Moving The Goal Post: Strategies for Section 998 Settlement Offers

Civil Litigation

January 27, 2026

Moving The Goal Post: Strategies for California Code of Civil Procedure Section 998 Settlement Offers

Overview and policy purpose

California Code of Civil Procedure Section 998 (“Section 998”) is a settlement offer statute designed to push parties toward realistic compromise by attaching meaningful financial consequences to the rejection of a qualifying offer. Its mechanism is not primarily punitive. Instead, it aims to encourage reasonable settlement behavior and discourage parties from continuing litigation when an early resolution was available on fair terms.

Section 998’s leverage is often most visible in cases where litigation costs, and especially expert costs and attorneys’ fees, can quickly eclipse the underlying damages. In statutory fee‑shifting regimes (including many employment and consumer actions), § 998 can become a practical “line in the sand,” because in appropriate cases it may sharply limit the offeree’s ability to recover post‑offer costs and, where fees are treated as recoverable costs under the governing statute, potentially post‑offer attorneys’ fees as well.

Core statutory mechanics

Section 998 allows any party to serve a written offer to allow judgment to be taken, or for an award to be entered, on specified terms. The offer must be served at least 10 days before trial, or before arbitration begins in covered arbitrations.

If the offer is accepted, the accepted offer and proof of acceptance are filed and judgment is entered (or an arbitration award is issued). If the offer is not accepted within 30 days, or before trial or arbitration begins (whichever occurs first), it is deemed withdrawn and generally cannot be used as evidence at trial or arbitration.

The statute’s real force appears in its cost‑shifting provisions:

If a defendant makes a qualifying Section 998 offer which the plaintiff does not accept and the plaintiff fails to obtain a more favorable “judgment or award,” then the plaintiff cannot recover post‑offer costs and must pay the defendant’s costs from the time of the offer.
Courts also have discretion (outside eminent domain matters) to require the plaintiff to pay reasonable post‑offer expert witness costs that were actually incurred and reasonably necessary.

In practice, this creates a high‑stakes decision point for the offeree: rejecting a serious offer can expose the offeree to a double consequence: loss of their own post‑offer recoveries and potential liability for the other side’s post‑offer costs (including expert costs), shifting settlement leverage materially as trial approaches.

What counts as “more favorable”

Courts compare the dollar value of the final result to the value offered under Section 998. The statute directs courts to exclude post‑offer costs when evaluating whether the plaintiff obtained a more favorable result than the offer. This means the comparison centers on the substantive value of the outcome rather than litigation expenses that accrue later.

A simplified example:

If the offer was $100,000, and the plaintiff’s judgment is $100,000 plus pre‑offer costs, the result may be treated as equal or more favorable because pre‑offer costs can be included in the valuation.
But if the plaintiff’s judgment is $100,000 plus only post‑offer fees or costs, those post‑offer amounts are excluded from the “more favorable” comparison. In that scenario, the result is not more favorable.

This comparison framework is central to Section 998’s settlement pressure: it allocates risk to the party who refuses a valid offer by placing on that party the burden of achieving a better outcome later.

The Supreme Court’s clarification on pretrial settlements: Madrigal v. Hyundai Motor America

A major practical question had been whether Section 998 cost shifting applies only when the case ends in a judgment after trial, or whether it can apply when the parties settle later for less than an unaccepted offer. The California Supreme Court addressed this in Madrigal v. Hyundai Motor America (March 2025) and held that a plaintiff who rejects a valid Section 998 offer may still face § Section998 consequences if the plaintiff later settles for less than the offer amount, even without a trial verdict. It is important that any settlement agreement entered into after a rejected Section 998 offer should include language that each party is to bear their own attorney fees and costs.

What Madrigal clarified (and why it matters)

No “trial required” rule. The Court’s analysis made clear that Section 998’s cost‑shifting framework is not limited to cases that culminate in a verdict. Put differently: Section 998 does not contain a categorical “trial requirement.” The statute can penalize the nonaccepting offeree for continuing the case after a proper offer, even if the case later resolves by settlement rather than a judgment after trial.
Procedural posture underscores the risk. In Madrigal, the parties reached a stipulated settlement after a jury was sworn on the first day of trial, and the settlement left issues of costs and attorneys’ fees to be decided by the court. That posture illustrates a key real‑world lesson: even when parties settle late, unresolved fee‑and‑cost allocation can spark a post‑settlement fight in which a prior §Section998 offer becomes determinative.
The offeree bears the risk/burden. The decision reinforces that Section 998 places the practical burden on the offeree to obtain a “more favorable” result after rejecting a valid offer. If the offeree cannot do so, the statute’s cost consequences may apply.

Why this matters in practice

Madrigal strengthens Section 998 as a leverage tool because it reduces the ability to avoid cost consequences simply by settling late for less than an earlier, reasonable offer. It also reinforces the statute’s settlement‑forcing purpose by placing the financial risk on the party who declines a valid offer and continues litigating.

This clarification is especially important in contexts like employment litigation, where statutory fee‑shifting can drive exposure. Defendants, often employers, frequently use §Section998 offers not just to encourage settlement, but to manage and cap the risk of escalating post‑offer fees and costs. After Madrigal, the strategic value of an early, well‑calibrated offer increases because a later settlement does not necessarily “wash away” Section998’s cost‑shifting potential.

Limits of Section998: post-judgment enforcement costs

Another practical boundary is whether Section 998 can bar recovery of fees and costs incurred after judgment for enforcement activity. In Elmi v. Related Management (Cal. Ct. App. Jan. 8, 2025), the Court of Appeal held that Section 998 governs only prejudgment costs and does not control post-judgment enforcement costs, which instead are addressed by the Enforcement of Judgments Law. This distinction is significant for litigants who “win” but face extended enforcement fights because Section 998 does not automatically foreclose enforcement-related recoveries that are authorized by the separate enforcement statutes.

Practical guidance for drafting and evaluating Section 998 offers

Below are practice points grounded in the statute’s structure and the post 2025 case guidance described above.

A. Build a clean record of validity

Because Section 998 consequences can be substantial, litigants should ensure strict compliance with service, timing and form requirements, including the written acceptance mechanism and the 30 day acceptance window. A technically flawed offer can forfeit the benefits, even if the number was reasonable.

B. Price the offer with realistic downside in mind

After Madrigal, parties should treat late settlements as potentially triggering the same comparison analysis as a trial outcome if the settlement ends up less favorable than the earlier offer. That increases the value of making serious offers earlier and increases the risk to an offeree who rejects a defensible number and later compromises downward. A thorough and complete settlement agreement addressing the Section 998 issues is paramount.

C. Consider expert cost exposure as a lever

Section 998 explicitly allows discretionary shifting of post-offer expert witness costs in many matters, which can be especially influential in cases where expert work drives the budget. Even the possibility of those costs can change a case’s settlement posture, particularly as trial approaches.

D. In fee‑shifting cases, evaluate attorneys’ fee exposure explicitly

In statutory fee contexts where attorneys’ fees are recoverable as costs, a valid Section 998 offer may function as a practical cutoff device for post‑offer recovery (depending on the governing fee statute and how courts treat the fee component). That makes it essential for both sides to model not only expected damages, but also expected fee growth, and to incorporate that growth into valuation and settlement strategy.

E. Draft settlements with cost allocation front and center

Because parties can agree to cost allocation terms in settlement, a settlement agreement can avoid a separate fight about who bears which costs and fees after a late compromise. This is especially important when the settlement number is near, or below, a prior Section 998 offer. If costs and fees are left open, the Section 998 comparison may drive the outcome.

Conclusion

Section 998 remains a central settlement device in California civil litigation because it ties litigation economics to settlement behavior through cost shifting and potential expert fee exposure. The California Supreme Court’s Madrigal ruling underscores that Section 998 consequences can apply even when the case resolves through a pretrial settlement that is less favorable than an earlier rejected offer, and that § 998 is not limited to cases resolved by trial verdict.

The practical guidance is clear: Section 998 offers as high‑impact decision points, evaluate them with disciplined valuation (including attorneys’ fee growth where relevant), and draft settlements with costs and fees expressly addressed, particularly when prior § 998 offers exist.

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Disclaimer

The information in this post is considered attorney advertising under applicable California law. The contents of this post are for informational purposes only and do not constitute legal advice. The information may be incomplete or out of date. No representations, testimonials, or endorsements on this website constitute a guarantee, warranty, or prediction regarding the outcome of any legal matter.

Sources:

Lexology, California Supreme Court Clarifies that CCP Section 998’s Cost-Shifting Rule Applies to Pre-Trial Settlements, https://www.lexology.com/library/detail.aspx?g=58fde69d-a6c9-488b-a727-3191518b3d27 (last visited Jan. 23, 2026).

Cal. Civ. Proc. Code § 998, FindLaw, https://codes.findlaw.com/ca/code-of-civil-procedure/ccp-sect-998/ (last visited Jan. 23, 2026).

Alison L. Tsao, California Supreme Court Clarifies Cost Shifting Under CCP Section 998, CDF Labor Law LLP (Apr. 16, 2025), https://www.cdflaborlaw.com/blog/california-supreme-court-clarifies-cost-shifting-under-ccp-section-998.

Peter R. Boutin, Tara Leuenberger & Christopher A. Stecher, Section 998: The High-Stakes Settlement Strategy You Need to Know, Daily Journal (Jan. 14, 2025), https://www.dailyjournal.com/article/382847-section-998-the-high-stakes-settlement-strategy-you-need-to-know

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