How to Force Your Co-owner to Settle a Partition Action by Threatening to Recover the Costs of Partition
Co-owners in a partition action can harness the power of a 998 offer by threatening to recover the costs of partition if the other side doesn’t accept the offer. The costs of partition can include partition attorney’s fees, partition referee fees, court fees, expert fees, and, most importantly, Realtor/broker commissions.
Indeed, many partition litigants hope to end their co-ownership dispute by using the carrot and the stick method of offering money to the other side to settle (the carrot), but also with a detriment of paying costs if the other side does not settle (the stick). Section 998 of the Code of Civil Procedure allows litigants to shift “costs” if the other side does not accept their offer (known as a “998 offer”), and they obtain a better result through litigation.
Indeed, parties to a partition may try to use the nuisance value of the costs of a partition action to extract an unfair amount of compensation being paid by the co-owner seeking to purchase the fractional interest in the property. However, this last category of costs- the Realtor/broker commissions (currently around 5% in California)- are generally larger than the attorney and referee fees combined. This blog post will guide co-owners and their attorneys through how this procedure can be used to end wasteful partition litigation where the outcome is already known to the parties.
How Does a 998 Offer Work?
A Section 998 offer to compromise is a statutory offer made in good faith with the goal of promoting settlement between the parties. Code of Civil Procedure § 998(c)(1) makes clear that: “If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer.” See, generally, Statutory Offer to Compromise ( CCP § 998 ), Cal. Prac. Guide Civ. Pro. Before Trial (The Rutter Group) Ch. 12(II)-C.[1]The same is true in relation to plaintiffs as follows: “If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or … Continue reading
“The policy behind section 998 penalties is well established. It is to encourage settlement by providing a strong financial disincentive to a party—whether it be a plaintiff or a defendant—who fails to achieve a better result than that party could have achieved by accepting his or her opponent’s settlement offer. (This is the stick. The carrot is that by awarding costs to the putative settler the statute provides a financial incentive to make reasonable settlement offers.)”Madrigal v. Hyundai Motor America (2023) 90 Cal.App.5th 385, 398 (quoting Bank of San Pedro v. Superior Court (1992) 3 Cal.4th 797, 804).[2]Madrigal v. Hyundai Motor America (2023) 90 Cal.App.5th 385, 398 went on to provide the following illustrative case descriptions: “Chen v. BMW of North America, LLC (2022) 87 Cal.App.5th 957, … Continue reading
“The carrot-and-stick approach of section 998 encourages parties seriously to consider settling disputes before trial while, at the same time, permitting them the flexibility to fashion settlements on terms best suited to the circumstances of a particular action.” Berg v. Darden (2004) 120 Cal.App.4th 721, 732.
What Happens if a Party Rejects a 998 Offer in a Partition Action?
The party receiving the 998 offer is not required to accept this offer and may instead decide to reject the offer. However, rejecting a 998 offer comes with potential consequences. Rejecting a 998 offer may subject a party to post-offer penalties if the case results in a judgment through trial, arbitration, summary judgment motion, or otherwise, and they do not obtain a “more favorable” judgment. The penalties of a 998 offer are meant to encourage settlement by shifting costs, including reasonable attorney’s fees, to the losing party.
Example of the Consequences After Rejecting 998 Offer
You extend your opposing party a 998 offer to settle the lawsuit today, whereby you will pay them $100,000 to close this case. Your opposing party declines the offer, believing that proceeding with litigation and a forced sale of the property will result in a more profitable outcome for them. After the case concludes and the property is sold, the judge ultimately awards $99,999.99 to your opposing party. Because your 998 offer of $100,000 was more favorable than the amount ultimately awarded to your opposing party, you can request the judge to order your opposing party to reimburse you for the partition attorney’s fees, partition referee fees, court fees, expert fees, and, Realtor/broker commissions that resulted from the course of the case.
Conversely, if the sale of the property results in your co-owner being awarded an amount exceeding the sum you proposed in your 998 offer, then your 998 offer has no bearing on the allocation of costs such as attorney fees, court fees, or expert fees. In this scenario, the 998 offer neither adversely affects nor benefits the outcome of the case.
What Must Be Included in a 998 Offer?
While the rules of 998 offers are incredibly complex, the basics are that a 998 offer must be a “written offer” that includes “a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted.” Code Civ. Proc. § 998(a).
998 Offers Must Be Sufficiently Certain to Be Capable of Valuation
“To trigger the potential § 998 penalties, the terms and conditions must be sufficiently certain to be capable of valuation. Otherwise, it may not be possible to determine whether any recovery at trial is ‘more favorable.’” Chen v. Interinsurance Exchange of the Automobile Club (2008) 164 Cal.App.4th 117, 121; see Berg v. Darden (2004) 120 Cal.App.4th 721, 727 (to trigger the potential § 998 penalties, “the offer must be sufficiently specific to permit the recipient meaningfully to evaluate it and make a reasoned decision whether to accept it, or reject it and bear the risk he may have to shoulder his opponent’s litigation costs and expenses”).
For example, an offer to repurchase a car so long as it was in “undamaged condition, save normal wear and tear” was ambiguous, and therefore invalid, to trigger § 998 cost-shifting. MacQuiddy v. Mercedes-Benz USA, LLC (2015) 233 Cal.App.4th 1036, 1050. This means that offers in a partition action to buy the interest of the other side should not be conditioned on the condition of the property.
Tath, parties to a partition action are advised to make their 998 offers sufficiently certain to be capable of valuation and comparison to what would occur in a partition action.
How to Make a Partition Action 998 Offer Capable of Valuation
To ensure that the 998 offer in a partition action is capable of valuation, parties can try language such as:
- [Plaintiff/Defendant] to receive 51% of the proceeds of sale. (This assumes the Plaintiff/Defendant is a 50% owner.)
- Defendant to pay Plaintiff $100,000 for Plaintiff’s interest in the real property at 123 Main Street, Blackacre, California. Defendant to pay all costs of escrow, title, transfer taxes, and any other costs related to the transfer of title. Case to be dismissed with prejudice upon the close of escrow.
Must Obtain a “More Favorable Judgment” to Shift Costs Under Section 998
Many litigants believe that simply being the prevailing party is sufficient to recover attorney’s fees and costs. This is not true. Under Section 998, “if plaintiffs reject a defendant’s offer to compromise and then fail to win a more favorable judgment, the plaintiffs cannot recover their postoffer costs and must pay the costs the defendant incurred after the offer.” Chen v. Interinsurance Exchange of the Automobile Club (2008) 164 Cal.App.4th 117, 121.
The lesson here is simple: Each party should try to make their 998 offer as generous as possible to hopefully trigger the benefits of shifting costs if the other side does not accept. For example, if the parties are 50/50 owners, and one side believes that the ultimate distribution will be 50/50, offer the other side 51%. If they only get 50% at the end of the case, the party who made the offer that was not accepted can reap the benefits of section 998. Offers under section 998 are the time to be generous, not stingy.
Recoverable Costs of Partition in a 998 Offer if the Other Party Does Not Accept
Recoverable costs in a 998 offer are only those that were incurred after the offer has been made. See Scott Co. of California v. Blount, Inc. (1999) 20 Cal.4th 1103, 1111.
Luckily for partition litigants, the partition statutes clearly define the “costs of partition” as follows:
The costs of partition include:
(a) Reasonable attorney’s fees incurred or paid by a party for the common benefit.
(b) The fee and expenses of the referee.
(c) The compensation provided by contract for services of a surveyor or other person employed by the referee in the action.
(d) The reasonable costs of a title report procured pursuant to Section 872.220 with interest thereon at the legal rate from the time of payment or, if paid before commencement of the action, from the time of commencement of the action.
(e) Other disbursements or expenses determined by the court to have been incurred or paid for the common benefit.
California Code of Civil Procedure 874.010
Attorney’s Fees Recoverable After a 998 Offer is Not Accepted
Many parties in a partition action are excited to recover attorney’s fees in a partition.
Unfortunately for many litigants, the law on attorney’s fees in a partition action allow both sides to claim attorney’s fees for the common benefit. Many times, the attorney’s fees are similar on each side, meaning the attorney’s fee motions can be a wash. An exception is where one party can show that the opposing party was “advocating a position of limited merit” such that those fees “should be borne by the party pressing such spurious matters.” Orien v. Lutz (2017) 16 Cal. App. 5th 957, 968. Another exception is where the court “exercise[s] its equitable discretion under section 874.040 and require a party to bear its own fees.” Id. Yet another exception is that: “A court also can adjust the allocation of fees incurred by a party to the extent they are not ‘reasonable’ as required by section 874.010, subdivision (a).” Id.
More importantly, there exists yet another exception: post-offer (after the 998 offer) attorney’s fees as a “cost of partition” under California Code of Civil Procedure 874.010(a). CCP 874.010(a) includes the costs of partition such as: “Reasonable attorney’s fees incurred or paid by a party for the common benefit.” As The Rutter Guide explains: “‘Costs’ recoverable by a prevailing party under CCP § 1032 include attorney fees if authorized by statute or contract. [CCP § 1033.5(a)(10)].” Statutory Offer to Compromise (CCP § 998), Cal. Prac. Guide Civ. Pro. Before Trial Ch. 12(II)-C, 12:648.5.
This means that Section 998 in conjunction with CCP 874.010(a) has the potential to turn attorney’s fees into a prevailing party statute, which many litigants would prefer when the opposing party in a partition action is causing unreasonable legal fees.
Referee Fees Recoverable After a 998 Offer is Not Accepted
Many partition litigants are fearful of referee fees, and may seek to shift those referee fees to the other party. Under Section 998, this may be possible since the “costs of partition include…The fee and expenses of the referee.” California Code of Civil Procedure 874.010(b). While this may seem like a powerful motivator, the truth is that the cost of a partition referee in California is not as high as many people may believe. For ordinary partitions involving the forced sale of a single family home, Talkov Law is often able to employ a referee with a cost between $14,000 – $25,000, which is generally split between the parties according to their ownership interest. CCP § 874.040. This means a 50% owner would generally be liable for about $7,000 in a normal sale, and maybe a few thousand dollars more if the partition referee prepares a report on offsets and accounting.
Recovery of the Realtor/Broker Fee After a 998 Offer is Not Accepted
The most powerful use of a 998 offer in a partition action is to threaten that the Realtor/broker fees will be shifted entirely to the other party if the offer is not accepted.
This is because “the costs of partition include… The compensation provided by contract for services of a surveyor or other person employed by the referee in the action.” California Code of Civil Procedure 874.010(c). In turn, the referee will generally employ a Realtor/broker to market and sell the property, which seemingly counts as an “other person employed by the referee.” If the partition in fact results in a sale, this fee would generally be around 5%. For example, on a $1,000,000 property sold in a Los Angeles partition action, threatening to shift the $50,000 in Realtor/broker fees to the opposing party could make them think twice about whether they should accept a reasonable settlement offer.
998 Offer Examples in a Partition Action
Suppose a defendant is seeking to buyout a plaintiff’s interest in the property. Defendant might use the 998 form to check box 2(b) to provide that “The judgment is to be as follows,” thereafter writing: “Defendant to pay plaintiff $[insert dollar amount] in exchange for plaintiff’s interest in the real property located at [____]. Defendant to pay all title, escrow, and other transaction costs. Each side to bear their own fees and costs. Dismissal with prejudice upon close of escrow.”
To the extent that the plaintiff does not accept this offer, but the property is sold, the defendant would be entitled to file a motion to recover their costs to the extent the plaintiff will be receiving less than amount stated in the offer. For example, if defendant offered $61,000, but the proceeds of sale are only $120,000, to be split 50/50, the plaintiff would normally receive only $60,000. Code of Civil Procedure § 873.820(d). In this example, the plaintiff achieved a worse result than had they accepted the 998 offer.
In fact, if the proceeds of sale are $140,000, the plaintiff might think they achieved a better result because half would be $70,000. However, if the referee’s fee of $20,000 must be deducted, then the remaining proceeds to be split are only $60,000 per co-owner. Once again, the 998 offer of $61,000 was better than what the plaintiff achieved through litigation.
Under either scenario, the defendant would be entitled to file a motion so that all of the referee fees, Realtor/broker fees, and even attorney’s fees would be shifted to the plaintiff. On a $1,000,000 property, a 5% broker fee would be $50,000 by itself, meaning that the plaintiff might receive nothing.
But I Don’t Want the Property to Be Sold! (Don’t Worry!)
Co-owners reading this may be thinking that they don’t like the 998 offer process because it would require the property to be sold for them to show that they obtained a better result than the 998 offer. This is incorrect.
For the same reason that kids clean their room when told that they will otherwise be going to bed, and for the same reason that people listen to the instructions of a police officer because they know that bad things will happen if they don’t, 998 offers often serve the purpose of making parties reasonable because they realize what will occur if they don’t cooperate.
More often than not, the 998 offer will cause the parties to reach a resolution that estimates what should occur in the end without the need to go through the motions. For defendants, this might mean that they can buy the other co-owner’s interest in the property without going through a partition by sale.
What about the mortgage on the property?
Solving a buyout of a property through a 998 offer may raise issues related to the existing mortgage on the topic. Review our article below on that subject.
Cost of Partition Statutes
The following statutes may be helpful to understand how costs of partition can be shifted using a 998 offer, as described in this article:
Chapter 8. Costs of Partition
- Article 1. Allowance and Apportionment of Costs of Partition
Contact a Partition Attorney With Experience in 998 Offers
If you find yourself seeking to dissolve your co-ownership arrangement and encounter resistance from your co-owner, a partition action may be the your best course of action With full time partition attorneys who are well-versed in both California partition law and the intricacies of 998 offers, Talkov Law can help end your co-ownership dispute with more money in your pocket. We can even help you settle or win your case for no money down.
For a complimentary case evaluation with Talkov Law, call (844) 4-TALKOV (825568), email us, or fill out a contact form online.
References
| ↑1 | The same is true in relation to plaintiffs as follows: “If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding…, the court or arbitrator, in its discretion, may require the defendant to pay a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the plaintiff, in addition to plaintiff’s costs.” Code of Civil Procedure § 998(d). |
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| ↑2 | Madrigal v. Hyundai Motor America (2023) 90 Cal.App.5th 385, 398 went on to provide the following illustrative case descriptions: “Chen v. BMW of North America, LLC (2022) 87 Cal.App.5th 957, 961, 303 Cal.Rptr.3d 703 [section 998, subdivision (c)(1) ‘encourages acceptance of reasonable offers by penalizing a party who does not accept a settlement offer and then fails to achieve a better result through continued litigation’]; Mesa Forest Products, Inc. v. St. Paul Mercury Ins. Co. (1999) 73 Cal.App.4th 324, 330, 86 Cal.Rptr.2d 398 [section 998 penalizes a party ‘who fails to accept what, in retrospect, is seen to have been a reasonable offer’]; Meister v. Regents of University of California (1998) 67 Cal.App.4th 437, 450, 78 Cal.Rptr.2d 913 [‘The basic premise of section 998 is that plaintiffs who reject reasonable settlement offers and then obtain less than the offer should be penalized for continuing the litigation’]; Hurlbut v. Sonora Community Hospital (1989) 207 Cal.App.3d 388, 408, 254 Cal.Rptr. 840 [section 998’s purpose is to ‘punish[ ] a party who fails to accept a reasonable offer from the other party’)”‘who fails to accept what, in retrospect, is seen to have been a reasonable offer’]; Meister v. Regents of University of California (1998) 67 Cal.App.4th 437, 450, 78 Cal.Rptr.2d 913 [‘The basic premise of section 998 is that plaintiffs who reject reasonable settlement offers and then obtain less than the offer should be penalized for continuing the litigation’]; Hurlbut v. Sonora Community Hospital (1989) 207 Cal.App.3d 388, 408, 254 Cal.Rptr. 840 [section 998’s purpose is to ‘punish[ ] a party who fails to accept a reasonable offer from the other party’).” |
