California Code of Civil Procedure (“CCP”) section 998 is a nifty cost transferring tool wherein if an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment, the plaintiff cannot recover their post-offer costs and instead must pay the defendant’s costs from the time of the offer. Such “costs” also may include expert fees and costs actually incurred and reasonably necessary. Ordinarily, one would assume that the phrase “actually incurred” meant actually incurred by the offeror. According to a recent California Court of Appeal opinion, such is not the case. Apparently an offeror can recover expert fees and costs paid by a third party.

In the case of David Litt v. Eisenhower Medical Center et al., 2015 DJDAR 6921, plaintiff, David Litt (“Litt”) sued defendant, Eisenhower Medical Center (“Eisenhower”), for negligence after getting his head stuck in one of Eisenhower’s cafeteria gates. Prior to trial, Eisenhower served a 998 Statutory Offer to Compromise on Plaintiff for $15,000. Litt let the offer expire without accepting it. Thereafter, Litt amended his complaint and added as a defendant Compass Group USA, Inc. (“Compass”), who operated the cafeteria for Eisenhower center. Compass did not serve a 998 offer on Litt prior to trial.

In preparation for trial, Eisenhower and Compass entered into a joint defense agreement wherein they agreed to retain joint medical experts and, pursuant to an indemnity agreement, Compass agreed to pay for all of the experts’ fees—even the fees incurred prior to Compass being named as a defendant. At trial, Plaintiff failed to “beat” Eisenhower’s $15,000 998 offer where the jury awarded only $3,000 in favor of Plaintiff and against Eisenhower and Compass, jointly and severally.

Following the trial, Eisenhower and Compass requested $124,662 in 998 expert fees and costs paid solely by Compass. Litt opposed the request, arguing that Compass was not a prevailing party since it was not a party to the 998 offer and Eisenhower should not be allowed to recover any expert fees or costs because it did not actually pay for the post-998 expert fees. The trial court sided with Plaintiff.

On appeal, Eisenhower and Compass argued, among other things, that under the statute, the payor of expert fee is irrelevant as a matter of law. The Court of Appeal agreed, finding that the trial court erred in striking Eisenhower’s post-998 request for costs and expert fees because such fees were “actually incurred;” they just happened to be “actually incurred” by Compass pursuant to an indemnification provision. Citing CCP section 1033.5, the Court of Appeals found that the actual payor is irrelevant because, under that code section, “[c]osts are allowable if incurred, whether or not paid.” (CCP § 1033.5, subd. (c)(1).) Moreover, under Skistimas v. Old World Owners Assn. (2005) 127 Cal.App.4th 948, a distinction was recognized between “personally” incurred fees (services that one is personally obligated to pay) and “actually” incurred fees (services performed on one’s behalf that one is not necessarily personally obligated to pay). (Id. at p. 952.) In Skistimas, the court found that section 998 only strictly requires that expert witness costs have been “actually incurred” and concluded, “[w]hether the individual defendants paid the fees out of their own pockets or their insurer paid the fees on their behalf should not be determinative of their right to recover those fees.” (Ibid.Eisenhower expanded the concept to third parties.

Moral of the story: 998s and joint defense agreements can be your friends if you can get your co-defendants to foot the expert fee bill.