An Offer You Cannot Refuse? Applying Costs Equally to Plaintiffs and Defendants

Effective January 1, 2016, the California Legislature equalized the treatment of expert witness costs that can be awarded to litigants under California’s Code of Civil Procedure Section 998.  Section 998 is a mechanism that allows litigants to advance settlement efforts by providing a means by which a party making a statutory offer can recover certain additional costs and expenses, including expert witness costs, if the other party rejects the offer and fails to obtain a better result at trial.

Before January 1, 2016, plaintiffs received the short end of the stick from the legislature because of the absence of one word in the statute as it applied to a defendant’s potential recovery – “postoffer.”  If a plaintiff rejected a Section 998 settlement offer made by a defendant and failed to receive a better result at trial, the plaintiff could be required to pay the defendant’s expert witness costs.  This allowed a defendant to recover both pre- and postoffer expert witness costs.

On the other hand, if a defendant rejected a plaintiff’s Section 998 settlement offer and failed to receive a more favorable judgment or result, the defendant could only be required to pay the plaintiff’s postoffer expert witness costs.

California has now balanced the scales in Section 998 settlement offers by including the word postoffer in its application to both plaintiffs and defendants.  Therefore, if a party rejects a Section 998 settlement offer and receives a less favorable result at trial, they would only have to pay the other party’s postoffer costs as it relates to expert witnesses, regardless of whether that party is a plaintiff or defendant.  In enacting Section 998, the legislature acknowledged that the purpose of a Section 998 settlement offer is to maintain a level playing field for all parties and to encourage pre-trial settlement.

The results from this new amendment may vary.  For instance, before the January 1, 2016, amendment, if the parties exchanged Section 998 settlement offers near the trial date, during negotiations the plaintiff has to consider facing potentially all of the defendant’s expert fees, while the defendant is only concerned with the plaintiff’s postoffer expert fees.  The inequitable application of Section 998 applied more pressure on plaintiffs to settle than it did on defendants.  Now, however, it is an equal playing field which may lead to defendants making earlier settlement offers.