perez (discussed in our September 1, 2008 post), where 998 reasonableness principles were applied to an “early bird” 998 offer served concurrently with plaintiff’s summons and complaint and before formal discovery could be undertaken by the defense.  Barba was a 2-1 decision, drawing sharp differences between the majority and dissenting justices on how to gauge reasonableness in the “early bird” context.