Statutory offers of compromise under Section 998 of the California Code of Civil Procedure are a wonderful way to put teeth into the settlement offers and add a cold slice of reality into the case. Section 998 may present a trap for the unwary, however. The 1st District California Court of Appeal essentially held that once a Section 998 offer is accepted, the resulting judgment cannot be set aside under normal rules of contract or because of a mistake of counsel. The Court concluded that a showing of fraud or undue influence is required. The Section 998 offer therefore must be drafted with even more care than one would devote to a settlement agreement.
Mistakes can lead to unexpected recoveries and incomplete settlements.
Before one drafts an offer of compromise, a quick review of the Section 998 is advisable. Its purpose is to encourage the settlement of lawsuits before trial. It punishes any party who rejects the offer and who then fails to gain a better result at trial. It does this by awarding or supplementing the offeror's court costs and denying court costs to the offeree. A plaintiff failing at trial to beat the defendant's Section 998 offer is denied its statutory court costs and must pay the defendant's costs incurred after the offer was made.