Daily Blast June 10, 2013

On June 10, 2013, the California Supreme Court in Martinez v. Brownco Construction Co., Inc. (June 10, 2013, S200944) ___Cal.4th ___, analyzed whether a subsequent offer extinguishes a previous offer for purposes of Code of Civil Procedure section 998’s cost-shifting provisions. (Slip opn., p. 2.) The Supreme Court held that where “a plaintiff serves two unaccepted and unrevoked statutory offers, and the defendant fails to obtain a judgment more favorable than either offer, the trial court retains discretion to order payment of expert witness costs incurred from the date of the first offer.” (Id. at p. 14.)

Plaintiffs, Mr. and Mrs. Martinez, sued defendant Brownco Construction Company, Inc. (“Brownco”) for damages arising out of an electrical explosion that severely injured Mr. Martinez. (Slip opn., p. 2.) Prior to trial, plaintiffs each served on Brownco two settlement offers pursuant to Code of Civil Procedure section 998. Mr. Martinez offered to compromise his negligence cause of action in the amount of $4.75 million. Mrs. Martinez offered to compromise her loss of consortium cause of action for $250,000. Brownco failed to accept or reject these offers within the statutory 30-day period. Mr. Martinez and Mrs. Martinez then served reduced compromise offers of $1.5 million and $100,000 just prior to trial. Brownco took no action. Mr. Martinez then obtained a $1,646,674 judgment. Mrs. Martinez obtained a $250,000 judgment. Plaintiffs filed a memorandum of costs seeking a total of $561,257.14 in itemized costs. Brownco moved to tax costs and sought an order disallowing Mrs. Martinez’s recovery of $188,536.86 in expert fees incurred after her first settlement offer, but before her second offer. (Ibid.) The trial entered an order taxing the disputed expert fees. The court relied upon Wilson v. Wal-Mart Stores, Inc. (1999) 72 Cal.App.4th 382 (“Wilson”) and found that the prior offer was extinguished by the subsequent offer. (Slip opn. pp. 2-3.) The Court of Appeal reversed. The Supreme Court granted Brownco’s petition for review. (Id. at p. 3.)

The Supreme Court determined that allowing Mrs. Martinez to recover expert fees incurred from the date of her first offer is consistent with the language of section 998 and best promotes the statutory purpose to encourage settlements. (Slip opn., pp. 2, 12.) According to the court, the purpose of encouraging settlement “would be more fully promoted if the statutory benefits and burdens were to operate whenever the judgment or award is not more favorable than any of the statutory offers made.” (Id. at p. 12.) The court explained that “if the statutory benefits and burdens were to run only from the date of the last offer in circumstances such as these, plaintiffs may be deterred from making early offers or from later adjusting their demands.” (Ibid.) Further, contract law did not require divestment of the statutory benefit of expert fees simply because a party makes a later offer. In addition, the court noted that “if a later offer results in mischief or confusion, or any gamesmanship appears, the court may address such concerns when considering what postoffer expert fees to award.” According to the court, “the discretion conferred upon trial courts suffices as a meaningful check against mischief and gamesmanship.” (Id. at p. 15.)

Further, the Supreme Court examined the last offer rule as applied in Wilson and Distefano v. Hall (1968) 263 Cal.App.2d 380. (Slip opn., p. 7.) According to these cases, “any new offer communicated prior to a valid acceptance of a previous offer, extinguishes and replaces the prior one.” (Distefano, supra, 263 Cal.App.2d at p. 385.) The Supreme Court was not persuaded that application of the last offer rule was mandated in all multiple offer situations. (Slip opn., p. 11.) The court noted that the last offer rule might have been appropriate in Distefano and Wilson where an offeree obtains a judgment or award less favorable than a first section 998 offer, but more favorable than the later offer. (Id. at pp. 13-14.) The present circumstances, however, called for a different result. (Id. at p. 14.) In the Martinez case, the plaintiff made statutory offers and defendant failed to obtain a judgment more favorable than either. According to the court, “nder these circumstances, section 998’s policy of encouraging settlements is better served by not applying the general contract principle that a subsequent offer entirely extinguishes a prior offer. Not only do the chances of settlement increase with multiple offers . . . but to be consistent with section 998’s financial incentives and disincentives, parties should not be penalized for making more than one reasonable settlement offer. Nor should parties be rewarded for rejecting multiple offers where each proves more favorable than the result obtained at trial.” (Ibid.) As a result, Mrs. Martinez was not precluded from recovering expert witness costs she incurred between the dates of her first and second settlement offers. (Id. at p. 13.)