On August 6, 2026, the California Supreme Court held that parties may preserve Code of Civil Procedure section 998’s cost-shifting protections when including two alternative sets of settlement terms in a single section 998 offer, provided the offer clearly delineates mutually exclusive choices, explains how the offeree may accept one choice, and includes at least one alternative that can be accurately valued. As a result, litigants may continue using alternative-choice offers, provided the offer is sufficiently definite to allow the opposing party to evaluate it and a court to later determine whether the judgment obtained was more favorable than the rejected offer based on the circumstances and information available at that time.
Code of Civil Procedure section 998 encourages settlement before trial. Under the statute, a party that makes a valid settlement offer may recover certain litigation costs if the opposing party rejects the offer and later fails to obtain a more favorable judgment or award. In cases where attorney fees are recoverable as costs under a statute, the offer may also limit the opposing party’s recovery of post-offer attorney fees. Because section 998 can significantly affect litigation costs, parties routinely use it as a settlement tool in employment and labor litigation.
The issue arose in Gorobets v. Jaguar Land Rover North America, LLC, in which Jaguar served a section 998 offer that gave the plaintiff two alternative settlement options. Under the first option, Jaguar agreed to pay the plaintiff $85,000 in exchange for the return of the vehicle with clear title. Under the second option, Jaguar agreed to reimburse the plaintiff for categories of recovery available under the Song-Beverly Consumer Warranty Act, including amounts paid for the vehicle, taxes, fees, and consequential damages and required the plaintiff to substantiate the claimed amounts and contemplated later resolution of disputed amounts. The Supreme Court assumed without deciding that the second option was not independently capable of sufficiently certain valuation. The plaintiff did not accept either option and allowed the offer to expire. Following trial, the plaintiff recovered a net damages award of $76,155.27, and Jaguar argued that the offer triggered section 998’s cost-shifting provisions.
The California Supreme Court agreed that including two alternative sets of settlement terms did not automatically invalidate the offer. The Court held that the offer must clearly delineate the terms attributable to each choice, make the choices mutually exclusive, and explain how the offeree may communicate acceptance of one choice. At least one option must also be sufficiently definite to permit the offeree to evaluate it when the offer is made and the court to later assign it a fair value based on the circumstances existing at that time.
The Court explained that traditional contract principles permit an offer to provide alternative methods of acceptance and that section 998 does not categorically prohibit such offers. When an offer satisfies the Court’s requirements, the judgment or award is compared with the highest-valued valid option. If the judgment exceeds that option, section 998 cost shifting does not apply; if it does not, cost shifting may apply. Cost shifting may apply even if another option is invalid or cannot be accurately valued.
In rejecting the plaintiff’s concern that its holding could produce a “morass of alternatives,” the Court did not conclude that an offer could never become too complex to satisfy section 998. Rather, it held that the two alternatives presented in Jaguar’s offer were not unreasonably difficult to evaluate. The Court left open the possibility that a more complicated array of choices could fail section 998’s certainty, reasonableness, or good-faith requirements.
Because Jaguar’s $85,000 lump-sum option was definite and the plaintiff did not obtain a more favorable judgment than that option, the Supreme Court affirmed the portion of the judgment upholding the trial court’s cost award. However, the Court rejected the Court of Appeal’s conclusion that section 998 categorically prohibits alternative-choice offers.
As a result of the decision, litigants may continue using section 998 offers containing alternative settlement structures. However, agencies should ensure that the choices are mutually exclusive, the terms attributable to each choice are clearly delineated, the method of acceptance is clear, and at least one option is capable of accurate valuation. Although the Court required only one option to be sufficiently certain, drafting each option to satisfy that standard will reduce the risk that the offer loses its intended cost-shifting effect.
Liebert Cassidy Whitmore attorneys are closely monitoring developments in relation to this Special Bulletin and are able to advise on the impact this could have on your organization. If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.