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LOS ANGELES — It’s a familiar situation: Your litigation opponent is completely unreasonable. He is out for blood, demands his day in court and does not care how much it costs. Both sides know (or should know) how much the case is worth, but the opposing party prefers to do battle in court rather than accept a reasonable settlement. The litigation costs are spiraling out of control and out of proportion to the true value of the case. Is there anything you can do? In California, the answer is yes. Although you can’t force an unreasonable opponent to settle, you can raise the stakes of the litigation by making a statutory offer of compromise under California Code of Civil Procedure § 998. A 998 offer essentially invites the opposing party to enter judgment on specified terms and conditions. Refusing the offer exposes the opposing party to possibly expensive penalties. Typically, the prevailing party in a suit is entitled to recover its costs under Cal. § 1032. However, a plaintiff who rejects a 998 offer but fails to recover a more favorable judgment at trial cannot recover any costs incurred after the offer is made. In addition, the plaintiff must pay the defendant’s costs incurred after the offer. In cases that allow the recovery of attorneys fees, these costs can be substantial — sometimes even more than the amount in controversy. Finally, the court may order the plaintiff to pay a reasonable sum to cover the defendant’s expert witness fees both for preparation and during trial. A good 998 offer can change the rules of engagement from “loser pays” to “winner pays.” An effective 998 offer requires strategic thinking. The first strategic consideration is when to make the offer. A 998 offer can be made at any time more than 10 days before the commencement of trial or arbitration. The offer is good for 30 days after service on the opposing party or until trial or arbitration begins. A plaintiff who rejects a 998 offer and fails to recover a more favorable judgment at trial is still entitled to recover its costs incurred before the 998 offer is made. Thus, an early 998 offer can drastically limit a plaintiff’s recoverable costs and could shift virtually all attorneys fees to the other side. A second strategic consideration is how much to offer. An effective 998 offer requires careful analysis. It must be “more favorable” than the judgment the plaintiff obtains at trial. The value of the plaintiff’s judgment includes the plaintiff’s pre-offer costs. Therefore, 998 offers must take into account not only the likely damages, but also the costs incurred prior to the offer. Moreover, the offer must be reasonable. Nominal or token 998 offers made without any reasonable expectation of acceptance are invalid. See Santantonio v. Westinghouse Broadcasting Co., 25 Cal.App.4th 102 (1994). A third strategic consideration is whether to include non-monetary terms in the 998 offer. Although a 998 offer may contain non-monetary terms, the offer cannot require terms and conditions whose value cannot be accurately valued. In Barella v. Exchange Bank, 84 Cal.App.4th 793 (2000), the defendant made a 998 offer contingent on the plaintiff agreeing to keep the judgment confidential. The plaintiff rejected the offer, went to trial and recovered less than the monetary component of the defendant’s 998 offer. Nevertheless, the court held that, because the value of the confidentiality requirement could not be determined, the 998 offer was invalid. Despite winning only a trivial amount at trial, the plaintiff, not the defendant, recovered its costs. In general, therefore, non-monetary terms should only be included if a definite monetary value can be attached to them. For plaintiffs, 998 offers are less potent weapons to induce settlement. Personal injury plaintiffs benefit the most. For personal injury plaintiffs, a refused 998 offer allows a plaintiff obtaining a more favorable verdict to receive prejudgment interest from the date of the offer under Cal. Civ. For other plaintiffs, however, a 998 offer holds little value. A defendant that loses at trial is already obligated to pay the plaintiff’s costs under § 1032. A plaintiff that obtains a verdict more favorable than the 998 offer gains only the possibility that a court may require the defendant to pay a reasonable sum to cover the costs of expert witnesses. An award of expert witness costs, however, is discretionary. When drafting your 998 offer, keep these tips in mind: • Always include your opposing party’s costs in the offer. If the opposing party has taken 10 depositions at a cost of $1,000 each, make sure your 998 offer includes the $10,000 in costs. If attorneys fees are allowable as costs, also include the opposing party’s pre-offer attorneys fees. See Heritage Engineering Construction, Inc. v. City of Industry, 65 Cal.App.4th 1435 (1998). • Explicitly state that the offer includes the opposing party’s costs. If the 998 offer does not explicitly say that it includes costs, the opposing party will be entitled to judgment in the amount of the offer and will be able to seek costs on top of that. See Pazderka v. Caballeros Dimas Alang, Inc, 62 Cal.App.4th 658 (1998). • Always refer to § 998 in the offer. An offer that does not explicitly refer to 998 will not suffice to shift costs. See Stell v. Jay Hales Development Co, 11 Cal.App.4th 1214 (1992). • In cases with multiple plaintiffs, make separate offers to each individual plaintiff. In general, only an offer made to a single plaintiff, without need for allocation or acceptance by other plaintiffs, is valid. See Meissner v. Paulson, 212 Cal.App.3d 785 (1989). However, joint offers by multiple defendants are valid if the defendants would be jointly and severally liable. See Santantonio v. Westinghouse Broadcasting Co., Inc., 25 Cal.App.4th 102 (1994). • Avoid requesting non-monetary terms that are difficult to value. Non-monetary terms that could vitiate your 998 offer include confidentiality clauses or general releases. See, e.g., 1988′s Valentino v. Elliott Sav-On Gas, Inc., 201 Cal.App.3d 692 (rejecting 998 offer that included general release). The better practice is to stick with simple monetary offers. • Make the offer “reasonable.” An offer that has no chance of acceptance is not valid. Before making an extremely low offer, determine whether the facts or the law suggest that the plaintiff has virtually no hope of prevailing. Although not a panacea for lunatic litigants, statutory offers to compromise can help persuade opposing parties to accept reasonable settlements. If the other party insists on an expensive trial, a well-crafted offer to compromise can greatly reduce the cost of going to court and quite possibly create a situation where the “winner” is the one who pays. Daniel W. Park is a litigator at Sheppard, Mullin, Richter & Hampton in Los Angeles and specializes in commercial disputes, public and private contracts, unfair competition and misappropriation of intellectual property. E-mail him at [email protected] • Practice Center articles inform readers on developments in substantive law, practice issues or law firm management. Contact News Editor Candice McFarland with submissions or questions at [email protected] or go to www.therecorder.com/submissions.html.

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