California Civil Code Section 998 - Interpretation

"The basic premise of section 998 is that plaintiffs who reject reasonable settlement offers and then obtain less than the offer should be penalized for continuing the litigation. The harsh result of section 998 is that the plaintiff not only loses the right to recover his or her costs, but must also pay the defendant's postoffer costs." (Meister v. Regents of University of California (1998) 67 Cal.App.4th 437, 450.) In Meister, the Sixth District Court of Appeal affirmed a trial court decision reducing an attorney fee award by the amount of fees incurred by the plaintiff after he declined an informal settlement offer. (Meister, supra, 67 Cal.App.4th at pp. 449-450.) The appellate court rejected the plaintiff's argument that the trial court's use of the informal offer undermined the public policy underlying section 998, reasoning that "the inapplicability of section 998 did not prevent the trial court from allowing the underlying policy concerns addressed by that section to guide its exercise of its discretion in this case." (Id. at p. 450.) The court concluded that irrespective of section 998, the trial court retained discretion to consider a party's rejection of a nonstatutory settlement offer "because it was based on the court's assessment of whether the hours which plaintiff's attorneys claimed to have expended on the litigation were 'reasonably spent.' " (Id. at p. 449.) In Greene v. Dillingham Construction N.A., Inc. (2002) 101 Cal.App.4th 418, the Court held that section 998's "punitive provisions . . . have no application to an informal settlement offer made during the course of a confidential mediation session." (Greene, supra, 101 Cal.App.4th at p. 425.) "Not only would disclosure of the settlement offer violate Evidence Code section 1119, the penalties would frustrate the public policy favoring settlement that is served by mediation." (Ibid.) Further, according to the court, "the Meister court's holding ignores the procedural protections afforded recipients of statutory section 998 offers. An offer pursuant to section 998 may not be withdrawn prior to trial or within 30 days after the offer is made, whichever occurs first. These protections are not necessarily provided in an informal settlement offer." (Ibid.) While the court "agreed with the Meister court to the extent it recognized that the trial court has discretion to determine whether fees were reasonably spent, it declined to follow the Meister holding that a trial court can consider an informal settlement offer in making that determination." (Id. at p. 426.)