|Proceedings Without Trial
Where Plaintiff Serves Two Offers Under C.C.P. 998, and Defendant Fails To Obtain Judgment More Favorable Than Either Offer, Trial Court Retains Discretion To Order Payment of Expert Witness Costs Incurred fFrom Date of First Offer.
In Martinez v. Brownco Const. Co. (2013) 56 C.4th 1014, 157 C.R.3d 558, 301 P.3d 1167, plaintiffs, husband and wife, sued defendant for damages arising out of an explosion that severely injured the husband. Before trial, plaintiffs each served on defendant two settlement offers under C.C.P. 998. In their first offers, the husband offered to compromise his negligence claim for $4.75 million, and the wife offered to compromise her loss of consortium claim for $250,000. Plaintiffs subsequently served reduced compromised offers of $1.5 million and $100,000 respectively. Defendant took no action on the offers. At trial, the husband obtained a judgment of over $1.6 million, and the wife obtained a judgment of $250,000. Plaintiffs sought costs; the trial court, siding with defendant, entered an order taxing the expert fees incurred between the wife's first and second offers. Relying on Wilson v. Wal-Mart Stores (1999) 72 C.A.4th 382, 85 C.R.2d 4, the court stated that the most recently rejected offer was the only pertinent offer and that all prior offers were extinguished by the subsequent offer. The Court of Appeal reversed and remanded to the trial court for its discretionary determination of wife's entitlement to expert fees from the date of the first offer. Held, affirmed.
(a) The purpose of C.C.P. 998 is to encourage the settlement of lawsuits before trial. To accomplish this purpose, C.C.P. 998(d) provides that a court may order a defendant to pay a reasonable sum to cover the plaintiff's postoffer expert witness costs where the judgment is not more favorable than the plaintiff's settlement offer. C.C.P. 998 does not prohibit more than one settlement offer, but is silent about the effect of multiple offers. (56 C.4th 1017.)
(b) Where the language of C.C.P. 998 does not provide a definitive answer for a particular application of its terms, courts may apply general contract law principles. However, a contract law principle will not be found to govern if its application would conflict with or defeat the purpose of C.C.P. 998. (56 C.4th 1020.)
(c) Under the so-called "last offer rule" applied in Wilson and Distefano v. Hall (1968) 263 C.A.2d 380, 69 C.R. 691, where a party makes successive unrevoked and unaccepted offers under C.C.P. 998, the last offer is the only operative offer with respect to the statutory benefit and burdens. (56 C.4th 1023.) Here, the Court of Appeal applied, in effect, a "first offer rule," which would measure favorability of the judgment and recoverability of costs against the earliest reasonable offer regardless of later offers, with the trial court retaining discretion, when awarding costs, to address gamesmanship, mischief, or confusion arising from later offers. (56 C.4th 1025.)
(d) Reaching the conclusion that the wife is not precluded from recovering the expert witness costs she incurred between the dates of her first and second settlement offers does not require a finding that the last offer rule or the first offer rule controls in all circumstances. Indeed, for present purposes, 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 offer under C.C.P. 998, but more favorable than the later offer, may be assumed. However, the circumstances here call for a different result. (56 C.4th 1025.)
(e) Here, plaintiff wife made two statutory offers and defendant failed to obtain a judgment more favorable than either; the policy of C.C.P. 998 to encourage settlements is better served by not applying the general contract principle that a subsequent offer entirely extinguishes a prior offer. Not only do the chances of settlement increase with multiple offers, but to be consistent with the financial incentives and disincentives of C.C.P. 998, parties should not be penalized for making more than one reasonable settlement offer, nor rewarded for rejecting multiple offers where each proves more favorable than the result obtained at trial. Thus, where "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 first offer." (56 C.4th 1026.)
(f) In addition to encouraging more settlement offers, this conclusion promotes the public policy of compensating injured parties. At the same time, the holding is easily applied and is consistent with the terms of C.C.P. 998. Finally, because an award of expert witness fees under C.C.P. 998 is discretionary, concerns of mischief, confusion, or gamesmanship relating to later offers may be addressed by the court when considering an award. (56 C.4th 1026.)
On offers to compromise generally, see 6 Cal. Proc. (5th), Proceedings Without Trial, §82 et seq.
On effect of second offer to compromise, see 6 Cal. Proc. (5th), Proceedings Without Trial, §96.
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