A Capehart Scatchard Blog

Using the Offer of Judgment Rule as a Tool to Obtain a Reasonable Settlement

By on August 4, 2016 in Uncategorized with 1 Comment

By Betsy G. Ramos, Esq.
Co-Authored by Ryan P. Duffy, Law Clerk

The New Jersey Offer of Judgment Rule exists to encourage settlements by requiring litigators to step back and examine the merits of their case and its potential at trial. It can be a very useful tool in negotiating a settlement, particularly, in situations in which the plaintiff makes no demand or makes a very high demand. Due to the ramifications of the failure to accept an offer of judgment, a plaintiff will be forced to at least consider a settlement on the terms as offered by the defendant. The Rule, set forth in New Jersey Court Rule 4:58, explicitly lays out the process of using it.

In a non-matrimonial case, any party may, at least 20 days before the trial is set to begin, serve upon opposing counsel an offer of judgment for a specific amount. The recipient then has until either 10 days before trial or 90 days after being served the offer of judgment, whichever is sooner, to respond to the offer. If the offer is accepted, the purpose of the rule has been achieved, trial avoided, and no penalties of the offer of judgment rule applied.

The consequences of non-acceptance of an offer of judgment are spelled out in Rule 4:58-2 (offer made by plaintiff) and Rule 4:58-3 (offer made by defendant). These consequences relate to the payment of attorney’s fees and litigation expenses incurred after the date of non-acceptance.

For an offer made by a defendant, if the judgment is within 80% of the offer or less, then the offeror is entitled to attorney’s fees and litigation expenses incurred after the date of non-acceptance. However, there are no consequences if one of the following exceptions apply, per  R. 4:58-3(c): “(1) the claimant’s claim is dismissed, (2) a no-cause verdict is returned, (3) only nominal damages are awarded, (4) a fee allowance would conflict with the policies underlying a fee-shifting statute or rule or court, or (5) an allowance would impose undue hardship.” However, R. 4:58-2(b) provides that if the undue hardship may be eliminated by reducing the fee, the court will reduce the fee. Thus, the offer of judgment rule can still be applied against a plaintiff, even when the plaintiff prevails in a case. A case in point is Ungarian v. Jacobson, 2015 N.J. Super. Unpub. LEXIS 2358 (App. Div. Sept. 30, 2015).

In Ungarian, the plaintiff was hospitalized following a motor vehicle accident. Before trial, the defendant gave the plaintiff a $350,000 offer of judgment, which the plaintiff rejected. The jury awarded the plaintiff $244,000 for her injuries, including pain and suffering. Even though the plaintiff won the trial, defendant was still owed fees pursuant to R. 4:58-3(b) because the plaintiff rejected an offer and obtained a money judgment “that is 80% of the offer or less.”  The award of $244,000 was clearly less than 80% of $350,000. The plaintiff argued she should not be responsible for the fees via the offer of judgment rule because “the amount awarded by the jury was already far too low, leaving her ‘with a pittance to support her for the rest of her life’” and that enforcing the offer of judgment rule would be an “undue hardship.” In denying the plaintiff’s undue hardship argument, the Appellate Division found no appellate court opinions applying the undue hardship standard. The court did note that after the offer of judgment fee is paid, the plaintiff would still have over $220,000 remaining and, thus, there was no undue hardship to the plaintiff.

On the flip side, despite this recent unpublished Appellate Division decision, do not be surprised if the court utilizes the undue hardship exception to avoid the entry of fees against a plaintiff. An example of such a scenario is the case of Reid v. Finch, 425 N.J. Super. 196 (Law Div. 2011).

In Reid, the plaintiff was injured in a motor vehicle accident and sustained extensive injuries. Prior to trial, defendants filed an offer of judgment of $40,000, which plaintiffs did not accept after receiving an arbitration award of $110,000. At trial, the jury awarded plaintiffs a judgment of $34,400, which was then molded by the court to $20,647 to account for disability benefits. The defendants then requested expenses pursuant to R. 4:58-1, specifically a total of $26,350. That amount was $5,703 more than the molded verdict the plaintiff won at the trial. The plaintiff argued that having to pay this offer of judgment fee to the defendants would constitute an “undue hardship.” The court noted that, when adding up the litigation expenses, attorney’s fees and the offer of judgment fee, the plaintiffs would “stand to lose $22,729.04 as a result of bringing a meritorious lawsuit” and that “is an insurmountable hardship.” Therefore, the court reduced the offer of judgment award to $3620.96, which allowed the plaintiffs to essentially “break-even” when considering the litigation expenses and attorney’s fees along with the judgment awarded.

Bear in mind that this rule can also be used by a plaintiff against a defendant. For a claimant (the plaintiff), if an offeror procures a judgment at least equal to 120 percent of the judgment he or she offered, then that offeror is entitled to all reasonable litigation expenses incurred after the date of non-acceptance plus 8 percent interest on the judgment from the offer date or the discovery end date, whichever is later.

It will likely be difficult for a defendant to claim undue hardship to avoid the application of the rule. In Feliciano v. Faldetta, 434 N.J. Super. 543 (App. Div. 2014), the defendant rejected an offer of $15,000 before the trial, which turned into a $50,000 judgment and, after the legal fees were included via the offer of judgment rule, doubled to $109,185.27. The defendant attempted to claim undue hardship but the Appellate Division rejected that argument, stating that there was nothing in the record demonstrating the defendant’s financial position. Additionally, the court stated that the defendant may have a Rova Farms claim against the insurance company and its lawyers for not settling when the offer of judgment was well within policy limits.

In summary, defendants should consider using the offer of judgment in an appropriate case as a tool to negotiate a reasonable settlement. Due to the potential ramifications of non-acceptance, plaintiffs are forced to take these types of offers much more seriously than a simple offer to settle. Of course, before an offer of judgment is made, a defendant must be prepared to settle the case. Moreover, the offer should reflect a realistic value of the case or the plaintiff will disregard the offer, knowing that there will be minimal risk to non-acceptance.



About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 25 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020 and 2021, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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There is 1 Brilliant Comment

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  1. Bill Abate says:

    Very informative! I think Offer of Judgements are often under utilized as an effective tool to move a case towards settlement.

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