New Jersey's Offer of Judgment Rule

The New Jersey Supreme Court has vigorously defended its supremacy with respect to the administration of the courts from intrusion by other branches of government. The Separation of Powers Doctrine is premised on the theory that government works most efficiently when each of the three branches of government acts independently within its designated sphere. See General Assembly v. Byrne, 90 N.J. 376, 381-83 (1982). The court has held that “no deviation from the ' separation of powers [doctrine] will be tolerated which impairs the essential integrity of one of the [three] branches of government.” Massett Bldg. Co. v. Bennett, 4 N.J. 53, 57 (1950).

In the seminal case of Winberry v. Salisbury, 5 N.J. 240 (1950), the New Jersey Supreme Court considered whether a statute purporting to govern the time to file an appeal in court violated the Separation of Powers Doctrine when it conflicted with a Court Rule providing a shorter period of time. In Winberry, the plaintiff brought suit to expunge an alleged libel on file with the Grand Jury. The trial court granted summary judgment and dismissed the suit. Sixty-two days later, the plaintiff filed and served a notice of appeal. The appeal was out of time under the court rules, which provided for 45 days within which to file an appeal, but timely under a statute allowing appeals within one year of a final judgment. The Appellate Division dismissed the appeal, finding that the Court Rule prevailed over a conflicting statute when dealing with matters of court administration.

The New Jersey Supreme Court focused on the phrase “subject to law” included within the New Jersey Constitution: “The Supreme Court shall make rules governing the administration of all courts in the State and, subject to the law, the practice and procedure in all such courts.” The plaintiff argued the phrase “subject to law” meant subject to legislation. The court disagreed, writing that such a construction would improperly invade the rule-making power of the Supreme Court and create a back-and-forth between the legislature and the judiciary in trying to enact rules governing the courts. But, the court could not ignore the phrase ' it had to have some meaning and purpose. The court found that the only interpretation of the phrase that would not defeat separation of powers but at the same time provide significance to the phrase was to equate it with substantive law as distinguished from pleading and practice.

The court reasoned that substantive law (both statutory and common law) defines rights and duties, while pleading and practice concerns the method of enforcing those rights and duties. It concluded that the phrase “subject to law” limited the court's exclusive authority for rule-making power to practice and procedure. Thus, the rule-making power of the Supreme Court is not subject to overriding legislation, but its exclusive authority is confined to practice, procedure and administration of the courts and does not extend to substantive law.

More recently, in Williams v. State, 186 N.J. 368 (2006), the New Jersey Supreme Court considered separation of power between the courts and legislature in the context of a statute authorizing probation officers to carry firearms and arrest probation violators, which conflicted with the Supreme Court Rule that probation officers could not carry firearms. The court noted that the phrase “subject to law” qualifies the rule-making authority with respect to the practice and procedure of the courts, and was not limited to practice and procedure in the courts. Because probation officers were considered an arm of the judiciary, the court reasoned they fell within the scope of the court's administrative authority. It found an irreconcilable conflict between the legislation and the court's inherent administrative authority, and held that the law was unconstitutional.

Simply because there is a Court Rule does not mean a statute cannot address conduct addressed in the that rule; and simply because a statute may have some effect on the courts does not mean that the statute is unconstitutional. The New Jersey Supreme Court has deferred to legislation that which did not interfere with the court's constitutional obligation. See Passaic County Probation Officers' Ass'n v. County of Passaic, 73 N.J. 247, 255 (1977) (where the court stated, “[W]e repeat that in the absence of any action by this Court ' felt to be constitutionally compelled ' as a matter of comity and respect for other branches of government, we accept and adopt all statutory arrangements touching or concerning the administration of any courts in the State … “). The court will uphold legislation that merely touches on court administration “unless it interferes with the effective functioning of the Courts.” See CWA Local 1044 v. Chief Justice, 118 N.J. 495. 501 (1990) (where the court stated, “in each instance we must examine the terms of the legislative enactment, its importance, the extent of its interference with sound judicial administration, and the significance of the issue to the judiciary, ultimately striking a balance between the interests served by comity and those served by the administration of justice”).

Importantly, the Separation of Powers Doctrine is not inconsistent with the notion of cooperation among the several branches of government. See Knight v. City of Margate, 86 N.J. 374, 389 (1981) (where the court stated “implicit in the decisional law is the distinction between the existence and the exercise of the judicial powers”).

Any analysis of whether the legislature can adopt a statute that addresses a topic similar to the Offer of Judgment Rule begins with an analysis of whether such a statute would create substantive rights and duties of the parties, or interfere with the practice and procedure of the courts or the administration of the courts.

The court's consideration of the Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1, provides the best guidance. That statute permits an award of attorney fees to a prevailing party in a lawsuit if the non-prevailing party asserts a claim or defense that is frivolous (defined as in bad faith, solely for the purpose of harassment, delay or malicious injury or if the non-prevailing party knew or should have known that the claim or defense was without any reasonable basis in law or equity and could not support a good faith argument for an extension, modification or reversal of existing law).

The Frivolous Litigation Statute, enacted in 1988, sought to discourage the filing of frivolous pleadings by penalizing a party found to have presented a claim or defense that was knowingly or clearly without merit. At the time, there was an existing Court Rule (Rule 1:4-8) that prohibited the filing of frivolous pleadings, but it had no effective penalty provision. In McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546 (1993), the court considered whether the Frivolous Litigation Act breached the Separation of Powers Doctrine. At the outset, the court noted that it shared the legislature's concern with respect to frivolous lawsuits. It said it recognized that the award of counsel fees is typically a procedural matter for the courts, but noted that the rule allowing the award of counsel fees (Rule 4:42-9(a)) permits such award in “all cases where counsel fees are permitted by statute.” The court observed, however, that statutes authorizing the award of counsel fees authorized fees as part of the substance of a statutory cause of action, which was very much different from the award of counsel fees under the Frivolous Litigation Act as a sanction for bringing a meritless lawsuit. It expressed concern that the statute comes closer to impinging on the court's constitutional power over procedural matters because fees were a sanction for improper litigation. Nevertheless, due to the statutory exception embodied in Rule 4:42-9(a)(8), the statute was declared valid.

More recently, in Toll Brothers, Inc. v. Township of West Windsor, 190 N.J. 61 (2007), the court considered the interplay between the Frivolous Litigation Act (N.J.S.A. 2A:15-59.1) and the Frivolous Litigation Rule (revised Rule 1:4-8), pointing out that there are certain notice requirements in the Court Rule that are not included within the statute. The court determined that these notice provisions in the rule advance the policy interests of deterrence and reparations underlying the Frivolous Litigation Statute, and that there was not a conflict between the rule and statute. However, to seek fees and costs, even under the statute, the notice provisions of the rule need to be strictly followed if practicable.

Applying the guidelines of McKeown-Brand and Toll Brothers, there is a strong likelihood that a statute addressing the same subject as the Offer of Judgment Rule would pass constitutional muster if it: 1) did not conflict with the Court Rule; and 2) did not regulate attorney conduct. New Jersey's Supreme Court has previously held that an award of counsel fees is a procedural matter, therefore implicating separation of powers. However, the Court Rules explicitly permit statutory counsel fee awards.

Analysis of Proposal Under Separation of Powers Doctrine

As we have seen, there is no negative consequence to a party making an Offer of Judgment. This has resulted in an unlevel playing field with plaintiffs making Offers of Judgment, hoping for a runaway verdict, without consideration of actually achieving settlement. On the other hand, defendants will either refrain from making an Offer of Judgment due to the inherent inequities in the current Rule, or will make offers far too low to induce settlement. Inserting consequences will foster more considered offers designed to achieve settlement, not as a litigation hammer.

We propose a change that provides for bilateral consequences to any offer: By making an offer, the offeror incurs consequences for a verdict rendered at 20% or more adverse to the offeror, and an offeree incurs consequences for a verdict 20% or more favorable to the offeror. This proposal would likely be viewed by the court as an extension of the existing Rule, inserting bilateral consequences to any offer. Essentially, it makes each offer bilateral; under the existing Rule, each offer potentially triggers consequences for the offeree, and under this proposal it would now also trigger consequences for the offeror in certain defined circumstances. Because it involves attorney fees, it would be analyzed as a procedural rule. However, under Rule 4:42-9, it would fall squarely within the statutory exception. It does not implicate attorney discipline and only adds to the existing Rule. Although the Supreme Court has spoken to this issue by way of the Rule, this provision in no way conflicts or interferes with judicial administration.

Importantly, this proposal does not conflict with the current Court Rule ' it only strengthens it and makes any offer more reasoned. It furthers the joint goal of the judiciary and legislature to foster settlement of those cases that ought to be settled. Any rights or duties created mimic and are parallel to the existing Rule.

The State high court has consistently indicated that it will defer to legislative enactment that does not directly conflict with a Court Rule but merely touches upon it and does not interfere with judicial administration. This proposal will not interfere with administration and only modifies the Rule to make its consequences truly bilateral.

While some may attempt to argue that it discourages access to the courts, this argument is disingenuous and without merit, as there is no requirement that a plaintiff make an Offer of Judgment. The proposal is only triggered by a plaintiff making an offer under the Offer of Judgment Rule. Inherent within this proposal is the notion of fairness ' that any offer must be reasoned and should take into account all litigation risks. It does not implicate or address access to the courts.

Conclusion

As currently phrased, the court's Offer of Judgment Rule has inherent inequities, and fails to promote careful and reasoned settlement proposals. Leaving intact the current framework with the minor addition outlined above, would greatly improve the utilization of the settlement tool. Inserting a consequence to the offeror would promote legitimate and reasonable settlement offers, would increase the efficacy of the Rule and would remove some of the inequity in its current workings. It would also promote considered settlement offers with an eye towards resolving claims that ought to be resolved, and would discourage frivolous offers.

Modifying the existing scheme through Court Rule or legislation could make this tool more relevant and fair. The New Jersey Supreme Court has indicated that although the award of counsel fees is a procedural matter, it may defer to legislation which furthers joint goals of the two branches of government. Increasing the efficacy of the Offer of Judgment Rule through complementary legislation would seemingly follow the court's logic in prior precedent and be constitutionally upheld.

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.

Part Three of a Three-Part Article

Article 6, '2, '3 of the New Jersey Constitution vests the New Jersey Supreme Court with rule-making power. That paragraph provides:

The Supreme Court shall make rules governing the administration of all courts in the State and. subject to the law, the practice and procedure in all such courts. The Supreme Court shall have jurisdiction over the admission to the practice of law and the discipline of persons admitted.

The New Jersey Supreme Court has vigorously defended its supremacy with respect to the administration of the courts from intrusion by other branches of government. The Separation of Powers Doctrine is premised on the theory that government works most efficiently when each of the three branches of government acts independently within its designated sphere. See General Assembly v. Byrne , 90 N.J. 376, 381-83 (1982). The court has held that “no deviation from the ' separation of powers [doctrine] will be tolerated which impairs the essential integrity of one of the [three] branches of government.” Massett Bldg. Co. v. Bennett , 4 N.J. 53, 57 (1950).

In the seminal case of Winberry v. Salisbury , 5 N.J. 240 (1950), the New Jersey Supreme Court considered whether a statute purporting to govern the time to file an appeal in court violated the Separation of Powers Doctrine when it conflicted with a Court Rule providing a shorter period of time. In Winberry, the plaintiff brought suit to expunge an alleged libel on file with the Grand Jury. The trial court granted summary judgment and dismissed the suit. Sixty-two days later, the plaintiff filed and served a notice of appeal. The appeal was out of time under the court rules, which provided for 45 days within which to file an appeal, but timely under a statute allowing appeals within one year of a final judgment. The Appellate Division dismissed the appeal, finding that the Court Rule prevailed over a conflicting statute when dealing with matters of court administration.

The New Jersey Supreme Court focused on the phrase “subject to law” included within the New Jersey Constitution: “The Supreme Court shall make rules governing the administration of all courts in the State and, subject to the law, the practice and procedure in all such courts.” The plaintiff argued the phrase “subject to law” meant subject to legislation. The court disagreed, writing that such a construction would improperly invade the rule-making power of the Supreme Court and create a back-and-forth between the legislature and the judiciary in trying to enact rules governing the courts. But, the court could not ignore the phrase ' it had to have some meaning and purpose. The court found that the only interpretation of the phrase that would not defeat separation of powers but at the same time provide significance to the phrase was to equate it with substantive law as distinguished from pleading and practice.

The court reasoned that substantive law (both statutory and common law) defines rights and duties, while pleading and practice concerns the method of enforcing those rights and duties. It concluded that the phrase “subject to law” limited the court's exclusive authority for rule-making power to practice and procedure. Thus, the rule-making power of the Supreme Court is not subject to overriding legislation, but its exclusive authority is confined to practice, procedure and administration of the courts and does not extend to substantive law.

More recently, in Williams v. State , 186 N.J. 368 (2006), the New Jersey Supreme Court considered separation of power between the courts and legislature in the context of a statute authorizing probation officers to carry firearms and arrest probation violators, which conflicted with the Supreme Court Rule that probation officers could not carry firearms. The court noted that the phrase “subject to law” qualifies the rule-making authority with respect to the practice and procedure of the courts, and was not limited to practice and procedure in the courts. Because probation officers were considered an arm of the judiciary, the court reasoned they fell within the scope of the court's administrative authority. It found an irreconcilable conflict between the legislation and the court's inherent administrative authority, and held that the law was unconstitutional.

Simply because there is a Court Rule does not mean a statute cannot address conduct addressed in the that rule; and simply because a statute may have some effect on the courts does not mean that the statute is unconstitutional. The New Jersey Supreme Court has deferred to legislation that which did not interfere with the court's constitutional obligation. See Passaic County Probation Officers' Ass'n v. County of Passaic , 73 N.J. 247, 255 (1977) (where the court stated, “[W]e repeat that in the absence of any action by this Court ' felt to be constitutionally compelled ' as a matter of comity and respect for other branches of government, we accept and adopt all statutory arrangements touching or concerning the administration of any courts in the State … “). The court will uphold legislation that merely touches on court administration “unless it interferes with the effective functioning of the Courts.” See CWA Local 1044 v. Chief Justice , 118 N.J. 495. 501 (1990) (where the court stated, “in each instance we must examine the terms of the legislative enactment, its importance, the extent of its interference with sound judicial administration, and the significance of the issue to the judiciary, ultimately striking a balance between the interests served by comity and those served by the administration of justice”).

Importantly, the Separation of Powers Doctrine is not inconsistent with the notion of cooperation among the several branches of government. See Knight v. City of Margat e, 86 N.J. 374, 389 (1981) (where the court stated “implicit in the decisional law is the distinction between the existence and the exercise of the judicial powers”).

Any analysis of whether the legislature can adopt a statute that addresses a topic similar to the Offer of Judgment Rule begins with an analysis of whether such a statute would create substantive rights and duties of the parties, or interfere with the practice and procedure of the courts or the administration of the courts.

The court's consideration of the Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1, provides the best guidance. That statute permits an award of attorney fees to a prevailing party in a lawsuit if the non-prevailing party asserts a claim or defense that is frivolous (defined as in bad faith, solely for the purpose of harassment, delay or malicious injury or if the non-prevailing party knew or should have known that the claim or defense was without any reasonable basis in law or equity and could not support a good faith argument for an extension, modification or reversal of existing law).

The Frivolous Litigation Statute, enacted in 1988, sought to discourage the filing of frivolous pleadings by penalizing a party found to have presented a claim or defense that was knowingly or clearly without merit. At the time, there was an existing Court Rule (Rule 1:4-8) that prohibited the filing of frivolous pleadings, but it had no effective penalty provision. In McKeown-Brand v. Trump Castle Hotel & Casino , 132 N.J. 546 (1993), the court considered whether the Frivolous Litigation Act breached the Separation of Powers Doctrine. At the outset, the court noted that it shared the legislature's concern with respect to frivolous lawsuits. It said it recognized that the award of counsel fees is typically a procedural matter for the courts, but noted that the rule allowing the award of counsel fees (Rule 4:42-9(a)) permits such award in “all cases where counsel fees are permitted by statute.” The court observed, however, that statutes authorizing the award of counsel fees authorized fees as part of the substance of a statutory cause of action, which was very much different from the award of counsel fees under the Frivolous Litigation Act as a sanction for bringing a meritless lawsuit. It expressed concern that the statute comes closer to impinging on the court's constitutional power over procedural matters because fees were a sanction for improper litigation. Nevertheless, due to the statutory exception embodied in Rule 4:42-9(a)(8), the statute was declared valid.

More recently, in Toll Brothers, Inc. v. Township of West Windsor , 190 N.J. 61 (2007), the court considered the interplay between the Frivolous Litigation Act (N.J.S.A. 2A:15-59.1) and the Frivolous Litigation Rule (revised Rule 1:4-8), pointing out that there are certain notice requirements in the Court Rule that are not included within the statute. The court determined that these notice provisions in the rule advance the policy interests of deterrence and reparations underlying the Frivolous Litigation Statute, and that there was not a conflict between the rule and statute. However, to seek fees and costs, even under the statute, the notice provisions of the rule need to be strictly followed if practicable.

Applying the guidelines of McKeown-Brand and Toll Brothers, there is a strong likelihood that a statute addressing the same subject as the Offer of Judgment Rule would pass constitutional muster if it: 1) did not conflict with the Court Rule; and 2) did not regulate attorney conduct. New Jersey's Supreme Court has previously held that an award of counsel fees is a procedural matter, therefore implicating separation of powers. However, the Court Rules explicitly permit statutory counsel fee awards.

Analysis of Proposal Under Separation of Powers Doctrine

As we have seen, there is no negative consequence to a party making an Offer of Judgment. This has resulted in an unlevel playing field with plaintiffs making Offers of Judgment, hoping for a runaway verdict, without consideration of actually achieving settlement. On the other hand, defendants will either refrain from making an Offer of Judgment due to the inherent inequities in the current Rule, or will make offers far too low to induce settlement. Inserting consequences will foster more considered offers designed to achieve settlement, not as a litigation hammer.

We propose a change that provides for bilateral consequences to any offer: By making an offer, the offeror incurs consequences for a verdict rendered at 20% or more adverse to the offeror, and an offeree incurs consequences for a verdict 20% or more favorable to the offeror. This proposal would likely be viewed by the court as an extension of the existing Rule, inserting bilateral consequences to any offer. Essentially, it makes each offer bilateral; under the existing Rule, each offer potentially triggers consequences for the offeree, and under this proposal it would now also trigger consequences for the offeror in certain defined circumstances. Because it involves attorney fees, it would be analyzed as a procedural rule. However, under Rule 4:42-9, it would fall squarely within the statutory exception. It does not implicate attorney discipline and only adds to the existing Rule. Although the Supreme Court has spoken to this issue by way of the Rule, this provision in no way conflicts or interferes with judicial administration.

Importantly, this proposal does not conflict with the current Court Rule ' it only strengthens it and makes any offer more reasoned. It furthers the joint goal of the judiciary and legislature to foster settlement of those cases that ought to be settled. Any rights or duties created mimic and are parallel to the existing Rule.

The State high court has consistently indicated that it will defer to legislative enactment that does not directly conflict with a Court Rule but merely touches upon it and does not interfere with judicial administration. This proposal will not interfere with administration and only modifies the Rule to make its consequences truly bilateral.

While some may attempt to argue that it discourages access to the courts, this argument is disingenuous and without merit, as there is no requirement that a plaintiff make an Offer of Judgment. The proposal is only triggered by a plaintiff making an offer under the Offer of Judgment Rule. Inherent within this proposal is the notion of fairness ' that any offer must be reasoned and should take into account all litigation risks. It does not implicate or address access to the courts.

Conclusion

As currently phrased, the court's Offer of Judgment Rule has inherent inequities, and fails to promote careful and reasoned settlement proposals. Leaving intact the current framework with the minor addition outlined above, would greatly improve the utilization of the settlement tool. Inserting a consequence to the offeror would promote legitimate and reasonable settlement offers, would increase the efficacy of the Rule and would remove some of the inequity in its current workings. It would also promote considered settlement offers with an eye towards resolving claims that ought to be resolved, and would discourage frivolous offers.

Modifying the existing scheme through Court Rule or legislation could make this tool more relevant and fair. The New Jersey Supreme Court has indicated that although the award of counsel fees is a procedural matter, it may defer to legislation which furthers joint goals of the two branches of government. Increasing the efficacy of the Offer of Judgment Rule through complementary legislation would seemingly follow the court's logic in prior precedent and be constitutionally upheld.

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.