Daily Blast - August 15, 2019 - Lewis Brisbois Bisgaard & Smith LLP

On August 14, the Second District Court of Appeal in Hersey v. Vopava (2019 Cal. App. LEXIS 754) added to the law addressing 998 offers. In Hersey, the court first confirmed the rule that in determining whether an offeree has beaten a previously rejected 998 offer that excluded attorney’s fees and costs, preoffer costs (which would include attorney’s fees if allowed) should be added to the judgment to determine if the offeree obtained a more favorable judgment than the 998 offer The issue addressed in Hersey is what costs should be considered together with the judgment when a second 998 offer is made which is also rejected. The court held that those costs incurred up to the time of the second offer should be added to the judgment to determine whether the offeree received a more favorable judgment than the second 998 offer.

Hersey involved a landlord-tenant dispute concerning the habitability of the tenant’s apartment. On September 1, 2015, the landlord made a $10,000 998 offer, excluding fees and costs, which the tenant rejected. Almost two years later, on July 31, 2017, the landlord made a second 998 offer of $20,001, which was also rejected. The case went to trial and judgment was entered in favor of the tenant in the amount of $7,438. The trial court thereafter concluded the tenant did not beat the landlord’s previous 998 offer and awarded the landlord $30,483 in attorney’s fees and costs.

The 2^nd DCA held that the trial court erroneously calculated the amount of the “net” judgment to determine whether the tenant beat the 998 offer, and that it should have added the tenant’s costs and attorney’s fees to the damage award to determine the correct “net” judgment. In considering whether the tenant beat both offers, the appellate court concluded that the offeree’s preoffer costs should be added to the judgment to determine the “net” judgment obtained. Thus, as to the first offer, the tenant incurred a total of $4,931.71 in preoffer costs which, when added to the judgment, beat the initial $10,000 offer. As to the second 998 offer, the appellate court held that all costs incurred prior to the second offer ($12,752) should be considered in determining whether the offeree obtained a more favorable judgment, and that the offeree’s costs are not “frozen” as of the date of the first offer.

“It would not further the purpose of section 99, or be consistent with its statutory implementation, to punish an offeree who beats an offeror’s first offer by freezing her costs at the date of the first offer. It likewise would not further the purpose of section 998, or be consistent with its statutory implementation, to reward an offeror who makes a low first offer by freezing the offeree’s costs at the date of the first offer. Accordingly, we hold that where an offeree achieves a judgment more favorable than a first offer, the determination of whether an offeree obtained a judgment more favorable than a second offer should include all costs reasonably incurred up to the date of the second offer.”