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Filed 4/11/23

Reposting correct version

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Placer)

----

OSCAR J. MADRIGAL et al.,

Plaintiffs and Respondents,

v.

HYUNDAI MOTOR AMERICA,

Defendant and Appellant.

C090463

(Super. Ct. No. 

S-CV-0038395)

APPEAL from a judgment of the Superior Court of Placer County, Michael W. 

Jones, Judge. Reversed.

Theta Law Firm, Soheyl Tahsildoost, Kainoa Aliviado; SJL Law and Julian G. 

Senior for Defendant and Appellant.

Fred J. Hiestand for Civil Justice Association of California as Amicus Curiae on 

behalf of Defendant and Appellant.

Knight Law Group, Roger Kirnos; The Altman Law Group, Bryan C. Altman; 

Law Office of Michael H. Rosenstein, Michael H. Rosenstein; Greines, Martin, Stein & 

Richland, Cynthia E. Tobisman and Joseph V. Bui for Plaintiffs and Respondents.

The Arkin Law Firm and Sharon J. Arkin for Consumer Attorneys of California as 

Amicus Curiae on behalf of Plaintiffs and Respondents.
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Plaintiffs Oscar J. and Audrey M. Madrigal (plaintiffs) sued defendant Hyundai 

Motor America (Hyundai) under California’s automobile lemon law. Early in the case, 

Hyundai made two offers to compromise under Code of Civil Procedure section 998,

1

both of which were rejected. Litigation continued. After a jury was sworn in, plaintiffs 

settled with Hyundai for a principal amount that was less than Hyundai’s second section 

998 offer. The parties elected to leave the issue of costs and attorney fees for the trial 

court to decide upon motion. Under the settlement agreement, once the issue of costs and 

attorney fees was resolved and payment was made by Hyundai, plaintiffs would dismiss 

their complaint with prejudice. 

This case presents the novel question of whether section 998’s cost-shifting 

penalty provisions apply when an offer to compromise is rejected and the case ends in 

settlement. Under the facts of this case, we hold that it does and therefore reverse the 

order of the trial court.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs sued Hyundai on September 26, 2016, under the Song-Beverly 

Consumer Warranty Act (Civ. Code, § 1790 et seq. (Song-Beverly Act)) alleging 

breaches of express and implied warranties arising out of plaintiffs’ purchase of an 

allegedly defective 2012 Hyundai Elantra for a total cash price of $24,172.73. 

Approximately five weeks later, on November 4, 2016, Hyundai made an initial offer to 

compromise under section 998, subdivision (b). Specifically, Hyundai offered to pay 

plaintiffs (1) the total amount paid by plaintiffs for the vehicle at issue, including 

incidental or consequential damages, as well as “an amount equal to one times the 

amount of actual damages,” or (2) a fixed amount of $37,396.60, plus attorney fees of 

1 Undesignated statutory references are to the Code of Civil Procedure.
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$5,000 or, alternatively, an amount of fees determined by the trial court upon motion. 

Plaintiffs allowed this offer to expire without accepting it. 

On May 26, 2017, Hyundai made a second offer to compromise under section 998, 

again offering the total amount paid by plaintiffs for the vehicle, including incidental or 

consequential damages, plus “an amount equal to one times the amount of actual 

damages.” Alternatively, plaintiffs could elect to accept a flat sum of $55,556.70, plus 

attorney fees of $5,000, or as determined by the trial court upon motion. Plaintiffs also 

allowed this offer to expire without accepting it. Litigation continued.

On January 3, 2019, the first scheduled day of trial, the parties reviewed their 

motions in limine with the court and the trial judge urged the parties to explore 

settlement. To help facilitate settlement talks, plaintiffs specifically requested tentative 

rulings on Hyundai’s motions in limine to exclude certain consequential, incidental, and 

cover damages. The court advised plaintiffs that those motions tentatively would be 

granted and then took a recess. 

When the trial court went back on the record, it noted that the jury had been 

sworn, at which point Hyundai’s counsel informed the judge that the parties “may have 

come to a resolution.” Following a discussion off the record, the parties’ attorneys

agreed to recite the terms of the stipulated settlement on the record pursuant to section 

664.6,

2 explaining that these recitals would “be the entirety of the settlement release in 

terms of the agreement.” 

Hyundai’s counsel verbally presented the terms of the stipulation for settlement to 

the trial court, as follows: (1) Hyundai would pay plaintiffs $39,000; (2) there would be 

2 Subdivision (a) of section 664.6 provides: “If parties to pending litigation 

stipulate . . . orally before the court, for settlement of the case, or part thereof, the court, 

upon motion, may enter judgment pursuant to the terms of the settlement. If requested by 

the parties, the court may retain jurisdiction over the parties to enforce the settlement 

until performance in full of the terms of the settlement.”
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no surrender of the vehicle because plaintiffs no longer owned it; (3) plaintiffs would 

release Hyundai and the selling dealership of “any claims that arise out of or [relate] to 

the facts and circumstances described in the complaint or relating to the sale of the 

vehicle or relating to the service and repair history of the subject vehicle”; (4) the 

settlement would be subject to section 664.6; and (5) plaintiffs could seek “fees by 

motion,” to “be filed within six months” of the date of settlement. Hyundai’s counsel 

added that plaintiffs’ counsel wanted “to make sure that the payment be made and then 

. . . dismissal with prejudice would only happen after payment of the restitution to the 

Plaintiffs and the fees which will be [by] motion [for] fees and costs.” 

The trial court then confirmed the terms of the settlement with the parties, their 

representatives, and attorneys. No mention was made during the settlement colloquy of

the effect, if any, of Hyundai’s section 998 offers upon the recovery of costs or fees, nor 

was there any discussion of what defenses Hyundai could raise in response to the motion

for costs and attorney fees.

Plaintiffs thereafter filed their motion for costs and attorney fees as prevailing 

parties under section 1032, subdivision (a)(4), and the Song-Beverly Act (Civ. Code,

§ 1794, subd. (d)), seeking $207,438.75 in fees (comprised of $138,292.50 in base fees 

with a lodestar enhancement of $69,146.25), and $20,865.83 in costs and expenses, 

totaling $228,304.58. 

In response, Hyundai filed a motion to strike or, in the alternative, tax plaintiffs’ 

costs and expenses. It argued, among other things, that plaintiffs’ ultimate settlement was 

for $16,556.70 less than its second section 998 offer. In Hyundai’s view, it was 

“undisputed that Plaintiffs[] failed to obtain a more favorable judgment than the Second 

998 Offer.” It thus sought “to have at least all costs incurred after the Second 998 Offer 

(dated May 26, 2017) stricken.” In effect, Hyundai asked the trial court to strike or tax

$20,242.88 in plaintiffs’ costs and expenses, leaving only $622.95 recoverable. In the 
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alternative, Hyundai asked the trial court to tax plaintiffs’ costs as unreasonable and 

unnecessary, providing specific line-item analyses. 

Hyundai also filed an opposition to the motion for attorney fees. As relevant here,

Hyundai argued that because plaintiffs failed to obtain a judgment more favorable than 

Hyundai’s second section 998 offer, plaintiffs could not recover any costs or fees 

incurred after May 26, 2017, the date of that offer. 

In an order filed on July 18, 2019, the trial court summarily rejected Hyundai’s 

section 998 arguments, explaining that “[t]he purpose of the statute is to encourage 

settlement of lawsuits prior to trial. [Citation.] In this case, the parties settled the case 

prior to trial, and as there was no trial, no judgment or award was rendered. Accordingly, 

. . . section 998 does not apply.” 

After reviewing the billing statements submitted by plaintiffs from “three separate 

law firms and 16 separate attorneys,” the trial court said that it “observed numerous 

instances of duplicative billing, billing for tasks that do not appear reasonably necessary 

to the conduct of the litigation, and unreasonable amounts of time spent on various 

tasks.” It went on to observe that “[t]his particular case did not involve overly complex 

issues, or unique procedural demands. Litigation of this case involved limited written 

discovery, depositions, and two motions to strike. . . . As noted by the parties, the law 

firms involved in this action have tried multiple cases against one another, with each 

following a similar pattern. The same basic motions in limine, exhibit lists, and other 

pleadings are used.” It ultimately declined to apply a multiplier and reduced substantially 

the base amounts sought, awarding plaintiffs just $81,142.50 in attorney fees and 

$17,681.05 in costs and expenses. 

Plaintiffs served by mail on August 1, 2019, and filed on August 5, 2019, a “notice 

of entry of judgment or order” form. On September 23, 2019, Hyundai filed a notice of 

appeal and, after a number of briefing extensions requested by the parties, as well as 
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supplemental briefing solicited by this court, the case was fully briefed on May 13, 2022

and argued on February 24, 2023. 

DISCUSSION3

The principal issue before us is whether the penalty provisions of section 998 

apply when a case ends, not with a judgment after trial, but with a settlement that 

provides for the payment of money by defendant in exchange for a dismissal with 

prejudice by the plaintiff. Before we address the merits, however, we consider the 

threshold question of whether we have jurisdiction to entertain this appeal. 

I

Appealability

“An appealable order or judgment is a jurisdictional requirement. [Citations.]

‘The right to appeal is wholly statutory. [Citation.] . . . [S]ection 904.1 lists appealable 

judgments and orders.’ [Citation.]” (Sanchez v. Westlake Services, LLC (2022) 73 

Cal.App.5th 1100, 1105.) Orders awarding attorney fees and costs often are appealable

under section 904.1, subdivision (a)(2), but not “until the final judgment in the matter has 

been entered.” (Marsh v. Mountain Zephyr, Inc. (1996) 43 Cal.App.4th 289, 297.)

3 Plaintiffs have filed two requests for judicial notice. The first request is ruled 

upon as follows: (1) granted as to exhibits B through E; and (2) denied as to exhibit A. 

The second request is ruled upon as follows: (1) granted as to exhibits 4, 5 and 6; and 

(2) denied as to exhibits 1, 2 and 3. “In determining the legislative intent underlying the 

passage of a bill, courts may consider the motive or understanding of the author of the 

bill or other individual legislator if that ‘legislator’s opinions regarding the purpose or

meaning of the legislation were expressed in testimony or argument to either a house of

the Legislature or one of its committees . . . .’ [Citation.]” (South Bay Creditors Trust v.

General Motors Acceptance Corp. (1999) 69 Cal.App.4th 1068, 1079, italics added.) 

Letters from a bill’s author to the Governor are not properly considered. (See McDowell 

v. Watson (1997) 59 Cal.App.4th 1155, 1161, fn. 3.) Exhibits A, 1, 2 and 3 are not 

proper subjects of judicial notice under this authority.
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In its notice of appeal, Hyundai stated that it was appealing the trial court’s order 

on fees and costs on the ground that it constitutes an order after judgment under section 

904.1, subdivision (a)(2).4 Although plaintiffs filed a “notice of entry of judgment or 

order” on August 5, 2019, no judgment appears yet in the record.

The status of the judgment in this case is a bit muddled owing to the way in which 

the parties agreed to settle the dispute. Although all the legal issues in the complaint 

were resolved by the stipulated settlement, the parties agreed that the request for 

dismissal of the complaint with prejudice (a common proxy for final judgment) would be 

filed only after payment of the $39,000 settlement amount and any fees and costs 

awarded by the trial court. Since any order awarding fees and costs was almost certain to 

be challenged on appeal, that meant the filing of the request for dismissal would 

effectively be delayed until after appellate review of the fees and costs order is complete. 

This set up the “catch-22” in which we find ourselves, with a final determination on the 

merits, but no judgment or dismissal with prejudice on file. 

In supplemental briefing,5 Hyundai pivoted away from section 904.1 to argue that 

the challenged order is an appealable collateral order, citing Apex LLC v. Korusfood.com

4 Hyundai also paradoxically checked boxes indicating that its appeal was taken in 

accordance with the “premature notice of appeal” provisions of California Rules of 

Court, rule 8.104(d)(1) and (2). 

5 Hyundai did not address the issue of appealability until invited to do so by this 

court. Hyundai is admonished for failing to address jurisdiction in its opening brief. 

(Cal. Rules of Court, rule 8.204(a)(2)(B) [an opening brief must “[s]tate that the 

judgment appealed from is final, or explain why the order appealed from is appealable”].) 

Counsel also is cautioned against citing unpublished California appellate opinions, as it 

does on page 27 of appellant’s reply brief. (Cal. Rules of Court, rule 8.1115(a).) Finally, 

it is inappropriate for Hyundai’s counsel to personally attack plaintiffs’ counsel’s motives 

in rejecting the company’s section 998 offers (or the alleged motives of all plaintiffs’ 

attorneys in general who litigate cases under the Song-Beverly Act), as it does in its reply 

brief. The only question before us is the proper interpretation and application of section 

998.
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(2013) 222 Cal.App.4th 1010, 1015-1016 [in the absence of a judgment, order granting

attorney fees found directly appealable under the collateral order doctrine].) Plaintiffs 

agree with Hyundai on this point, and both sides urge us to review the order. We agree 

that, in view of the unique terms of this settlement, which does not require plaintiffs to 

file a dismissal prior to payment of fees and costs despite the parties’ final resolution of 

issues in the trial court, we may properly review the challenged order under the collateral 

order doctrine.

“[When] there is no final judgment . . . , the issue is whether the order from which 

the appeal has been taken fits within an exception to the one final judgment rule codified 

in . . . section 904.1.” (Sese v. Wells Fargo Bank N.A. (2016) 2 Cal.App.5th 710, 714-

715.)6 “A recognized exception to the ‘one final judgment’ rule is that an interim order is 

appealable if: [¶] 1. The order is collateral to the subject matter of the litigation, [¶] 

2. The order is final as to the collateral matter, and [¶] 3. The order directs the payment 

of money by the appellant or the performance of an act by or against appellant. 

[Citations.]” (Marsh v. Mountain Zephyr, Inc., supra, 43 Cal.App.4th at pp. 297-298.) In 

short, the collateral order doctrine allows appeal of “an interlocutory order collateral to 

the main issue, dispositive of the rights of the parties in relation to the collateral matter, 

and directing payment of money or performance of an act.” (In re Marriage of Skelley

(1976) 18 Cal.3d 365, 368.) 

Here, the trial court’s order on attorney fees and costs meets all the requirements 

of the collateral order doctrine. It qualifies as a “final determination” because “ ‘further 

6 Under the one final judgment rule, “ ‘an appeal may be taken only from the final 

judgment in an entire action.’ ” (Molien v. Kaiser Foundation Hospitals (1980) 27 

Cal.3d 916, 921, quoting Tenhet v. Boswell (1976) 18 Cal.3d 150, 153.) “ ‘The theory 

[behind the rule] is that piecemeal disposition and multiple appeals in a single action 

would be oppressive and costly, and that a review of intermediate rulings should await 

the final disposition of the case.’ [Citations.]” (Griset v. Fair Political Practices Com.

(2001) 25 Cal.4th 688, 697.) 
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judicial action is not required on the matters dealt with by the order.’ ” (Apex LLC v. 

Korusfood.com, supra, 222 Cal.App.4th at p. 1016.) The issue of attorney fees is a 

“collateral matter” because it is “ ‘distinct and severable’ from the subject matter of the 

underlying litigation” (ibid.), which involved plaintiffs’ entitlement to recovery under the 

Song-Beverly Act. “Finally, by awarding attorney fees [and costs] . . . , the order directs 

the payment of money.” (Ibid.) We therefore find jurisdiction on this basis. 

In finding jurisdiction under the collateral order doctrine, we reiterate that the fees

and costs ruling is only an “interim” order for purposes of appealability due to the 

peculiar timing created by the settlement agreement. The trial court’s order granting fees 

and costs would plainly be appealable under section 904.1, subdivision (a)(2) had it been 

issued after dismissal of the complaint with prejudice. However, owing to the terms of 

this specific settlement, a request for dismissal with prejudice will not be filed until costs 

and fees are not only awarded, but paid. At that point, however, plaintiffs will be 

obligated to file the request for dismissal. Alternatively, if Hyundai fails to pay plaintiffs 

what they are owed (or plaintiffs fail to dismiss the action), the parties may invoke their 

remedies under section 664.6 to enforce the settlement terms. We see no reason to refuse 

to address the merits based on this technicality, when dismissal with prejudice, or, in the 

case of nonperformance, entry of judgment, is a certainty. To do so would require 

Hyundai to pay fees and costs to plaintiffs, plaintiffs to dismiss the action, and then 

Hyundai to refile the same appeal that is presently before us, which may in turn trigger 

refunds or additional payments.7 As the collateral order doctrine provides us with a clear 

path to jurisdiction in view of the procedural quandary created by the settlement, and the 

7 Such an approach could also potentially contravene the terms of the parties’ 

settlement agreement, as it would require dismissal of the case before any additional 

payment of costs and fees that may be ordered following remand after appeal. 
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parties agree to its application, we find jurisdiction under the doctrine and turn to the 

merits.

II

Section 998’s Application to Settlements

The issue presented here is whether the trial court erred in ruling that section 998 

does not apply when a case ends in settlement. This appears to be a question of first 

impression. “Because this issue involves the application of law to undisputed facts, we 

review the matter de novo. [Citation.]” (Martinez v. Brownco Construction Co. (2013) 

56 Cal.4th 1014, 1018 (Martinez).) 

On appeal, Hyundai raises two principal arguments as to why the trial court’s fees

and costs order should be reversed: (1) the stipulation to settlement under section 664.6 

“calling for dismissal of the entire action with prejudice constituted a ‘judgment’ within 

the meaning” of section 998; or, alternatively, (2) the “voluntary dismissal of the entire 

action with prejudice constitutes a failure by [plaintiffs] to obtain a judgment or award of 

any kind,” triggering the cost-shifting provisions of section 998. The Civil Justice 

Association of California filed an amicus curiae brief in favor of Hyundai’s position.

Plaintiffs counter: (1) section 998 does not apply in cases that resolve by way of 

settlement; (2) regardless, Hyundai cannot show the second section 998 offer was more 

favorable than a nonexistent judgment or award, or a judgment or award that contains 

subjective, nonfinancial benefits; and (3) section 998 provides no basis for reducing 

attorney fees or costs in a case brought under the Song-Beverly Act in which a plaintiff 

prevails.8 Consumer Attorneys of California filed an amicus curiae brief in favor of 

plaintiffs’ position.

8 We can dispatch the third argument quickly. In Duale v. Mercedes-Benz USA, 

LLC (2007) 148 Cal.App.4th 718, this court considered whether the defendant-seller’s 

section 998 offer affected the costs and attorney fees recoverable by the plaintiff under 
11

We agree with Hyundai that the terms of the stipulated settlement under section 

664.6 constituted a “judgment” within the meaning of section 998, subdivision (c) and 

that the trial court should have examined the parties’ entitlement to costs and attorney 

fees through the lens of that statute.

A. Relevant background on section 998

Under section 998, the costs allowed to the prevailing party under section 1032, 

including statutory attorney fees,9 “shall be withheld or augmented as provided in this 

section.” (§ 998, subd. (a).) Pursuant to this long-standing law, a party to a civil 

action—plaintiff or defendant—may serve upon any other party an offer to “allow 

judgment to be taken or an award to be entered in accordance with the terms and 

conditions stated at that time. The written offer shall include a statement of the offer, 

containing the terms and conditions of the judgment or award, and a provision that allows 

the accepting party to indicate acceptance of the offer by signing a statement that the 

offer is accepted.” (§ 998, subd. (b), italics added.) “If an offer made by a defendant is 

not accepted and the plaintiff fails to obtain a more favorable judgment or award, the 

plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs 

from the time of the offer.” (§ 998, subd. (c)(1), italics added.) Hence, the only question 

asked by subdivision (c)(1) of the statute is whether the plaintiff who rejected the offer 

obtained, or failed to obtain, a “more favorable judgment” through continued litigation. 

the Song-Beverly Act. (Id. at p. 726.) We found the trial court erred in holding that the 

more specific provisions of the Song-Beverly Act trumped the “general provisions” of 

sections 998 and 1032. Instead, we held that the language of these statutes could be 

harmonized with the Song-Beverly Act. (Duale, supra, at p. 726, citing Murillo v. 

Fleetwood Enterprises, Inc. (1998) 17 Cal.4th at 985, 992 [applying section 998 in a 

Song-Beverly Act case].) We see no reason to stray from this precedent.

9 Plaintiffs sought attorney fees under the Song-Beverly Act. (Civ. Code, § 1794, 

subd. (d).) “When authorized by statute, awards of attorney’s fees are expressly defined 

as costs, not damages. [Citation.]” (Elton v. Anheuser-Busch Beverage Group, Inc.

(1996) 50 Cal.App.4th 1301, 1308.) 
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It says nothing about the timing or form of that judgment, whether after trial, summary 

judgment, settlement, or otherwise. 

In Mon Chong Loong Trading Corp. v. Superior Court (2013) 218 Cal.App.4th

87, the Court of Appeal examined whether a plaintiff’s voluntary dismissal constituted a 

failure to obtain a more favorable judgment, thus triggering the defendant’s right to cost

shifting under section 998. (Id. at p. 91.) In holding that it did, the court explained that 

“section 998’s ‘more favorable judgment or award’ language describes the necessary 

condition for relieving the refusing party of its obligation to pay . . . . The appropriate 

moment for a court to assess whether a more favorable judgment or award has been 

obtained is at the conclusion of the lawsuit.” (Id. at p. 93, italics omitted.) “Section 998 

does not require that the [offering defendant] achieve any specific result; the [statute] is 

triggered ‘[i]f . . . plaintiff fails to obtain a more favorable judgment or award . . . .’ 

(§ 998, subd. (c)(1) . . . .) By its plain language, it requires that the plaintiff who refused 

the reasonable settlement offer obtain a more favorable judgment” to avoid application of 

section 998. (Id. at p. 94, original italics.) 

From the foregoing authorities we conclude that a burden of sorts arises for a 

plaintiff who rejects a valid offer to compromise under section 998—the obligation to 

obtain a judgment more favorable than the unaccepted offer. 

The policy behind section 998 penalties is well established. “It 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.)” (Bank of San Pedro v. Superior Court 

(1992) 3 Cal.4th 797, 804, superseded by statute as stated in Quiles v. Parent (2017) 

10 Cal.App.5th 130, 144; Chen v. BMW of North America, LLC (2022) 87 Cal.App.5th

957, 961 [section 998, subdivision (c)(1) “encourages acceptance of reasonable offers by 
13

penalizing a party who does not accept a settlement offer and then fails to achieve a better 

result through continued litigation”]; Mesa Forest Products, Inc. v. St. Paul Mercury Ins. 

Co. (1999) 73 Cal.App.4th 324, 330 [section 998 penalizes a party “ ‘who fails to accept 

what, in retrospect, is seen to have been a reasonable offer’ ”]; Meister v. Regents of 

University of California (1998) 67 Cal.App.4th 437, 450 [“The basic premise of section 

998 is that plaintiffs who reject reasonable settlement offers and then obtain less than the 

offer should be penalized for continuing the litigation”]; Hurlbut v. Sonora Community 

Hospital (1989) 207 Cal.App.3d 388, 408 [section 998’s purpose is to “punish[] a party 

who fails to accept a reasonable offer from the other party,” italics omitted].)

B. Analysis

Hyundai’s operative section 998 offer in the amount of $55,556.70, dated May 26, 

2017,10 was rejected by plaintiffs through inaction and was deemed withdrawn. (See 

§ 998, subd. (b)(2).) Just before trial began, however, the parties privately resolved all 

the legal issues in the case and stipulated to a settlement enforceable under section 664.6 

whereby Hyundai would pay $39,000, and an amount of costs and attorney fees to be 

decided by the trial court on a contested motion, after which plaintiffs would be required 

to dismiss their complaint with prejudice. In response to plaintiffs’ fees and costs

motion, Hyundai invoked section 998, subdivision (c) and urged the trial court to tax or 

deny recovery of any fees or costs incurred after May 26, 2017. The trial court refused, 

reasoning that section 998’s cost-shifting provisions do not apply to cases that end in 

settlement, and that because there was no trial, no judgment was rendered. 

By its plain terms, section 998 does not exclude cases that end in settlement, or 

limit its cost-shifting provisions to cases that end in a judgment after trial, so we first 

10 Hyundai’s May 2017 offer to compromise is the operative one because a second 

offer under section 998 extinguishes the first. (Wilson v. Wal-Mart Stores, Inc. (1999) 72 

Cal.App.4th 382, 392, as mod. on denial of rehg. May 20, 1999.)
14

examine the trial court’s conclusion from the perspective of whether the final resolution 

of this case—payment of money in exchange for dismissal with prejudice of the 

complaint—effected a “judgment” within the meaning of section 998, subdivision (c).

1. Judgment under section 998

Section 998 does not define the term “judgment.” The term “judgment” also has 

not been interpreted in the specific context we now consider, i.e., where a plaintiff who 

rejects a section 998 offer later settles for an amount less than the offer to compromise

and agrees to dismiss their complaint with prejudice. (§ 998, subd. (c) [cost-shifting 

provision applies to a plaintiff who rejects a section 998 offer and “fails to obtain a more 

favorable judgment”].) 

The term “judgment” has, however, been construed repeatedly by courts under 

subdivision (b) of section 998, which outlines the requirements for a valid offer and 

acceptance under the statute. That subdivision requires that a valid offer under section 

998 must “allow judgment to be taken” and set forth the “terms and conditions of the 

judgment.” In construing the term “judgment” in that context, courts have given the term

a broad interpretation consistent with the statute’s purpose to encourage parties to make 

and accept reasonable offers to compromise, permitting the statute to effectuate 

settlements based on a practical, rather than a literal, definition of “judgment.” 

For example, in DeSaulles v. Community Hospital of Monterey Peninsula (2016)

62 Cal.4th 1140 (DeSaulles), our Supreme Court rejected the argument that a 

compromise offer was invalid under section 998 because it called for payment of money 

to the plaintiff and dismissal of the action rather than entry of judgment in the plaintiff’s 

favor. Endorsing the expansive definition of “judgment” set forth in Goodstein v. Bank 

of San Pedro (1994) 27 Cal.App.4th 899 (Goodstein), the Supreme Court held: “ ‘[A]s 

between the parties thereto and for purposes of enforcement of settlement agreements, a 

compromise agreement contemplating payment by defendant and dismissal of the action 

by plaintiff is the legal equivalent of a judgment in plaintiff’s favor.’ ” (DeSaulles, 
15

supra, at p. 1155, citing Goodstein, supra, 27 Cal.App.4th at p. 907, italics added.) Thus, 

the Supreme Court agreed that the term “judgment” in section 998 is meant to include its 

functional equivalents, such as dismissal of a case with prejudice.

Other intermediate appellate courts, including this one, similarly have held that 

“[a]lthough section 998 refers to entry of a judgment or award, an offer that provides for 

the plaintiff’s dismissal of the action with prejudice is a valid form of offer within section 

998.” (Hartline v. Kaiser Foundation Hospitals (2005) 132 Cal.App.4th 458, 470; 

Peterson v. John Crane, Inc. (2007) 154 Cal.App.4th 498, 504 [same].) Thus, “a 

dismissal with prejudice is tantamount to a judgment and a final disposition of the case, 

and . . . therefore in accord with section 998.” (On-Line Power, Inc. v. Mazur (2007) 

149 Cal.App.4th 1079, 1085; see also Estate of Redfield (2011) 193 Cal.App.4th 1526, 

1533 [a “dismissal with prejudice following a settlement constitutes a final judgment on 

the merits”].)

While these cases address the definition of “judgment” in subdivision (b) of 

section 998, their authority guides our interpretation of the term “judgment” in 

subdivision (c)(1) of the statute. That is because it is “generally presumed that when a 

word is used in a particular sense in one part of a statute, it is intended to have the same 

meaning if it appears in another part of the same statute.” (People v. Dillon (1983) 

34 Cal.3d 441, 468.) This interpretive maxim is especially apt here given that application 

of the statute requires a comparison between the terms and conditions of the “judgment” 

proposed in Hyundai’s section 998 offer (§ 998, subd. (b)), and the “judgment” ultimately 

obtained by plaintiffs. (§ 998, subd. (c)(1).) While the use of the term “judgment” in the 

two subdivisions is not identical, it is still reasonable to conclude that by setting up a 

comparison between the “judgment” in the offer to compromise and the “judgment” later 

obtained, and using identical language to do so, the Legislature meant for both terms to 

be construed in a similarly flexible way. 
16

Further, the Legislature “ ‘is deemed to be aware of existing laws and judicial 

constructions in effect at the time legislation is enacted.’ ” (People v. Frahs (2020) 

9 Cal.5th 618, 634.) The Legislature has amended section 998 numerous times over the 

past 25 years, most recently in 2015. (Stats. 2015, ch. 345, § 2; see also Stats. 1997, ch. 

892, § 1; Stats. 1999, ch. 353, § 1; Stats. 2001, ch. 153, § 1; Stats. 2005, ch. 706, § 13.) 

Goodstein and other cases cited above were decided well before the Legislature last 

amended section 998 in 2015, yet it has never amended the statute to contravene the

holding that the term “judgment” was equivalent to any final resolution of the action, 

including a dismissal with prejudice, nor have the words “at trial” been added after the 

phrase “more favorable judgment” where it appears in the statute.11 The Legislature’s 

failure to amend section 998 in the face of this authority, while not conclusive, can be 

presumed to signify legislative acquiescence in the decisions finding that entry of a 

formal judgment is not required to trigger section 998’s cost-shifting provisions. (People 

v. Escobar (1992) 3 Cal.4th 740, 750-751 [“[W]here the Legislature amends a statute 

without altering a consistent and long-standing judicial interpretation of its operative 

language, courts generally indulge in a presumption that the Legislature has ratified that 

interpretation”].)

11 We disagree with plaintiffs’ assertion that the “Legislature has long understood 

that a ‘judgment’ meant a judgment after trial—that is, a judgment as an adjudicatory 

result.” Our dissenting colleague makes a similar contention, citing language from a 

committee analysis relating to a 1997 amendment to section 998 that expanded the 

statute’s reach to arbitration proceedings. (Conc. & dis. opn. post, at p. 11.) We need not 

resort to legislative history here given that neither section 998, subdivision (b) nor (c)(1) 

contain the words “after trial” or “at trial” or any such qualifier related to the word 

“judgment.” Stray remarks in legislative analyses unrelated to the question before us 

cannot be used to contradict or augment legislative text. “If there is no ambiguity in the 

language, we presume the Legislature meant what it said, and the plain meaning of the 

statute governs. [Citation.]” (Hunt v. Superior Court (1999) 21 Cal.4th 984, 1000.) 
17

Based on the foregoing, we find it proper to interpret broadly the term “judgment” 

in subdivision (c)(1) of section 998 in the same way that courts have interpreted it in 

subdivision (b). Both the case law and the Legislature’s acquiescence thereto promote a 

more expansive reading of the term. This includes, as the courts have repeatedly 

explained, construing the term “judgment” to include a dismissal with prejudice, like the 

one agreed to by the parties in this case. 

2. The structure and terms of the settlement in this case support the 

finding that the case ended with a judgment within the meaning of 

section 998

The stipulated settlement here has several other indicia of a final judgment under 

section 998. First, there is no question that it resulted in a final determination of the 

parties’ rights within the meaning of section 577. (§ 577 [“A judgment is the final 

determination of the rights of the parties in an action or proceeding”].) To be sure, the 

settlement resolved all the claims and defenses alleged in the pleadings with a payment 

by Hyundai in exchange for a release of the company and the selling dealership for “any 

claims that arise out of or [relate] to the facts and circumstances described in the 

complaint or relating to the sale of the vehicle or relating to the service and repair history 

of the subject vehicle.” The only “nonfinal” aspects of the stipulated resolution were the 

amount of attorney fees and costs owed and the delayed filing of the request for dismissal

with prejudice which, as discussed above, is dictated by the terms of the parties’

settlement. But there is no question that Hyundai has an enforceable right to dismissal 

with prejudice, a proxy for final judgment on the merits (Estate of Redfield, supra, 193

Cal.App.4th at p. 1533), once the attorney fees and costs issue is finally resolved and the 

money is paid.

12

12 In fact, at oral argument, counsel for plaintiffs conceded that the settlement 

agreement contemplated entry of judgment following the fee award. 
18

Second, the parties’ use of section 664.6 as the vehicle to memorialize their 

agreement supports the proposition that the settlement was intended to effect a final 

judgment. Section 664.6, subdivision (a) provides, in pertinent part, that where, as here, 

parties to pending litigation stipulate orally before the court for settlement of the case, 

“the court, upon motion, may enter judgment pursuant to the terms of the settlement.” 

This statute provides a streamlined method for reducing a stipulated settlement to 

judgment. “Section 664.6 was enacted to provide a summary procedure for specifically 

enforcing a settlement contract without the need for a new lawsuit. [Citations.]” 

(Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 809.) Thus, 

“settlement agreements pursuant to section 664.6 . . . result not only in contractual 

agreements but also in judgments that conclusively resolve the issues between the 

parties.” (DeSaulles, supra, 62 Cal.4th at p. 1153.) A settlement under this provision “is 

not incidental to the management of the lawsuit; it ends the lawsuit.” (Levy v. Superior 

Court (1995) 10 Cal.4th 578, 583.) By entering into the settlement pursuant to section 

664.6, the parties ensured the settlement would result in either dismissal with prejudice 

(where the parties fully performed) or formal entry of judgment (where a party failed to 

perform). In other words, the parties relied on section 664.6 to craft a settlement 

effecting a final, formal judgment or its functional equivalent.

Finally, we find support in the attorney fees provision of the Song-Beverly Act 

under which plaintiffs sought attorney fees and costs under the stipulated settlement. 

Civil Code section 1794, subdivision (d) provides that a prevailing vehicle purchaser

“shall be allowed by the court to recover as part of the judgment a sum equal to the 

aggregate amount of costs and expenses, including attorney’s fees based on actual time 

expended, determined by the court to have been reasonably incurred by the buyer in 

connection with the commencement and prosecution of such action.” (Italics added.) 

The stipulated settlement indisputably permits plaintiffs to recover some amount 

of costs and attorney fees under Civil Code section 1794, subdivision (d) “as part of the 
19

judgment.” This further evinces the parties’ intent that the settlement function as, or 

would lead to, a judgment.13 It is worth noting that appellate courts have defined 

“judgment” under Civil Code section 1794 consistent with the definition of “judgment” 

in section 998. (Wohlgemuth v. Caterpillar Inc. (2012) 207 Cal.App.4th 1252, 1259-

1263; Hyundai Motor America v. Superior Court (2015) 235 Cal.App.4th 418, 424-425.)

In Wohlgemuth, the Fifth Appellate District considered whether a pretrial dismissal with 

prejudice pursuant to a settlement agreement constituted a “judgment” for purposes of 

seeking fees under the Song-Beverly Act. (Wohlgemuth, supra, at pp. 1259-1260.) In 

finding that it did, the court reasoned that such final dispositions, though not formal 

judgments, are tantamount to judgments for purposes of section 998. (Wohlgemuth, at p. 

1263, citing Goodstein, supra, 27 Cal.App.4th at p. 907.) It then applied this same 

rationale from the section 998 caselaw to Civil Code section 1794, subdivision (d)’s 

definition of judgment, endorsing the same broad interpretation. (Wohlgemuth, at p. 

1263.) 

Given that the Song-Beverly Act’s definition of “judgment” mirrors section 998’s 

definition of “judgment,” it would be inconsistent to conclude that the settlement resulted 

in a judgment triggering application of the Song-Beverly Act’s fees provision, but did not 

result in a judgment triggering application of section 998, subdivision (c)’s cost-shifting 

provisions, when the term “judgment” in both statutes has been construed in the same 

way. 

13 Consistent with these terms, plaintiffs served and filed a notice of entry of 

judgment or order after issuance of the trial court’s ruling on fees and costs, raising the 

inference that, at least by the time the trial court awarded costs and attorney fees, they 

believed it constituted a final determination of the parties’ rights.
20

3. The policy underlying section 998 supports application of the 

statute to the settlement reached in this case

We further find that the policy considerations underlying section 998 support our 

conclusion here. As discussed earlier, “section 998 is a cost-shifting statute which 

encourages the settlement of actions, by penalizing parties who fail to accept reasonable 

pretrial settlement offers. A plaintiff who refuses a reasonable pretrial settlement offer 

and subsequently fails to obtain a ‘more favorable judgment’ is penalized by a loss of 

prevailing party costs and an award of costs in the defendant’s favor.” (Heritage 

Engineering Construction, Inc. v. City of Industry (1998) 65 Cal.App.4th 1435, 1439.) 

“The goal has been to apply [section 998] in a manner which best promotes its purpose. 

[Citation.]” (Guzman v. Visalia Community Bank (1999) 71 Cal.App.4th 1370, 1375.) 

The trial court found that section 998’s policy of encouraging settlement was met 

by the stipulated settlement in this case, a finding that plaintiffs urge us to endorse. But 

the policy behind section 998’s cost-shifting penalty provisions supports the conclusion 

that the statute is designed not to encourage pretrial settlements generally, but 

specifically to encourage the acceptance of offers to compromise within the parameters 

of the statute by using the stick of postoffer costs and fees against reluctant offerees. 

(Poster v. Southern Cal. Rapid Transit Dist. (1990) 52 Cal.3d 266, 270 [“Section 998 

clearly reflects this state’s policy of encouraging settlements. [Citations.] In order to 

encourage parties to accept reasonable settlement offers made pursuant to the section, 

subdivisions (c) and (d) of section 998 afford the offeror a remedy against a party who 

has failed to accept a statutory settlement offer that proves to be reasonable,” italics 

added].) 

Applying section 998’s “carrot and stick” approach to settlements like the one here 

furthers the statute’s policy of avoiding gamesmanship and encouraging careful 

consideration and acceptance of reasonable offers to compromise. (See Martinez, supra, 

56 Cal.4th at p. 1021 [“If a proposed rule would encourage gamesmanship or spawn 
21

disputes over the operation of section 998, rejection of the rule is appropriate”].) 

Hyundai’s operative section 998 offer was for approximately $56,000, more than twice 

the total cash price of the plaintiff’s vehicle, plus attorney fees incurred to the point of the 

offer. After allowing the offer to expire, plaintiffs continued to vigorously litigate the 

case for more than 18 months, using three law firms, 16 attorneys, and billing practices

with “numerous instances of duplicative billing, billing for tasks that do not appear 

reasonably necessary to the conduct of the litigation, and unreasonable amounts of time 

spent on various tasks.” The trial court found that neither the procedural nor substantive 

complexity of the case required such robust litigation and awarded plaintiffs’ counsel far 

less in attorney fees than they were seeking. 

The purpose of conserving judicial resources and encouraging early settlements by 

imposing a strong financial disincentive on a party that fails to obtain a judgment more 

favorable than a rejected offer to compromise would be substantially undercut by reading 

the phrase “at trial” into section 998, subdivision (c). The same is true of engrafting a 

vague limitation under which cost shifting is triggered only when the plaintiff’s 

“unilateral action” results in a judgment less favorable than a previously rejected offer to

compromise, as our dissenting colleague suggests. (Conc. & dis. opn. post, at pp. 6-9.) 

Either interpretation would allow offerees to avoid section 998’s penalties by rejecting a 

reasonable offer to compromise, forcing the opposing party to continue defending against 

needless, aggressive litigation, and settling on the eve of trial outside the parameters of 

the statute. 

Similarly, while the policies animating section 998, subdivision (c) are well served 

by applying the statute in this case because it will incentivize careful review and 

acceptance of reasonable offers to compromise, the same is not true of a blanket rule that 

section 998 does not apply in cases that end with a settlement. For instance, if a 

defendant who makes a reasonable offer to compromise early in the case, and is confident 

that the plaintiff is unlikely to secure a more favorable judgment through continued 
22

litigation, would lose the benefit (and leverage) of cost shifting by settling, that defendant

would have little incentive not to go to trial, especially where, as here, attorney fees are 

included in the bounty of costs recoverable by the plaintiff. Indeed, Hyundai explains in 

its reply brief that it would not have settled if section 998 did not apply. Under the rule 

we adopt, a plaintiff need only factor any operative section 998 offer into a 

comprehensive settlement, and either try to negotiate a fixed amount of costs or attorney 

fees, or bargain for a waiver of any rights under section 998 from the defendant. 

Plaintiffs took neither precaution here. They instead agreed to litigate the issue of costs 

and attorney fees without restricting the defenses that Hyundai could raise in response to 

their motion.

Our dissenting colleague advances several arguments that seek to raise the specter 

of unintended consequences that purportedly would flow from our interpretation and 

“inject uncertainty into the section 998 process.” (Conc. & dis. opn. post, at p. 18.) The 

hypotheticals employed in that analysis, however—relating to possible changes in the 

law, a complex construction defect case, and arbitration proceedings—are far afield of 

the question we decide today. (See conc. & dis. opn. post, at pp. 19-23.) It is well settled 

that appellate opinions are not authority for propositions that are not considered and 

decided. (KCSFV I, LLC v. Florin County Water Dist. (2021) 64 Cal.App.5th 1015, 

1032.) That maxim applies with equal force to this decision. The speculative concerns 

raised in the dissent may be the subject of future decisions, but we do not resolve them

today.

Plaintiffs rejected reasonable offers to compromise early in the case, creating a 

known risk that they might have to forfeit costs and attorney fees from the date of the 

operative section 998 offer if they failed to obtain a more favorable judgment later. 

When they ultimately agreed on the brink of trial to accept a monetary settlement that 

was less than Hyundai’s second section 998 offer, and further agreed to dismiss their 

complaint with prejudice, they “fail[ed] to obtain a more favorable judgment” within the 
23

meaning of section 998, subdivision (c). The trial court should therefore have applied 

that statute when assessing the costs and attorney fees recoverable by the parties.

4. The dissent’s deconstruction of the phrase “fails to obtain” runs 

afoul of statutory interpretation principles 

Although not raised in the parties’ briefing, a substantial portion of the dissent is 

devoted to explicating the phrase “fails to obtain,” as used in section 998, subdivision (c), 

which provides, in part: “If an offer made by a defendant is not accepted and the plaintiff 

fails to obtain a more favorable judgment . . . .” (Conc. & dis. opn. post, at pp. 6-10, 

italics added.)

Relying on definitions, not from a standard dictionary, but from a legal thesaurus 

and a 1968 edition of Black’s Law Dictionary, the dissent asserts that the “plain meaning 

of ‘fail’ and the association of that word with a result obtained by the plaintiff indicates 

section 998(c)(1)’s cost-shifting provision applies only when the plaintiff’s unilateral

action results in a judgment less favorable than a previously rejected or withdrawn offer 

to compromise.” (Conc. & dis. opn. post, at p. 6, original italics.) It further asserts that 

these “definitions demonstrate ‘fails to obtain’ may reasonably be understood to refer to 

the result flowing from the plaintiff’s unilateral action rather than a result flowing from a 

compromise between opposing parties,” where there is not a “defeat,” a “loss,” or an 

abandonment of the action. (Id. at p. 7.) Finally, the dissent posits that, if the phrase 

were considered ambiguous, this interpretation would be in harmony with the term’s 

usage in other sections of the Code of Civil Procedure (id. at pp. 8-9), and consistent with 

the legislative history of section 998. (Id. at pp. 9-12.)

The false premise underlying these efforts to draw implied inferences from section 

998, subdivision (c) and limit its reach to “unilateral” failures or “litigated results” (conc. 

& dis. opn. post, at pp. 11-12) is the idea that the statute is so abstruse that we must resort 

to a legal dictionary, thesaurus, or statutory deconstruction. The phrase “fails to obtain a 

more favorable judgment” means what it says—the plaintiff fails to, or does not, meet its
24

obligation at the conclusion of the lawsuit to obtain a judgment more favorable than the 

amount stated in the offer to compromise. “If there is no ambiguity in the language of [a] 

statute, ‘then the Legislature is presumed to have meant what it said, and the plain 

meaning of the language governs.’ [Citation.] ‘Where the statute is clear, courts will not 

“interpret away clear language in favor of an ambiguity that does not exist.” [Citation.]’

[Citation.]” (Lennane v. Franchise Tax Bd. (1994) 9 Cal.4th 263, 268.) There is no need 

to go beyond the plain text of section 998, subdivision (c) to divine the meaning of the 

phrase “fails to obtain.” 

5. Plaintiffs’ other arguments lack merit

Plaintiffs advance two theories supporting their argument that “[they] cannot have 

failed to obtain a more favorable judgment or award than a rejected [section] 998 offer 

when the settlement (and the offer preceding it) subsumes, supersedes, and renders that 

offer a legal nullity.” Their first theory is that “[o]nce a contract is executed, ‘all prior 

negotiations and stipulations concerning the subject matter’ of that contract ‘are 

considered merged therein.’ ” (Quoting Bradford v. Southern California Petroleum 

Corp. (1944) 62 Cal.App.2d 450, 461 & citing Civ. Code, § 1625.) Their second theory 

is that the last offer rule applies; they assert “[t]he principle that ‘any new offer 

communicated prior to a valid acceptance of a previous offer, extinguishes and replaces 

the prior one’ is just as enduring.” (Quoting Distefano v. Hall (1968) 263 Cal.App.2d 

380, 385.) 

The merger theory advanced by plaintiffs is inapplicable because it applies to only

written contracts. (Civ. Code, § 1625 [“The execution of a contract in writing, whether 

the law requires it to be written or not, supersedes all the negotiations or stipulations 

concerning its matter which preceded or accompanied the execution of the instrument”].) 

Here, the settlement agreement was presented orally to the trial court in accordance with 

section 664.6. Plaintiffs have presented us with no authority, nor are we aware of any, 

providing the merger doctrine applies to oral contracts.
25

We further decline to apply the last offer rule because it is unclear which party 

made the offer resulting in the settlement agreement. As our Supreme Court explained, 

“under the so-called ‘last offer rule’ . . . , when a party makes successive unrevoked and 

unaccepted section 998 offers, the last such offer is the only operative offer with respect 

to the statutory benefits and burdens.” (Martinez, supra, 56 Cal.4th at p. 1023, 

fn. omitted.) However, the record here merely provides the parties reached a settlement; 

it does not identify the offeror or offeree.

14

While conceding the inapplicability of the last offer rule to this case, the dissent

nevertheless appears to argue for application of a related contract interpretation doctrine, 

implied revocation of Hyundai’s May 2017 section 998 offer by inconsistent action

(settlement). Under the formulation of the rule articulated in Varney Entertainment 

Group, Inc. v. Avon Plastics, Inc. (2021) 61 Cal.App.5th 222, “ ‘[a]n offeree’s power of 

acceptance is terminated when the offeror takes definite action inconsistent with an 

intention to enter into the proposed contract and the offeree acquires reliable information 

to that effect.’ ” (Id. at p. 235, citing Rest.2d Contracts, § 43.) However, the application 

of this doctrine advanced by the dissent rests on the assumption that Hyundai intended 

sub silentio to waive its right to seek cost shifting under section 998 by virtue of entering 

into the settlement. (Conc. & dis. opn. post, at p. 17.) Clearly, Hyundai had no such 

intent given that it agreed to leave open the issue of costs and attorney fees and sought 

the statute’s protections when the parties litigated the issue, as it was free to do under the 

settlement agreement.

14 Hyundai asserts plaintiffs made the offer to settle on the first day of trial. It 

provides no citation to the record for these statements, however, and we thus disregard 

them. (McOwen v. Grossman (2007) 153 Cal.App.4th 937, 947 [“Statements of fact that 

are not supported by references to the record are disregarded by the reviewing court”].) 
26

More importantly, applying contract interpretation principles to render Hyundai’s 

May 2017 section 998 offer “inoperable” (conc. & dis. opn. post, at pp. 16-17) would 

defeat the purpose of section 998 to penalize parties who decline reasonable offers to 

compromise, and conflict with the statute by relieving plaintiffs of their statutory 

obligation to obtain a judgment more favorable than the rejected offer to compromise. 

(T. M. Cobb Co. v. Superior Court (1984) 36 Cal.3d 273, 280 [“general contract law 

principles should apply to section 998 offers and acceptances only where such principles 

neither conflict with the statute nor defeat its purpose”].) 

Finally, application of the inconsistent action rule hinges on there being some 

manifestation of the offeror’s intent to revoke an earlier offer that it made. (See Varney 

Entertainment Group, Inc. v. Avon Plastics, Inc., supra, 61 Cal.App.5th at p. 235 

[holding that a pending offer to compromise under section 998 was impliedly 

extinguished by the offeror’s inconsistent offer to enter into a stipulated judgment].) In 

other words, the offeror has to take some action that is materially inconsistent with its

first offer, thereby constructively extinguishing that prior offer. There is no material 

inconsistency between the settlement and Hyundai’s second section 998 offer. First, the 

May 26, 2017 offer already was extinguished by operation of law under section 998, 

subdivision (b)(2). Second, the record does not disclose which side made the offer that 

led to the settlement. If Hyundai did not make the offer, then the inconsistent offer rule 

would not apply given that the offeror did not “take definite action” to revoke its 

$55,556.70 offer; it merely would have been reacting to an offer from plaintiffs. And 

finally, the settlement was not inconsistent with Hyundai’s right to raise section 998, 

subdivision (c) in opposition to plaintiffs’ motion for attorney fees and costs, given that 

plaintiffs agreed without qualification to leave the issue of costs and attorney fees for the 

trial court to resolve. 
27

DISPOSITION

The order is reversed. Hyundai shall recover its costs on appeal. (Cal. Rules of 

Court, rule 8.278(a)(1) & (5).)

 KRAUSE , J.

I concur:

 DUARTE , J.
1

ROBIE, Acting P. J., Concurring and Dissenting.

Code of Civil Procedure1 section 998 “requires cost shifting when a party fails to 

accept a statutory offer to comprise. The statute provides that at least 10 days before 

trial, a defendant ‘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.’ [Citation.] If the plaintiff accepts the offer, the court ‘shall enter 

judgment accordingly.’ [Citation.] But if the plaintiff does not accept the offer and fails 

to obtain a more favorable judgment, the plaintiff ‘shall not recover his or her postoffer 

costs and shall pay the defendant’s costs from the time of the offer.’ [Citation.] ‘[C]osts’ 

include those items allowable as costs to the prevailing party as a matter of law, including 

attorney fees awarded by statute or contract.” (Varney Entertainment Group, Inc. v. Avon 

Plastics, Inc. (2021) 61 Cal.App.5th 222, 232 (Varney).) 

In this case, plaintiffs Oscar J. Madrigal and Audrey M. Madrigal sued defendant 

Hyundai Motor America (Hyundai) under the Song-Beverly Consumer Warranty Act 

(Act) after purchasing an allegedly defective Hyundai vehicle. Hyundai made two 

section 998 offers to compromise; plaintiffs did not accept either offer.2 After the jury 

was sworn in, the parties reached a settlement and orally presented the terms of the 

settlement to the trial court in accordance with section 664.6. In short, the parties agreed 

Hyundai would pay plaintiffs $39,000 and any attorney fees, costs, and expenses awarded 

to plaintiffs by the trial court following plaintiffs’ subsequent motion, and plaintiffs 

would thereafter file a dismissal with prejudice. The agreed upon damages settlement 

was for an amount less than the second unaccepted section 998 offer. 

The novel question presented is whether section 998, subdivision (c)(1)’s (section 

998(c)(1)) mandatory cost-shifting provision applies when a plaintiff rejects an offer to 

1 Undesignated section references are to the Code of Civil Procedure.

2 The parties agree to this fact. 
2

compromise and the parties later settle the matter for an amount less than the defendant 

had offered in the rejected offer to compromise. I concur in the majority’s conclusion 

that we have jurisdiction to consider the merits of this question and agree the merger 

doctrine and last offer rule do not apply under the facts of this case. I dissent, however, 

to the conclusion that section 998(c)(1)’s mandatory cost-shifting provision applies when 

the parties enter into a settlement agreement.

Based on the plain language of the statute, the legislative history, and the purpose 

and public policy behind section 998, I believe section 998(c)(1)’s cost-shifting provision 

applies only when a plaintiff through unilateral action obtains a less favorable judgment 

than a previously rejected section 998 offer. 

I

The General Nuts And Bolts Of Section 998

Section 998, subdivision (a) provides that the “costs allowed under Sections 1031 

and 1032 shall be withheld or augmented” as provided in section 998. Section 998, 

subdivision (b) provides, in pertinent part: “Not less than 10 days prior to 

commencement of trial or arbitration . . . of a dispute to be resolved by arbitration, 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. The written offer shall include a statement of the offer, containing the terms 

and conditions of the judgment or award, and a provision that allows the accepting party 

to indicate acceptance of the offer by signing a statement that the offer is accepted.” “If 

the offer is not accepted prior to trial or arbitration or 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.” (§ 998, subd. (b)(2).) 

Pertinent to this appeal, section 998(c)(1) provides, “If an offer made by a 

defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or 

award, the plaintiff shall not recover his or her postoffer costs and shall pay the
3

defendant’s costs from the time of the offer. In addition, in any action or proceeding 

other than an eminent domain action, the court or arbitrator, in its discretion, may require 

the plaintiff to pay a reasonable sum to cover postoffer costs of the services of expert 

witnesses, who are not regular employees of any party, actually incurred and reasonably 

necessary in either, or both, preparation for trial or arbitration, or during trial or 

arbitration, of the case by the defendant.” In that regard, “[i]f an offer made by a 

defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or 

award, the costs under [section 998], from the time of the offer, shall be deducted from 

any damages awarded in favor of the plaintiff. If the costs awarded under [section 998] 

exceed the amount of the damages awarded to the plaintiff[,] the net amount shall be 

awarded to the defendant and judgment or award shall be entered accordingly.” (§ 998, 

subd. (e).)

When a plaintiff fails to accept a defendant’s section 998 offer and fails to obtain a 

more favorable judgment, the trial court determines whether the defendant’s prior 

unaccepted section 998 offer was made in good faith. (Covert v. FCA USA, LLC (2022) 

73 Cal.App.5th 821, 833.) An offer is made in good faith only if it carried with it some 

reasonable prospect of acceptance. (Id. at p. 834.) Whether the offer is reasonable 

“depends upon the information available to the parties as of the date the offer was 

served.” (Westamerica Bank v. MBG Industries, Inc. (2007) 158 Cal.App.4th 109, 130, 

italics added.) 

“Reasonableness generally ‘is measured, first, by determining whether the offer 

represents a reasonable prediction of the amount of money, if any, defendant would have 

to pay plaintiff following a trial, discounted by an appropriate factor for receipt of money 

by plaintiff before trial, all premised upon information that was known or reasonably 

should have been known to the defendant,’ and ‘[i]f an experienced attorney or judge, 

standing in defendant’s shoes, would place the prediction within a range of reasonably 

possible results, the prediction is reasonable.’ ” (Whatley-Miller v. Cooper (2013) 
4

212 Cal.App.4th 1103, 1112.) “ ‘If the offer is found reasonable by the first test, it must 

then satisfy a second test: whether [the defendant’s] information was known or 

reasonably should have been known to [the plaintiff]. This second test is necessary 

because the section 998 mechanism works only where the offeree has reason to know the 

offer is a reasonable one. If the offeree has no reason to know the offer is reasonable, 

then the offeree cannot be expected to accept the offer.’ ” (Id. at p. 1113.)

“In light of this focus on the reasonableness of the offeror’s conduct in making the 

[section] 998 offer (which makes sense because the issue is the validity of the offer in the 

first place), whether the offeree acted reasonably in rejecting that offer is irrelevant.” 

(Licudine v. Cedars-Sinai Medical Center (2019) 30 Cal.App.5th 918, 925.) “In 

assessing whether the [section] 998 offeror knew that the offeree had sufficient 

information to evaluate the offer (the second consideration), the offeree needs 

information bearing on the issue of liability as well as on the amount of damages because 

these are the issues upon which a verdict would rest and because the [section] 998 offer, 

if accepted, would be in lieu of that verdict.” (Ibid.) “In assessing the information 

available to the offeree, courts are to look to all of the relevant circumstances.” (Ibid.)

In Duale, this court held that section 998 applies in Act cases because Civil Code 

section 1794, subdivision (d), which provides a prevailing buyer is entitled to costs and 

expenses, including attorney’s fees, reasonably expended in connection with the 

commencement and prosecution of the action, “triggers application” of section 1032. 

(Duale v. Mercedes-Benz USA, LLC (2007) 148 Cal.App.4th 718, 724, 726; see also 

Covert v. FCA USA, LLC, supra, 73 Cal.App.5th at pp. 827-828 [buyer in an Act case 

who failed to obtain a more favorable judgment at trial than a previously rejected § 998 
5

offer could not recover postoffer attorney’s fees and costs under Civil Code § 1794, 

subd. (d)].)

II

Section 998(c)(1)’s Mandatory Cost-Shifting 

Provision Does Not Apply To Settlements

Pertinent to this appeal, Hyundai argued in the trial court that section 998(c)(1)’s 

cost-shifting provision applies because the terms of the parties’ settlement constituted a 

failure by plaintiffs to obtain a judgment more favorable than Hyundai’s second section 

998 offer. Whether section 998(c)(1)’s cost-shifting provision applies to settlement 

agreements that are adjudged less favorable than a previously rejected or withdrawn offer 

to compromise is a question of statutory interpretation subject to de novo review. (Curtis 

Engineering Corp. v. Superior Court (2017) 16 Cal.App.5th 542, 546.) 

Our fundamental task in statutory interpretation cases “ ‘ “is to determine the 

Legislature’s intent so as to effectuate the law’s purpose.” ’ ” (Fluor Corp. v. Superior 

Court (2015) 61 Cal.4th 1175, 1198.) “Toward this end we must accord a reasonable and 

commonsense interpretation consistent with the Legislature’s purpose.” (Donald v. Cafe 

Royale, Inc. (1990) 218 Cal.App.3d 168, 177.) In the absence of a statutory definition, 

“we presume the words were intended to be understood ‘ “in [their] ordinary sense and, 

consequently, we may refer to [those words’] dictionary definition[s] to ascertain [their] 

ordinary, usual meaning.” ’ ” (In re Kavanaugh (2021) 61 Cal.App.5th 320, 345.) We 

do not, however, look at words in isolation. “ ‘The meaning of a statute may not be 

determined from a single word or sentence; the words must be construed in context, and 

provisions relating to the same subject matter must be harmonized to the extent 

possible.’ ” (People v. Shabazz (2006) 38 Cal.4th 55, 67.) Generally, “[w]hen the 

language is clear and there is no uncertainty as to the legislative intent, we look no further 

and simply enforce the statute according to its terms.” (DuBois v. Workers’ Comp. 

Appeals Bd. (1993) 5 Cal.4th 382, 387-388.) “ ‘ “If, however, the statutory terms are 
6

ambiguous, then we may resort to extrinsic sources, including the ostensible objects to be 

achieved and the legislative history.” ’ ” (California Forestry Assn. v. California Fish & 

Game Commission (2007) 156 Cal.App.4th 1535, 1545.) 

The majority focuses on the word “judgment” to conclude section 998(c)(1) 

applies to the section 664.6 oral settlement because the settlement was less favorable than 

Hyundai’s second rejected/withdrawn offer to compromise. Even if the settlement 

constitutes a “judgment” within the meaning of section 998 as the majority proposes, 

however, the analysis does not end there. We must, if possible, “give effect and 

significance to every word and phrase of a statute.” (Garcia v. McCutchen (1997) 

16 Cal.4th 469, 476.) To that end, the cost-shifting provision of section 998(c)(1) applies 

when the plaintiff fails to obtain a judgment more favorable than a previously rejected or 

withdrawn offer to compromise. (Cf. Fed. Rules Civ. Proc., rule 68(d) [“If the judgment 

that the offeree finally obtains is not more favorable than the unaccepted offer, the 

offeree must pay the costs incurred after the offer was made” (italics added)].) The plain 

meaning of “fail” and the association of that word with a result obtained by the plaintiff 

indicates section 998(c)(1)’s cost-shifting provision applies only when the plaintiff’s 

unilateral action results in a judgment less favorable than a previously rejected or 

withdrawn offer to compromise.

Burton’s Legal Thesaurus delineates the definition of “fail” into two categories. 

The first category relates to loss: “be defeated, be demoted, be unsuccessful, become 

bankrupt, become insolvent, botch, bungle, cadere, . . . concidere, crash, decline, 

deficere, deteriorate, disappoint, dishonor, err, fall short, flunk, fold, go out of business, 

go under, lose, miscarry, miss the mark, not succeed, prove inadequate, prove 

unsatisfactory, prove useless, succumb.” (Burton’s Legal Thesaurus (3d ed. 1998) 

p. 228, col. 1.) The second category is delineated in terms of neglect: “abandon, avoid, 

break one’s promise, break one’s word, desert, evade, forsake, ignore, leave, let one 

down, mismanage, miss, miss an opportunity, omit, prove unreliable, shirk.” (Ibid.) 
7

Black’s Law Dictionary defines “fail” to mean “[f]ault, negligence, or refusal” and 

to also mean, among other things, “[i]nvoluntarily to fall short of success or the 

attainment of one’s purpose.” (Black’s Law Dict. (rev. 4th ed. 1968) p. 711, col. 1.) It 

further defines “failure” to mean “[a]bandonment or defeat,” “[d]eficiency, want, or lack; 

ineffectualness; inefficiency as measured by some legal standard; an unsuccessful 

attempt.” (Id. at p. 711, col. 2; see, e.g., State v. Summers (1928) 320 Mo. 189, 196 

[6 S.W.2d 883, 885] [“Failure, when used in connection with any enterprise, in its 

ordinary and obvious sense, means abandonment or defeat”]; White v. Pettijohn (1840) 

23 N.C. 52, 54-55 [same].) 

The foregoing definitions demonstrate “fails to obtain” may reasonably be 

understood to refer to the result flowing from the plaintiff’s unilateral action rather than a 

result flowing from a compromise between opposing parties. A plaintiff is defeated or 

loses, for example, when, following an adverse adjudication, the plaintiff obtains a 

judgment less favorable than what the defendant offered in a previously rejected or 

withdrawn offer to compromise (e.g., where the plaintiff obtains a lesser damages award 

following a trial or arbitration). A plaintiff may also obtain a less favorable judgment by 

abandoning the action and making no effort to obtain a judgment at all. (See, e.g., Mon 

Chong Loong Trading Corp. v. Superior Court (2013) 218 Cal.App.4th 87, 93-94 [“A 

plaintiff may fail to obtain a more favorable judgment or award by failing to obtain any 

award at all, as in the case of voluntary dismissal”].) Neither of the foregoing plain 

meaning applications pertain to negotiated settlements where the result is not due to the 

plaintiff’s unilateral action, but is instead the result of continued negotiations and a 

compromised settlement between the parties. 

Moreover, a settlement does not result in a winner or a loser. (See, e.g., Delgado 

v. Boyles (Ind.Ct.App. 2010) 922 N.E.2d 1267, 1270, 1272 [a contract provision 

requiring the unsuccessful party to pay the successful party’s reasonable costs and 

attorney fees as part of any judgment recovered did not apply because a “private 
8

settlement cannot result in a winner or loser”]; Chester Upland Sch. Dist. v. 

Commonwealth (E.D.Pa. 2012) 284 F.R.D. 305, 308 [“settlement avoids labeling one side 

as the winner and the other side as the loser”]; Daily Gazette Co. v. West Virginia Dev. 

Office (1999) 206 W.Va. 51, 61 [521 S.E.2d 543, 553] [successful means to win].) 

“In ordinary civil actions such as the one before us, the parties come to court 

seeking resolution of a dispute between them. The litigation process they encounter is 

fraught with complexities, uncertainties, delays, and risks of many kinds. Different 

judges and juries may respond in different ways to the same evidence and argument. 

Public judicial proceedings may result in adverse publicity and unwanted disclosure of 

previously confidential information. Damage awards (or failure to recover) may cause 

financial hardship or ruin.” (Neary v. Regents of University of California (1992) 

3 Cal.4th 273, 280.) “ ‘[A] settlement allows parties to resolve their dispute by 

compromise, taking into consideration all relevant risks and costs. In settlement, each 

side gives up something: a plaintiff foregoes the opportunity to recover the maximum 

award achievable through a jury trial, and a defendant foregoes the chance to obtain 

vindication . . . that it could achieve with a victory at trial.’ ” (Zhao v. United States

(S.D.Ill. 2019) 411 F.Supp.3d 413, 445, italics added.) “The essence of settlement is 

compromise. [Citations.] Each side gains the benefit of immediate resolution of the 

litigation and some measure of vindication for its position while foregoing the 

opportunity to achieve an unmitigated victory.” (E.E.O.C. v. Hiram Walker & Sons, Inc. 

(7th Cir. 1985) 768 F.2d 884, 889.)

The interpretation that “fails to obtain” in section 998(c)(1) pertains to the result 

flowing from a plaintiff’s unilateral action harmonizes the Legislature’s use of “fail” in 

other parts of the Code of Civil Procedure as well. (See Hassan v. Mercy American River 

Hospital (2003) 31 Cal.4th 709, 716 [“words should be given the same meaning 

throughout a code unless the Legislature has indicated otherwise”]; McKee v. National 

Union Fire Ins. Co. (1993) 15 Cal.App.4th 282, 291 [“where a word or phrase has been 
9

given a particular meaning in one part of the law, it should be given the same meaning in 

other parts of the law”].) “Failed,” “fails,” or “failure” in the Code of Civil Procedure are 

used in reference to a specific party’s or individual’s action or inaction in litigation. (See, 

e.g., §§ 426.50 [“A party who fails to plead,” and “if the party who failed to plead the 

cause acted in good faith”], 1297.116, subd. (a) [“A party fails to act”], 1268.020, 

subd. (a) [“the plaintiff fails to pay the full amount”], 1029.6, subd. (a) [“The failure of 

any defendant to join”], 1030, subd. (d) [“If the plaintiff fails to file the undertaking”], 

1002, subd. (e) [“An attorney’s failure to comply”].) 

Even if “fails to obtain” is ambiguous, however, the appropriate conclusion is that 

section 998(c)(1)’s cost-shifting provision does not apply to negotiated settlements. 

(Hughes v. Board of Architectural Examiners (1998) 17 Cal.4th 763, 776 [“A statute is 

regarded as ambiguous if it is capable of two constructions, both of which are 

reasonable”].) The legislative history is scant on the question presented, but the history 

we have available to us supports this interpretation. (Halbert’s Lumber, Inc. v. Lucky 

Stores, Inc. (1992) 6 Cal.App.4th 1233, 1239 [if the meaning of a word is ambiguous, 

courts may refer to the legislative history to determine the meaning].) 

“The predecessor of section 998 providing for an opportunity to obtain costs on 

the basis of a settlement offer was first enacted in 1851. [Citation.] The section was 

substantially the same as the New York Code of Procedure, section 385[,] which was 

derived from the Field Code (First Rep. [of] the Com[rs.]. on Prac. & Pleadings, Code 

Proc., § 338 (1848)) except that the New York provision allowed ten days for acceptance, 

while the California provision allowed five.” (T.M. Cobb Co. v. Superior Court (1984) 

36 Cal.3d 273, 286 (dis. opn. of Broussard, J.) (T.M. Cobb).) The Field Code explained 

the intended offer to compromise language, as adopted in California in section 998’s 

predecessor and which included the “fails to obtain” language as it remains in section 998 

today, was intended to ensure that, when a plaintiff rejects an offer to compromise, “but 

carries on the action, in order to recover a greater amount, he does it at the hazard of 
10

paying costs to the defendant, if he shall fail to establish a greater claim.” (First Rep. of 

the Comrs. on Prac. & Pleadings, Code Proc., § 338, supra, at p. 239, italics added.) The 

“principal benefit hoped” for was “to save the time of courts and witnesses, and the 

expense to parties, in proving the amount of damages, in case the right to recover in the 

action, shall be established.” (Ibid., italics added.) 

A plaintiff can only fail to establish a greater claim if the plaintiff abandons the 

effort to do so by dismissing the case or fails to prove the claim in an adjudication. The 

plain meaning of “establish” in the legal context of establishing a claim is “[t]o prove; to 

convince.” (Black’s Law Dict. (8th ed. 2004) p. 586, col. 1; see State v. Estime

(Fla.Dist.Ct.App. 2018) 259 So.3d 884, 887-889 [to “establish” the identity of the 

accused means “to prove” it]; Lawson v. Superior Court (1957) 155 Cal.App.2d 755, 758 

[“ ‘To prove’ means ‘to establish or make certain; to establish a fact or hypothesis as true 

by satisfactory and sufficient evidence’ ”]; Greenwich Collieries v. Director, Office of 

Workers’ Compensation Programs, United States Dep’t of Labor (3d Cir. 1993) 990 F.2d 

730, 734 [same]; Guzman v. Commonwealth (2010) 458 Mass. 354, 362 [937 N.E.2d 441, 

447] [“ ‘Establish’ means to prove”]; Ash-Will Farms, L.L.C. v. Leachman Cattle Co.

(Cir.Ct. 2003) 61 Va.Cir. 165, 169 [“To establish means to prove”].) A settlement does 

not prove anything regarding a legal claim, nor does it prove the amount of damages; a 

settlement thus does not result in a plaintiff failing to establish a greater claim than a 

previously rejected or withdrawn section 998 offer.

Further, although the subsequent legislative history of a statute generally does not 

have much bearing on the Legislature’s intent and understanding of the statute when it 

was originally enacted, it can be persuasive when a subsequent amendment directly bears 

on the Legislature’s understanding regarding the future application of the statute. (See 

Barrett v. Rosenthal (2006) 40 Cal.4th 33, 54, fn. 17.) That is particularly true here, 

where the Legislature in 1997, among other things, expanded section 998 under Senate 

Bill No. 73 (1997-1998 Reg. Sess.) to apply to arbitration proceedings in the same way it 
11

applies to judicial proceedings, and amended the cost-shifting provision to clarify that 

postoffer costs are excluded for purposes of determining if the plaintiff obtained a 

judgment more favorable than a previously rejected section 998 offer. (Stats. 1997, 

ch. 892, § 1, pp. 6389-6391.) 

When the Legislature considered whether to amend section 998 in that regard, it 

considered various analyses that repeatedly stated section 998 (which then applied only in 

judicial proceedings) applies when a party rejects a settlement offer and subsequently 

fails to do better at trial. For example, the analyses explained Senate Bill No. 73 would 

revise the law awarding costs against a party who rejected a section 998 offer and “fails 

to do better at trial” by excluding postoffer costs from the calculation of whether the 

party does better than the rejected section 998 offer, by specifying a plaintiff who rejects 

a section 998 offer and “fails to do better at trial” must pay the defendant’s costs from the 

date of the offer, and by making the provision applicable to “contractual and medical 

malpractice arbitrations.” (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 73 

(1997-1998 Reg. Sess.) as proposed to be amended July 16, 1997, p. 2; Sen. Com. on 

Judiciary, Analysis of Sen. Bill No. 73 (1997-1998 Reg. Sess.) as amended May 1, 1997, 

p. 1; Sen. Rules Com., Off. of Sen. Floor Analyses, Analysis of Sen. Bill No. 73 (1997-

1998 Reg. Sess.) as amended Aug. 25, 1997, pp. 1-2; Sen. Rules Com., Off. of Sen. Floor 

Analyses, 3d reading analysis of Sen. Bill No. 73 (1997-1998 Reg. Sess.) as amended 

May 20, 1997, pp. 1-2; Sen. 3d reading analysis of Sen. Bill No. 73 (1997-1998 Reg. 

Sess.) as amended July 21, 1997, p. 1; Sen. 3d reading analysis of Sen. Bill No. 73 (1997-

1998 Reg. Sess.) as amended Aug. 11, 1997, p. 1; Sen. 3d reading analysis of Sen. Bill 

No. 73 (1997-1998 Reg. Sess.) as amended Aug. 25, 1997, p. 1.) 

The foregoing analyses show the Legislature considered whether to amend section 

998 and expand it to arbitration proceedings through the prism that section 998(c)(1) 

applies when a plaintiff obtains a litigated result less favorable than a previously rejected 
12

section 998 offer. This is consistent with the statements in the Field Code when section 

998 was first enacted.

It is worth noting that section 998(c)(1)’s cost-shifting provision has been a part of 

California law, in one form or another, since California adopted the initial version of the 

statute in 1851, over 170 years ago. (T.M. Cobb Co., supra, 36 Cal.3d at p. 286 (dis. opn. 

of Broussard, J.).) Even though the vast majority of civil cases resolve in settlements 

(Baker, Managed Cooperation in a Post-Sago Mine Disaster World (2013) 33 Pace 

L.Rev. 491, 514 [“[95] percent of cases filed in the California state judicial system 

eventually settle before trial”]), no case has addressed the question whether section 

998(c)(1)’s cost-shifting provision applies to a negotiated settlement. Does that not seem 

odd? I believe it is indicative of the overall historical understanding that section 

998(c)(1) applies when a less favorable result is obtained while the parties act in their 

respective litigant roles, e.g., as adversaries at trial or arbitration.

The interpretation that the cost-shifting provision does not apply to settlements is 

also supported by the purpose of section 998. (Wilson v. Wal-Mart Stores, Inc. (1999) 

72 Cal.App.4th 382, 389 (Wilson) [“In construing section 998, we follow the fundamental 

rule of statutory construction ‘ “that the court should ascertain the intent of the 

Legislature so as to effectuate the purpose of the law” ’ ”]; see also Hughes v. Board of 

Architectural Examiners, supra, 17 Cal.4th at p. 776 [when a statute is ambiguous, courts 

consider extrinsic aids such as legislative history and a statute’s purpose to ascertain the 

Legislature’s intent].) “The policy behind section 998 is ‘to encourage the settlement of 

lawsuits prior to trial.’ ” (Martinez v. Brownco Construction Co. (2013) 56 Cal.4th 1014, 

1019 (Martinez).) “Section 998 aims to avoid the time delays and economic waste 

associated with trials and to reduce the number of meritless lawsuits.” (Ibid.) As 

explained in greater detail post, the interpretation that a settlement is not a failure to 

obtain a more favorable judgment is reasonable, practical, and workable because it serves 

the policy of encouraging settlements. 
13

Before delving into that analysis, however, it is notable that, “[w]hen the language 

of section 998 does not provide a definitive answer for a particular application of its 

terms, courts may consult and apply general contract law principles. Because the process 

of settlement and compromise is a contractual one, such principles may, in appropriate 

circumstances, govern the offer and acceptance process under section 998. [Citation.] A 

general contract law principle may be found controlling if the policy of encouraging 

settlements is ‘best promoted’ thereby.” (Martinez, supra, 56 Cal.4th at p. 1020.) To the 

extent the language of section 998 is not definitive as to the statute’s application to 

settlement agreements, which I believe it is, a general contract law principle supports the 

interpretation that section 998 does not apply in that context. 

It is well established under contract law that “[a]n offeree’s power of acceptance 

may be terminated by” revocation of the offer, rejection by the offeree, the making of a 

counteroffer, lapse of time, incapacity of the offeror, or the “non-occurrence of any 

condition of acceptance under the terms of the offer.” (Rest.2d Contracts, § 36.) An 

offer is revoked by communication from the offeror of his, her, or their intention not to 

enter into the proposed contract. (Id., § 42 [titled, “Revocation by Communication from 

Offeror Received by Offeree” (boldface & capitalization omitted)].) The manifestation 

of such an intention may be implied when the offeror “takes definite action inconsistent 

with an intention to enter into the proposed contract and the offeree acquires reliable 

information to that effect.” (Id., § 43 [titled, “Indirect Communication of Revocation” 

(boldface omitted)]; see 1 Corbin, Contracts (rev. ed. 2018) § 2.20, p. 291 [“Any 

statement by the offeror to the offeree that even implicitly states the offeror no longer 

regards the offer as a commitment constitutes a revocation”].) “Perhaps the most 

prominent type of indirect revocation, one that is widely recognized by the courts, is the 

subsequent offer dealing with the same subject matter.” (1 Corbin, supra, § 2.20, p. 297.) 

This is known as the last offer rule. (See id., p. 295, fn. 6, citing Wilson, supra, 

72 Cal.App.4th 382.) Although the last offer rule is inapplicable under the facts of this 
14

case,3 cases applying the last offer rule within the context of rejected or withdrawn 

section 998 offers assist to show why Hyundai’s second section 998 offer was no longer 

operative for purposes of section 998(c)(1). (Varney, supra, 61 Cal.App.5th at p. 234 [“A 

revoked section 998 offer no longer functions as a statutory ‘offer’ to settle and does not 

trigger section 998’s cost shifting provisions”].) 

In Martinez, our Supreme Court explained the last offer rule as follows: 

“Distefano [v. Hall (1968)] 263 Cal.App.2d 380, involved two defense offers to 

compromise under former section 997, the predecessor to section 998. There, the 

defendants first made a $ 20,000 statutory offer, which was not accepted. At trial, the 

plaintiff obtained an award of $ 28,500, which was reversed on appeal. The defendants 

thereafter made a $ 10,000 statutory offer, which also was not accepted. The plaintiff 

obtained an award of $ 12,559.96 at the retrial and was allowed costs. [Citation.] On 

appeal, the defendants challenged the cost award and further contended the plaintiff 

should pay their costs because he refused to accept their first offer of $ 20,000, which 

was more favorable to the plaintiff than the result at the retrial. [Citation.]

“The Distefano court affirmed, emphasizing the contractual nature of the statutory 

settlement and compromise process and the general contract rule that ‘any new offer 

3 I render no opinion on whether the last offer rule would apply if the record showed 

Hyundai made the oral settlement offer leading to the section 664.6 settlement because 

that is not an established fact in this case. I will note, however, that I am unaware of a 

case that has resolved that question. Although an appellate court previously declined to 

apply contract principles to render a prior unaccepted section 998 offer inoperable when 

the defendant made a subsequent oral nonstatutory offer (Gallagher v. Heritage (1983) 

144 Cal.App.3d 546, 547-548), that case was overruled by our Supreme Court in T.M. 

Cobb Co., supra, 36 Cal.3d at page 279 based on the appellate court’s refusal to apply 

contract principles. I note this only to point out that, if the last offer rule applies to an 

oral settlement offer, it would create a dichotomy in the application of section 998 

because whether the rejected section 998 offer remains operative for cost-shifting 

purposes would depend on who made the oral settlement offer. Such a rule could stifle 

settlement communications. 
15

communicated prior to a valid acceptance of a previous offer, extinguishes and replaces 

the prior one.’ [Citation.] Discerning a legislative intent to give ‘full effect to the 

parties’ reappraisals of the merits’ of their cases, Distefano concluded that parties should 

be encouraged to make and consider multiple settlement offers and that the policy in 

favor of settlements would be promoted by a rule that a later statutory offer extinguishes 

a previous statutory offer for purposes of cost shifting. [Citation.] Thus, because the 

plaintiff ultimately obtained a verdict more favorable than the defendants’ last offer, he 

was not required to pay the defendants’ costs. [Citation.] 

“T. M. Cobb, supra, 36 Cal.3d 273, did not address the effect of multiple offers 

under section 998. Significantly, however, the decision approved of Distefano’s 

reasoning that, because section 998 involves the contractual process of settlement and 

compromise, general contract law principles may properly govern the statutory offer and 

acceptance process so long as they ‘neither conflict with the statute nor defeat its 

purpose.’ [Citation.] 

“In Wilson, supra, 72 Cal.App.4th 382, a plaintiff made two section 998 offers to 

compromise. The first offer was for $ 150,000, and the second was for $ 249,000. The 

defendant failed to respond to either offer, and each was statutorily deemed withdrawn. 

The jury awarded a verdict of $ 175,000 in the plaintiff’s favor. [Citation.] The trial 

court granted the defendant’s motion to tax the expert witness fees upon finding the 

plaintiff’s last offer of $ 249,000 ‘ “superseded and extinguished” ’ her first offer of 

$ 150,000. [Citation.] 

“The Wilson court affirmed. After noting section 998’s silence on whether a 

subsequent statutory offer extinguishes a prior one, Wilson relied on T. M. Cobb, supra, 

36 Cal.3d 273, and Distefano [v. Hall], supra, 263 Cal.App.2d 380, to conclude the 

plaintiff’s second offer extinguished her first offer. [Citation.] Specifically, Wilson

agreed with Distefano that, in fairness, parties must be allowed to ‘review their respective 

positions’ as more information is discovered and to ‘consider how the law applies before 
16

they are asked to make a decision that, if made incorrectly, could add significantly to 

their costs of trial.’ [Citation.] Although Wilson acknowledged that ‘settlements 

achieved earlier rather than later are beneficial to the parties and thus to be encouraged 

. . . ’ [citation], it expressed concern that, if a subsequent offer did not extinguish a 

previous one, then ‘[a] plaintiff might be encouraged to maintain a higher settlement 

demand on the eve of trial and refuse to settle a case that should otherwise be settled if 

the plaintiff finds comfort in the knowledge that, even if the plaintiff receives an award 

less than his or her last demand, the plaintiff might still enjoy the cost reimbursement 

benefits of section 998 so long as the award exceeded a lower demand made by the 

plaintiff sometime during the course of the litigation’ [citation]. Thus, under the socalled ‘last offer rule’ applied in Wilson and Distefano, when a party makes successive 

unrevoked and unaccepted section 998 offers, the last such offer is the only operative 

offer with respect to the statutory benefits and burdens.

“We note the Legislature did not respond to the Distefano decision in 1971 when it 

repealed former section 997 and reenacted its contents in section 998. Nor did the 

Legislature act to otherwise repudiate the last offer rule in several subsequent 

amendments of the statute. But . . . none of the Legislature’s activity regarding section 

998 has ever addressed successive offers, or any of the case law relating to this particular 

topic. And significantly, the Legislature has never acted to cabin [our Supreme Court’s] 

holdings . . . that a basic contract law principle may not be applied if it would defeat or 

conflict with section 998’s policy of encouraging settlement.” (Martinez, supra, 

56 Cal.4th at pp. 1022-1024, fns. omitted.) 

As our Supreme Court explained in discussing the Distefano and Wilson opinions, 

when the last offer rule applies to previously rejected or deemed withdrawn section 998 

offers, it renders such prior offers inoperable with respect to the statutory benefits and 

burdens of section 998. In that regard, although revocation is described as the

termination of an “offeree’s power of acceptance” (Rest.2d Contracts, § 36), the judicial 
17

application of the last offer rule in the context of section 998 indicates an implied 

revocation doctrine (such as the last offer rule or the inconsistent actions rule) is not 

viewed through the lens of terminating the “offeree’s power of acceptance”—because, 

when it applies, it applies to previously rejected or deemed withdrawn section 998 offers 

(i.e., offers that are no longer open for the offeree’s acceptance)—but is instead viewed 

through the lens of whether the offeror intended to keep the section 998 offer operative 

for purposes of the benefits and burdens of the statute. 

Here, by entering into the settlement agreement, Hyundai took an act inconsistent 

with an intent to keep the rejected section 998 offer operative. Under the settlement 

terms, Hyundai agreed plaintiffs could seek their attorney’s fees and costs; the settlement 

does not provide plaintiffs “shall not recover [their] postoffer costs and shall pay

[Hyundai’s] costs from the time of the offer,” as provided in section 998(c)(1). Indeed, 

Hyundai did not seek costs from plaintiffs. If the last offer rule, a type of indirect 

revocation, applies to render a previously rejected or deemed withdrawn offer inoperable 

for purposes of section 998, a subsequent settlement can render a previously unaccepted 

or withdrawn offer inoperable in the same manner. (See Varney, supra, 61 Cal.App.5th 

at pp. 234-236.)4 

The interpretation that section 998 does not apply to settlement agreements 

furthers the intent of section 998. “The policy behind section 998 is ‘to encourage the 

settlement of lawsuits prior to trial.’ ” (Martinez, supra, 56 Cal.4th at p. 1019.) To 

determine if an interpretation of section 998 furthers the statute’s purpose, courts 

4 In Varney, the court of appeal applied the implied revocation doctrine to a 

subsequent settlement agreement. (Varney, supra, 61 Cal.App.5th at p. 235.) Although 

the section 998 offer at issue in that case remained pending when the parties entered into 

the settlement agreement (id. at p. 234), the fact is of no consequence because the implied 

revocation doctrine applies equally to rejected or withdrawn section 998 offers, as 

explained in Martinez, ante. 
18

consider whether the interpretation “would tend to stifle negotiations and discourage 

settlement,” “whether applying section 998 in a particular manner serves the public 

policy of compensating the injured party,” and “whether the particular application injects 

uncertainty into the section 998 process.” (Martinez, at pp. 1020-1021.) Applying 

section 998(c)(1) to a later settlement would stifle negotiations and discourage settlement, 

fail to compensate the injured party, and inject uncertainty into the section 998 process. 

“[T]he chances of settlement increase with multiple offers.” (Martinez, supra, 

56 Cal.4th at p. 1026.) The application of section 998(c)(1) to settlements would 

discourage a plaintiff who previously rejected a section 998 offer from later making a 

non-section 998 settlement offer for less than the previously rejected section 998 offer in 

response to newly discovered evidence or any subsequent change in the law bearing on 

the plaintiff’s injuries or the defendant’s culpability. Our Supreme Court explained, 

“[T]o be consistent with section 998’s financial incentives and disincentives, parties 

should not be penalized for making more than one reasonable [section 998] settlement 

offer.” (Martinez, at p. 1026.) The same logic applies to non-section 998 settlement 

offers, which may ultimately lead to a settlement agreement between the parties. Indeed, 

“the policy of compensating injured parties is best served by according parties flexibility 

to adjust their settlement demands in response to newly discovered evidence.” (Martinez, 

at p. 1026.) 

It is important to recognize that “there is an evolutionary aspect to lawsuits and the 

law, in fairness, must allow the parties the opportunity to review their respective 

positions as the lawsuit matures. The litigants should be given a chance 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.” 

(Wilson, supra, 72 Cal.App.4th at p. 390.)

As a point of illustration, consider an existing disagreement among the Courts of 

Appeal as to whether, in “lemon law cases” such as this one, a vehicle manufacturer is 
19

entitled to an offset against the amount of restitution owed to a buyer when the buyer 

previously sold or traded in the defective vehicle. (Niedermeier v. FCA US LLC (2020) 

56 Cal.App.5th 1052 [offset required], rev. granted Feb. 10, 2021, S266034; Figueroa v. 

FCA US, LLC (2022) 84 Cal.App.5th 708 [offset not required], rev. granted Feb. 1, 2023, 

S277547; Williams v. FCA US LLC (2023) 88 Cal.App.5th 44, petn. for rev. pending, 

petn. filed Mar. 13, 2023, S279051 [offset not required].) Under the majority’s 

interpretation, if a plaintiff rejected a reasonable section 998 offer prior to Niedermeier

and later agreed to settle for a lesser amount because of Niedermeier’s interpretation that 

an offset is allowed, the cost-shifting provision of section 998(c)(1) would necessarily 

apply to the plaintiff’s detriment. The trial court would have no authority to determine 

whether the settlement was reasonable in light of the change in the law; the trial court’s 

reasonableness determination as to the section 998 offer extends only to what was known 

or reasonably should have been known at the time the rejected section 998 offer was 

made. (Whatley-Miller v. Cooper, supra, 212 Cal.App.4th at pp. 1112-1113.) Should the 

plaintiff be penalized due to a subsequent change in the law? I believe not. 

Further, the focus of our de novo statutory interpretation of section 998(c)(1) 

should not be based solely on the facts of this case or within the context of “lemon law” 

cases. We must consider the impact of our interpretation on all civil cases to which the 

statute applies, from simple to complex. 

Consider for a moment a complex construction defect litigation case. Assume the 

plaintiffs’ primary complaint is water intrusion at and around the windows of their 

homes. The plaintiffs sue the window manufacturer, the window installer, and all trades 

that potentially could have contributed to the water intrusion (e.g., framing, stucco, etc.). 

The parties conduct extensive discovery; they participate in days of visual inspections at 

the homes, depose the plaintiffs regarding the defects, and depose the persons most 

knowledgeable for each defendant. The parties attempt to mediate but fail to reach a 

compromise. The window manufacturer, firmly believing its windows are not defective 
20

(based on the discovery and information known) but wanting to avoid further litigation, 

makes a section 998 offer of $100,000. The plaintiffs reject the offer to compromise. 

The parties later proceed with invasive testing at the homes to prepare for trial. During 

the invasive testing, the stucco is removed, and the water spray test reveals most of the 

windows, in fact, are not defective; the bulk of the cost to repair the water intrusion 

defects is instead appropriately allocated to the window installer and other trades. The 

plaintiffs now, with this knowledge, attempt to settle with the window manufacturer for a

fraction of the $100,000 previously offered. The window manufacturer at this point has 

spent over $250,000 in postoffer costs to litigate the matter. 

Knowing the outcome of the invasive testing, what motivation does the window 

manufacturer have to settle the case without seeking to recover its postoffer costs under 

section 998(c)(1)? Indeed, the window manufacturer knows that, if it proceeded to trial, 

it would obtain a judgment more favorable than the rejected section 998 offer and the 

trial court would have no discretion (other than as to the reasonableness of the costs 

incurred) to reduce the window manufacturer’s postoffer costs based on the 

reasonableness of the plaintiffs’ actions under the circumstances. (Compare 

section 998(c)(1) [if plaintiff fails to accept the offer and “fails to obtain a more favorable 

judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay 

the defendant’s costs from the time of the offer” (italics added)], with § 998, subd. (d) [if 

the defendant fails to accept the offer and “fails to obtain a more favorable judgment or 

award . . . , the court or arbitrator, in its discretion, may require the defendant to pay a 

reasonable sum to cover postoffer costs of the services of expert witnesses” (italics 

added)].) Should the plaintiffs in this complex construction defect case be punished for 

failing to accept the $100,000 offer to compromise without having the benefit of the 

invasive testing information—either by having to pay the window manufacturer’s 

postoffer costs as part of the settlement or being forced to go to trial? I do not believe 

section 998’s purpose is furthered in this example, and I do not believe we can conceive 
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of all the factual scenarios to which our interpretation may apply given section 998 is a 

statute of general application in civil cases. 

A further concern with the application of section 998(c)(1) to settlement 

agreements is that it will cause uncertainty. A plaintiff will be encouraged to make 

settlement offers and negotiate to avoid trial when the plaintiff is without fear that a 

previously rejected or withdrawn section 998 offer’s terms may later be adjudged by the 

court to be less favorable than a previously rejected or withdrawn section 998 offer. 

In that vein, settlements, of course, often involve more than monetary terms. In a 

complex contractual rights case, for example, parties may settle for specific declaratory 

and injunctive relief instead of a monetary settlement previously offered in a rejected or 

deemed withdrawn section 998 offer. The statutory interpretation advanced by Hyundai 

may spawn disputes over whether the ultimate settlement was more or less favorable than 

the previously rejected or deemed withdrawn section 998 offer—an interpretation that 

should be avoided. (Martinez, supra, 56 Cal.4th at p. 1021.) Although trial courts are 

presently called upon to make such determinations by comparing a rejected section 998 

offer to a jury verdict or an arbitration award, the application of section 998(c)(1) to 

settlement agreements will inject uncertainty into the settlement process and, given that 

the vast majority of civil cases settle, may substantially increase litigation following 

settlement. A bright-line rule that section 998 does not apply to settlement agreements, 

on the other hand, is easily applied and will not confuse the section 998 process or give 

rise to disputes regarding the favorability of the terms of different settlement agreements 

compared to previously rejected or withdrawn section 998 offers—saving judicial 

resources and litigants’ time and money. (Martinez, at p. 1026.) 

Finally, I will note a concern with concluding the section 664.6 settlement is a 

judgment for purposes of section 998(c)(1), as applied to arbitration proceedings. It bears 

reminding that section 998 applies equally in judicial and arbitration proceedings, i.e., 

section 998(c)(1) applies when “the plaintiff fails to obtain a more favorable judgment or
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award.” (Italics added.) In arbitration proceedings, an arbitrator issues an award and “a 

party to the proceedings must petition the court to confirm, correct, or vacate that award.” 

(In re Marriage of Assemi (1994) 7 Cal.4th 896, 908.) Section 1283.4 provides an award 

“shall be in writing and signed by the arbitrators concurring therein” and “shall include a 

determination of all the questions submitted to the arbitrators the decision of which is 

necessary in order to determine the controversy.” Depending on the language in the 

arbitration agreement, a party may be required to request section 998 costs from the 

arbitrator in the first instance. (Heimlich v. Shivji (2019) 7 Cal.5th 350, 358.) 

Section 664.6 settlements are available and apply in both judicial and arbitration 

proceedings. (In re Marriage of Assemi, supra, 7 Cal.4th at pp. 900-901.) Our Supreme 

Court has explained that, if the parties make a valid section 664.6 oral stipulation for 

settlement in an arbitration proceeding, the trial court may enter judgment on the 

settlement agreement upon motion. (Id. at p. 911.) 

It is clear from the language of section 1283.4 that an oral section 664.6 settlement 

does not fall within the meaning of “award.” An oral section 664.6 settlement is not in 

writing and does not constitute a determination by the arbitrator as to an issue in 

controversy. If the section 664.6 settlement constitutes a judgment, as the majority 

proposes, how would that work in arbitration proceedings? Would the arbitrator consider 

the settlement to be a judgment, even without the trial court entering judgment on the 

settlement agreement upon motion, as discussed in In re Marriage of Assemi, and then 

issue an award solely on the application of section 998(c)(1)? That seems incongruent 

with the language of section 998(c)(1) and the statutory scheme. It appears to me that the 

term “judgment” applies in judicial proceedings and the term “award” applies in 

arbitration proceedings. In other words, it appears the “or” was used in a disjunctive 

sense to mean “one or the other.” (Los Angeles County-U.S.C. Medical Center v. 

Superior Court (1984) 155 Cal.App.3d 454, 461 [“In its ordinary sense, the word ‘or’ 
23

indicates an alternative such as ‘either this or that’ ”].) I believe the interpretation 

advanced by the majority will inject uncertainty into arbitration proceedings.

In sum, the language of the statute, the legislative history, and the purpose and 

public policy behind section 998 support the interpretation that section 998(c)(1)’s costshifting provision does not apply to settlement agreements. 

III

Hyundai Fails To Establish The Trial Court Abused Its Discretion

In its opening brief, Hyundai asserts, without any citation to the record, the trial 

court erred “when it expressly concluded that -- as a matter of law -- it could not even

consider [Hyundai’s] [section] 998 offers when determining whether [plaintiffs’] claimed 

[attorney] fees were reasonably incurred.” Hyundai argues Civil Code section 1794, 

subdivision (d) requires the trial court to determine the costs and expenses to have been 

reasonably incurred and, because the lodestar method is used in such determinations, the 

trial court should have considered Hyundai’s prior section 998 offers. (Citing Meister v. 

Regents of University of California (1998) 67 Cal.App.4th 437, Etcheson v. FCA US LLC 

(2018) 30 Cal.App.5th 83, McKenzie v. Ford Motor Co. (2015) 238 Cal.App.4th 695.) 

Hyundai’s argument is forfeited because “[s]tatements of fact that are not supported by 

references to the record are disregarded by the reviewing court.” (McOwen v. Grossman

(2007) 153 Cal.App.4th 937, 947.) Hyundai has thus failed to demonstrate error on 

appeal.5 

5 To the extent Hyundai attempted to cure the deficiency in its reply brief, the new 

argument should not be considered. (Sourcecorp, Inc. v. Shill (2012) 206 Cal.App.4th 

1054, 1061, fn. 7.) 
24

For the foregoing reasons, I would affirm the trial court’s order and award 

plaintiffs their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (5).) 

 ROBIE , Acting P. J.