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“THE MATH OF CCP SECTION 998”

By: Frank D. Maul, Esq.
Stammer, McKnight, Barnum & Bailey LLP
2540 W. Shaw Lane, Suite 110, Fresno, CA 93711
Phone: ; FAX: 559-432-2619

Although many claims personnel (and attorneys) are familiar with the process of making or receiving a “CCP 998 Offer,” they are uncertain as to the impact such offers can have on the ultimate post-verdict final Judgment to be rendered by the court. This document will attempt to explain that issue. There are many other issues involved in CCP 998 which are not addressed here and this document provides only a general overview of the issues applicable to most typical personal injury matters.

First, CCP 998 was adopted in an effort to encourage litigants to evaluate and settle cases. If a party has an opportunity given to him or her by the other side to settle the case by a formal CCP 998 Offer to Compromise, the statute essentially punishes that party for not settling if he or she does not get a “more favorable” result at trial. That punishment is in two forms and comes into play with the filing of Cost Bills after the trial. First, the rules about which side pays what costs of suit change (addressed below) and second, the court has the discretion to award the party who made the CCP 998 Offer certain fees charged by “expert witnesses” which are frequently substantial and normally not recoverable.

A brief explanation of normal recoverable costs is necessary. Under California law the prevailing party is normally entitled to recover certain (but not all) of the costs that he or she incurred in the case. These costs include fees charged by the court for filing legal papers, jury fees, “court reporter” fees charged during the trial by the court, the fees charged by court reporters for deposition transcripts, and a few other items. (Many things that one might consider “costs” such as investigator’s fees, postage, photocopy charges, mileage, etc. are not “recoverable costs” under California law.) These costs are awarded by the court following the timely filing of a Cost Bill after the trial or other event causing a Judgment to be entered such as a successful Motion for Summary Judgment. The other party has the right to challenge whether the party claiming the costs is entitled to them at all or in the amount claimed by the filing of a Motion to Tax Costs which is decided by the trial judge.

CCP 998 changes much of this.

1. A DEFENDANT’S OFFER IS NOT ACCEPTED – WHAT HAPPENS?

First, assume that the defendant makes a CCP 998 Offer to allow judgment to be entered in favor of plaintiff and against defendant in the amount of $5,000 with each side to pay its own costs. The settlement is not accepted and the case is tried with a verdict in favor of plaintiff of $4,500. Many people would assume that the plaintiff did not “beat the offer” and the CCP 998 would act to change the cost recovery. That is possibly, but not necessarily, correct. In determining whether or not the plaintiff got a more favorable result, you first have to determine the plaintiff’s “pre-offer” costs of suit. The plaintiff has to pay about $300 to file a Complaint in Superior Court. Service of process on the defendant and other recoverable costs might be several hundred dollars more. To determine if the plaintiff beat the offer or not, you must add the plaintiff’s recoverable pre-offer costs to the $4,500 verdict. (Which is done by looking at the plaintiff’s Cost Bill and possibly a ruling on a Motion to Tax Costs.) If the result is less than the $5,000 offer, the plaintiff did not receive a “more favorable” result at trial and the defendant gets the benefits of CCP 998. If the amount exceeds the $5,000 offer, then CCP 998 does not apply and the plaintiff gets all of the normal costs and the defendant gets no benefit from making the offer. The statute expressly states that the plaintiff’s post-offer costs are to be excluded from making the determination as to whether or not the plaintiff beat the offer. Please note, however, that the cases make clear that even if the plaintiff did not beat the offer, the plaintiff is still entitled to recover the pre-offer costs incurred.

Illustration One:

Defendant Offers $5,000 which is not accepted: $5,000

Verdict in favor of Plaintiff: $4,500

~Plaintiff’s Pre-Offer Costs are $400 ($4,500 + $400 = $4,900

Plaintiff did not “beat the offer”

~Plaintiff’s Pre-Offer Costs are $550 ($4,500 + $550 = $5,050

Plaintiff did “beat the offer”

In the above illustration, the difference in outcome relates to a minor change of $150 in the Pre-Offer costs incurred by the Plaintiff. That could result from whether or not the cost of a single deposition was incurred before the CCP 998 offer was made or afterwards. An early offer can lower the amount of “pre-offer” costs used to determine if the plaintiff “beat” the offer.

Obviously, when making a decision on how much to offer a plaintiff by way of CCP 998, it would be useful to try to estimate what recoverable costs of suit the plaintiff may have incurred by that point in time and take that amount into consideration in arriving at the settlement figure to offer. (Note: Normally the defendant offers a specific dollar figure “with each party to pay its own costs.” Because of that you have to consider the amount of pre-offer costs incurred by plaintiff. If the defendant offers to allow a judgment for $xxx “and plaintiff may also recover normal costs of suit by the filing of a cost bill,” then the plaintiff’s pre-offer costs are not relevant in deciding if he “beat” the offer since he could have gotten the costs if he had accepted the offer.)

If, after making the above calculations, the plaintiff did not obtain a more favorable result, then the defendant gets two benefits. First, the defendant “shall” recover the defendant’s post-offer costs of suit. The use of the word “shall” in the statute means that the court must award the defendant those post-offer costs. These costs serve to reduce the plaintiff’s net recovery by the amount of the defendant’s post-offer costs. In the example above, assume that the plaintiff got the $4,500 verdict and only $400 in pre-offer costs for a total of $4,900. If the defendant’s “post-offer” costs total $1,500 then the plaintiff will get a net judgment of only $3,400. ($4,900 – $1,500 = $3,400) Given the right numbers, this actually can result in a judgment in favor of the defendant and against the plaintiff which the statute expressly authorizes.

Illustration Two:

Defendant Offers $5,000 which is not accepted:

Verdict in favor of Plaintiff: $4,500…

ASSUMPTION: Plaintiff does not “beat the offer” and has only $400 of costs.

First, Plaintiff gets amount of Verdict plus $400: $4,900

However, Defendant is awarded all of the Defendant’s

“Post offer” costs. Assume those are $1,500. ($1,500)

Plaintiff’s net recovery when Defendant’s “post offer” costs of $1,500 are deducted: $3,400

(Plus the court might award the Defendant Expert Fees. Assume the court awards $4,000 to the defendant for Expert fees.)

Judgment is in favor of Defendant and against Plaintiff: $ 600

ASSUMPTION: Plaintiff does “beat” the Offer with pre-offer costs of $550.

Plaintiff gets $4,500 Verdict amount plus all costs of suit whether incurred pre- or post-offer. Assume total costs to be $2,500. $7,000

Defendant’s Post-offer costs of $1,500 are irrelevant. -0-

Plaintiff nets $7,000

It should be noted that, while you can make several CCP 998 offers over time, it is normally the last one that was made that controls. Both sides may have incurred substantial recoverable costs in the time period between the two offers. As you can see, that can impact both the initial issue of whether or not the plaintiff obtained a “more favorable” result and also what costs each side is entitled to recover if CCP 998 does apply. The statute encourages both a reasonable and an early formal offer of settlement.

2. A PLAINTIFF’S SETTLEMENT OFFER IS NOT ACCEPTED –

WHAT HAPPENS?

Again, in making the initial determination as to whether the plaintiff “beat the offer”, the plaintiff’s post-offer costs are excluded from the consideration but the plaintiff’s pre-offer costs are included. Pre-offer costs are added to the verdict and the resulting figure is what is used to determine if the plaintiff beat the offer.

Assume the plaintiff offers to settle the case for $25,000. The result at trial is a verdict in favor of plaintiff in the amount of $30,000. The verdict amount alone makes it clear that the plaintiff got a more favorable result. (If the verdict had been for $23,000 and the pre-offer costs incurred by plaintiff had been $3,000 then the plaintiff also beat the offer because the verdict and the pre-offer costs total $26,000.) The plaintiff then recovers all of the normal recoverable costs of suit without regard to when they were incurred. The main benefit to the plaintiff is that the plaintiff also gets, again in the discretion of the trial judge, a reasonable sum for expert witness fees incurred by the plaintiff after the date of the offer. (Note, for some reason the statute limits expert fees for plaintiffs to those incurred “post-offer,” but does not do that for successful defendants.) There is also a second benefit to the plaintiff which is not contained in CCP 998, but which makes reference to it. Civil Code Section 3291 allows a plaintiff to recover pre-judgment interest on his personal injury award at 10% from the date of his CCP 998 offer if he ultimately “beats” that offer.

Illustration 3:

Plaintiff offers to settle for $25,000 which is not accepted.

Plaintiff “beats the offer” with $23,000 verdict plus $3,000 of “pre-offer” costs.

Plaintiff gets Verdict $23,000

Plaintiff gets all costs of suit whether incurred pre- or post-offer. Assume $3,000 pre-offer and $5,000 post-offer: $ 8,000

Total Judgment: $31,000

(Plus the court may award the plaintiff “post-offer” expert witness fees. Assume those to be $4,000.) Judgment for Plaintiff against Defendant: $35,000

(Plus, plaintiff can get interest at 10% from the date of the offer.)

CCP 998 is a complex statute. There are numerous reported cases dealing with the complexities of the statute. This document attempts to give a very broad overview of the issues discussed to explain commonly asked questions and concerns. Please feel free to call us at STAMMER, McKNIGHT, BARNUM & BAILEY, LLP () if you have particular problems or issues.