THE SOONER, THE BETTER

The judicious and timely use of Statutory Offers to Compromise, pursuant to CCP Section 998, can be an exceptionally powerful tool. But when is the best time to serve a 998 Offer? The simple answer — at least for plaintiffs in personal injury actions and defendants in matters in which the prevailing party has a right to recover attorney fees — is the sooner, the better.

In personal injury actions, Civil Code Section 3291 provides that plaintiff may recover interest at the rate of 10% per annum if defendant does not accept a 998 Offer within 30 days and plaintiff thereafter obtains a more favorable judgment at trial. Given the growing backlog in the personal injury courts, the amount of interest that can accrue between the time a 998 Offer is first made and the time a more favorable judgment is obtained is likely to be substantial, significantly altering the parties’ risk assessment. And where else can one earn 10% per annum today?

In actions in which the prevailing party has a contractual or statutory right to recover attorney fees, the reallocation of risk can be equally dramatic. If defendant makes a 998 Offer that plaintiff rejects and plaintiff thereafter prevails but fails to obtain a more favorable judgment, plaintiff’s right to recover attorney fees is limited to fees incurred prior to the 998 Offer, whereas defendant is entitled to recover attorney fees and costs incurred subsequent to the 998 Offer. In other words, rejection of an early 998 Offer in a breach of contract action exposes plaintiff to significantly greater risk because plaintiff could win the battle but lose the war, i.e., be deemed the prevailing party but recover less in damages and “pre-offer” fees than is owed to defendant in “post-offer” fees and costs. This risk is not merely theoretical. In my last trial before transitioning to mediation, I chose to serve a 998 Offer on behalf of defendant at the outset of a breach of contract action, which plaintiff rejected. Plaintiff prevailed at trial two years later, but was awarded nearly $100,000 less in damages than defendant’s 998 Offer. Defendant was awarded its post-offer fees and costs, which far exceeded the amount owed to plaintiff for the verdict and pre-offer fees. As a result, plaintiff ended up writing a rather hefty check to defendant despite having prevailed at trial.

Although 998 Offers can certainly be put to good use in the latter stages of the litigation process, they will generally be most effective as resolution strategies when utilized as early as possible. Even when an early 998 Offer is rejected, it tends to permanently alter the settlement landscape, giving mediators additional issues to discuss when helping the parties assess their risk.

Very few strategies have the potential to be “game-changers” more than serving a carefully considered 998 Offer early in the process. If a 998 Offer doesn’t generate much interest from the opposing party when it’s made, it probably will — perhaps literally!! — before you close your file. Therefore, if you’re planning to serve a 998 Offer sooner or later, sooner is usually better.

As always, it would be my pleasure to assist you and your clients in the dispute resolution process. Please don’t hesitate to contact me if I can be of service.

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