In its May 15, 2015 decision in Lee v. Silveira, the California Court of Appeal (Fifth Appellate District) held that in determining whether a defendant obtained a judgment more favorable than the compromise offer rejected by the defendant, any negotiated rate differential included in a jury's verdict should be subtracted from the judgment before it is compared to the offer to compromise.
The focus of the case is Section 998 of the Code of Civil Procedure which deals with compromise offers to settle litigation. Section 998, subdivision (d) provides that if a plaintiff's compromise offer is not accepted by the defendant and "the defendant fails to obtain a more favorable judgment or award," the defendant may be required to pay the plaintiff's post offer costs for expert witnesses.
Lena Lee was injured when the vehicle she was driving collided with a large manure spreader driven by Joseph M. Silveira. Lee sued Silveira and Silveira Custom Farming.
Prior to trial, Lee's attorney served the defendants with a Section 998 offer to compromise in the amount of $1 million. The defendants did not accept the offer.
In October 2012, the jury awarded Lee $1,027,014. The jury's award included medical expenses of $274,514, which was the amount that was billed by Lee's medical care providers.
In 2011, the California Supreme Court ruled in Howell v. Hamilton Meats & Provisions, Inc. that a plaintiff could not collect as medical expenses the negotiated rate differential, which is the difference between the amount billed by the providers of medical services and the amount actually paid by the plaintiff's insurer under the rates the insurer negotiated with the medical providers.
Relying on the ruling in Howell, the trial judge in Lee's lawsuit subtracted the negotiated rate differential from the jury's award. The resulting final judgment was $887,098.26. For the purposes of Section 998, subdivision (d), the final judgment was more favorable to the defendants than the $1 million compromise offer the defendants rejected; thus, the defendants could not be required to pay Lee's expert witness fees.
On appeal, Lee argued that her right to recover expert witness fees should have been determined before the negotiated rate differential was deducted from the jury's award. The Court of Appeal disagreed with Lee and affirmed the trial court's decision.
The Court of Appeal noted that Section 998, subdivision (d) uses the term "obtain." The key issue is what judgment the defendant obtains. In this case, the defendants were never liable to pay Lee the jury's award of $1,027,014 because the trial court applied the Howell rule and reduced the award of past medical expenses to the amount negotiated and actually paid. The court concluded, "Thus, the $1,027,014 figure in the October 2012 judgment was never more than a transitional figure and not the one ultimately obtained by defendants. Instead, the plaintiffs' plan of action to go to trial resulted in the judgment or award of $887,098.26 and this is the amount of the judgment they obtained for the purposes of Section 998." The court explained, "In other words, the defendants did not 'obtain' a judgment that included the negotiated rate differential."
A copy of the court's opinion is available at www.courts.ca.gov