Martinez v. Brownco Constr. Co.
IN THE SUPREME COURT OF CALIFORNIA
RAYMOND MARTINEZ et al.,
Plaintiffs and Respondents,
Ct.App. 2/1 B226665
Los Angeles County
Defendant and Appellant.
Super. Ct. No. KC050128
Section 998 of the Code of Civil Procedure1 was enacted to encourage the
settlement of lawsuits prior to trial. The statute accomplishes this purpose by
providing for augmentation and withholding of the costs recoverable at trial when
a party fails to achieve a result better than it could have obtained by accepting an
offer of compromise or settlement conforming to statutory requirements. Among
other things, section 998 provides that a defendant may be ordered to pay a
reasonable sum to cover the plaintiff‟s postoffer costs of expert witness services
when the judgment is not more favorable than the plaintiff‟s settlement offer.
(§ 998, subd. (d).)
The terms of section 998 do not prohibit a party from making more than
one settlement offer, but they are silent as to the effect of a party‟s multiple offers.
All further statutory references are to this code, unless otherwise indicated.
In this action, we consider whether a later offer extinguishes a previous offer for
purposes of section 998‟s cost-shifting provisions. We conclude that where, as
here, a plaintiff makes two successive statutory offers, and the defendant fails to
obtain a judgment more favorable than either offer, allowing recovery of expert
fees incurred from the date of the first offer is consistent with section 998‟s
language and best promotes the statutory purpose to encourage settlements.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs Raymond Martinez and his wife, Gloria Martinez, sued defendant
Brownco Construction Company, Inc. (Brownco) for damages arising out of an
electrical explosion that severely injured Mr. Martinez.
Prior to trial, plaintiffs each served on Brownco two settlement offers
pursuant to section 998. In August 2007, Mr. Martinez offered to compromise his
negligence claim in the amount of $4.75 million, and Mrs. Martinez offered to
compromise her loss of consortium claim for $250,000. Brownco neither accepted
nor rejected these offers within the statutory 30-day period. (§ 998, subd. (b)(2).)
Just before trial, in February 2010, Mr. Martinez and Mrs. Martinez served
reduced compromise offers of $1.5 million and $100,000, respectively. As before,
Brownco took no action.
At trial, Mr. Martinez obtained a judgment of $1,646,674, and Mrs.
Martinez obtained a $250,000 judgment. Plaintiffs filed a memorandum of costs
seeking a total of $561,257.14 in itemized costs. Brownco moved to tax costs, and
as pertinent here sought an order disallowing Mrs. Martinez‟s recovery of
$188,536.86 in expert fees incurred after her first settlement offer but before her
second offer. The trial court sided with Brownco and entered an order taxing the
disputed expert fees.2 Relying on Wilson v. Wal-Mart Stores, Inc. (1999)
72 Cal.App.4th 382 (Wilson), the court stated: “The most recently rejected offer is
the only pertinent offer. All prior offers are extinguished by the subsequent offer.”
The Court of Appeal reversed, reasoning that allowance of expert fees
incurred from the date of the first rejected offer is consistent with section 998‟s
language and purpose, and that contract principles do not compel otherwise.
We granted Brownco‟s petition for review.
The question presented is this: When a plaintiff serves two unaccepted
offers to compromise pursuant to section 998, and the defendant fails to obtain a
judgment more favorable than either offer, does the plaintiff‟s last offer extinguish
the first offer for purposes of expert fee recovery under section 998? Because this
issue involves the application of law to undisputed facts, we review the matter de
novo. (Saakyan v. Modern Auto, Inc. (2002) 103 Cal.App.4th 383, 390.)
A. Section 998 and the Principles Governing Its Application
As a general matter, a party prevailing at trial may not recover the fees of
experts who are not ordered by the court. (§§ 1032, 1033.5, subd. (b)(1).) Such
fees are recoverable, however, when a judgment following the nonacceptance of a
pretrial settlement offer triggers operation of section 998. As relevant here,
section 998 provides: “(a) The costs allowed under Sections 1031 and 1032 shall
be withheld or augmented as provided in this section. [¶] . . . . [¶] (d) If an offer
made by a plaintiff is not accepted and the defendant fails to obtain a more
favorable judgment or award in any action or proceeding . . . , the court or
The portion of the trial court‟s order awarding plaintiffs the expert witness
fees they incurred after their second offers is not in dispute here.
arbitrator, in its discretion, may require the defendant to pay a reasonable sum to
cover postoffer costs of the services of expert witnesses, who are not regular
employees of any party, actually incurred and reasonably necessary in either, or
both, preparation for trial or arbitration, or during trial or arbitration, of the case by
the plaintiff, in addition to plaintiff‟s costs.”3 To qualify for these augmented
costs, the plaintiff‟s offer must be in writing and conform to statutory content
requirements. (§ 998, subd. (b).) “If the offer is not accepted prior to trial or
arbitration or within 30 days after it is made, whichever occurs first, it shall be
deemed withdrawn . . . .” (§ 998, subd. (b)(2).)
The policy behind section 998 is “to encourage the settlement of lawsuits
prior to trial.” (T.M. Cobb Co. v. Superior Court (1984) 36 Cal.3d 273, 280 (T.M.
Cobb); see Poster v. Southern Cal. Rapid Transit Dist. (1990) 52 Cal.3d 266, 270
(Poster).) To effectuate this policy, section 998 provides “a strong financial
disincentive to a party — whether it be a plaintiff or a defendant — who fails to
achieve a better result than that party could have achieved by accepting his or her
opponent‟s settlement offer.” (Bank of San Pedro v. Superior Court (1992) 3
Cal.4th 797, 804.) At the same time, the potential for statutory recovery of expert
With regard to defense settlement offers, section 998, subdivision (c)(1),
provides: “If an offer made by a defendant is not accepted and the plaintiff fails to
obtain a more favorable judgment or award, the plaintiff shall not recover his or
her postoffer costs and shall pay the defendant‟s costs from the time of the offer.
In addition, . . . the court or arbitrator, in its discretion, may require the plaintiff to
pay a reasonable sum to cover costs of the services of expert witnesses, who are
not regular employees of any party, actually incurred and reasonably necessary in
either, or both, preparation for trial or arbitration, or during trial or arbitration, of
the case by the defendant.” Unlike subdivision (d) of section 998, this provision
allows recovery of expert witness fees incurred before and after a settlement offer.
(Regency Outdoor Advertising, Inc. v. City of Los Angeles (2006) 39 Cal.4th 507,
witness fees and other costs provides parties “a financial incentive to make
reasonable settlement offers.” (Ibid.) Section 998 aims to avoid the time delays
and economic waste associated with trials and to reduce the number of meritless
lawsuits. (Culbertson v. R.D. Werner Co., Inc. (1987) 190 Cal.App.3d 704, 711;
see Wilson, supra, 72 Cal.App.4th at p. 390.)
As indicated, section 998 provides that a plaintiff may recover postoffer
costs of expert witness services if: (1) the plaintiff makes an offer to compromise
that conforms to the statutory time and content requirements; (2) the defendant
does not accept the offer; and (3) the defendant does not obtain a more favorable
result in the action. Nothing in the wording of section 998 prevents a plaintiff
from making more than one compromise offer, but the statute makes no mention
as to the effect of a later offer on an earlier offer.
When the language of section 998 does not provide a definitive answer for
a particular application of its terms, courts may consult and apply general contract
law principles. Because the process of settlement and compromise is a contractual
one, such principles may, in appropriate circumstances, govern the offer and
acceptance process under section 998. (See T.M. Cobb, supra, 36 Cal.3d at
p. 280.) A general contract law principle may be found controlling if the policy of
encouraging settlements is “best promoted” thereby. (Id. at p. 281.)
For example, under general contract law, an offer may be revoked any time
before acceptance. (Civ. Code, § 1586.) In T.M. Cobb, supra, 36 Cal.3d 273, we
invoked that basic principle in concluding that a section 998 offer is revocable
prior to its acceptance or statutory expiration. (T.M. Cobb, at pp. 283-384.) As
we explained, a party is more likely to make a statutory offer to compromise in the
first instance if it knows the offer may be withdrawn and revised should
circumstances change or new evidence be developed. (Id. at p. 281.) Because
“more offers will be made if revocation is permitted,” and because “[t]he more
offers that are made, the more likely the chance for settlement,” we concluded that
applying the basic principle of revocability better serves the policy of encouraging
settlements than a rule of irrevocability. (Ibid.)
Of course, a contract law principle will not be found to govern if its
application would conflict with section 998 or defeat its purpose. (T.M. Cobb,
supra, 36 Cal.3d at p. 280; see Poster, supra, 52 Cal.3d at p. 271.) For instance,
under general contract law, a counteroffer that deviates from the terms of an offer
ordinarily operates as a rejection of the offer so as to terminate the offer
immediately. (See generally 14 Cal.Jur.3d (2008) Contracts, § 76, p. 302.) In
finding this principle inapplicable in the section 998 context, Poster observed that
negotiations involving the making of counteroffers are a normal and routine
occurrence during the statutory 30-day period and “ought not to affect the right of
the offeree to ultimately accept the statutory offer in a timely fashion.” (Poster, at
p. 271.) Because the general counteroffer rule would tend to stifle negotiations
and discourage settlement, Poster concluded that, even after extending a
counteroffer, an offeree may accept a statutory offer any time before its revocation
or expiration. (Id. at pp. 271-272.)
Another relevant consideration is whether applying section 998 in a
particular manner serves the public policy of compensating the injured party.
Courts look favorably upon applications that provide flexibility when parties
discover new evidence bearing on the plaintiff‟s injuries or the defendant‟s
culpability. (E.g., T.M. Cobb, 36 Cal.3d at p. 282 [revocability of section 998
offers allows the offeror to “either propose a new offer in light of the newly
discovered evidence or proceed to trial and present all the evidence in an attempt
to be compensated fairly by the trier of fact‟s decision”].)
Finally, a court should assess whether the particular application injects
uncertainty into the section 998 process. If a proposed rule would encourage
gamesmanship or spawn disputes over the operation of section 998, rejection of
the rule is appropriate. (See Poster, supra, 52 Cal.3d at p. 272; Westamerica Bank
v. MBG Industries, Inc. (2007) 158 Cal.App.4th 109, 129.) In Poster, for
example, we emphasized the difficulty of discerning between a mere inquiry as to
the possibility of different terms (which would leave an offeree free to accept an
outstanding section 998 offer) and a true counteroffer (which would operate as a
rejection of the statutory offer and prevent its later acceptance). (Poster, at p.
272.) To promote clarity over the status of a section 998 offer, Poster concluded
the general counteroffer rule is inapplicable in the section 998 context. (Poster, at
p. 272.) In other instances, courts have adopted bright line rules in order to avoid
confusion. (E.g., Perez v. Torres (2012) 206 Cal.App.4th 418, 425-426 [confusion
regarding cost determinations avoided by bright line rule invalidating any section
998 offer when it omits a statutorily required provision]; One Star, Inc. v. STAAR
Surgical Co. (2009) 179 Cal.App.4th 1082, 1094-1095 [legislative purpose better
served and gamesmanship avoided by bright line rule that if party withdraws
second section 998 offer prior to its statutory expiration, then withdrawing party‟s
right to cost shifting is determined by previously rejected statutory offer]; Engle v.
Copenbarger & Copenbarger, LLP (2007) 157 Cal.App.4th 165, 169 [adhering to
bright line rule that a section 998 offer excludes attorney fees only if it says so
B. The Last Offer Rule
The parties focus primarily on two Court of Appeal decisions that
addressed the effect of a second statutory offer on a first statutory offer: Distefano
v. Hall (1968) 263 Cal.App.2d 380 (Distefano) and Wilson, supra, 72 Cal.App.4th
Distefano, supra, 263 Cal.App.2d 380, involved two defense offers to
compromise under former section 997, the predecessor to section 998.4 There, the
defendants first made a $20,000 statutory offer, which was not accepted. At trial,
the plaintiff obtained an award of $28,500, which was reversed on appeal. The
defendants thereafter made a $10,000 statutory offer, which also was not accepted.
The plaintiff obtained an award of $12,559.96 at the retrial and was allowed costs.
(Distefano, at pp. 383-384.) On appeal, the defendants challenged the cost award
and further contended the plaintiff should pay their costs because he refused to
accept their first offer of $20,000, which was more favorable to the plaintiff than
the result at the retrial. (Id. at p. 384.)
The Distefano court affirmed, emphasizing the contractual nature of the
statutory settlement and compromise process and the general contract rule that
“any new offer communicated prior to a valid acceptance of a previous offer,
extinguishes and replaces the prior one.” (Distefano, supra, 263 Cal.App.2d at
p. 385.) Discerning a legislative intent to give “full effect to the parties‟
reappraisals of the merits” of their cases, Distefano concluded that parties should
be encouraged to make and consider multiple settlement offers and that the policy
in favor of settlements would be promoted by a rule that a later statutory offer
extinguishes a previous statutory offer for purposes of cost shifting. (Ibid.) Thus,
In T.M. Cobb, supra, 36 Cal.3d 372, we observed that former section 997
“provided for statutory offers of compromise by defendants only. Such offers
were deemed to be withdrawn if they were not accepted within five days. This
five-day period was later extended to a ten-day period. (Stats. 1969, ch. 277, § 1,
p. 626.) Section 998 was enacted in 1971. (Stats. 1971, ch. 1679, § 3, pp. 3605-
3606.) It expanded former section 997‟s coverage to include statutory offers of
compromise by plaintiffs as well as defendants. Under section 998, such offers
are now deemed withdrawn if not accepted within 30 days. The theory and
purpose of the statute remained the same. [Citations.]” (T.M. Cobb, at p. 279, fn.
because the plaintiff ultimately obtained a verdict more favorable than the
defendants‟ last offer, he was not required to pay the defendants‟ costs. (Ibid.)
T.M. Cobb, supra, 36 Cal.3d 273, did not address the effect of multiple
offers under section 998. Significantly, however, the decision approved of
Distefano‟s reasoning that, because section 998 involves the contractual process of
settlement and compromise, general contract law principles may properly govern
the statutory offer and acceptance process so long as they “neither conflict with
the statute nor defeat its purpose.” (T.M. Cobb, at p. 280.)
In Wilson, supra, 72 Cal.App.4th 382, a plaintiff made two section 998
offers to compromise. The first offer was for $150,000, and the second was for
$249,000. The defendant failed to respond to either offer, and each was statutorily
deemed withdrawn. The jury awarded a verdict of $175,000 in the plaintiff‟s
favor. (Wilson, at p. 387.) The trial court granted the defendant‟s motion to tax
the expert witness fees upon finding the plaintiff‟s last offer of $249,000
“ „superseded and extinguished‟ ” her first offer of $150,000. (Id. at p. 388.)
The Wilson court affirmed. After noting section 998‟s silence on whether a
subsequent statutory offer extinguishes a prior one, Wilson relied on T.M. Cobb,
supra, 36 Cal.3d 273, and Distefano, supra, 263 Cal.App.2d 380, to conclude the
plaintiff‟s second offer extinguished her first offer. (Wilson, supra, 72
Cal.App.4th at pp. 389-390.) Specifically, Wilson agreed with Distefano that, in
fairness, parties must be allowed to “review their respective positions” as more
information is discovered and to “consider how the law applies before they are
asked to make a decision that, if made incorrectly, could add significantly to their
costs of trial.” (Wilson, at p. 390.) Although Wilson acknowledged that
“settlements achieved earlier rather than later are beneficial to the parties and thus
to be encouraged” (ibid.), it expressed concern that, if a subsequent offer did not
extinguish a previous one, then “[a] plaintiff might be encouraged to maintain a
higher settlement demand on the eve of trial and refuse to settle a case that should
otherwise be settled if the plaintiff finds comfort in the knowledge that, even if the
plaintiff receives an award less than his or her last demand, the plaintiff might still
enjoy the cost reimbursement benefits of section 998 so long as the award
exceeded a lower demand made by the plaintiff sometime during the course of the
litigation” (id. at p. 391).5 Thus, under the so-called “last offer rule” applied in
Wilson and Distefano, when a party makes successive unrevoked and unaccepted
section 998 offers, the last such offer is the only operative offer with respect to the
statutory benefits and burdens.6
We note the Legislature did not respond to the Distefano decision in 1971
when it repealed former section 997 and reenacted its contents in section 998. Nor
did the Legislature act to otherwise repudiate the last offer rule in several
subsequent amendments of the statute. But as Brownco acknowledges, none of
Wilson additionally concluded the legislative purpose “is generally better
served by a bright line rule in which the parties know that any judgment will be
measured against a single valid statutory offer — i.e., the statutory offer most
recently rejected — regardless of offers made earlier in the litigation.” (Wilson,
supra, 72 Cal.App.4th at p. 391.)
Brownco further contends that One Star, Inc. v. STAAR Surgical Co.,
supra, 179 Cal.App.4th 1082, and Palmer v. Schindler Elevator Corp. (2003) 108
Cal.App.4th 154 — both of which rely on Wilson and T.M. Cobb — also support
application of the last offer rule in this context. One Star held that a party‟s first
unaccepted statutory offer was the operative offer for purposes of section 998
when that party affirmatively revoked a second statutory offer before expiration of
the 30-day statutory period. (One Star, at pp. 1093-1095.) In Palmer, the plaintiff
served one defendant with a section 998 offer, and less than 30 days later served a
second offer directed to all three defendants, jointly and severally. Neither offer
was accepted. (Palmer, at p. 156.) Palmer concluded the second offer
extinguished the first offer, even though it found the second offer statutorily
defective for failing to explicitly apportion its terms among the defendants to
allow for individual acceptance or rejection. (Id. at pp. 157-158.)
the Legislature‟s activity regarding section 998 has ever addressed successive
offers, or any of the case law relating to this particular topic.7 And significantly,
the Legislature has never acted to cabin this court‟s holdings in Poster and T.M.
Cobb that a basic contract law principle may not be applied if it would defeat or
conflict with section 998‟s policy of encouraging settlement. (Poster, supra, 52
Cal.3d at pp. 271-272; T.M. Cobb, supra, 36 Cal.3d at p. 280.) In light of the
foregoing, we are not persuaded that the doctrine of legislative acquiescence
mandates judicial application of the last offer rule in all multiple offer situations.
(See Olson v. Automobile Club of Southern California (2008) 42 Cal.4th 1142,
Distefano, however, was legislatively noted for its holding on a different
legal point, i.e., that attorney fee awards are contract damages when expressly
authorized by contract. (Off. of Sen. Floor Analysis, 3d reading analysis of Sen.
Bill No. 1324 (1993-1994 Reg. Sess.) May 27, 1994, pp. 1-3.)
Civil Code section 3291 lends no credibility to the legislative acquiescence
argument. In expressly tying the calculation of prejudgment interest to a
plaintiff‟s first section 998 offer, Civil Code section 3291 plainly reflects a
legislative policy choice to encourage early settlement of personal injury actions
and to deprive a trial court of discretion in the matter. (See Assem. Off. of
Research, 3d reading analysis of Sen. Bill. No. 203 (1981-1982 Reg. Sess.) Sept.
8, 1981, p. 1 [citing proponents‟ argument that “moving the effective date up to
the initial offer of compromise provides a greater incentive for speedy resolution
of judgments”].) That policy choice provides no reasonable basis for implying a
last-offer limitation in the context of section 998‟s silence on the matter,
particularly since section 998‟s purpose is also to encourage early settlement.
(Culbertson v. R.D. Werner Co., Inc., supra, 190 Cal.App.3d at p. 711; see Ray v.
Goodman (2006) 142 Cal.App.4th 83, 91.) In any event, it is settled that a basic
contract law principle may not be applied if it would defeat or conflict with section
998‟s policy of encouraging settlement. (Poster, supra, 52 Cal.3d at p. 271; T.M.
Cobb, supra, 36 Cal.3d at p. 280.)
C. Application of Section 998 in This Case
We now determine whether allowing Mrs. Martinez to recover expert fees
incurred from the date of her first offer is consistent with the language and purpose
of section 998. We also consider whether application of general contract law
principles and the last offer rule would promote or defeat the statutory purpose.
Section 998 provides for cost shifting “[i]f an offer made by a plaintiff is
not accepted and the defendant fails to obtain a more favorable judgment or
award.” (§ 998, subd. (d).) Although the language of the statute does not
definitively answer the question before us, its terms are not contravened by
allowing Mrs. Martinez to recover expert fees incurred after her August 2007
settlement offer in addition to those incurred after her February 2010 offer: it is
undisputed that each offer met the statutory time and content requirements of
section 998, subdivision (b); that Brownco did not accept either offer; and that
Brownco did not obtain a judgment more favorable than either offer.
Moreover, allowing such recovery would further the goals of section 998.
As explained, the Legislature sought to encourage settlement by affording the
benefit of enhanced costs to parties who make reasonable settlement offers and
imposing the burden of those costs on offerees who fail to obtain a result better
than they could have achieved by accepting such offers. (See Bank of San Pedro
v. Superior Court, supra, 3 Cal.4th at p. 804.) This purpose would be more fully
promoted if the statutory benefits and burdens were to operate whenever the
judgment or award is not more favorable than any of the statutory offers made.
Conversely, if the statutory benefits and burdens were to run only from the date of
the last offer in circumstances such as these, plaintiffs may be deterred from
making early offers or from later adjusting their demands. This would inhibit
settlement opportunities and be at direct odds with our prior recognition that “[t]he
more offers that are made, the more likely the chance for settlement.” (T.M. Cobb,
supra, 36 Cal.3d at p. 281.)
We next consider the effect of applying general principles of contract law.
Brownco claims the statutory policy of encouraging settlements would be
advanced by application of the basic contract principle that a new offer
communicated prior to a valid acceptance of a previous offer extinguishes and
replaces the previous one. As Brownco sees it, we should follow Distefano and
Wilson and apply the last offer rule in this case. (Distefano, supra, 263
Cal.App.2d at p. 385; see Wilson, supra, 72 Cal.App.4th at pp. 389-390.)
In the proceedings below, the Court of Appeal declined to apply the last
offer rule because it found the underlying contract principle inapt. In its view, a
first offer that lapses due to nonacceptance within the 30-day statutory period has
no enduring contractual effect and thus cannot be extinguished by a later offer. In
such circumstances, the court reasoned, a party becomes statutorily entitled to
recover expert fees when the offeree fails to obtain a more favorable judgment,
and nothing in contract law requires divestment of this statutory benefit simply
because the party makes the later offer. In effect, the court applied a “first offer
rule,” in which favorability of the judgment and recoverability of costs would be
measured against the earliest reasonable offer regardless of later offers, with the
trial court retaining discretion when awarding costs to address any gamesmanship
concerns or any mischief or confusion arising from later offers.
For the reasons below, we conclude Mrs. Martinez is not precluded from
recovering the expert witness costs she incurred between the dates of her first and
second settlement offers. To reach this conclusion, we need not find the last offer
rule or the first offer rule controlling in all circumstances. Indeed, for present
purposes we may assume the propriety of applying the last offer rule where, as in
Distefano and Wilson, an offeree obtains a judgment or award less favorable than a
first section 998 offer but more favorable than the later offer. The present
circumstances, however, call for a different result.
Here, plaintiff made two statutory offers, and defendant failed to obtain a
judgment more favorable than either. In cases such as this, section 998‟s policy of
encouraging settlements is better served by not applying the general contract
principle that a subsequent offer entirely extinguishes a prior offer. (See Poster,
supra, 52 Cal.3d at p. 272.) Not only do the chances of settlement increase with
multiple offers (T.M. Cobb, supra, 36 Cal.3d at p. 281), but to be consistent with
section 998‟s financial incentives and disincentives, parties should not be
penalized for making more than one reasonable settlement offer. Nor should
parties be rewarded for rejecting multiple offers where each proves more favorable
than the result obtained at trial. Accordingly, we hold that where, as here, a
plaintiff serves two unaccepted and unrevoked statutory offers, and the defendant
fails to obtain a judgment more favorable than either offer, the trial court retains
discretion to order payment of expert witness costs incurred from the date of the
In addition to encouraging the making of more settlement offers, this
conclusion promotes the public policy of compensating injured parties. As
discussed, the policy of compensating injured parties is best served by according
parties flexibility to adjust their settlement demands in response to newly
discovered evidence. (T.M. Cobb, supra, 36 Cal.3d at pp. 281-282.) This can be
accomplished by allowing a plaintiff who made an early settlement offer to “either
propose a new offer in light of the newly discovered evidence or proceed to trial
and present all the evidence in an attempt to be compensated fairly by the trier of
fact‟s decision” (id. at p. 282), without having to forfeit the statutory benefits
flowing from the early offer.
At the same time, holding a defendant responsible for expert witness costs
in situations such as this will not confuse the section 998 process or give rise to
disputes over the status of a statutory offer. To the contrary, such holding is easily
applied and is consistent with the terms of the statute in permitting augmentation
of costs whenever “an offer made by a plaintiff is not accepted and the defendant
fails to obtain a more favorable judgment or award.” (§ 998, subd. (d).)
Predictability of the process will not be upset by inapplicability of the last offer
rule in cases where each statutory offer proves either equal or more favorable to
the offeree than the judgment or award at trial.
Finally, section 998 expressly states an award of expert witness fees is
discretionary. (§ 998, subd. (d).) Accordingly, if a later offer results in mischief
or confusion, or any gamesmanship appears, the court may address such concerns
when considering what postoffer expert fees to award. In this regard, we note
section 998 allows a court, in its discretion, to award a defendant expert fees
incurred both before and after a defense settlement offer where the plaintiff fails to
obtain a more favorable judgment or award. (§ 998, subd. (c)(1); see ante, fn. 3.)
We are confident that, as in those situations, the discretion conferred upon trial
courts suffices as a meaningful check against mischief and gamesmanship.
CONCLUSION AND DISPOSITION
Where, as here, a plaintiff serves two statutory offers to compromise, and
the defendant fails to obtain a judgment more favorable than either offer,
recoverability of expert fees incurred from the date of the first offer is consistent
with section 998‟s language and best promotes the statutory purpose to encourage
the settlement of lawsuits before trial.
In reversing the order taxing the expert fees incurred between Mrs.
Martinez‟s first and second statutory offers, the Court of Appeal ordered a remand
to the trial court for its discretionary determination of her entitlement to such fees.
The judgment of the Court of Appeal is affirmed.
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. Name of Opinion Martinez v. Brownco Construction Company, Inc.
Review Granted XXX 203 Cal.App.4th 507
Date Filed: June 10, 2013
County: Los Angeles
Judge: Elihu Berle
Counsel:Lindahl Beck, George M. Lindahl and Laura H. Huntley for Defendant and Appellant.
Baker, Burton & Lundy and Albro L. Lundy III for Plaintiffs ad Respondents.
Counsel who argued in Supreme Court (not intended for publication with opinion):George M. Lindahl
660 South Figueroa Street, Suite 1500
Los Angeles, CA 90017-3457
Albro L. Lundy III
Baker, Burton & Lundy
515 Pier Avenue
Hermosa Beach, CA 90254
Petition for review after the Court of Appeal affirmed in part and reversed in part the judgment in a civil action. This case presents the following issue: When a plaintiff makes two reasonable settlement offers under Code of Civil Procedure section 998, both of which expire by operation of law, does the second offer extinguish the first such that the later offer is the operative one for purposes of the cost-shifting provisions of section 998, subdivision (d)?
|Date:||Citation:||Docket Number:||Cross Referenced Cases:|
|Mon, 06/10/2013||56 Cal. 4th 1014, 157 Cal. Rptr. 3d 558, 301 P.3d 1167, 13 Cal. Daily Op. Serv. 5840, 2013 Daily Journal D.A.R. 7341||S200944|| |
Wilson v. Wal-Mart Stores, Inc. (1999) 72 Cal. App. 4th 382, 85 Cal. Rptr. 2d 4, available at http://law.justia.com/cases/california/caapp4th/72/382.html
|Opinion||Justice Marvin R. Baxter|
Appellant's Petition for Review.pdf (1183732 bytes)
Appellant's Request for Judicial Notice.pdf (1703557 bytes)
Appellant's Opening Brief on Merits.pdf (1970724 bytes)
Respondent's Answer Brief on Merits.pdf (1387221 bytes)
Appellant's Reply Brief on Merits.pdf (1132379 bytes)
|May 24, 2014|
Annotated by Per Jansen
1. Factual Background
Plaintiffs Raymond and Gloria Martinez, a married couple, sued the defendant, Brownco Construction Company, Inc., in Los Angeles County Superior Court for damages caused by an explosion which injured Mr. Martinez.
Before trial, each plaintiff tendered two settlement offers to the defendant under California Code of Civil Procedure section 998. (Section 998 allows for the recovery of expert witness costs incurred after a settlement offer is tendered if (1) the defendant refuses the settlement, and (2) the defendant fails to obtain a more favorable judgment.) In 2007, Mr. Martinez offered $4.75 million to settle his negligence claim, and Mrs. Martinez offered $250,000 to settle her loss of consortium claim. Brownco ignored the offers and made no response within the 30-day period set by section 998. Immediately prior to trial, Mr. and Mrs. Martinez again made offers to settle their claims, in the amounts of $1.5 million and $100,000, respectively. Brownco again gave no response to the offers.
The trial court entered a judgment of $1,646,674 for Mr. Martinez, and a judgment of $250,000 for Mrs. Martinez. Plaintiffs sought to recover $561,257.14 in costs, and defendant Brownco moved to disallow the recovery of expert witness fees in an amount of $188,536.86 which Mrs. Martinez incurred after her first settlement offer and before the second.
The trial court agreed with Brownco and taxed the disputed expert fees, believing that the most recently rejected offer is the only relevant offer for section 998 purposes. Thus the trial court held that Mrs. Martinez could recover expert costs incurred after the second settlement offer, but not the first.
Plaintiffs appealed, and the Court of Appeal reversed the trial court and allowed recovery of expert fees dating from the first rejected settlement offer. Defendant appealed to the California Supreme Court, which granted the petition and reviewed the issue de novo, as it involved the application of law to undisputed facts. (See Saakyan v. Modern Auto, Inc. (2002) 103 Cal. App. 4th 383, 390.)
When a plaintiff makes two settlement offers under section 998, both of which are rejected by the defendant, and the defendant fails to obtain a judgment more favorable than either offer, may the plaintiff recover expert costs incurred from the date of the first settlement offer under section 998?
When a plaintiff serves two settlement offers under section 998, and the defendant fails to obtain a judgment more favorable than either offer, plaintiffs may recover expert witness fees incurred from the date of the first settlement offer if the trial court orders as such in its discretion.
The Court first discusses the sources of the law behind its decision. The Court states that general contract law principles are applicable to statutory settlement adjudication when interpreting section 998 if they comport with the purpose of promoting settlement. Two key cases establish such a principle, called the last offer rule; where “a party makes successive unrevoked and unaccepted section 998 offers, the last such offer is the only operative offer with respect to the statutory benefits and burdens.” Martinez v. Brownco Constr. Co. (2013) 56 Cal. 4th 1014, 1023, 157 Cal. Rptr. 3d 558, 565, 301 P.3d 1167, 1173 (citing T.M. Cobb Co. v. Super. Ct. (1984) 36 Cal. 3d 273, 280, 204 Cal. Rptr. 143, 682 P.2d 338; Distefano v. Hall (1968) 263 Cal. App. 2d 380, 69 Cal. Rptr. 691; see also Wilson v. Wal-Mart Stores, Inc. (1999) 72 Cal. App. 4th 382, 85 Cal. Rptr. 2d 4.)
The Court then discusses the California Legislature’s failure to either address successive offers, or to limit the Court’s holding in T.M. Cobb that basic contract law principles, though generally applicable, may not be applied if they would defeat or conflict with section 998’s policy of encouraging the settlement of lawsuits. The Court concludes that because the Legislature has not overruled it on these grounds, it may decide that the last offer rule does not apply in all multiple offer situations.
The Court proceeds to base its decision on interpreting section 998 following its policy of encouraging settlement. It first decides that allowing for recovery under Mrs. Martinez’s case is consistent with the statute.
The Court then concludes that allowing for recovery of expert fees incurred as of the date of the first settlement offer when a defendant fails to obtain a judgment more favorable than either offer furthers the goals of section 998. (Presumably, in situations like Distefano and Wilson, the last offer rule still applies.) Allowing so rewards parties that make reasonable settlement offers and punishes parties who reject favorable settlements. Allowing the cost shifting to accrue to a party only after the last settlement offer could deter early settlements or readjusting settlement demands.
The Court emphasizes that because the award of expert costs under section 998 is discretionary, trial courts can protect parties from confusion or gamesmanship.
California Code of Civil Procedure, California Code of Civil Procedure § 998, civil procedure, costs, expert fees, expert witness, expired offer, extinguished offer, last offer rule, most recent offer, multiple offers, successive offers, recovery, settlement, subsequent offer.