New Jersey courts, like the courts of many other states, and the federal judiciary, provide a unique, albeit often underutilized tool, for litigants seeking to expedite fair and reasonable settlements in their cases: the offer of judgment.
Articulated in New Jersey’s Court Rule 4:58, the offer of judgment essentially provides any party to a suit the ability to make a formal, and potentially binding, settlement offer in advance of trial. Certainly, settlement negotiations are a normal part of any litigation. In fact, it’s not uncommon for trial attorneys to make many different offers throughout the course of litigation, as negotiations advance. An offer of judgment, however, is unlike a typical informal settlement offer in that it binds the parties to a particular valuation of the case.
Indeed, Rule 4:58-2 provides for the following scenario: an offer of judgment is made to a claimant in a suit, i.e. the party asserting a claim against another party, to accept a given amount to settle that suit. The opposing party can then choose to either accept that offer, and pay the claimant’s settlement valuation, or proceed to trial. If the trial verdict ultimately exceeds the offer of judgment by 120% or more, then the claimant is entitled to recover: (1) all reasonable litigation expenses incurred following non-acceptance; (2) prejudgment interest of eight percent on the amount of any money recovery from the date of the offer or the date of completion of discovery, whichever is later; and (3) a reasonable attorney's fee for such subsequent services as are compelled by the non-acceptance.
Alternatively, the Rule also provides a mechanism for non-claimants, i.e. the party defending themselves against a claim, to make offers to claimants as well. In that instance, the verdict threshold is 80%. If a claimant rejects an offer of judgment made by an opposing party, then ultimately obtains a verdict that is 80% or less of that offer, the offering party is entitled to recover any of the three categories of expenses described in the rule.
Given the ever-present concern of legal fees and litigation costs, it’s not difficult to imagine how powerful an offer of judgment can be in practice. As the Supreme Court of New Jersey has held, “[t]he fundamental purpose of the rule is to induce settlement by discouraging the rejection ofreasonable offers of compromise. That goal is achieved through the imposition of financial consequences (the award of fees and costs) where a settlement offer turns out to be more favorable than the ultimate judgment.” Best v. C&M Door Controls, Inc., 200 N.J. 348 (2009).
The other complementary benefit of the Offer of Judgment lies in its ability to force a party to give heightened scrutiny to a given case. As any litigator can attest, one of the most common, yet easily avoidable, roadblocks to settlement is the over or under-valuing of a case. Many attorneys are reluctant to remove their “advocate’s blinders” and analyze the true value of their case from a more neutral, impartial perspective. Accordingly, Offers of Judgment serve the important secondary purpose of sending warning signals to opposing parties. Where one party refuses to take a realistic view of a particular case, the other can employ an Offer of Judgment to cut through the posturing of negotiations, and to force the opposing party to either commit to their valuation of the case, or to consider a more realistic perspective.
Consider the recent case of Feliciano v. Faldetta, 434 N.J. Super. 543 (App. Div. 2014), which arose from a motor vehicle accident. The plaintiff in that case made a pre-trial offer of judgment of $15,000, which was rejected by the defendant. Ostensibly, the defendant felt that the Plaintiff’s Offer was well above the true value of the case. The jury ultimately returned a verdict, however, in the amount of $50,000 for the plaintiff – more than three times the offer of judgment, and well above the 120% threshold. As a result, the Appellate Division upheld the trial court’s award of $42,230 in counsel fees, $6,831.09 in litigation expenses, and $6,998.67 in interest, for a total judgment of $109,185.27 against the defendant. If the defendant had only taken the plaintiff’s Offer as a warning signal, and used the opportunity to re-evaluate the case, it may have avoided nearly $100,000 in additional expenses and fees.
Negotiating a settlement is often one of, if not the, most important aspects of resolving cases favorably. Offers of judgment provide the opportunity to force opposing parties to make realistic and reasonable valuations of their claims at the risk of paying onerous fees and expenses. In this regard, offers of judgment are among the most powerful tools available to litigators. Litigators and clients alike should consider the value of making an offer of judgment before incurring the burdensome, and frequently unnecessary, costs of proceeding to trial.
Matthew S. Decker, Esq.