Judgment Stemming from a Section 998 Offer Without a Written Acceptance Provision Is Void

In Mostafavi Law Group, APC v. Larry Rabineau, APC (B302344, Mar. 3, 2021), the California Court of Appeal, Second Appellate District (Los Angeles), addressed an issue of first impression: whether the purported acceptance of a Code of Civil Procedure section 998 (“section 998”) offer lacking an acceptance provision gives rise to a valid judgment. The appellate court held that a section 998 offer to compromise (“998 Offer”) without an acceptance provision is invalid and any judgment stemming from it is void.

In Mostafavi Law Group, plaintiffs sued defendants for defamation per se, among other claims, which was litigated at-length over several years. Defendants served plaintiffs with a written 998 Offer, offering to settle the action for the sum of $25,000.01. The 998 Offer did not specify the manner in which plaintiffs were to accept the offer.

Within the statutory time period for acceptance, plaintiffs’ counsel hand-wrote the following onto the 998 Offer: “Plaintiff Mostafavi Law Group, APC accepts the offer.”  That day, plaintiffs also filed a notice of acceptance of the 998 Offer, along with proof thereof, and sent a copy to defendants. The next day, having received the notice of acceptance, defendants advised plaintiffs that they would “draft and send . . . a settlement agreement for . . . signature” before paying the settlement funds.

A week later, the trial court entered judgment in favor of plaintiffs pursuant to section 998. Shortly thereafter, the parties disagreed as to whether plaintiffs could enforce the judgment entered by the trial court, thus requiring defendants to pay the $25,000.01 sum set forth in the 998 Offer, despite the fact that the parties had not executed any proposed settlement agreement. Unable to resolve the issue, defendants moved to set aside the judgment pursuant to Code of Civil Procedure section 473, subdivision (d), arguing, in pertinent part, “The [section] 998 [offer] [plaintiffs] accepted did not have an acceptance provision and is therefore invalid.  As such, the judgment that was entered pursuant to [plaintiffs’] acceptance of the [section] 998 [offer] is void.”

The trial court granted defendants’ motion to set aside the judgment. The trial court noted a lack of case law addressing the issue where a defective 998 Offer was actually accepted, rather than being rejected or otherwise lapsing. Without authority otherwise, the trial court relied upon the rule set forth in Puerta v. Torres (2011) 195 Cal.App.4th 1267, 1273, which held that “the manner of acceptance [of a 998 Offer] must be indicated in the offer,” and where a 998 Offer is found to be invalid, any portion of a judgment that results from the 998 Offer is similarly invalid. Plaintiffs timely appealed.

In affirming the trial court’s decision, the Court of Appeal followed Puerta and held that a 998 Offer without an acceptance provision is invalid. Therefore, an offeree’s failure to accept the offer does not trigger section 998’s cost-shifting provisions.  According to the appellate court, the application of Puerta and its progeny, involving the rejection of 998 Offers, was a “logical extension” of those holdings involving acceptance of such an offer.

The Court of Appeal also determined the trial court’s ruling was consistent with section 998’s language and structure, which sets forth mandatory requirements that an offer and acceptance must satisfy to be valid. The Court reasoned that, where a 998 Offer “is invalid based on its failure to satisfy all of the ‘statutorily required elements[,] . . . there is nothing for the receiving party to accept’ in the first place.” (Citing Perez v. Torrez (2012) 206 Cal.App.4th 418, 426.) Rejecting plaintiffs’ argument that an acceptance provision should not be required, the Court emphasized that adherence to a bright-line rule, and consistent application of such rule, served to add “consistency and predictability to section 998’s operation,” thus encouraging settlement.

The Court of Appeal also determined that basic contract principles—the existence of an unambiguous offer, a clear and unqualified acceptance, and the parties’ intent to enter into an agreement—does not support a finding that the offer was valid and capable of giving rise to an enforceable judgment under section 998. The California Supreme Court previously clarified that general contract principles should not apply where, as here, their “application would conflict with section 998. . . .”  (Citing Martinez v. Brownco Construction Co. (2013) 56 Cal.4th 1014, 1020.) Further, Code of Civil Procedure section 1654, regarding contract interpretation in cases of ambiguity, did not apply because plaintiffs admitted the offer was unambiguous.

Finally, the Court of Appeal disagreed with plaintiffs that principles of equity should prevent defendants from unfairly benefitting from their drafting error. Instead, the Court stressed, adherence to the “clear statutory requirement of an acceptance provision” triumphs over party tactics or case-specific details.

Mostafavi Law Group not only clarifies the need to include a provision for acceptance in any 998 Offer, but also serves as a firm reminder of the need to adhere to the strict requirements at play when making, and responding to, 998 Offers.

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March 10, 2021