D
uring the course of litigation,
either party may serve the other
with a written oer to allow a
judgment to be entered on specied terms
as late as 10 days before trial, according to
Code of Civil Procedure section 998.
Section 998’s primary goal is to provide
a strong nancial incentive to a party who
will not achieve a better result at trial than
they could by accepting a settlement. If
the amount awarded to the winning
party is less than what a settlement
oered, they could be responsible for the
other sides’ legal costs, including expert
witnesses and attorneys’ fees. is cost-
shiing–potentially including attorney
fees–statute can have a dramatic eect on
litigation strategy.
For example, a defendant in a contract
case where attorneys’ fees will be awarded
to the winner recognizes they are unable
to fully defend the case at trial. So, they
make a section 998 oer to settle for a
sum of money. e case goes to trial, the
defendant loses, but the amount awarded
is less than their section 998 oer. Even
though the defendant lost the case, the
plainti could be required to pay the
defendant’s attorneys’ fees and costs
incurred aer the section 998 oer was
made.
Oer Procedures - A Trap for
the Unwary
Making section 998 oers can be a
mineeld. If not properly worded or
addressed, section 998 oers may not be
benecial. e court added a new wrinkle
in the recent case One Star, Inc. v. STAAR
Surgical Company, in which our litigation
team represented the respondent. e
Court of Appeals held that a section 998
oer revoked before acceptance during
the 30-day statutory period resurrects a
prior oer.
Ordinarily, a section 998 oer has a
potential life of 30 days and is withdrawn
if not accepted within that time. Although
the provision does not address the
revocability or irrevocability of the oer,
the California Supreme Court in T. M.
Cobb Co., Inc. v. Superior Court held that
section 998 oers can be revoked before
acceptance. In Berg v. Darden, the court
held that a section 998 oer remains on
the table until it is ocially rejected,
formally revoked or expired. Another
case, Brown v. Labow specied that the
written oer may be orally revoked.
e rationale behind allowing a party
to revoke a section 998 oer is simple: if
parties know they can change their minds
by revoking an oer, they are more likely
to make the oer in the rst place. In T. M.
Cobb, the court’s interpretation of section
998–permitting the revocation before the
other party accepts it–is consistent with a
policy of encouraging settlements.
In addition, the courts have previously
claried that an earlier section 998 oer is
cancelled out by a later oer. If the oeror
discovers new facts or changes its mind, it
may terminate its earlier oer by making a
new one. It makes no dierence that the
new oer is invalid under section 998; it
extinguishes the rst oer.
In Palmer v. Schindler Elevator Corp,
the court found that the second settlement
oer was invalid because it was directed
to several parties jointly; however, the
defective oer still extinguished the
initial settlement oer. In this case a
later, although invalid, oer determines
whether a plainti ’s judgment is “more
favorable” than a defendant’s oer in
recovering section 998 penalties. e
court in Wilson v. Wal-Mart Stores, Inc.,
found that the plainti could not recover
interest and costs because she was awarded
less than the defendant’s second (invalid)
oer, even though she won more than the
rst settlement oered.
When An Oer is Revoked
Before Acceptance
But what happens when a section
998 oer is made but revoked before it
is accepted? at was the issue raised
by the One Star case. On September 12,
2007, STAAR made a section 998 oer
to compromise, allowing a judgment in
favor of One Star for $65,000. One Star
did not accept the oer, and it lapsed 30
days later.
STAAR then made a second oer
on December 7, 2007, adding the legal
applicable rate of interest beginning more
than a year before to the initial $65,000.
Less than two weeks later, STAAR
withdrew its second oer before One
Star could accept.
e trial court found that STAAR’s
second oer to compromise extinguished
the rst oer. e Court of Appeals
disagreed, nding the present case lies at
the intersection of the policies discussed
above–that section 998 oers are fully
revocable until accepted, and that as a
general rule, subsequent section 998
oers supersede prior ones. If a section
998 oer is withdrawn by a party prior to
its expiration (by start of trial or 30 days
aer the oer is made), their right to cost-
shiing under section 998 is determined
by the last rejected oer.
e practical result of this new rule
is that parties receiving a second or later
section 998 oer should revisit the most
recent prior oer and weigh the pros
and cons of both. While a later section
998 oer has the potential to cancel out
the earlier oer, the oering party may
revoke it at any point within 30 days
before acceptance. Parties should also be
careful not to rely on pending oers when
making strategic decisions or litigation
maneuvers; they cannot count on the
eect of such an oer until the 30 days
pass.
Monica Q. Vu is a lawyer in the Litigation
Department of JMBM’s Orange County
oce. She has a wide range of experience
in general and commercial litigation
including the prosecution and defense
of contract disputes, real estate disputes,
employment disputes and trade secret/
unfair competition claims. Contact her at
[email protected] or 714.429.3063.
Pause Before Sending
Using Unenforceable
Non-Competes can be
Very Costly by Mark S. Adams
H
ad STAAR Surgical Company
(Nasdaq: STAA) (“STAAR”)
obtained sound legal advice before
it sent three letters to its competitors, STAAR
might have saved itself $11.4 million. In
separate, two-month long jury trials, our trial
team including myself, Eudeen Chang and
Monica Vu of Jeer Mangels, and Isaac Zfaty of
Davis Zfaty APC, prevailed in Orange County
Superior Court against STAAR on behalf of
clients Parallax Medical Systems and Scott C.
Moody, Inc. for tortiously interfering with
their prospective economic relationships.
STAAR manufactures and sells specialized
lenses for surgical vision correction, such
as replacement lenses for the eye’s natural
crystalline lenses in cataract surgery, called
Intraocular Lenses, or IOLs.
Parallax Medical Systems (“Parallax”)
was a former authorized independent sales
company for STAAR and supplied the sales
force for STAAR in the Southeast United
States Region. Scott C. Moody, Inc. (“SMI”)
was also a former authorized independent sales
company for STAAR and supplied the sales
force for STAAR in the Southwest United
States Region.
Using their own marketing strategies, their
own independent sales subcontractors and their
own customer lists, Parallax in the Southeast,
and SMI in the Southwest, generated sales of
over $160 million for STAAR. Parallax and
SMI were paid on a commission basis. Parallax
and SMI had contracted with STAAR for
over 15 years. When the two companies and
STAAR were unsuccessful in negotiating a
new contract, STAAR launched a campaign
designed to prevent Parallax and SMI from
working with any of STAAR’s competitors.
Both juries took less than
a day in deliberations.
STAAR tortiously interfered with Parallax
and SMI’s opportunity to sell Bausch & Lomb
lenses by sending letters to competitors stating
that Parallax and SMI had a contract with
STAAR that included a restrictive covenant
prohibiting both companies from selling any
competing products for a year. Additionally,
STAAR sent an email to Parallax’s and SMI’s
sales force at 12:02 a.m.—two minutes aer
STAAR’s contract with Parallax and SMI
expired—seeking to lure their sales force away
to work directly for STAAR. STAAR’s letters
torpedoed Parallax’s and SMI’s pending deal
to sell Bausch & Lomb lenses. As a result,
Parallax and SMI separately sued STAAR for
intentional and negligent interference with
prospective economic advantage.
e Parallax case was tried to a jury over
the course of two months, the Honorable
Andrew Banks presiding, and concluded in
March of 2009. e jury took less than a day
in deliberations to nd in favor of Parallax and
against STAAR for $4.9 million in damages,
including $2.7 million in punitive damages.
e SMI case was also presented to a jury,
the Honorable Glenda Sanders presiding,
in a two-month trial,
Intraocular Lens (“IOL”)
Continued on Page 2
JMBM Expands
to Orange
County
Same Talent. New Team.
J
eer Mangels Butler & Marmaro
LLP has represented Orange County
businesses since the rm was founded
in Los Angeles in 1981. In 2007, JMBM
opened an oce here in Orange County,
and since that time has continued to
grow by adding attorneys with expertise
in a variety of diverse practice areas. Our
oce includes Orange County residents
who have practiced law at the area’s most
reputable rms for decades, and have
supported the needs of Orange County’s
businesses and communities throughout
their careers.
In addition to strong litigation talent,
our Orange County oce includes
lawyers with robust expertise in real
estate, land use, commercial bankruptcy,
corporate law, taxation, intellectual
property, and trusts & estates. Our
clients include tech companies, apparel
manufacturers, nancial institutions,
motor vehicle companies, real estate
developers and range from high-net-
worth individuals to Fortune 500
companies.
JMBM is a full-service California
law rm. From our oces in Orange
County, Los Angeles and San Francisco,
we represent our clients’ interests
worldwide. Whether our clients need
help solving a problem or seizing an
opportunity, our representation of their
interests is rigorous, intelligent and
uncompromising. Please call on us to
discuss how we can help you.
The Section 998 Mineeld
Parties Beware: A second settlement oer that is revoked
will resurrect a prior settlement oer by Monica Q. Vu
Intraocular Lens (“IOL”)
5 Spring 2010
Copyright © 2010 Jeer Mangels Butler & Marmaro LLP (JMBM). All Rights Reserved.
Spring 2010
Using Unenforceable Non-
Competes can be Very
Costly; Served Today, Trial
Tomorrow
Mark Adams
714.429.3064
Protecting Ownership of
Your Intellectual Property
Stanley M. Gibson
310.201.3548
Parties Beware: The Section
998 Mineeld
Monica Q. Vu
714.429.3063
Just the Right Fit, Just in
Time
Eudeen Y. Chang
714.429.3062
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