Structuring Offers of Compromise for Multiple Defendants: The Offer Cannot be Conditioned on Acceptance by All Defendants

In Anthony v. Li, 2020 Cal. App. LEXIS 302 (April 13, 2020, the California Court of Appeal held that under Cal. Code of Civ. Pro. ("CCP") § 998, an offer of compromise ("offer") to multiple defendants must be apportioned and not conditioned on acceptance by all defendants. CCP § 998 is a cost-shifting statute which encourages the settlement of actions, by penalizing parties who fail to accept reasonable pretrial settlement offers. For example, if a defendant refuses a reasonable pretrial settlement offer and subsequently fails to obtain a "more favorable judgment," that defendant is penalized by a loss of prevailing party costs and an award of costs in the plaintiff's favor, and vice versa. Furthermore, CCP § 998 has specific requirements for the structuring and acceptance of this offer. Pursuant to CCP § 998, the written offer must contain: (1) a statement of the offer which lays out the terms and conditions of the judgment; and (2) a provision that allows the party to indicate acceptance by signing a statement that the offer is accepted. Additionally, any offer must be clear and specific and must be written with sufficient specificity because the trial court lacks the authority to adjudicate the terms of the settlement. 

In Anthony, the California Court of Appeal looked at these offer requirements under CCP § 998 and affirmed the trial court's decision. As a general rule, if a CCP § 998 offer is made to multiple defendants, it is only valid if it is clearly distributed among them and not conditioned on acceptance by all of them. The plaintiff in this case made a CCP § 998 offer on a single document, directed at both defendants, offering a lump sum of $500,000, and required both defendants to accept the offer. Thus, since the offer was conditioned on acceptance by both defendants, the offer was invalid. Further, the court determined that the offer may not be directed at a party that has been dismissed from the case. In this case, one of the defendants had been dismissed with prejudice, which no longer gave the court authority over that defendant. The court noted that had the plaintiff served separate offers to each defendant, the finding of invalidity could have been avoided as to one of the defendants. Thus, according to the California Court of Appeal, a CCP § 998 offer to multiple defendants must be apportioned and not conditioned on acceptance by all defendants. To avoid this issue all together, parties may want to give separate offers of compromise to each defendant, rather than structuring the offers together.

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