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February 16, 2017Download PDF

Offer of Judgment: "An offer you CAN refuse"

Virtually everybody agrees that litigation costs have skyrocketed over the years. Often the fees at issue dwarf the underlying damages alleged in the case. As a result of this trend, New Jersey’s Offer of Judgment Rule was developed with the primary goal of encouraging, promoting and stimulating the early settlement of disputes by imposing drastic consequences on parties that fail to accept reasonable offers to settle. R. 4:58.

The Offer of Judgment Rule generally permits a defendant to make a formal settlement offer in the form of an actual recorded judgment. R. 4:58(b). If the plaintiff rejects the offer, and does not recover at least 80% of the offer at trial, the plaintiff is responsible for paying the defendant’s costs, post-offer litigation expenses, attorneys’ fees and interests incurred after the date the offer was rejected.

However, in 2006, the New Jersey Supreme Court amended the Offer of Judgment Rule to provide that a defendant could not be awarded counsel fees where such an award would “conflict with the policies underlying a fee-shifting statute or rule of court.” R. 4:58-3(c)(4). This amendment has significantly affected employee rights litigation, especially claims based on New Jersey’s Conscientious Employee Protection Act (“CEPA”) and Law Against Discrimination (“LAD”), which are both typical fee-shifting statutes. Notably, the amendment bars employer defendants in such cases from recovering their costs and attorneys’ fees from plaintiffs even after making a successful offer of judgment. Despite the amendment, there still remains strong incentive for defense counsel to consider making an offer of judgment in fee-shifting cases.

In Best v. C&M Door Controls, Inc.,
200 N.J. 348 (2009), the New Jersey Supreme Court reconciled Rule 4:58-3(c)(4) with laws that allow fee-shifting for plaintiffs in workplace rights cases.

The plaintiff in Best sued his former employer, C&M Door Controls Inc. (“C&M”), pursuant to the New Jersey Prevailing Wage Act (“PWA”) and CEPA. The plaintiff claimed that he had been underpaid on PWA work, and that, when he complained, C&M retaliated against him. During the course of litigation, C&M filed an offer of judgment, which was ultimately rejected by the plaintiff. The jury returned a verdict in favor of C&M on the CEPA claim and awarded the plaintiff monetary damages on his PWA claim. Pursuant to Rule 4:58-3(b), C&M sought counsel fees because the jury verdict was less than 80 percent of its offer. Simultaneously, the plaintiff sought counsel fees plus costs under the PWA’s fee-shifting provisions. The trial court awarded the plaintiff counsel fees on the PWA claim as the prevailing party and denied C&M’s application for fees under Rule 4:58-3(c)(4).

On appeal, the Appellate Division determined that C&M could recover its counsel fees pursuant to the Offer of Judgment Rule as to the PWA claim. The Appellate Division held that while Rule 4:58-3(c)(4) covers CEPA, it did not apply to PWA because that rule was intended to benefit both employers and employees.

After granting certification, the New Jersey Supreme Court reversed the Appellate Division’s decision and held that whether the law intended to benefit both employees and employers was of no import. The Court determined that a defendant can never be awarded fees under Rule 4:58 in a case involving CEPA or any similar fee-shifting statute, presumably including LAD claims. However, the Court also noted that “if a judge determines, under all the circumstances, that defendant proffered a reasonable offer of judgment that plaintiff unjustifiably rejected, that is a factor to be taken into account in determining plaintiff's entitlement to fees.”

Therefore, if an employer defendant in a CEPA or LAD case tenders an Offer of Judgment during the course of litigation, and the plaintiff recovers 80 percent or less than the employer’s offer, the employer would not be able to recover counsel fees because such an award would create a conflict pursuant to Rule 4:58-3(c)(4). Despite this fact, a reasonable offer of judgment, made during the early stages of litigation, remains a powerful legal tactic to force the plaintiff’s hand in settling an employment case. As the Court in Best explained, a plaintiff’s unjustifiable failure to accept a reasonable offer is a factor the courts will take into account in determining plaintiff’s entitlement to fees, and plaintiff’s award of fees can be cut off at the point a reasonable offer of judgment has been made, and unjustifiably rejected.