In 2013 Salvador Guzman rear-ended Mitchell Hunter Oakes’ vehicle. Oaks employer’s workers’ compensation insurance carrier, Liberty Insurance Corporation, paid $256,631.76 for his treatment.

Oaks filed a civil action against Guzmman and his employer Progressive Transportation Services Inc. Liberty Mutual filed a complaint in intervention, seeking to recover against any judgment a lien for workers’ compensation benefits paid to plaintiff, as authorized by Labor Code section 3852. Liberty subsequently assigned its $256 thousand workers’ compensation lien to defendants and was dismissed from the case.

In November 2015, defendants served an offer to settle under Code of Civil Procedure section 998 for $200,000. Plaintiff rejected the offer.

Before the jury trial commenced the parties stipulated that a workers’ compensation lien existed in the amount of $256,631.76. The jury returned a verdict of $115,000 in plaintiff’s favor, and the trial court entered an initial judgment for that amount in plaintiff’s favor.

Plaintiff then filed a motion for attorney fees and litigation expenses under Labor Code section 3856, subdivision (b), claiming a $50,600 fee (44 percent of the jury verdict pursuant to his contingency agreement with his attorney), and $28,343.52 in costs. Defendants opposed the motion for fees and moved to tax plaintiff’s postoffer section 998 costs, arguing he should not recover fees and postoffer costs because the jury verdict did not exceed defendants’ section 998 offer.

Although the trial court noted that Labor Code section 3856 required costs to be paid from the judgment, the court added plaintiff’s attorney fees and allowable costs to the jury’s $115,000 verdict rather than subtracting them from that amount. The court calculated plaintiff’s award as “$115,000 + $50,600 + $475.98 = $166,075.98.” The trial court awarded defendants costs of “$174,830.20” under section 998, subdivision (c)(1). The court then concluded “[t]he defense has a net gain over the plaintiff of $8,754.22, and thereby becomes the prevailing party, i.e., ‘the party with a NET monetary recovery.’”

Oakes appealed the judgment that was calculated to be $8,754.22 judgment entered in defendants’ favor after applying both statutes. The Court of Appeal affirmed in the partially published case of Oakes v Progressive Transportation Services.

The purpose of section 998 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.”

The parties disagree on the sequence in which the statutes at issue should be applied and which statute takes priority in application.

Applying the cost-shifting provisions of Code of Civil Procedure section 998 before the Labor Code section 3856 allocations is consistent with applicable case authority.

We have no basis for overturning the $8,754.22 judgment entered in defendants’ favor.