Earliest Reasonable Offer Governs Cost Recovery Under Code of Civil Procedure Section 998

In Martinez v. Brownco Construction Co., 2012 DJDAR 1950 (2012), the California Court of Appeal for the Second Appellate District clarified an important issue under the offer of judgment statute, California Code of Civil Procedure (“CCP”) Section 998.

The plaintiff suffered personal injuries in a work‑related accident. He and his wife sued Brownco Construction Co. (“Brownco”), an entity that did work at the construction site. The plaintiffs asserted claims for negligence and loss of consortium.

Subsequently, the plaintiffs served a statutory offer under CCP § 998 on the defendant to compromise for $4,750,000 for the negligence claim and $250,000 for the claim for loss of consortium. Brownco did not respond to the offers. Pursuant to the statute, the offers essentially lapsed and were deemed withdrawn by the terms of CCP § 998.

Subsequently, the plaintiffs prepared and served new Section 998 offers with one plaintiff (husband) offering to settle for $1,500,000, and the other for $100,000 (the wife) for the loss of consortium claim. Brownco did not respond to the second round of offers and they lapsed as well.

A jury trial then took place. The jury found Brownco 50 percent liable for the plaintiffs’ damages, and awarded the husband $1,646,674 and the wife $250,000 for loss of consortium. 

After the favorable verdicts, the plaintiffs pursued costs for expert fees incurred after their first Section 998 offers but before their second offers. The trial judge granted the defendant’s motion to tax costs, ruling that the wife was not entitled to costs incurred between the first and second offers. The plaintiffs appealed the ruling of the trial court.

The court of appeal partially reversed the ruling by the lower court. 

On appeal, Brownco argued that the second offer essentially superseded the first one. The court of appeal disagreed, explaining that when a party makes two Section 998 offers over 30 days apart, Section 998 entitles the offeror to cost shifting from the date of the earliest reasonable 998 offer. 

The case offers important strategic lessons for those who litigate in California state courts.

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