Do California 998 settlement offers have legs in class actions?

If you litigate in California, chances are you have come across the CCP 998 settlement offer. Presenting the proverbial “carrot and stick,” 998 offers force plaintiffs to effectively “bet”  on their success in a case. If a plaintiff refuses a 998 settlement offer, their ability to recover costs and attorneys’ fees (if available) will be cut off after the date of the offer if they do not receive an award higher than the amount of the 998 offer. Not surprisingly, such offers can be important tools in aggressively pursuing settlement and forcing plaintiffs to realistically evaluate the worth of their claims.

But how do these offers play out in class actions? Are they even allowed?

The statute is silent as to whether these offers can be used in class actions. There is also no guidance from any California court specifically addressing whether or not a 998 offer can be made to a named plaintiff, or even to an entire putative class.

So far, the decision that comes closest to discussing the availability of 998 offers in class actions is the Court of Appeal decision in Nelson v. Pearson Ford Co. In Nelson, a class action involving claims that a Ford dealership illegally backdated contracts and improperly added insurance premiums to vehicle purchase prices, the defendant made a lump sum 998 offer after two classes were certified (with the same named plaintiff representing both). After a trial verdict in an amount less than the 998 offer was awarded, defendant attempted to enforce the 998 offer to cut off plaintiff’s attorneys’ fees. The trial court refused, finding the 998 offer invalid.

The Court of Appeal, while “assuming” the 998 offer could be made to the class without actually reaching the question, affirmed the trial court’s decision that the 998 offer was invalid on other grounds.

The opinion reasoned that because the offer was a “lump-sum offer to multiple classes, which are the equivalent of separate parties,” it violated 998’s mandate that, in a multi-plaintiff case, the offer is only valid if it is expressly apportioned between plaintiffs.

While there is no subsequent case law using the Nelson decision to determine the validity of a 998 offer in a class action, the holding does give some hope that 998 offers can be used to pursue settlement in such cases, albeit cautiously.

On its face, a 998 offer made to settle with a single named plaintiff, prior to class certification, seems to be a pretty safe bet. If class certification is ultimately denied, a defendant could be sitting pretty.

However, given the holding in Nelson, a single plaintiff offer could become moot if certification is granted. In this scenario, a court might determine that the expansion of the action from single plaintiff to class requires that a 998 offer be apportioned across all class members, rendering the prior offer invalid.

While the dearth of case law interpreting the applicability of 998 offers to class actions means little is certain, defendants would be best served to appreciate the risk a pre-certification offer could be invalidated, and consider making a renewed offer in the event a class is certified to preserve any attorneys’ fees limitations.