The California Legislature amended Code of Civil Procedure §998 effective January 1, 2016 so that now both plaintiffs and defendants may recover only expert witness costs incurred after a Section 998 settlement offer has been made.

Before the amendment, there was an imbalance on the award of pre-offer expert witness fees with respect to pretrial offers to compromise under Section 998. Specifically, a plaintiff could not recover pre-offer expert witness fees, but only post-offer expert witness fees when a defendant unsuccessfully rejected a 998 offer. However, a defendant could be awarded pre-offer expert witness fees under 998 within the trial judge’s discretion. This imbalance was inadvertently created by the Legislature in 2005 when it amended CCP §998.

In Regency Outdoor Advertising, Inc. v. City of Los Angeles (2006) 39 Cal. 4th 507, an outdoor advertising agency brought an inverse condemnation action against the City of Los Angeles. The agency claimed palm trees planted by the City on the boulevard leading in and out of LAX blocked their billboards thereby resulting in millions in lost profits. The City served a 998 offering to remove one of the trees and pay $1,000. The offer was not accepted, the case went to trial, and the Court found the City was not liable under the inverse condemnation theory. The City sought both its pre-offer and post-offer expert witness fees. The agency argued the City was only entitled to recover its post-offer expert witness fees but the Supreme Court held that section 998 did not limit the recovery of expert witness fees incurred post-offer. Thus, the City was able to reach back and recover all of its pre-offer as well as its post-offer expert witness fees.

In Toste v. CalPortland Construction (2016) 245 Cal.App.4th 362, the Court of Appeal concluded that this amendment to section 998 applied to cases pending on appeal and remanded a cost award in favor of two defendants to the trial court for further consideration on the expert witness fee award.

As California courts have long recognized, the primary purpose of section 998 is to encourage parties to settle disputes prior to trial. It incentivizes litigants to accept pre-trial settlement offers so as to avoid being penalized and ordered to pay an opponent’s expert witness costs if the final trial award is less favorable than the 998 settlement offer. See Bank of San Pedro v. Superior Court (1993) 3 Cal.4th 797, 804.

The amendment to CCP §998 furthers promotes the policy to encourage parties to make (and accept) reasonable 998 settlement offers early in litigation. Defense litigants in particular should be aware of this change, as it now otherwise limits costs they previously might have recovered.