Third District Panel Splits Sharply on Reasonableness of 998 Offer Served With the Complaint Where No Formal Discovery Occurred.
The next case we discuss centers upon “early bird” Code of Civil Procedure section 998 offers, particularly one that was served concurrently with service of the summons and complaint in a personal injury action, well before any formal discovery could be conducted by the defense. We believe that the issue is close, in line with a sharp divergence in opinion by the justices deciding Barba v. Perez, Case No. C053428 (3d Dist. Aug. 28, 2008) (certified for partial publication).
Section 998 offers will not be enforced unless they are reasonable and made in good faith. For example, a defense “low-ball” settlement offer has been deemed unreasonable where defendants possessed critical exposure information unknown to plaintiff at the time the offer was made. See, e.g., Elrod v. Oregon Cummins Diesel, Inc., 195 Cal.App.3d 692, 700-702 (1987). However, what about the situation where a plaintiff sends out a 998 offer contemporaneously with service of summons and complaint before any formal discovery has been undertaken? Reasonable or not? Barba dealt with this situation, drawing a fairly sharp divergence in opinion.
The facts in Barba go like this. Barba injured himself while helping another move a refrigerator, suing the owner of a club and rental housing unit for his employee’s alleged negligence in letting go of the refrigerator during the move. Barba incurred medicals of over $70,000 and lost work. On the same date that Barba served the summons and complaint on defendant, he also served a 998 offer for $99,999.99. Defendant did not respond to the offer and filed an answer some four weeks later. A jury subsequently found defendant’s employee 100% negligent (vicariously imputed to defendant) and returned a damages verdict of $117,053.42. The trial court denied a motion to tax certain prejudgment interest and expert witness fees, claimed as recoverable under section 998. Defendant appealed.
The Third District affirmed, by a 2-1 vote.
The majority (Justices Butz and Robie) initially observed that the 998 offer was close to the ultimate judgment, one of the factors used to judge the reasonableness of the offer. That focused attention on the defendant’s pivotal argument—defendant did not have time to take discovery and intelligently evaluate the “early bird” 998 offer. On this contention, the majority reasoned that defendant, who was in a semi-familial relationship with plaintiff, had a “free flow of information” from plaintiff, including a presuit letter notifying defendant that Barba had incurred about $70,000 in medical expenses. The majority could find no abuse of discretion by the lower court in upholding the 998 offer and observed that while the Legislature set a 10-day minimum period to serve an offer before trial commencement, it “did not impose any minimum period that must elapse following commencement of suit for service of a valid section 998 offer. We respect the Legislature’s choice in this area and refuse to impose a judicial ‘waiting period’ for serving an offer to compromise.” (Slip Opn., at p. 18.)
In dissent, Acting Presiding Justice Sims reasoned that the dispute was controlled by a prior opinion of the same appellate court, Wilson v. Wal-Mart Stores, Inc., 72 Cal.App.4th 382, 390 (1999), where in dicta it stated that litigants facing 998 offers “’should be given the opportunity to learn the facts that underlie the dispute and consider how the law applies before they are asked to make a decision that, if made incorrectly, could add significantly to their costs of trial.’” Justice Sims then backed up his position that the 998 offer was not reasonable by further making these points (which drew rebuttals by the majority):
· A defendant should be entitled to complete minimal discovery before evaluating and responding to a 998 offer (the majority did not believe a per se unreasonable standard should govern a pre-answer 998 offer because defendant did have some informal information from plaintiff and a trial court would likely deem an offer unreasonable if defendant asked for informal discovery on the offer and was refused any information before the time elapsed to respond to the offer);
· It would be unreasonable to force the defense to immediately notice the deposition of plaintiff given that the defense usually needs to discuss the specifics of the personal injury case with an insurance carrier’s representative (the majority stood on the proposition that plaintiff should exchange informal information with the defense or likely be precluded from enforcing the 998 because of the unreasonable timing of the offer);
· The alleged presuit letter with medical expense information was not made a part of the appellate record and, beyond that, the defense should not be forced to rely on unsworn information in evaluating the 998 offer; and
· The majority’s suggestion that the parties would be encouraged to engage in an informal exchange of information—informal discovery—“is unsatisfactory. And section 998 provides no mechanism to obtain a court order extending the time to respond to a 998 offer. Defense counsel should not be at the mercy of plaintiff’s counsel’s charitable mood.” (Dissenting Slip Opn., at p. 4.)
Justice Sims felt that a 998 offer can be reasonably evaluated only after basic discovery procedures—requiring responses under oath—have been used. He would have found the 998 offer invalid and excised the costs awarded to plaintiff under the offer.