Section 998 Settlements and Alternative Terms: Gorobets v. Jaguar Land Rover North America, LLC
In Gorobets v. Jaguar Land Rover North America, LLC, the California Supreme Court addressed whether a settlement offer under Code of Civil Procedure Section 998 may include two alternative sets of terms without becoming invalid under the statute. The Court held that it may. An “alternative-choice” offer is not categorically invalid under Section 998 so long as it clearly presents mutually exclusive alternatives and at least one alternative is sufficiently certain to permit accurate valuation when the offer is made.
Section 998 is a tool designed to encourage parties to settle. It does so by penalizing a plaintiff after trial for rejecting sufficiently certain settlement offers before trial. More precisely, if the plaintiff had rejected a past settlement offer before trial but then failed to obtain a greater award after trial, then the plaintiff cannot collect costs incurred after the offer and must also pay the defendant’s postoffer costs.
Section 998 is thus a carrot and stick. The plaintiff’s prospect of paying certain litigation costs (the stick) and the upshot of avoiding a lengthy trial (the carrot) encourages efficient resolution. However, under Section 998, the offer must be “sufficiently certain,” which was the central issue in Gorobets.
Gorobets had sued Jaguar Land Rover North America (“Jaguar”) for damages arising from a car leasing agreement. Pursuant Section 998, Jaguar proposed a settlement compromise to resolve the case that presented an “alternative-choice” settlement compromise. There were two alternative sets of terms that Gorobets could choose from. Under the first alternative, Gorobets would accept a lump-sum payment and dismiss the action with prejudice. Under the second alternative, Gorobets would provide proof of all amounts to be reimbursed in a settlement and, if any dispute occurred, Jaguar would pay the disputed portions. Defendant waived its own costs and would pay specified amounts of attorney fees under both settlement choices. Gorobets selected neither, and the offer expired.
After Gorobets prevailed at trial, the trial court applied Section 998, holding that Gorobets could not collect any postoffer general or attorney costs because Jaguar’s “alternative-choice” offer was sufficiently certain. At the time the offer was made, Jaguar provided a specific and unconditional offer that satisfied Section 998’s requirements.
On appeal, the California Court of Appeal upheld the verdict but reversed on the narrow issue of “alternative choice” offers under Section 998. It held that this section does not allow a party to present multiple offers to a party at the same time. Unlike the trial court, the Court of Appeal classified Jaguar’s settlement as two independent offers, rather than a single settlement proposal. Ultimately, it held that only the first lump-sum offer was valid because the other more complicated alternative was not sufficiently certain. Its final holding, which became a basis for the appeal to the California Supreme Court, was that section 998 offers cannot be sufficiently certain if they contain two offers made at the same time, to the same party.
On appeal, the California Supreme Court addressed this narrow issue: Does Section 998 categorically prohibit a single offer with alternative sets of terms, such as the offer proffered by Jaguar?
The Court held that Section 998 allowed this type of offer, overturning the Court of Appeal’s holding on this narrow issue. First, it clarified that Jaguar’s offer itself, contrary to the holding of the Court of Appeal, was a single offer (and not two separate offers). It merely presented alternatives within a single offer. Furthermore, offers of this nature can be valid so long as they meet certain requirements. The offer must be (1) sufficiently certain, (2) contain alternative sets of terms that are mutually exclusive, and (3) contain at least one set of terms that is capable of valuation at the time it was proffered. A sufficiently certain offer must be specific, which means that the terms are such that the offeror can meaningfully evaluate the decision and make a reasoned decision about whether to accept the offer.
When applied to Jaguar’s case, the Court held that Jaguar had proffered a sufficiently certain offer. It was specific enough so that Gorobets could meaningfully evaluate a decision to accept. Further, the alternative sets of terms were mutually exclusive. Gorobets had to choose one set over the other. Finally, the single settlement offer was valid because the lump-sum payment alternative was capable of valuation. Therefore, the California Supreme Court reversed on the narrow issue of the settlement offer and upheld the verdict of the trial court, ruling that Section 998 allowed for “alternative choice” settlement offers of the kind proposed by Jaguar.