June 2019

The Effects of CCP §998 in Construction Defect Litigation

By Kevin Hambly

Shinnick & Ryan, LLP

Let’s be honest, most cases settle short of trial.  However, in the rare circumstances where a case does not settle short of trial, it is prudent to set your case up so that you are in the best position to recover your costs.  This is especially true in construction defect cases where expert costs can be very high, and cases become increasingly difficult to settle as time marches forward.  California law, however, has a mechanism that allows parties to recovery their costs, including expert fees.  This mechanism is under the Code of Civil Procedure (“CCP”) section 998.

Per CCP section 998, parties to either lawsuits or arbitrations can make offers to compromise.  The way an offer to compromise works is that either the Plaintiff or the Defendant makes the offer under CCP section 998.  Once the offer to compromise is made, then the opposing party has thirty (30) days to accept the offer.  See CCP §998(b)(2).  If the opposing party does not accept the offer within thirty (30) days, then the offer is deemed withdrawn and cannot be given as evidence at trial.  (See id.).  If a Plaintiff makes the offer, and the offer is not accepted by the Defendant, then the Plaintiff will be entitled to its post-offer costs, including the costs of expert witnesses, if the Plaintiff acquires more favorable judgment than its offer at the arbitration or trial.  See CCP §998(d).  If the Defendant is the party making the CCP §998 Offer, then then Defendant shall be entitled to its post-offer costs and expert witness fees, and the Plaintiff will not be able to recover its post-offer costs, if the Plaintiff fails to obtain a judgment that is more favorable than the defendant’s 998 offer.  See CCP §998(c)(1).  The consequences of rejecting a 998 offer can put increasing pressure on the opposing party to settle, as expert witness fees and other litigation costs increase as the case marches forward to trial.

In the context of construction defect litigation, CCP §998 offers play a special role.  In the realm of single family home construction defect litigation, for example, expert witness fees can be high.  Because of these increased fees, it is in the parties’ best interests to attempt to reach a settlement earlier rather than later.  If it begins to appear that the case is not going to reach an early settlement, however, the parties should send a CCP §998 offer.  That way, if the parties end up at trial, then the prevailing party should be able to recover his or her costs, assuming the CCP §998 offer was made properly.  This brings us to the next problem, which is how to make the CCP §998 offer properly.

Problems Making CCP §998 Offers
While it may be prudent to send 998 offers early in the litigation, there are certain things to consider before sending out an offer.  This especially true in construction defect cases that involve multiple parties.

One of the problems in sending 998 offers is doing so prematurely.  In order for a 998 offer to be proper, the party sending the offer must do so in good faith.  A 998 offer may be deemed in bad faith if it does not allow the opposing party sufficient time to evaluate the claim.  “[I]t is ordinarily not reasonable to expect defendants to jam basic discovery into the 30 days following the service of a summons and complaint in order to respond to a section 998 offer.”  Najera v. Huerta (2011) 191 Cal. App. 4th 872, 879.  Thus, it would be premature to send a 998 offer before the parties have engaged in at least minimal discovery.

In construction defect litigation, there are typically multiple parties.  Specifically, there are usually multiple plaintiffs, defendants, and several subcontractor cross-defendants.  In some cases, this can total hundreds of different parties all with different interests in the case.  Under these circumstances, the plaintiffs may want to send 998 offers to either a specific defendant, or multiple defendants. 

To do this, each individual plaintiff must send a 998 offer to the individual defendant.  The plaintiffs cannot, for example, send a 998 offer as a group.  Similarly, if an individual defendant wants to send 998 offers to all of the plaintiffs, then the defendant will need to draft individualized 998 offers for each of the plaintiffs.  The defendant cannot, for example, send 998 offers to plaintiffs as a group.

In addition to sending individualized 998 offers, parties need to be careful regarding the terms they put into their 998 offers.  If a party attempts to include a confidentiality clause in the 998 offer, for example, that could make the 998 offer illusory, and therefore, unenforceable.   The parties should also be mindful about how costs are included in the 998 offer.  For instance, the parties typically include a statement in the 998 offer that each of the parties shall bear their costs and attorneys’ fees.  If you receive section 998 offers, it is best to read each individual part of the offer closely, and confer with your client about each of its terms.

At the end of the day, section 998 offers play a vital role in assisting parties to reach a resolution of their claims.  In the context of construction defect litigation, this is increasingly important because of high expert witness costs.  If you are thinking about sending a section 998 offer, it is best to review your secondary sources prior to issuing the offer to make sure you have checked off all of the boxes on sending a proper offer.