NJ's Offer of Judgment Rule

The Offer of Judgment Rule (the Rule) is a near universal concept that exists in most jurisdictions. Its intent is to foster settlement. However, in its current application, at least in New Jersey, it is ineffectual and pragmatically only available to plaintiffs. How did the rule come about, how was it changed over time, and is there a solution to its problems that will achieve the rules' desired goal ' settlement?

The Rule

New Jersey Court Rule (N.J. Ct. R.) 4:58-1. et seq., provides that any party may make an Offer of Judgment or an Offer to Take Judgment in an amount certain. (Rule 4:58 excepts matrimonial actions from the Offer of Judgment Rule. The Rule is available only when the relief sought in the complaint is exclusively monetary.) If the offer is not accepted, and the offeror secures a verdict 20% or more favorable to the offeror, cost and fee shifting from the date of the offer is triggered from the offeree to the offeror. (Application for fee and cost shifting must be made within 20 days after entry of final judgment.) There are no consequences to the offeror for making an offer, regardless of the outcome, and no consequences to the offeree if the 20% threshold is not reached.

The primary purpose of New Jersey's Offer of Judgment Rule is to induce settlement. See Best v. C&M Door Controls Inc., 200 N.J. 348, 356 (2009). However, in its current form, and particularly in the context of personal injury tort cases, it does not induce fair settlement offers. Rather, it creates significant inequities between plaintiffs and defendants with similar risks that discourage fair settlement offers.

This circumstance arises because: 1) the settlement value of a case is almost always less than 80% of the verdict range of a case; and 2) the Rule does not apply when there is a defense verdict, only if there is a plaintiff's verdict. As a result, plaintiffs can trigger application of the Rule by offering to accept a judgment in excess of settlement value while defendants cannot trigger the rule without offering to accept a judgment in excess of verdict value, which is often double the settlement value. Further, because there are no negative consequences to the offeror if he/she does not secure a more favorable verdict, or even a verdict within 20% of the offer, offers are often not reasoned, informed offers designed to reach a settlement.

By way of example, assume a case where all parties agree a fair verdict range is $800,000 to $1,200,000 ($1 million for purposes of discussion) and the likelihood of a plaintiff or defense verdict is 50/50. A fair settlement value is $400,000 to $600,000 ($500,000 for purposes of discussion). In this situation, a plaintiff can make an offer of judgment well in excess of the settlement range (up to $830,000 or 50% more than settlement value) knowing that an expected plaintiff verdict ($1 million) will exceed the offer by 20% and trigger fee shifting to the defendant. But a defense verdict will not trigger fee shifting to the plaintiff.

On the other hand, because an outright defense verdict does not trigger fee-shifting to the plaintiff, the only way for a defendant to trigger application of the Offer of Judgment Rule is to offer a settlement at least 20% in excess of the expected verdict range (a $1,200,000 offer vs. a $1 million fair verdict) and more than double a fair settlement value ($500,000) and hope for a lower plaintiff's verdict (not the goal of the defense). As a result, the Offer of Judgment Rule does not encourage either plaintiffs or defendants to make reasoned and considered settlement offers.

The above example also illustrates the inequities in application of the rule. It is triggered only if there is a plaintiff's verdict. There is no mutual application of the rule in the event of a defense verdict. The result is a one-way fee-shifting rule ' the defendant pays if there is a plaintiff verdict, but the plaintiff does not pay if there is a defense verdict.

Plaintiffs in medical negligence matters and other personal injury tort cases exploit these inequities by routinely filing Offers of Judgment, frequently early in the case, before any discovery has been conducted and before a defendant can even fairly evaluate a case. The offers are often in amounts that bear no relationship to settlement value, but the offers still trigger fee shifting in the event of a plaintiff's verdict. Plaintiffs employ this strategy knowing defendants cannot do the same and because they can do so with no negative consequences whether their offers are fair or unfair, informed or uninformed, designed to trigger real settlement discussions or not.'

An Unrealized Goal

As we have seen, the current New Jersey Court Rule concerning offers of judgment does not promote or induce fair settlements, and it is inequitable in its application. As such, it has failed to achieve its intended purpose of encouraging fair settlement offers.

How did New Jersey's Rule evolve to discourage settlements rather than promote them? How do the federal government's and other states' rules differ from the Rule in New Jersey? And what could be done to change New Jersey's Rule and make it more settlement-friendly? We will discuss these questions in upcoming issues.

Gary L. Riveles, a member of this newsletter's Board of Editors, is a partner in Dughi, Hewitt, and Domalewski, PC, in Cranford, NJ. Cyndee L. Allert is a senior associate in the firm.

The Offer of Judgment Rule (the Rule) is a near universal concept that exists in most jurisdictions. Its intent is to foster settlement. However, in its current application, at least in New Jersey, it is ineffectual and pragmatically only available to plaintiffs. How did the rule come about, how was it changed over time, and is there a solution to its problems that will achieve the rules' desired goal ' settlement?

The Rule

New Jersey Court Rule (N.J. Ct. R.) 4:58-1. et seq., provides that any party may make an Offer of Judgment or an Offer to Take Judgment in an amount certain. (Rule 4:58 excepts matrimonial actions from the Offer of Judgment Rule. The Rule is available only when the relief sought in the complaint is exclusively monetary.) If the offer is not accepted, and the offeror secures a verdict 20% or more favorable to the offeror, cost and fee shifting from the date of the offer is triggered from the offeree to the offeror. (Application for fee and cost shifting must be made within 20 days after entry of final judgment.) There are no consequences to the offeror for making an offer, regardless of the outcome, and no consequences to the offeree if the 20% threshold is not reached.

The primary purpose of New Jersey's Offer of Judgment Rule is to induce settlement. See Best v. C&M Door Controls Inc., 200 N.J. 348, 356 (2009). However, in its current form, and particularly in the context of personal injury tort cases, it does not induce fair settlement offers. Rather, it creates significant inequities between plaintiffs and defendants with similar risks that discourage fair settlement offers.

This circumstance arises because: 1) the settlement value of a case is almost always less than 80% of the verdict range of a case; and 2) the Rule does not apply when there is a defense verdict, only if there is a plaintiff's verdict. As a result, plaintiffs can trigger application of the Rule by offering to accept a judgment in excess of settlement value while defendants cannot trigger the rule without offering to accept a judgment in excess of verdict value, which is often double the settlement value. Further, because there are no negative consequences to the offeror if he/she does not secure a more favorable verdict, or even a verdict within 20% of the offer, offers are often not reasoned, informed offers designed to reach a settlement.

By way of example, assume a case where all parties agree a fair verdict range is $800,000 to $1,200,000 ($1 million for purposes of discussion) and the likelihood of a plaintiff or defense verdict is 50/50. A fair settlement value is $400,000 to $600,000 ($500,000 for purposes of discussion). In this situation, a plaintiff can make an offer of judgment well in excess of the settlement range (up to $830,000 or 50% more than settlement value) knowing that an expected plaintiff verdict ($1 million) will exceed the offer by 20% and trigger fee shifting to the defendant. But a defense verdict will not trigger fee shifting to the plaintiff.

On the other hand, because an outright defense verdict does not trigger fee-shifting to the plaintiff, the only way for a defendant to trigger application of the Offer of Judgment Rule is to offer a settlement at least 20% in excess of the expected verdict range (a $1,200,000 offer vs. a $1 million fair verdict) and more than double a fair settlement value ($500,000) and hope for a lower plaintiff's verdict (not the goal of the defense). As a result, the Offer of Judgment Rule does not encourage either plaintiffs or defendants to make reasoned and considered settlement offers.

The above example also illustrates the inequities in application of the rule. It is triggered only if there is a plaintiff's verdict. There is no mutual application of the rule in the event of a defense verdict. The result is a one-way fee-shifting rule ' the defendant pays if there is a plaintiff verdict, but the plaintiff does not pay if there is a defense verdict.

Plaintiffs in medical negligence matters and other personal injury tort cases exploit these inequities by routinely filing Offers of Judgment, frequently early in the case, before any discovery has been conducted and before a defendant can even fairly evaluate a case. The offers are often in amounts that bear no relationship to settlement value, but the offers still trigger fee shifting in the event of a plaintiff's verdict. Plaintiffs employ this strategy knowing defendants cannot do the same and because they can do so with no negative consequences whether their offers are fair or unfair, informed or uninformed, designed to trigger real settlement discussions or not.'

An Unrealized Goal

As we have seen, the current New Jersey Court Rule concerning offers of judgment does not promote or induce fair settlements, and it is inequitable in its application. As such, it has failed to achieve its intended purpose of encouraging fair settlement offers.

How did New Jersey's Rule evolve to discourage settlements rather than promote them? How do the federal government's and other states' rules differ from the Rule in New Jersey? And what could be done to change New Jersey's Rule and make it more settlement-friendly? We will discuss these questions in upcoming issues.

Gary L. Riveles, a member of this newsletter's Board of Editors, is a partner in Dughi, Hewitt, and Domalewski, PC, in Cranford, NJ. Cyndee L. Allert is a senior associate in the firm.