Mediation-The Power of a CCP Section 998 Offer to Compromise

A strategic Section 998 Offer to Compromise can make all the difference in getting a matter resolved. This was highlighted in one of my recent mediations. The plaintiff was clinging to a speculative damages theory; when faced with a settlement offer that reasonably valued her claim, she was determined to reject the offer and go to trial. In making that decision, plaintiff believed that her “worst-case scenario” was that she would lose at trial.  This was before she learned about the heightened risks associated with the threat of being served a 998 Offer to Compromise.

California Code of Civil Procedure Section 998 Offer to Compromise was enacted by the California State legislature to encourage settlements.  Section 998 acts as a cost-shifting mechanism.  It places the non-settling party at risk of additional financial burdens if it fails to accept the offer, and then also fails to secure a more favorable result than the offer after trial. 

The plaintiff in my case was willing to risk losing at trial, but she was not willing potentially to pay defendant’s post-offer costs (including what was very likely to be defendant’s substantial post-offer expert witness fees).  Section 998 permits both plaintiffs and defendants to recover court costs and, in the discretion of the judge or arbitrator, their post-offer expert witness fees if a party rejects the offer and then fails to obtain a more favorable judgment or award.  The defendant, in my case, had intended to retain three expert witnesses which could have potentially cost plaintiff $75,000 -$100,000 if she ultimately recovered less at trial than defendant’s statutory offer.  Because of the significant monetary risk resulting from being served with a statutory Offer to Compromise, plaintiff wisely elected to accept defendant’s settlement offer at mediation.

Without the threat of a 998 Offer would the parties have reached a settlement at the mediation?  Probably not. The risk of being served with the statutory offer forced the plaintiff reasonably to evaluate her case to avoid potentially having to pay defendant’s substantial expert witness fees if she were not successful at trial.  It reinforced to me what a valuable tool a 998 Offer is in encouraging parties to evaluate their case reasonably before proceeding to trial and risking additional costs and fees.