Elrod v. Oregon Cummins Diesel, Inc.

• Decision Date: 20 October 1987
• Citation: 241 Cal.Rptr. 108,195 Cal.App.3d 692
• Court: California Court of Appeals Court of Appeals
• Parties: Howard Kenneth ELROD, Jr., Plaintiff and Respondent, v. OREGON CUMMINS DIESEL, INC., Defendant and Appellant. C000310.

Page 108

241 Cal.Rptr. 108

195 Cal.App.3d 692

Howard Kenneth ELROD, Jr., Plaintiff and Respondent, v. OREGON CUMMINS DIESEL, INC., Defendant and Appellant.

C000310.

Court of Appeal, Third District, California.

Oct. 20, 1987.

As Modified Oct. 22, 1987.

Certified for Partial Publication ^*

Thornton & Franklin and Roberta Lee Franklin, Susanville, for defendant and appellant

Bostwick & Tehin, Nikolai Tehin and Pamela J. Stevens, San Francisco, for plaintiff and respondent.

SIMS, Associate Justice.

Code of Civil Procedure section 998 sets forth procedures whereby a party to a civil lawsuit can make a pretrial offer to settle the case. ¹ The statute further prescribes

                conditions whereby the offeror may [195 Cal.App.3d 696] recover costs and expert witness fees if the offer is unaccepted and the offeror obtains a judgment at least as favorable as that proposed in the offer.  In Wear v. Calderon (1981) 121 Cal.App.3d 818, 175 Cal.Rptr. 566, Division Three of the Second District concluded, "... a good faith requirement must be read into section 998.  In other words, the pretrial offer of settlement required under section 998 must be realistically reasonable in the circumstances of the particular case...."  (P. 821, 175 Cal.Rptr. 566.)   In this case, we conclude that by reenacting section 998 without pertinent change in light of Wear, the Legislature has approved and adopted Wear's interpretation of section 998. 2  We also discuss how trial courts should determine whether a section 998 offer meets the test of good faith
                

PROCEDURAL HISTORY

In 1979, plaintiff Howard Kenneth Elrod was severely injured and rendered a paraplegic in an accident that occurred while he was driving a logging truck. He filed a lawsuit against defendant Oregon Cummins Diesel, Inc. (Cummins), a company that had repaired the Jacobs engine brake system on the truck. He also sued General Trailer Company (General) for defective design of the trailer's brakes. General, in turn, cross-complained against Jacobs Manufacturing Company (Jacobs).

On May 22, 1984, Cummins made a section 998 offer of settlement to plaintiff for $15,001. The offer expired without having been accepted 30 days after it was made pursuant to the command of the statute. (§ 998, subd. (b)(2).)

On February 4, 1985, plaintiff entered into a settlement with General and Jacobs in the combined amount of $500,000. Of this total, General was to pay $475,000 and Jacobs $25,000. The trial court determined the offers were made in good faith and dismissed General and Jacobs from the lawsuit.

Plaintiff's case went to trial against Cummins, the lone remaining defendant. At the beginning of trial, the parties stipulated Cummins was entitled to an offset from any verdict against it for amounts received in the settlements with General and Jacobs ($500,000) and, should plaintiff's employer be found negligent, for an additional $137,504.04 in worker's compensation benefits paid to the date of trial.

The jury found plaintiff suffered damages in the amount of $1,183,350. The jury determined plaintiff was 60 percent at fault, his employer 30 percent at fault and Cummins 10 percent at fault. Thus, after a deduction for workers' compensation benefits, the damages assessed against Cummins were $335,836. (See Aceves v. Regal Pale Brewing Co. (1979), 24 Cal.3d 502, 512, 156 Cal.Rptr. 41, 595 P.2d 619.) However, since Cummins was entitled to a credit against the verdict for the General/Jacobs settlement, the net judgment was that plaintiff take nothing from Cummins.

The parties each filed memoranda of costs. Cummins filed a motion to tax plaintiff's costs. ³ Cummins asserted plaintiff failed to obtain a judgment more favorable The trial court ruled Cummins' $15,001 offer was a token one that failed to qualify as a valid section 998 offer. The court awarded plaintiff his court costs as the prevailing party pursuant to former section 1032 (repealed Stats.1986, ch. 377, § 5). Cummins appeals; we shall affirm the judgment.

than Cummins' statutory offer of settlement and, consequently, Cummins should recover costs as well as its expert witness fees from the date of its offer. Additionally, Cummins argued plaintiff was not entitled to recover any costs. (§ 998, subd. (c).)

DISCUSSION

I ^**

II

Plaintiff was properly awarded his court costs pursuant to former section 1032

Cummins argues that subdivision (c) of section 998 cuts off plaintiff's entitlement to section 1032 costs and makes Cummins eligible to recover its own costs, including expert witness fees. (See fn. 1, ante.) Cummins' contention rests upon the fact it made a pretrial offer of settlement in the amount of $15,001 and ultimately obtained a more favorable judgment. However, we think the trial court ruled correctly that "The ... $15,001.00 settlement offer in a case in which damages are ultimately determined to be in excess of $1,000,000.00, is a token or nominal offer that does not satisfy the requirements of CCP § 998."

As we have noted, the court in Wear v. Calderon, supra, 121 Cal.App.3d 818, 175 Cal.Rptr. 566 concluded "a good faith requirement must be read into section 998." (P. 821, 175 Cal.Rptr. 566.) The Wear court reasoned a contrary conclusion would actually frustrate section 998's purpose of encouraging pretrial settlements. (Pp. 821-822, 175 Cal.Rptr. 566.)

Wear involved only the question whether expert witness fees could be awarded. (Ibid.; see also Pineda v. Los Angeles Turf Club, Inc. (1980) 112 Cal.App.3d 53, 62-63, 169 Cal.Rptr. 66.) Subdivision (d) of section 998 provides such fees may be awarded in the discretion of the court. Although the Wear court could have resolved the case by holding a trial court properly exercises its discretion in denying expert fees where a party's section 998 settlement offer is not made in good faith, that is not the route the court chose to follow. Rather, as we have seen, the court clearly adopted a more fundamental approach, interpreting the statute so that only good faith offers qualify as valid offers under section 998.

In this case, we have no occasion to determine whether we would have read a requirement of good faith into section 998 as did the Wear court when it faced the problem in 1981. No case has quarreled with Wear's interpretation of the statute. In 1986, the Legislature amended and reenacted section 998 without changing the statutory language Wear had interpreted. (Stats.1986, ch. 540; see fn. 1, ante.) By its 1986 amendment and reenactment of section 998 without pertinent change, the Legislature is deemed to have approved Wear's interpretation of the statute. (Marina Point, Ltd. v. Wolfson (1982) 30 Cal.3d 721, 734-735, 180 Cal.Rptr. 496, 640 P.2d 115, cert. den. (1982) 459 U.S. 858, 103 S.Ct. 129, 74 L.Ed.2d 111; In re Cindy B. (1987) 192 Cal.App.3d 771, 777-778, 237 Cal.Rptr. 677.) We therefore conclude the Legislature intends that only good faith settlement offers qualify as valid offers under section 998.

But when is a section 998 offer made in good faith? Wear concludes a good faith offer "must be realistically reasonable under the circumstances of the particular case." (Wear, supra, 121 Cal.App.3d at p. 821, 175 Cal.Rptr. 566; see Pineda v. Los Angeles Turf Club, Inc., supra, 112 Cal.App.3d at p. 63, 169 Cal.Rptr. 66.) It must carry with it some reasonable prospect of acceptance. (Wear, supra, 121 Cal.App.3d at p. 821, 175 Cal.Rptr. 566.) Although Section 998 should be interpreted so as to effectuate its purpose of encouraging the settlement of lawsuits before trial. (T.M. Cobb Co. v. Superior Court (1984) 36 Cal.3d 273, 277, 280, 204 Cal.Rptr. 143, 682 P.2d 338.) Section 998 achieves its aim by punishing a party who fails to accept a reasonable offer from the other party. (Culbertson v. R.D. Werner Co., Inc. (1987) 190 Cal.App.3d 704, 711, 235 Cal.Rptr. 510; Brown v. Nolan (1979) 98 Cal.App.3d 445, 449, 159 Cal.Rptr. 469.) An offeree cannot be expected to accept an unreasonable offer. Hence, any subsequent punishment of the offeree for nonacceptance does not further the purpose of section 998, because the offeree would not have acted differently at the time of the offer despite the threat of later punishment. In these circumstances, later punishment of the offeree merely provides a windfall to the offeror and does not encourage settlements.

Wear did not articulate its reason for adopting this test of good faith, we agree with it.

Whether a section 998 offer is reasonable must be determined by looking at circumstances when the offer was made. (Cf. Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499, 502, 213 Cal.Rptr. 256, 698 P.2d 159.) However, the reasonableness of an offer depends upon the information used to evaluate it. In many cases, a plaintiff and a defendant will not have the same information when an offer is made. For this reason, the reasonableness of an offer may lie in the eye of its beholder.

As a general rule, the reasonableness of a defendant's offer is measured, first, by determining whether the offer represents a reasonable prediction of the amount of money, if any, defendant would have to pay plaintiff following a trial, discounted by an appropriate factor for receipt of money by plaintiff before trial, ⁶ all premised upon information that was known or reasonably should have been known to the defendant. It goes without saying that a defendant is not expected to predict the exact amount of his exposure. If an experienced attorney or judge, standing in defendant's shoes, would place the prediction within a range of reasonably possible results, the prediction is reasonable. (Cf. Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 874, 239 Cal.Rptr. 626, 741 P.2d 124.)

If the offer is found reasonable by the first test, it must then satisfy a second test: whether defendant's information was known or reasonably should have been known to plaintiff. This second test is necessary because the section 998...