Why Does Ellen Pao Have To Pay $1 Million To Kleiner Perkins?

There have been quite a few media reports recently that Kleiner Perkins Caufield & Byers is coming after Ellen Pao for nearly $1 million in court costs, but how is that possible? Ellen Pao sued her former employer, Silicon Valley venture capital firm Kleiner Perkins, for gender discrimination and retaliation. Her claims ultimately went to a jury that found the company did not discriminate or retaliate against her. Now Ms. Pao is in the unenviable position of arguing that she should not have to foot a portion of the company’s enormous litigation bill. Certainly anyone contemplating a similar lawsuit would think twice after reading those headlines. How could a woman bring a case for discrimination before a jury of her peers, lose, and then be on the hook for a million dollars?

The answer lies in a legal device that is designed to help settle lawsuits and avoid trial. In California, it is known simply by its code section – 998 of the Code of Civil Procedure. For all its technicality, the premise of the “998 offer” is simple. In the employment context, an employer offers to settle the case for a certain amount of money. If the employee accepts the offer, the case is settled and done. If the employee rejects the offer and loses at trial, or wins less than the amount of the offer, then the employee may have to pay the employers’ “costs” from the date of the offer up to the trial. Costs in this context do not include the costs of the attorneys’ time, but can include the money spent on expert witnesses.

In Ellen Pao’s case, Kleiner Perkins made a 998 offer about a month before trial. The offer was rejected and Ms. Pao lost at trial. Kleiner Perkins is now seeking its costs during the month between the offer and the trial. The overwhelming majority of the amount sought is for expert witness fees, which in this case involved highly-paid venture capital experts and economists. Expert witnesses are generally expensive in any case, but the nearly $1 million in Ms. Pao’s case is extreme. For the non-millionaires out there, however, the law allows a judge to reduce the amount of recoverable costs to account for the employee’s ability to pay.

In Ms. Pao’s case, Kleiner Perkin’s has offered her a deal – one that is common in employment cases. It has agreed to waive the costs it is entitled to under 998, if Ms. Pao agrees not to appeal. For Ms. Pao, who arguably has the ability to pay, the tradeoff may be a tempting one.