We all know that California Code of Civil Procedure section 998 offers are effective cost-shifting tools that encourage and expedite settlement of cases before trial because they provide a strong financial disincentive to a party who fails to achieve a “more favorable” outcome at trial.  The statutory framework for presenting an offer, however, must be followed to ensure its validity.

On March 3, 2021, in Mostafavi Law Group, APC v. Rabineau, et al., the California Court of Appeal for the Second Appellate District decided, on an issue of first impression, whether the purported acceptance of a section 998 offer lacking an acceptance provision gives rise to a valid judgment. The Court decided it does not.

Defendants-Respondents Larry Rabineau, APC, and Larry Rabineau (collectively, “Rabineau”) recently learned, not without heartache and expense, that specificity is king when it comes to statutory offers to compromise. Rabineau served a 998 offer to Plaintiff-Appellant Mostafavi Law Group (MLG) in the amount of $25,001, but failed to include a provision that allows the accepting party to indicate acceptance. Rabineau also failed to address the offer to both plaintiffs and that it was in exchange for execution of a formal release agreement with each party to bear its own costs. Nevertheless, MLG’s counsel hand-wrote MLG’s acceptance onto the offer itself and filed a notice of acceptance with the trial court. Thereafter, the court entered judgment in favor of MLG pursuant to section 998, subdivision (b)(1).

Rabineau, facing a judgment, no formal settlement release, and a possible cost bill, filed a motion to vacate the judgment asserting that its own section 998 offer was invalid because it lacked an acceptance provision and, as a result, the resulting judgment from the acceptance was void and should be set aside.  The trial court agreed and granted the motion.

Without any California appellate court decisions addressing the validity of a judgment stemming from acceptance of a statutory 998 offer lacking an acceptance provision, the Court found ample support in existing caselaw, including Puerta v. Torres (2011) 195 Cal.App.4th 1267, and accepted principles of statutory construction.

The statute is clear – a party seeking the statutory benefits of section 998 must serve on the other party a written offer that “shall include a statement of the offer, containing the terms and conditions of the judgment or award.” Additionally, the offer “shall include … a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted.”  This has come to be known as an “acceptance provision.” Perez v. Torres (2012) 206 Cal.App.4th 418, 422.

The Rabineau court, reviewing the decisions that have consistently followed Puerta that a statutory 998 offer lacking an acceptance provision is invalid, held that a logical extension includes an acceptance of an offer without an acceptance provision. Namely, “if failure to accept an offer lacking an acceptance provision does not trigger the cost-shifting consequences set forth in subdivisions (c) and (e), … then purported acceptance of such a defective offer likewise cannot trigger the consequences in subdivision (b)(1) and give rise to an enforceable judgment.”

While in this case the defendants actually derived a benefit from their own non-compliance with the statute, the majority of the time parties actually want to avoid this circumstance.  Accordingly, the next time you serve a statutory 998 offer, make sure you satisfy all the statutory requirements including the terms and conditions of the offer and an acceptance provision or risk losing the cost-shifting benefits resulting from an invalid offer.  The Devil’s in the details.