Ruling provides guidance for making valid 998 settlement offers

On Jan. 3, the 2nd District Court of Appeal issued a decision in Licudine v. Cedars-Sinai Medical Center, 2019 DJDAR 70, that will help attorneys navigate the murky waters of offers to compromise under Code of Civil Procedure Section 998. The statute fosters settlements by imposing consequences in some cases for rejecting a settlement offer and proceeding to trial.

Under Section 998, a party whose settlement offer is rejected is entitled to an award of prejudgment interest, costs and possibly post-offer expert witness fees, starting from the date that the settlement offer is made, as long as the offer is "valid" and the subsequent verdict is "more favorable" than the rejected 998 offer. See Licudine citing Civ. Code Section 3291. Traditionally analyzed under the "totality of the facts," the Licudine court embraced three factors that are "especially pertinent" to determine the validity of a 998 offer.

The Licudine case was based on a medical malpractice claim that stemmed from a routine gallbladder removal surgery where doctors at Cedars-Sinai Medical Center nicked a vein that caused the plaintiff substantial internal bleeding. Just five days after the defendant filed its answer to the complaint, the plaintiff served a 998 offer to compromise for approximately $250,000. Cedars objected, arguing that it was "too soon" to make any reasonable evaluation of the case. The plaintiff failed to address these objections by providing more information, and Cedars rejected the offer. The parties went to trial, and the plaintiff obtained a verdict of over $7.6 million (later reduced to $5.6 million per MICRA).

The plaintiff then requested prejudgment interest of over $2 million in light of her 998 offer. The trial judge denied this request, stating that the offer was "premature" because Cedars did not have an "adequate opportunity to evaluate the damages in the case." The Court of Appeal affirmed the lower court's ruling, holding that the 998 was indeed invalid and not made in good faith.

While the holding might seem obvious, it is important to understand the court's reasoning. The Licudine decision posits that "a 998 offer is made in good faith only if the offer is 'realistically reasonable under the circumstances of the particular case' ... that is, the offer 'carr[ies] with it some reasonable prospect of acceptance'." The court stated that whether an offer carries a "reasonable prospect of acceptance" is a function of two considerations: (1) was the 998 offer within the range of reasonably possible results at trial, considering all the information the offeror knew or reasonably should have known; and (2) did the offeror know that the offeree had sufficient information, based on what the offeree knew or reasonably should have known, to assess whether the offer was reasonable such that the offeree had a fair opportunity to intelligently evaluate the offer?

With regard to the first consideration, a jury's verdict is "prima facie evidence" that a 998 offer was within the range of "reasonably possible results." In other words, if the verdict is the same or exceeds a party's 998, the first consideration will likely be fulfilled. Licudine turned on the second consideration. Here, the court articulated a three-pronged test: (1) how far into the litigation the 998 offer was made; (2) the information available to the offeree prior to the 998 offer's expiration; and (3) whether the offeree let the offeror know it lacked sufficient information to evaluate the offer, and how the offeror responded. The court acknowledged that other factors may be relevant, but that the above factors are "especially pertinent."

How Far Into Litigation the 998 Was Made

The court's analysis was brief but direct: "A litigant receiving a 998 offer at the time a lawsuit is filed or soon thereafter is, as a general matter, less likely to have sufficient information upon which to evaluate that offer." The plaintiff in Licudine served her 998 offer only five days after Cedars had filed its answer, and barely any discovery had been exchanged in the interim. While this time frame does not indicate alone whether an offer was made in good faith, it certainly sheds light on what information the offeree possesses.

Information Available to the Offeree Prior to the 998 Offer's Expiration

The Licudine court lists several factors for attorneys to evaluate the sufficiency of information available to the offeree:

(1) Prior litigation between the parties (citing Bender v. County of Los Angeles, 217 Cal. App. 4th 968, 989 (2013) (civil lawsuit against police followed criminal prosecution of plaintiff resulting in acquittal));

(2) Pre-litigation exchanges between the parties (citing Barba v. Perez, 166 Cal. App. 4th 444, 450-51 (2008) (pre-litigation letter explaining offeror's medical expenses));

(3) Post-complaint discovery in the case (citing Whatley-Miller, 212 Cal. App. 4th 1103, 1113 (2013); or

(4) by virtue of a pre-existing relationship between the parties that yields a "free flow of information" (citing Barba v. Perez, 166 Cal. App. 4th 444, 450 (2008) (parties had "close, semi-familial relationship")).

Under these factors, the Licudine court found that defendant Cedars had insufficient evidence to fairly evaluate the 998 offer at the time it was served. No depositions had been taken, no pre-existing relationship between the parties existed, and Plaintiff only served her responses to Cedars' request for documents the day before the 998 offer expired. The court also noted the complaint was "bare bones" and "failed to list specifics as to the injuries [plaintiff] suffered or the amount of damages she sought." And the plaintiff never filed a pre-litigation notice to the hospital entity which would have apprised them of plaintiff's damages and injuries.

The court additionally noted evidence the plaintiff had provided (e.g., a medical chart) "left several issues unaddressed, including plaintiff's loss of earning capacity and her pain and suffering."

Whether the Offeree Let the Offeror Know It Lacked Sufficient Information

The third prong evidences the reasonableness of the expectations of both parties. A failure to let the offeror know that there is insufficient information may prove costly when the offer is evaluated post-trial. And letting the offeree know why the 998 is valid, including all of the materials that the offeror relies on in support of this position, may encourage the offeree to reconsider its position.

Under the Licudine holding, an offeree may alert the offeror that it does not have sufficient information by (1) requesting discovery, either formally or informally; (2) asking for an extension of the 998 offer's deadline; or (3) otherwise objecting to the offer. "If the offeror's response to the offeree's concerns is less than forthcoming, 'such obstinacy' would be 'potent evidence that the offer was neither reasonable nor made in good faith'."

The Licudine court noted that Cedars timely alerted plaintiff that it had insufficient information to fairly evaluate the statutory offer, and that the plaintiff never responded. On these grounds, the plaintiff's belief that Cedars had enough information to evaluate the 998 offer could hardly be said to have been in good faith.

Conclusion

Attorneys intending to make a 998 offer should evaluate the above factors to determine if it will be valid. Although the analysis will never be completely objective, familiarizing yourself with the above case law and evaluating the circumstances of your case accordingly will put you closer to a position of success, so that you can reap the sizable benefits that come with serving a valid 998 offer, should you beat it at trial.