New Jersey's Offer of Judgment Rule

In recent years, several state legislatures, including Texas, Florida and Georgia, amended Offer of Judgment Rules and/or statutes to include attorney fees as a consequence for non-acceptance of a pre-trial Offer of Judgment and to allow both plaintiff and defendant to make offers. Connecticut amended its rule to allow plaintiff or defendant offers, to include attorneys' fees and to include a 12% prejudgment interest on plaintiff verdicts. Like the Federal Rule, no state rule or statute applies to an outright defense verdict.'

Since its inception in 1971, New Jersey's Offer of Judgment Rule has been bilateral, allowing both plaintiff and defendant to make a pretrial Offer of Judgment. While the initial rule included recovery of both costs and attorney fees if the verdict was 20% less favorable to the party who rejected the offer, fees were limited to $750. As a result of the non-materiality of this consequence, the rule was not effective in generating offers or settlements. In 1994, the New Jersey Supreme Court re-evaluated the rule and eliminated the cap on attorney fees.

The New Jersey Rule was amended again in 2004 to include 8% pre-judgment interest on a plaintiff verdict in excess of 120% of the offer, calculated from the date of the offer to the date of recovery, if it exceeds the pre-judgment interest allowed by Rule 4:42-11(b).

The recent amendments to Offer of Judgment Rules have been plaintiff oriented. Several states have amended the rules to be bilateral, providing settlement leverage to plaintiffs. New Jersey and Connecticut have also provided for increased pre-judgment interest on a plaintiff's verdict, which can only apply against a defendant.

Because of the relationship between settlement value and verdict range in personal injury cases, the reality and practical result is that the rule is available to plaintiffs only, not defendants, in the vast majority of cases. Because the rule is not triggered if there is an outright defense verdict, plaintiffs can make Offers of Judgment for amounts more than settlement value but less than verdict range even in cases where plaintiffs have weak liability cases: If these plaintiffs obtain a verdict, they are also paid fees; if there is a defense verdict, there is no consequence to them. As a result, there is little incentive to file an Offer of Judgment to achieve a fair settlement.

A Proposed Solution

As noted, in its current form, the New Jersey Offer of Judgment Rule creates inherent litigation inequities and does not promote a reasoned approach to resolution of claims. Legislation or a rule change can redesign this settlement tool to eliminate inconsistencies and inequalities and to encourage reasoned approaches to claim resolution by both plaintiffs and defendants.

The Problem

There is no negative consequence to a party making an Offer of Judgment, only potential negative consequences to the party rejecting the offer. And there is never a negative consequence if there is an outright defense verdict. Contrary to its purpose and intent, the rule does not encourage fair settlement offers, and it is now an affirmative litigation hammer for one party, but not the other.'

A Potential Solution

If, however, an offer triggered consequences for both offeror and offeree, offering parties would be more thoughtful and motivated to make fair settlement offers. Including a consequence will require an offeror to balance all litigation risks and will thus foster considered offers.'

Using the example we used in Part One, of a case with a $1 million expected verdict and a $500,000 fair settlement value, under New Jersey's current Offer of Judgment rule, plaintiff can file an Offer of Judgment for $750,000 in the hopes that it will create increased exposure and leverage and cause the defendant to settle the case for more than it is worth or accept the risk of fee- and cost-shifting (not an inconsequential exposure in most medical negligence matters). If the plaintiff wins, there is a negative consequence to the defendant ' he pays the plaintiffs' fees and expenses. But, if there is a defense verdict, there is no consequence to plaintiff ' he pays nothing. Even if there is a plaintiff verdict 20% less than the offer, there will be no consequence to plaintiff. There is no consequence for the plaintiff making an offer well in excess of the settlement range.

If, on the other hand, the plaintiff making an offer triggers mutual consequences ' if there is a verdict of 120% of the offer, defendant pays plaintiff's fees and expenses but if there is a verdict of 80% or less of the offer, plaintiff pays defendant's fees and expenses ' the plaintiff will only make fair offers, i.e., offers designed to induce settlement. Although we might consider proposing that the Rule also be triggered in the event of a defense verdict where the plaintiff has made an offer of judgment, there are two obstacles to this proposed change: 1) It would in fact be “inconsistent” with the current Rule, which has separation of powers implications, as will be discussed in Part Three of this article, and 2) It has the potential to render the Rule meaningless in cases where there is a strong possibility of a defense verdict (which is frequent in personal injury tort cases), as plaintiffs would not take the risk.

While, in most cases where there is a strong possibility of a defense verdict, defendants will not make an Offer of Judgment because settlement values are less than expected verdicts, in those situations where liability is clear and disputes concern damages, a rule with consequences to defendant when he makes an offer will also encourage fair settlement offers. Using the above example of a case with a $1 million expected verdict, but assuming a clear liability case, defendant can make an offer of less than fair settlement value (e.g., $700,000) with no negative consequences. If however, the defendant knew that a verdict of 120% or more of its offer would trigger fee shifting, the defendant would not risk making a low offer and would instead only make offers designed to induce settlement.

Next month, we will discuss' separation of powers questions that may be implicated if the legislature decides to alter the Offer of Judgment Rule in New Jersey.

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 vast majority of the states follow Federal Rule of Civil Procedure (F.R.Civ.P.) 68, which was first enacted in 1937 and was modeled after then-existing Rules in Minnesota and New York. F.R.Civ.P. 68 permits a defendant to file an Offer of Judgment with the court and plaintiff. If the plaintiff declines the offer or fails to respond, and does not secure a plaintiff verdict greater than the proposed offer, the plaintiff is required to pay the defendant's post-offer court costs.'

The Evolution of New Jersey's Rule

The Federal Rule differs from the New Jersey Rule in two significant ways. First, the Federal Rule is not a bilateral rule ' only the party defending against a claim has the right to file a pretrial Offer of Judgment. Second, it does not permit recovery of attorney fees, but limits the consequences of rejecting an Offer of Judgment and then recovering less than the offer; these consequences can include payment of post-offer court costs, such as docket and printing fees, but payment of attorney fees is excluded. As a result, the Federal Rule has consistently been described as ineffective and inconsequential. Like the New Jersey Rule, the Federal Rule does not apply to an outright defense verdict. Most states, either through legislative enactment or court rule, have modeled their Offer of Judgment or Offer of Settlement Rules on the Federal Rule.

In recent years, several state legislatures, including Texas, Florida and Georgia, amended Offer of Judgment Rules and/or statutes to include attorney fees as a consequence for non-acceptance of a pre-trial Offer of Judgment and to allow both plaintiff and defendant to make offers. Connecticut amended its rule to allow plaintiff or defendant offers, to include attorneys' fees and to include a 12% prejudgment interest on plaintiff verdicts. Like the Federal Rule, no state rule or statute applies to an outright defense verdict.'

Since its inception in 1971, New Jersey's Offer of Judgment Rule has been bilateral, allowing both plaintiff and defendant to make a pretrial Offer of Judgment. While the initial rule included recovery of both costs and attorney fees if the verdict was 20% less favorable to the party who rejected the offer, fees were limited to $750. As a result of the non-materiality of this consequence, the rule was not effective in generating offers or settlements. In 1994, the New Jersey Supreme Court re-evaluated the rule and eliminated the cap on attorney fees.

The New Jersey Rule was amended again in 2004 to include 8% pre-judgment interest on a plaintiff verdict in excess of 120% of the offer, calculated from the date of the offer to the date of recovery, if it exceeds the pre-judgment interest allowed by Rule 4:42-11(b).

The recent amendments to Offer of Judgment Rules have been plaintiff oriented. Several states have amended the rules to be bilateral, providing settlement leverage to plaintiffs. New Jersey and Connecticut have also provided for increased pre-judgment interest on a plaintiff's verdict, which can only apply against a defendant.

Because of the relationship between settlement value and verdict range in personal injury cases, the reality and practical result is that the rule is available to plaintiffs only, not defendants, in the vast majority of cases. Because the rule is not triggered if there is an outright defense verdict, plaintiffs can make Offers of Judgment for amounts more than settlement value but less than verdict range even in cases where plaintiffs have weak liability cases: If these plaintiffs obtain a verdict, they are also paid fees; if there is a defense verdict, there is no consequence to them. As a result, there is little incentive to file an Offer of Judgment to achieve a fair settlement.

A Proposed Solution

As noted, in its current form, the New Jersey Offer of Judgment Rule creates inherent litigation inequities and does not promote a reasoned approach to resolution of claims. Legislation or a rule change can redesign this settlement tool to eliminate inconsistencies and inequalities and to encourage reasoned approaches to claim resolution by both plaintiffs and defendants.

The Problem

There is no negative consequence to a party making an Offer of Judgment, only potential negative consequences to the party rejecting the offer. And there is never a negative consequence if there is an outright defense verdict. Contrary to its purpose and intent, the rule does not encourage fair settlement offers, and it is now an affirmative litigation hammer for one party, but not the other.'

A Potential Solution

If, however, an offer triggered consequences for both offeror and offeree, offering parties would be more thoughtful and motivated to make fair settlement offers. Including a consequence will require an offeror to balance all litigation risks and will thus foster considered offers.'

Using the example we used in Part One, of a case with a $1 million expected verdict and a $500,000 fair settlement value, under New Jersey's current Offer of Judgment rule, plaintiff can file an Offer of Judgment for $750,000 in the hopes that it will create increased exposure and leverage and cause the defendant to settle the case for more than it is worth or accept the risk of fee- and cost-shifting (not an inconsequential exposure in most medical negligence matters). If the plaintiff wins, there is a negative consequence to the defendant ' he pays the plaintiffs' fees and expenses. But, if there is a defense verdict, there is no consequence to plaintiff ' he pays nothing. Even if there is a plaintiff verdict 20% less than the offer, there will be no consequence to plaintiff. There is no consequence for the plaintiff making an offer well in excess of the settlement range.

If, on the other hand, the plaintiff making an offer triggers mutual consequences ' if there is a verdict of 120% of the offer, defendant pays plaintiff's fees and expenses but if there is a verdict of 80% or less of the offer, plaintiff pays defendant's fees and expenses ' the plaintiff will only make fair offers, i.e., offers designed to induce settlement. Although we might consider proposing that the Rule also be triggered in the event of a defense verdict where the plaintiff has made an offer of judgment, there are two obstacles to this proposed change: 1) It would in fact be “inconsistent” with the current Rule, which has separation of powers implications, as will be discussed in Part Three of this article, and 2) It has the potential to render the Rule meaningless in cases where there is a strong possibility of a defense verdict (which is frequent in personal injury tort cases), as plaintiffs would not take the risk.

While, in most cases where there is a strong possibility of a defense verdict, defendants will not make an Offer of Judgment because settlement values are less than expected verdicts, in those situations where liability is clear and disputes concern damages, a rule with consequences to defendant when he makes an offer will also encourage fair settlement offers. Using the above example of a case with a $1 million expected verdict, but assuming a clear liability case, defendant can make an offer of less than fair settlement value (e.g., $700,000) with no negative consequences. If however, the defendant knew that a verdict of 120% or more of its offer would trigger fee shifting, the defendant would not risk making a low offer and would instead only make offers designed to induce settlement.

Next month, we will discuss' separation of powers questions that may be implicated if the legislature decides to alter the Offer of Judgment Rule in New Jersey.

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.