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California Supreme Court clarifies alternative 998 offers

8/13/26

By: Mansour Chopan

Settlement offers often need flexibility, but California section 998 demands enough certainty to support cost shifting. That tension matters because a poorly drafted offer can lose its settlement leverage when the parties later litigate costs. In Gorobets v. Jaguar Land Rover North America, LLC, the California Supreme Court addressed whether a single 998 offer may give the offeree a choice between two alternative sets of settlement terms.

The Court’s answer: yes, sometimes.

The Court held that alternative-choice 998 offers are not categorically invalid. A single offer may provide mutually exclusive settlement alternatives if the offer clearly presents the available choices and at least one independent alternative is sufficiently certain to permit valuation when the offer is made.

For litigators, claims professionals, insurers, and businesses evaluating California settlement strategy, the decision provides a useful tool. It also raises the drafting stakes.

Background

The dispute arose from a Song-Beverly Act case involving an allegedly defective leased Land Rover. The plaintiff sued after claiming the vehicle had multiple defects and that the manufacturer failed to provide replacement or restitution under the Act.

Jaguar Land Rover served a California section 998 offer containing two alternatives. The first was straightforward: an $85,000 lump-sum payment in exchange for return of the vehicle with clear title. The second was more complex and reimbursement-based, tracking categories of relief under the Song-Beverly Act and requiring proof of recoverable amounts.

The plaintiff rejected the offer. After trial, the plaintiff obtained a net damages verdict of $76,155.27, below the $85,000 lump-sum alternative. The trial court enforced cost-shifting consequences, limiting the plaintiff’s postoffer recovery and awarding the defendant postoffer costs.

The Supreme Court’s holding

Section 998 is designed to encourage settlement by creating financial consequences for a party that rejects a reasonable offer and then fails to obtain a better result. The statute works only if the offer can be valued both by the offeree at the time of decision and by the court later if costs are disputed.

The California Supreme Court adopted a practical rule for alternative-choice 998 offers:

• The offer must clearly present the alternatives available to the offeree.
• At least one independent set of terms must be sufficiently certain to permit accurate valuation when the offer is made.
• If the rejected offer contains at least one valid higher-value alternative, the court compares the judgment to the highest-value valid alternative.

The Court treated Jaguar Land Rover’s proposal as a single offer with mutually exclusive alternatives, not two simultaneous offers. That distinction matters. The plaintiff could accept one alternative or reject the offer as a whole, but could not accept both or mix and match terms.

The Court affirmed the cost award because the $85,000 lump-sum alternative was sufficiently certain and exceeded the plaintiff’s net damages verdict. But the Court rejected the Court of Appeal’s categorical rule that alternative-choice 998 offers are inherently invalid.

Why the court rejected a categorical ban

The Court found nothing in section 998 that prohibits a single offer from presenting alternative terms. It also relied on general contract principles, which allow an offeror to give the offeree a choice between alternative sets of terms.

The Court reasoned that alternative-choice offers can further section 998’s settlement-promoting purpose. In the right case, alternatives may allow parties to explore more than one path to resolution without serial rounds of offers.

But the Court did not give parties a blank check. Flexibility does not excuse uncertainty. If the structure is unclear, if the choices are not self-contained, or if the court cannot fairly value any valid alternative, the offeror may lose the benefit of cost shifting.

Defense and claims strategy

For defendants and insurers, Gorobets may be especially useful in cases involving statutory remedies, restitution, replacement, repair, fee-shifting, or complex damages. Song-Beverly Act cases are an obvious example, but the reasoning is not limited to that statute.

The decision may allow defendants to pair a simple monetary payment with a more tailored alternative that addresses statutory or case-specific remedies. That can create flexibility while preserving the settlement pressure that section 998 is designed to provide.

Claims professionals should also consider documenting the valuation basis at the time the offer is made. If the offer is later challenged, the record should help show that the offeree had enough information to evaluate the offer and that the court can value at least one alternative without speculation.

The key is discipline. A creative 998 offer should not become a drafting experiment. If the offer reads like a puzzle, the cost-shifting benefit may disappear.

Practical takeaways

The decision creates room for more strategic 998 drafting, but only for lawyers and claims professionals who draft with precision.

• Alternative-choice 998 offers can be valid. They are not automatically invalid simply because they present more than one settlement path.
• Clarity is critical. The offer should clearly identify each alternative and state that the offeree must select one.
• Each alternative should be self-contained. Avoid terms that require the offeree to fill in missing material terms or combine pieces from different alternatives.
• Make acceptance unmistakable. A checkbox, signature line, or separate acceptance provision can help show how the offeree must accept.
• Include at least one easy-to-value alternative. A clean lump-sum option may preserve cost-shifting arguments even if another alternative is more complex.
• Avoid a confusing menu. A lengthy set of choices may invite arguments that the offer was unclear, impractical to evaluate, or not made in good faith.
• Draft for the later cost motion. The offeror bears the burden of showing the offer was valid and sufficiently certain.

Offerees also need to adjust their evaluation. After Gorobets, a party rejecting an alternative 998 offer should assess the cost-shifting risk based on the highest-value valid alternative, not merely the option the offeree views as most likely or most attractive.

Conclusion

Gorobets gives litigants more room to structure creative 998 offers, but it also raises the drafting stakes. The safest offer is still the one a court can value without guesswork.

For more information please contact at Mansour Chopan at mansour.chopan@fmglaw.com or your local FMG Law attorney.

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.