Offers To Waive Costs In Return For A Dismissal
Putting The Teeth Back Into Code Of Civil Procedure Section 998

By Arthur E. Zitsow

It has been said that California Code of Civil Procedure section 998 has lost its bite. Originally conceived to encourage the settlement of litigation before trial, it was once an effective took to negotiate a settlement. The ramifications of paying expert costs compelled the offeree to consider the cost of further litigation through trial and offset it against the probability of prevailing. (See Brown v. Nolan (1979) 98 Cal.App.3d 445, 449.) However, in recent years, an increasing number of plaintiffs have questioned the validity of a defendant’s offer to waive any claim for costs and any malicious prosecution action in exchange for plaintiff’s dismissal of the action with prejudice.

Plaintiff’s argument has almost uniformly been that an offer to dismiss in exchange for a waiver of costs and the right to bring a malicious prosecution action is a “token” section 998 offer. Plaintiffs often cite to Wear v. Calderon (1981) 121 Cal.App.3d 818, for support, arguing that to effectuate the purpose of section 998, the offer must be made in good faith. An offer to settle for waivers is often viewed as premature if there is a “reasonable probability, however slight, that a particular defendant will be held liable, [such that] there is practically no chance that a plaintiff will accept a token or nominal offer of settlement from a defendant in view of the current cost of preparing a case for trial” (Wear v. Calderon, supra, at 821.) As a token offer, since there is “no chance” of a plaintiff accepting the offer, plaintiffs argue that the offer is presumptively made in bad faith.

But when is an offer to settle for waivers not premature? One of the arguments put forth by the plaintiffs’ bar is that bad faith exists if an offer for waivers is served prior to expert discovery. They claim that without expert discovery, the defendant offering the waivers could not possibly have the support to determine the value of the case as they have not heard the expert testimony. As a result, plaintiffs argue that since the offeror has no expectation that the section 998 offer would be accepted, the sole purpose of the offer is to make the defendant eligible for the recovery of large expert witness fees in the event of a defense verdict. (See Pineda v. Los Angeles Turf Club, Inc. (1980) 112 Cal.App.3d 53.) The follow-op argument is that allowing recovery of expert witness fees improperly allows a defendant to benefit from a risk-free offer.

In recent appellate court holdings, however, there has been a significant change, especially in the medical malpractice area. More than ever, the appellate court is leaving these decisions regarding the validity of Section 998 offers to the discretion of the trial courts, citing to Arno v. Helinet Corp. (2005) 130 Cal.App.4th 1019, where the Court held that, “[a]n appellate court reviewing a section 998 offer may not substitute its opinion for that of the trial court unless there has been a clear abuse of discretion, resulting in a miscarriage of justice.” (Id. at 1025.) Our recent experience has shown that trial courts, after conducting their own analysis and research, are frequently finding in favor of defendants on these issues, and are subsequently being sustained on appeal.

In the past year, two defense verdicts, following offers of waivers, resulted in awards of costs and expert fees exceeding $100,000, despite motions to tax costs which alleged the offers were made in bad faith, as they were made prior to experts being deposed. Both trial courts rejected that argument, pointing out that other discovery and the mainstream literature supplied adequate foundation upon which to establish a good faith offer. One such award was sustained on appeal in an unpublished opinion.

Plaintiffs have further argued that the claim of good faith for an offer of waivers is belied by the absence of a motion for summary judgment, or withdrawal of such a motion if and when it is opposed. While a supportive expert opinion may not result in the granting of a motion for summary judgment due to the high burden that must be sustained by the moving party, it has been our experience that the courts evaluating the good faith of an offer to compromise for waivers have looked beyond the MSJ stage to the likely decision of the ultimate trier of fact during a trial. If one of the elements of negligence or causation is unlikely to be proven at the trial, the plaintiff is put on notice of same, and the defense expert opinions are sufficient to support a valid offer to compromise for waivers pursuant to section 998.

What cannot be disputed is that “a plaintiff who does not accept a valid pretrial offer to compromise and who fails to obtain a more favorable judgment or award may be required to pay defendant’s expert witness costs, so long as the section 998 offer was reasonable and made in good faith. ‘Whether a section 998 offer is reasonable must be determined by looking at circumstances when the offer was made.’ To be in good faith, there must be ‘some reasonable prospect of acceptance.’ Where the defendant obtains a judgment more favorable than its offer, the judgment is prima facie evidence that the offer was reasonable. Whether the offer was made in good faith and reasonable is left to the sound discretion of the trial court.” (Hartline v. Kaiser Foundation Hospitals (2005) 132 Cal.App.4th 458, 470-471 [citations omitted].)

The Hartline case continues that, “there is no per se violation of the good faith requirement just because the offer does not tender a net monetary sum. In a particular case, a waiver of costs may be an offer of significant value.” (Id. at 471 [citations omitted].)

In determining whether a section 998 offer is made in good faith, trial courts have taken multiple items into consideration. One item often considered by the trial courts is the amount of additional costs that could have been expected if the case proceeded to trial. A proffered waiver that removes the plaintiff’s risk of paying such costs can be substantial consideration for a settlement. Accordingly, many trial courts have found that an offer to compromise based on a waiver of those anticipated and substantial costs does not indicate bad faith. Therefore, a trial court is within its discretion to award expert fees to the defendant.

A second item addressed by trial courts is the basis upon which the section 998 offer is made. For example, in a medical malpractice action, if the offer is predicated upon a supportive expert review, that expert review may be sufficient to uphold a decision endorsing the validity of a section 998 offer for waivers. As is commonly known, in order to prevail in an action for negligence, whether it be in the medical malpractice context or personal injury, it is necessary to establish duty, breach, causation and damages. The lack of proving any one of the above noted elements necessitates plaintiff’s failure to prove his/her case.

In a medical malpractice case, as the practice of medicine is not within the common knowledge among lay persons, expert opinion testimony is necessary to prove the issues of standard of care and causation. (Jambazian v. Borden (1994) 25 Cal.App.4th 836, 844, citing Landeros v. Flood (1976) 17 Cal.3d 399, 410.) Whether the community standard has been breached can only be proven by expert testimony. In Willard v. Hagemeister (1981) 121 Cal.App.3d 406, 431, the appellate court held that, “[expert] evidence in a medical malpractice suit is conclusive as to the proof of a prevailing standard of care and learning in the locality and of the propriety of particular conduct by that practitioner in particular instances because such standard and skill is not a matter of general knowledge and can only be supplied by expert testimony.”

If an expert review is supportive based upon sufficient information to satisfy the reasoned analysis requirements set forth in Bushling v. Fremont Medical Center (2004) 117 Cal.App.4th 493, the expert opinion is seen as conclusive proof, absent contradictory expert opinion, that one or more of the negligence elements cannot be satisfied. Trial courts are now reviewing a supportive expert review as sufficient to justify a section 998 offer for waivers.

In addition, cases interpreting section 998 have indicated that the absence of an offer’s inclusion of a net monetary gain for the plaintiff does not automatically invalidate the claim as a basis for a statutory award of costs. (See Jones v. Dumrichob (1998) 63 Cal.App.4th 1258.) In Jones, the court held that “respondent’s offer demonstrably did have significant monetary value. Appellants overlook[ed] the fact that in offering to have judgment entered against him, respondent was also waiving his considerable cost bill against which appellants’ likelihood of success in the case must have been weighed.” (Id. at 1263.)

As defense attorneys, we often argue that if a plaintiff is not aware of the probable outcome of the case, despite having had the opportunity for experts to review the case, they proceed at the peril of incurring substantial costs. The failure to properly assess the case should not, and frequently does not, excuse the obligation to pay costs. Moreover, the California Supreme Court has held that a plaintiff and his/her attorneys must have probable cause to believe that the lawsuit is legally tenable, not only at the initiation of the lawsuit, but throughout the litigation as well. (See Zamos v. Stroud (2004) 32 Cal.4th 958, 965-966.) The Determination whether such probable cause exists is effectuated by an objective standard. As such, plaintiffs should consider the merits of their cases when weighing the propriety of a section 998 offer for waivers.

As a general rule, when faced with this issue, the trial court should consider the following criteria: (1) if the defendant’s offer represents a reasonable prediction of the amount of money, if any, a defendant would have to pay plaintiff following the trial, and (2) what information is known or should be known at the time the offer is made, based upon the point of view of the offeror. (See Nelson v. Anderson (1999) 72 Cal.App.4th 111, 135-136.) “[I]f an experienced attorney or judge, standing in defendant’s shoes, would place the prediction within a range of reasonable possible results, the prediction is reasonable. (Id.). The Court of Appeal has held in numerous cases that the determination of a good faith offer, regardless of the amount involved, depends on the circumstances. (See Carver v. Chevron USA, Inc. (1987) 190 Cal.App.3d 704, and Pineda v. Los Angeles Turf Club, Inc., supra.)

In light of the foregoing authorities, a defendant’s ability pursuant to section 998 to offer a waiver of costs in exchange for a dismissal from the action has once again become a value tool in the litigation process. While the section 998 offer has come under fire in recent years for losing its effectiveness as a negotiating tool, the above noted appellate decisions, as well as the current trend in the trial courts, have put the teeth back into section 998, giving it the bite the Legislature originally intended it to possess.