A recurring theme is that collectively speaking, lawyers often make and evaluate Code of Civil Procedure section 998 offers without a complete understanding of how the statute operates.  That knowledge gap is a little scary.

But before you conclude I am talking down to trial lawyers (and many have heard me admire how trial lawyers react in real time and keep all those plates in the air), check this out: judges sometimes get 998 offers wrong too.  And think about this – if anyone sees 998 offers in operation the most – it’s the civil trial court judges.  After all, they have the robust caseloads and are more apt to regularly deal with 998 offers.

In preparing for the upcoming 2011 MCLE Spectacular presentation, I came across a splendid example of how section 998 trips up lawyers and sometimes judges alike.  The case is Warfield v. Chandler 2011 Cal.App. Unpub. LEXIS 4024.  Warfield has a lot to offer.

In Warfield, the plaintiff obtained a judgment for $13K.  As the “party with a net monetary recovery” (see Code Civ. Proc., § 1032(a)(4)), plaintiff filed a memorandum seeking $4K in statutory costs.

Defendant brought the trial court’s attention to a $25K 998 offer that plaintiff had not accepted.  Defendant argued that because plaintiff’s judgment and costs totaled only $17K, plaintiff failed to obtain a more favorable judgment at trial, making defendant entitled to all her costs.

The trial court was not led astray, however, and properly awarded the prevailing party plaintiff her pre-offer costs (under 1032) and defendant her post-offer costs (under 998’s cost shifting).  The result was a net judgment of $3,728 in favor of defendant.

And then a funny thing happened.

Faced with the $3,728 judgment in favor of defendant (after netting out the parties’ respective awards), the trial court invited defendant to file a memorandum of costs for defendant’s pre-998-offer costs.  The trial court then ruled that defendant was actually the prevailing party (under 1032(a)(4)), and awarded defendant her pre-998-offer costs in the amount of $7,614, for a total award of $11,342.

Sensing that something wasn't quite right, the trial court invited plaintiff to appeal.

But on appeal, the Court of Appeal’s hands were tied because plaintiff did not file a separate notice of appeal from the post-judgment cost award.  (See, Code Civ. Proc. § 904.1(a)(2).)  Nevertheless, the Court of Appeal discussed the merits “because the trial court clearly erred and, if for no other reason, [its] discussion [might] preclude repetition of the error.”

So which comes first? The prevailing party determination? The 998 cost shifting?

As the Court of Appeal put it, “Sections 1032 and 998 require the trial court to follow a simple two-step procedure.  First, the trial court must determine the prevailing party utilizing the general rule of section 1032 and determine the recoverable costs as permitted by section 1033.5.  Second, the trial court must then augment or withhold the amount determined in step one pursuant to the dictates of section 998.  After these two steps are completed, the trial court's cost award is complete.”

It sounds simple, right?  Yet in Warfield, the trial judge determined the prevailing party, then the 998 cost shifting, then made a new prevailing party determination, then awarded more costs.

So why do lawyers and sometimes even judges, go astray when it comes to 998 offers?  The steady flow of appellate decisions is a warning to us all.  Despite the basic concepts behind it, operation of section 998 is anything but simple.  And mapping the operation of 998 can, if not carefully done, get one goin 'round in circles.