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Court of Appeal Shakes Up Law Regarding Offers of Judgment

By: Gregory M. Smith

Last month the Court of Appeal for the Second Appellate District (Los Angeles, Ventura, Santa Barbara, and San Luis Obispo Counties) reversed several decades of precedent and held that a second offer of judgment under California Code of Civil Procedure § 998 ("998") does not bar a recovering party from the benefits of the first. In Martinez v. Brownco Construction Company, Inc., Raymond Martinez sued after he was severely injured in electrical explosion at a construction site. His wife, Gloria, also sued for loss of consortium. The jury awarded Raymond $1,646,674, but Gloria's claim is the real star of the Martinez decision.

Three years prior to trial, Gloria filed a 998 demand for $250,000; it lapsed without a response. Ten days before trial, she filed another 998 demand for $100,000; it was also ignored. At trial Gloria was awarded $250,000. The trial court awarded her costs incurred following the second demand. However, following California precedent dating to Distefano v. Hall (1968) 263 Cal.App.2d 380, and clarified in Wilson v. Wal-Mart Stores, Inc. (1999) 72 Cal.App.4th 382, it denied costs incurred prior to the second demand on the grounds that the second 998 extinguished and replaced the first.

By statute a 998 demand automatically lapses 30 days after it is made. Once the 30 days pass, the demanding party is entitled to expert costs and other expenses incurred after the demand, provided the other party fails to obtain a more favorable judgment. In its decision overturning the trial court, the Court of Appeals held that the plaintiff was entitled not only to her costs since the second 998 demand, but also her costs incurred between the two demands. It explained that the benefits to which a party is entitled under 998 are vested immediately upon the lapse of the offer, and nothing in the statute or in contract law requires the demanding party to waive those benefits simply because a later demand is made. Thus Gloria's right to recover her costs was fully vested after her initial demand expired, and the second demand was superfluous.

The decision mentions only 998 demands from the plaintiff, and is silent on 998 offers from the defendant. However, if one applies the principles that are the bedrock of CCP § 998 - "encouraging settlement by affording benefits to those who make reasonable settlement offers and imposing concomitant burdens on those who unreasonably reject them" - to a defense offer, it stands to reason that the Court might not permit a defendant to trump a 998 offer with a later, higher, one.