California courts follow the rule known as “loser pays,” which
means that the “prevailing party” in a lawsuit is awarded
certain costs of litigation (not including attorney’s fees). The
“prevailing party” is the party who obtains a monetary award
from the jury.
However, even if you prevail, the litigation costs awarded to you as the
“prevailing party” may be reduced, and you may be ordered
to pay the litigation costs of the losing party, if you reject the other
party's statutory settlement offer and you fail to obtain a more favorable
judgement at trial. This means not only that you may not be awarded your
litigation costs but also that you may be forced to pay the losing party’s
litigation costs, even if you prevail in your lawsuit.
Subdivision (b) of Section 998 of the California Code of Civil Procedure
provides, in part, as follows:
“Not less than 10 days prior to commencement of trial . . . , any
party may serve an offer in writing upon any other party to the action
to allow judgment to be taken or an award to be entered in accordance
with the terms and conditions stated at that time. . . . (2) If the offer
is not accepted prior to trial or arbitration, within 30 days after it
is made, whichever occurs first, it shall be deemed withdrawn, and cannot
be given in evidence upon the trial or arbitration.”
Furthermore, subdivision (e) of Section 998 provides, in part, as follows:
“If an offer made by a defendant is not accepted and the plaintiff
fails to obtain a more favorable judgement or awarded, the costs under
this section, from the time of the offer, shall be deducted from any damages
awarded in favor of the plaintiff. If the costs awarded under this section
exceed the amount of the damages awarded to the plaintiff the net amount
shall be awarded to the defendant and judgement or award shall be entered
The purpose of Section 998 is to “‘encourage settlement by
providing a strong financial disincentive to a party – whether it
be a plaintiff or a defendant – who fails to achieve a better result
than that party could have achieved by accepting his or her opponent’s
settlement offer. (This is the stick. The carrot is that by awarding costs
to the putative settler the statute provides a financial incentive to
make reasonable settlement offers.)’” Scott Co. v. Blount,
Inc. (1999) 20 Cal.4th 1103, 1116; Pilimai v. Farmers Ins. Exchange Co.
(2006) 39 Cal.4th 133, 139.
It is universally recognized by California courts that the purpose of settlement
offers made pursuant to Section 998 is to encourage the settlement of
lawsuits prior to trial. T. M. Cobb Co. v. Superior Court (1984) 36 Cal.3d
273, 280.) That purpose is achieved by punishing a party who fails to
accept a reasonable settlement offer from the other party. Taing v. Johnson
Scaffolding Co. (1992) 9 Cal.App.4th 579, 583; Elrod v. Oregon Cummins
Diesel, Inc. (1987) 195 Cal.App.3d 692, 699. Therefore, while the purpose
of Section 998 is to encourage the settlement of litigation without trial,
its effect is to punish the plaintiff who fails to accept a reasonable
settlement offer from a defendant.
A Section 998 settlement offer shifts the burden to the plaintiff to recover
more than the amount of the settlement offer at trial or face a court
order to pay the defendant’s litigation costs. Litigation costs
for even a small and uncomplicated case can reach $10,000.00 or more,
including court fees, jury fees, deposition costs, court reporter fees,
witness fees, subpoena costs, and the cost of trial exihibits and courtroom
models. Therefore, it is critical that plaintiffs understand the effect
of a Section 998 settlement offer made prior to trial.
I tell all of my clients that the decision to take their case to trial
is theirs to make and I will stand by them in that decision. However,
it is my job to ensure that my clients make informed decisions.