Court Rules That Information-Regardless of Timing-Is Key to the Reasonableness of a C.C.P. Section 998 Offer to Compromise

by: David Melton, Lindsay Goulding and Colleen Howard

California’s Second District Court of Appeal held on January 15, 2013 that a plaintiff’s offer to compromise pursuant to Code of Civil Procedure § 998 was reasonable, and thus in good faith, despite being made only two months after the defendant appeared in the case.  The Court in Whatley-Miller v. Cooperapplied a two-stage test to determine the reasonableness of the offer.

A § 998 offer to compromise is a statutorily-provided cost shifting device designed to encourage settlement before trial.  When a party’s § 998 offer to compromise is rejected by the recipient and the offering party obtains a more favorable result than the offer at trial, the offering party is entitled to recover certain costs, including expert fees, from the rejecting party from the date of the offer forward.  Accordingly, § 998 may operate as a severe penalty against a party who unreasonably declines to accept a statutory settlement offer – especially if the offer is extended early in the litigation thereby allowing considerable costs to accrue after the offer is made.  An offer made pursuant to § 998 is subject to a good faith requirement.

Circumstances of Whatley-Miller v. Cooper
On February 22, 2008, the plaintiffs, Susanne Whatley-Miller and her daughters, filed a complaint for medical malpractice and wrongful death against Dr. Collin Cooper.  The plaintiffs served Dr. Cooper with a § 998 offer on June 20, 2008 offering to resolve all claims for $950,000.  At that point, Dr. Cooper had only filed a response to the complaint and received discovery responses from the plaintiffs (nine days earlier).  Dr. Cooper did not request additional information or time in order to evaluate the plaintiffs’ offer and allowed it to expire.

After the jury returned a verdict in favor of the plaintiffs and against Dr. Cooper, the trial court entered judgment in the amount of $1,437,276.  Since their recovery exceeded their § 998 offer, the judge awarded the plaintiffs over $530,000 in costs and interest.  Dr. Cooper argued that the plaintiffs’ §  998 offer was not made in good faith because it was made just two months after he responded to the complaint and, thus, before he had an opportunity to fully assess the demand’s reasonableness.  The trial court rejected Dr. Cooper’s argument and determined that the plaintiffs’ offer of $950,000 was reasonable in light of the decedent’s income, the losses accompanying his wrongful death, and Dr. Cooper’s $1,000,000 insurance policy limit.  Additionally, Dr. Cooper was deemed to be aware of these facts through discovery and therefore should have known the plaintiffs’ offer was both within his insurance policy limits and reasonable—despite the timing of the offer.  The appellate court agreed after applying a two-stage reasonableness test.

Two-Stage Reasonableness Test
Because a § 998 offer is subject to a good faith requirement, it must be reasonable.  The Court of Appeals explained that whether a § 998 offer is reasonable depends upon the information available to the parties at the time the offer is served.  The first part of the test is to determine whether the offer represents a reasonable prediction of the amount of money the defendant would ultimately have to pay, if any.  This is an objective standard premised upon information that is or should be known by the defendant in addition to whether an experienced attorney or judge would place that prediction within the range of the case’s possible results.

If a § 998 offer is reasonable under the first part of the test, then it must satisfy the second part as well: a § 998 offer will only be found reasonable if the plaintiff’s information is or should be known by the defendant.  This is because an offeree is not expected to accept an offer to compromise if he or she has no reason to know whether the § 998 offer is reasonable.  Accordingly, where both prongs of this test are met, a § 998 offer will be deemed to be made in good faith and be enforceable.

Take Away Tips
Based on this recent ruling, courts will likely uphold a § 998 offer to compromise irrespective of its timing so long as a defendant had sufficient information to make a determination as to the reasonableness of the offer.  An important thing to note is that a defendant has the ability and opportunity to request additional time or further information from the plaintiff in order to evaluate a § 998 offer prior to its expiration.  Be sure to know both your rights and the impact of your decisions in situations such as these.