You are exhausted. For the last couple of weeks, you and your attorneys have been rapidly preparing for trial. You have attended mandatory settlement conferences and have kept a close watch on your phone and email for any correspondence from your attorneys indicating that a settlement can be reached. Months prior to this, you have likely responded to discovery requests and may have even been deposed. You felt that this matter was going to settle at one point, but the parties couldn’t overcome necessary hurdles to reach that settlement. Now, on the eve of trial, it appears that a settlement is no longer possible, and you mentally prepare for what could be an even more exhausting week or more of trial ahead.
Just then, your attorneys call you. When you answer, they inform you they want to prepare a “998 offer”. You are unsure about this, as you have never heard of it. Your attorneys inform you that it is essentially another settlement offer. Understandably, you believe such an effort is futile, but your attorneys explain that the 998 offer holds more weight and can be a calculated method to limit financial risk going into trial. You simply ask: “What, how, and why?”
1. What Is A 998 Offer To Compromise?
Codified at Code of Civil Procedure § 998, the “998 offer” is an offer to allow judgment to be entered on specific terms. The offer must be sent from defendant to plaintiff at least 10 days prior to trial. The offer need not contain any specific language; however, it must be a written offer including a statement of the terms and conditions of the judgment or award, and a provision allowing the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted. Once made, the offer must remain open until the commencement of trial, or within 30 days after it is made, whichever occurs first. If not accepted within the above timeframes, it is deemed withdrawn.
2. How Is A 998 Offer Different From Other Settlement Offers?
Section 998 is a cost-shifting statute designed “to encourage the settlement of litigation without trial or arbitration, by punishing the party who fails to accept a reasonable settlement offer from its opponent.” If plaintiff turns down defendant’s 998 offer, and subsequently fails to obtain a more favorable judgment at trial, the opposing party faces both mandatory and discretionary penalties which flow from their refusal of the 998 offer.
- Mandatory Penalties.
If plaintiff fails to obtain a more favorable judgment than defendant’s 998 offer, plaintiff will be barred from recovering court costs incurred after the 998 offer was made. In addition, plaintiff must pay defendant’s postoffer court costs.
- Discretionary Penalties
In addition to the mandatory penalties above, the court may also order the plaintiff to pay a reasonable sum to cover defendant’s postoffer expert witness fees incurred in both preparation for and during trial of the case.
3. Why Does This Force A Plaintiff To More Carefully Consider The 998 Offer As Opposed To Other Settlement Offers?
If plaintiff refuses the 998 offer and proceeds to trial, but recovers less than defendant’s 998 offer, both parties may recover costs, including attorney fees. However, the extent of their recovery differs.
Plaintiff is still entitled to an award of costs, including attorney fees, as a prevailing party, pursuant to Code of Civil Procedure section 1032, but because they did not recover more than defendant’s 998 offer, the costs plaintiff may recover are limited to preoffer costs.
Defendant is entitled to postoffer costs, including, in the discretion of the court, postoffer expert fees. Since defendant’s 998 offer was greater than plaintiff’s judgment, defendant is treated as the prevailing party for purposes of postoffer costs.
Accordingly, plaintiff must carefully consider the merits of their own claim while in receipt of a reasonable 998 offer from defendant. Should defendant make a competitive 998 offer, plaintiff refuses defendant’s 998 offer, and plaintiff subsequently fails to obtain a more favorable judgment at trial, plaintiff will now be on the hook for defendant’s postoffer costs and simultaneously barred from recovering their own postoffer costs.
The 998 offer also commands defendant’s reasonable assessment and consideration of the merits of plaintiff’s claim and the merits of any defenses available to defendant in order to convey a competitive 998 offer, as defendant’s 998 offer will be of no regard if plaintiff recovers more than defendant’s 998 offer.
 Cal. Code Civ. Proc. § 998(b)
 Cal. Code Civ. Proc. § 998(b)(2); Marina Glencoe, L.P. v. Neue Sentimental Film AG (2008) 168 Cal.App.4th 874, 880 [“In order to function as an offer for purposes of section 998, an offer must remain open for the statutorily designated period – “prior to trial or . . . within 30 days after it is made, whichever occurs first . . . .”]
 Cal. Code Civ. Proc. § 998(b)(2)
 Westamerica Bank v. MBG Indus., Inc. (2007) 158 Cal.App.4th 109, 129
 Cal. Code Civ. Proc. § 998(e)
 Cal. Code Civ. Proc. § 998(c)
 “Costs” recoverable by a prevailing party under Code of Civil Procedure section 1032 include attorney fees if authorized by statute or contract. See Cal. Code Civ. Proc. § 1033.5(a)(10)
 Cal. Code Civ. Proc. § 998(c)(1)
 Cal. Code Civ. Proc. § 998(c)
 Scott Co. of Calif. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1110; SCI Calif. Funeral Servs. Inc. v. Five Bridges Foundation (2012) 203 Cal.App.4th 549, 577.