Defense Digest

Offers Of Judgment Survive Multiple Trials

New Jersey’s Offer of Judgment Rule, R. 4:58, ("the Rule"), is designed to promote early settlement of civil disputes. The Rule operates by allowing a party ("the offeror"), except in a matrimonial action, to offer a monetary judgment amount similar to a settlement offer to their adversary ("the offeree"). Acceptance of the offer operates like a settlement in that acceptance ends the civil dispute. The offeree must accept the offer on or before the tenth day before trial.

The Rule can be an effective means of persuading an offeree to settle because of the potential sanctions an offeree may face if it refuses to accept an Offer of Judgment. The Rule provides that if the final judgment at trial amounts to 120 percent or more of a plaintiff's Offer of Judgment, or 80 percent or less of a defendant's Offer of Judgment, the offeror is entitled to counsel fees, enhanced prejudgment interest and litigation costs incurred from the deadline for acceptance of the offer until the final judgment is entered.

Until recently, the Rule left open the question of whether the Rule's sanctions remain enforceable throughout multiple trials. On December 1, 2006, the New Jersey Appellate Division answered this question in Negron v. Melchiorre, 2006 N.J. Super. LEXIS 323 (App. Div. 2006). In Negron, the Appellate Division held that the sanctions provided by the Rule remain enforceable, even though a final judgment in that case was not entered until after the conclusion of a third trial.

In Negron, in December 2002, the plaintiff made an Offer of Judgment, pursuant to the Rule, against the defendant in the amount of $125,000. The defendant did not accept the plaintiff’s offer within the time frame prescribed by the Rule. The first trial proceeding commenced and resulted in a mistrial. The case was then tried for a second time, but the trial court subsequently vacated the jury's verdict and granted the plaintiff a new trial. At the conclusion of the third trial, the plaintiff was awarded judgment in the amount of $1 million, an amount exceeding 120 percent of the $125,000 Offer of Judgment made by the plaintiff before the first trial proceeding. The trial court granted the plaintiff's application for sanctions and awarded the plaintiff $48,884 in attorney's fees and costs against the defendant. The defendant appealed from the judgment from the Superior Court, and the Appellate Division affirmed the trial court's decision.

The Appellate Division based its decision, in part, on the plain text of the Rule. The court stated that nothing in the Rule requires the offeror to reaffirm their offer after a mistrial or after a final judgment is reversed on appeal and that the Rule leaves open the availability of sanctions until a judicial decree puts an end to the civil dispute. The court also noted that nothing in the Rule limits the sanctions to costs incurred in a single trial. The only precondition to the filing of an application for sanctions under to the Rule is the entry of a final judgment.

In reaching its holding in Negron, the Appellate Division looked to a number of other jurisdictions, namely Florida, Alaska and California, which had already examined the scope of the sanctions available under their Offer of Judgment Rules in the context of multiple trials. In Cheek v. McGowan, 483 So.2d 1373 (Fla. Dist. Ct. App. 1985), the Florida District Court of Appeals held that an Offer of Judgment remains in effect until all rights to appellate review are exhausted. In Mackie v. Chizmar, 965 P.2d 1202 (Alaska 1998), the Alaska Supreme Court stated that the sanctions of the Rule include the appeal and remand process. In Saakyan v. Modern Auto, Inc., 103 Cal. App. 4th 383 (Cal. Ct. App. 2002), the California Appellate Division held that the sanctions provided under the Rule remain available even after a case was tried for a second time as a result of a remand on appeal.

In Negron, the New Jersey Appellate Division recognized that the basic purpose of the Rule is to induce settlement. The offeree has the clear advantage. "After the expiration of the acceptance period, the offeror is vested with the irrevocable right to seek the sanctions available under the rule." Negron, 2006 N.J. Super. LEXIS at 41. The offeree risks nothing since an unfavorable verdict leaves that party in no worse position then if it had not made the offer. In contrast, the offeree who does not timely accept an Offer of Judgment is not only exposed to the potential of an unfavorable verdict but also to the sanctions imposed under the Rule. Id. at 42 (wherein court stated that "the offeree is …powerless to mitigate these potential damages, which encompass all costs associated with the proceedings necessary to reach a final judgment in the case").

In Negron, the New Jersey Appellate Division expressed some concern over the imbalance of power the Rule creates between the offeror and the offeree. However, as the court noted, its role is limited to the interpretation of the Rules of Court. It does not have the power or authority to rewrite the Rules. This is left to the sole discretion of the Supreme Court of New Jersey.

Unfortunately, the Offer of Judgment Rule continues to be underutilized in New Jersey litigation. The New Jersey Appellate decision in Negron, however, reinforces the fact that the Rule can, in certain cases, serve as a valuable litigation tool in inducing a favorable settlement.

*Jennifer is an associate in our Roseland, New Jersey, office. She can be reached at (973) 618-4161 or jalee@mdwcg.com.