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Category: Offer of Judgment (Rule 68)

Article: Exploring the American Rule on Attorney Fees

November 27, 2023

A recent Law.com article, “’Exploring the American Rule on Attorney Fees”, reports on the American Rule doctrine and the limits of the offer of judgment rule in New Jersey.  The article reads:

In the recent J.P. Electric, Inc. v. LPMG Construction Management, LLC case, approved for publication on Nov. 2, a trial judge granted defendant’s motion for involuntary dismissal at the conclusion of plaintiff’s proofs.  Prior to trial, defendant had made an offer for judgment to be taken against it under the offer of judgment rule, R.4:58.  After dismissal of plaintiff’s case, defendant filed a motion to have plaintiff pay its fees and costs.  The trial judge denied the motion, holding that where a plaintiff’s claim is dismissed, without plaintiff having secured a favorable verdict and money judgment, as required by the rule, defendant had no right to collect its fees from the plaintiff. Defendant appealed the court’s denial of its fee application.

The Appellate Division opinion, affirming the trial judge, held that for a defendant who has invoked R.4:58 by offering to have judgment taken, it would be necessary for plaintiff to have recovered a money judgment to compare the amount of the judgment with the monetary offer made by defendant.  That comparison requirement is specifically set forth in R.4:58-2 and R.4:58-3 but, of course, there was no money judgment because of the dismissal as a matter of law.

The Appellate Division’s two-page opinion affirming the trial court contained emphatic language: “Lest there be any doubt, a mid-trial involuntary dismissal does not entitle a defendant offeror to fee-shifting under the Rule.”  No doubt the reason for a two-page opinion to be published.  A forceful reminder to trial courts and trial bar of the specific limitations of the offer of judgment rule.

The appellate court held that the policy reasons inherent in the rule’s language would be undermined if such fee shifting were permitted, because the rule is not one designed to transform an offer of judgment into a general fee-shifting rule.  Further, R.4:58-3(c) also provides that no allowances shall be granted if a plaintiff’s claim is dismissed or if a no-cause verdict is returned.

Of course the Supreme Court by rule or the Legislature by statute could provide that in an offer-of-judgment context, dismissal of plaintiff’s case after an offer of judgment is made might also allow defendant to recover fees and costs on post-trial application to the trial judge by creating a new exception to the American Rule of fee payment.

Under the American Rule, the prevailing party is ordinarily not entitled to collect fees from the adversary.  This is based upon the policy that, “Sound judicial administration will be best advanced if litigant’s bear their own counsel fees.” See, Guarantee Insurance Co. v. Saltman, 217 N.J. Super. 604, 609-610 (App. Div. 1987), which furnishes a concise history of the rule and its application.  There are some exceptions to the ordinary application of the American Rule, as when it is permitted by court rule or statute; or pursuant to the terms of a contract; or when counsel fees are a traditional element of damages in the action; or where an insured has incurred counsel fees in defending an action under a disclaimed liability or indemnity policy.

The first reported case in which counsel for plaintiff made application for fees from the insurer after plaintiff’s success in requiring the insurer to defend and indemnify a workers’ compensation claim against its insured because of convoluted policy language was Gerhardt v. Continental Ins. Co., 48 N.J. 291 (1966).

In Gerhardt, Justice Jacobs, writing for a unanimous court, rejected arguments that Ms. Gerhardt should qualify for reimbursement of her fees in the successful coverage action under the inherent equitable power of the court and by analogy to fee payments where a coverage claim on a liability policy had been successful.  Justice Jacobs pointed out that exceptions to the American Rule, that each party bear its own fees, generally rests on statutory provisions which have no counterpart in New Jersey law.  He wrote that when the New Jersey rules were originally adopted, they embraced the view that sound judicial administration would be best advanced by having each litigant bear counsel fees incurred, except in a few specially designated instances.

The American Rule and its exceptions have been argued to the court over the years.  The argument for awarding fees to a successful plaintiff is based on equitable considerations, i.e., to give the successful party full benefit of the sums to which it was found entitled. Sears Mortgage Corp. v. Rase, 134 N.J. 326, 3540356 (1993); Shore Orthopedic Group v. Equitable Life Assur. Soc., 199 N.J. 310 (2009); In re Estate of Vayda, 184 N.J. 115 (2005).  “The American Rule prohibits recovery of counsel fees by the prevailing party against the losing party … The purposes behind the American Rule are threefold: (1) unrestricted access to the courts for all persons; (2) ensuring equity by not penalizing persons for exercising their right to litigate a dispute, even if they lose; and (3) administrative convenience.” Occhifinto v. Olivo Constr. Co., 221 N.J. 443, 449 (2015).

On through the years and to present, the courts as indicated have expressed their support of the American Rule.  If there are proceedings in J.P. Electric seeking relief from the Supreme Court, chances for success are indeed bleak based on the judicial history of New Jersey.

Ohio Courts Clarify ‘Prevailing Party’

November 2, 2023

A recent Law.com story by Riley Brennan, “Ohio Courts Clarify ‘Prevailing Party’ Owed Attorney Fees in Deceptive Trade Practices Case”, reports that, in a question of first impression for Ohio courts, the First Appellate District looked to define the meaning of the term “prevailing party” in terms of attorney fees pursuant to the Ohio Deceptive Trade Practices Act.  The meaning of “prevailing party” was at the center of a case before the court, with the question arising after a jury found in favor of the plaintiffs, Niv Goomai and Bar Hajbi, on their allegations that the defendants, H&E Enterprise and Avi Ohad, violated the Deceptive Trade Practices Act (DTPA) and breach of contract claims.  The jury only awarded damages on the breach of contract claim, and therefore, as there were no damages awarded on the DTPA claim.

The trial court denied “statutorily-available attorney fees,” citing the plaintiff’s failure to prevail on the deceptive trade practices claim and denied attorney fees as a result.  On appeal, Goomai claimed the lower court erred in failing to properly interpret and apply the DTPA attorney fee provision found in Ohio Revised Code 4165.03(B).  Goomai argued that “he was a prevailing party under the DTPA by virtue of the jury’s verdict finding that H&E violated the DTPA,” while H&E argued that in order to be a prevailing party under R.C. 4165.03(B), “a party must obtain not only a judgment in its favor, but also a remedy,” according to the appellate court’s Oct. 27 opinion. 

The Court of Appeals for the First Appellate District of Ohio agreed, holding the question in the case regarded the applicability of a statutory fee-shifting provision. In looking at what it means to be a “prevailing party” under R.C. 4165.03(B), the court used “ordinary principles of statutory interpretation” to guide its resolution, according to the opinion authored by Judge Jennifer Kinsley.  As the term isn’t defined by the statute, the court looked to Black’s Law Dictionary definition, which defines “prevailing party” as “[a] party in whose favor a judgment is rendered, regardless of the amount of damages awarded.”

According to the court, under this definition, “the relief obtained is immaterial to a party’s status; what matters is whether the party obtained judgment in its favor.”  “Our review of R.C. 4165.03 supports this conclusion. In construing statutory terms, courts read statutes as a whole and do not dissociated words and phrases from their context. … Looking at the language of R.C. 4165.03 as a whole, we are persuaded that ‘prevailing’ in the context of the DTPA means that the party obtained judgment in its favor, regardless of whether the party obtained a remedy in furtherance of that judgment,” Kinsley wrote.

“For one, the DTPA permits recovery of attorney fees from a plaintiff who knowingly pursues a groundless DTPA claim,” the judge continued.  “In such circumstances, a prevailing defendant would obtain no relief other than a judgment in its favor, but that defendant would still be entitled to attorney fees from the plaintiff under R.C. 4165.03(B).  If we were to read the statute as requiring a party to obtain a remedy in order to prevail, we would effectively eliminate the ability of prevailing defendants to obtain attorney fees and undermine the intent of the legislature in the process.  And courts do not read language out of statutes.”

According to the court, Subsection B specifies that courts “may award in accordance with this division reasonable attorney’s fees to the prevailing party in either type of  civil action authorized by division (A) of this section.”  “This clear statutory language defines attorney fees eligibility by the type of action, not by the type of remedy.  If the legislature intended to make prevailing party status dependent upon obtaining one of the remedies outlined in R.C. 4165.03(A), it could easily have said so,” Kinsley wrote.  “Its decision not to do so is indicative of its intent to untangle attorney fees from any other type of remedy recovered in a DTPA case.”

In 2017, Ohad helped Goomai purchase a property in the Camp Washington neighborhood of Cincinnati, with the two entering into an agreement that Ohad and H&E would renovate the property for $50,000, with the project set to be completed by January 2018.  However, after H&E failed to deliver on their promises, and the renovation project never materialized, Goomai sold the property for $50,000, which was at a loss on his investment.  Goomai went on to sue H&E, including claims for breach of contract, fraudulent misrepresentation, and violation of the DTPA. H&E filed a counterclaim against Goomai for breach of contract, with only the DTPA claim permitting the recovery of statutory attorney fees if Goomai prevailed.

The jury didn’t receive instructions about the applicability of the attorney fees provision, or the implications of its allocation of damages if it decided to award no damage on the DTPA claim, said the court.  The jury ultimately found against Goomai on the fraudulent misrepresentation claim, and agaisnt H&E on its counterclaim, awarding $30,604.09 in damages on the breach of contract claim and no damages on the DTPA claim.  However, a Hamilton County judge denied Goomai’s motion for an award of attorney fees, “on the basis that Goomai was not a prevailing party within the meaning of the DTPA, because the jury did not award damages on that claim,” the opinion said.

The three-judge appellate panel court concluded that the term “prevailing party” in R.C. 4165.03(B) “supports the conclusion that obtaining a judgment, even one without an award of damages, entitles a party to see attorney fees.” Judges Robert C. Winkler and Ginger Bock concurred.  In reaching this determination, the court sustained Goomai’s assignment of error, reversed the trial court’s decision, and remanded the case back to the trial court to consider the amount of attorney fees Goomai is entitled.

Florida Supreme Court: Offer-of-Judgment is ‘Not Prevailing Party Statute’

June 19, 2023

A recent Law 360 story by Lynn LaRowe, “RJ Reynolds Faces Fees Bid Despite Beating $16M Fla. Verdict, reports that the Florida Supreme Court said that R.J. Reynolds Tobacco Co.'s rejection of a woman's prior settlement offers means it can't walk away from her bid for attorney fees in her wrongful death action even though the company has defeated a $16 million punitive damages award she won in the case.  More than five months after upholding a state appellate ruling nixing the punitive award, the Supreme Court provisionally granted Brinda Coates' motion for "reasonable appellate attorney's fees," finding that she didn't need to prevail on appeal to be entitled to fees under Florida's offer-of-judgment statute.

The statute "operates to penalize a party who refuses to accept a good-faith, reasonable proposal for settlement as reflected in the ensuing final judgment," the court said.  "The statute has this effect even if the party seeking fees does not prevail at trial or in appellate proceedings, but is otherwise entitled to fees pursuant to the offer-of-judgment statute," the court said.

Coates sued the company after her sister, Lois Stucky, died of lung cancer.  She had twice offered to settle the matter before trial — once for $75,000 and a second time for $749,000, according to the opinion.  R.J. Reynolds declined the offers, and a jury awarded Coates $300,000 in compensatory damages and $16 million in punitive damages.  The trial court reduced the compensatory damages by half because the jury had found that Stucky's negligence caused half of the damages, but left the punitive damages amount intact.

The state's Fifth District Court of Appeal found the punitive award to be excessive and, in January, the Florida Supreme Court affirmed that decision.  The high court agreed that the case should go back to the trial court for further proceedings in keeping with state law that says any award for punitive damages exceeding a 3-1 ratio with compensatory damages is presumed to be excessive, unless the claimant can show the award is not too high in light of the facts and circumstances of the case.  The high court said that the state's offer-of-judgment law is a "penalty statute" that "contemplates fee awards to non-prevailing litigants."

According to the opinion, a plaintiff who offers to settle a case in advance of trial is entitled to fees under the statute if that plaintiff is awarded at least 25% more than the offer.  A defendant is entitled to recover fees if found not liable or if the award to the plaintiff is at least 25% less than the offer, the opinion said.  "Thus, the text of the offer-of-judgment statute contemplates a situation where the defendant is entitled to fees even if the plaintiff prevails on the most significant issues at trial and ultimately recovers a substantial judgment," the high court said.  "It is not reasonable to hold that the Legislature created a prevailing-party requirement when the statute's text allows for awards to litigants who do not prevail."

The amount of fees awarded to Coates will be determined by the trial court "conditioned on its finding, at the end of the case, that Coates is entitled to attorney's fees under a valid proposal for settlement," the court said.

Georgia High Court Allows Double Recovery of Attorney Fees

March 9, 2022

A recent Law 360 story by Clark Mindock, “Ga. Justices Allow Double Recovery of Atty Fees” reports that the Georgia Supreme Court affirmed that a car wreck plaintiff can recover attorney fees and litigation costs under each of two Georgia statutes, rejecting an argument that doing so would constitute an impermissible double recovery.  In coming to that conclusion, the state's high court reversed a lower appellate court's decision to side with driver Joao Junior's claims that he should have been allowed to seek recovery of attorney fees and costs under Georgia's offer of settlement statute as well as the fees and costs he won at trial.

Junior was awarded about $1.2 million in attorney fees along with $3 million in damages by a jury in his case against at-fault driver Sharon Graham.  He argued he was entitled to additional fees under the statute because Graham had rejected a settlement offer that would have spared everyone from that trial.  The justices said that since Graham rejected what was a reasonable settlement, the state's offer of settlement law and statute for damages and litigation expenses allow Junior to seek a penalty and attorney fees on top of that earlier award.

"Because we conclude that the provisions provide for different recoveries despite using somewhat similar measures for calculating the respective amount of damages or sanction, a prevailing plaintiff may recover under each statutory provision without regard to any recovery under the other," the Georgia Supreme Court justices said.  Ben Brodhead, an attorney at Brodhead Law LLC who represents Junior, told Law360 that the supreme court "followed the legislative direction to control bad behavior both before a suit is filed and after a suit is filed."

"We are pleased that the Supreme Court ruled in a way that will promote settlement and reduce litigation," he said.  Laurie Webb Daniel of Holland & Knight LLP, an attorney for Graham, said the ruling has "surprised" a lot of people, but that its practical implication "is rather narrow."  Once the case returns to the trial court, Junior will have the burden of proof to show the value of the legal services that were actually rendered after the settlement offer expired, she said.

The dispute stems from a car accident in 2010 between Graham and Junior. Before the case was set to go to trial, Junior had offered to settle all of his claims against Graham for $600,000, but Graham rejected that offer after she failed to accept it within 30 days of its issuance.  At trial, Junior was awarded $3 million in compensatory damages plus $1.2 million in attorney fees, and $51,554.95 in litigation expenses.  Because that award of compensatory damages was more than 125% of the original settlement offer, Junior then filed a post-trial motion for attorney fees and litigation expenses under the state's settlement law.

While Georgia's statute for damages and litigation expenses generally bars litigation costs as part of the damages in a case, an exception can be made where the defendant has acted in bad faith, been stubbornly litigious or caused the plaintiff unnecessary trouble and expense.  In those instances, a jury can award attorney fees and costs as part of the damages, according to court documents.  After Junior filed those claims, a trial court rejected the motion for attorney fees and costs under the settlement statute, and the Georgia Court of Appeals affirmed that conclusion in October 2020. The state high court agreed to take the case in July.

Florida Attorney Gets Attorney Fees in Malpractice Action

December 3, 2021

A recent Law360 story by Carolina Bolado, “Buchanan Ingersoll Atty Gets Fees in Malpractice Suit,” reports that a Florida appeals court ruled that a Buchanan Ingersoll & Rooney PC attorney who dodged legal malpractice claims from a prominent Miami developer can collect attorney fees and costs under the state's offer-of-judgment statute.  Florida's Third District Court of Appeal affirmed the award of attorney fees and costs to Buchanan Ingersoll partner Richard A. Morgan, who had made a settlement offer to former client Avra Jain earlier in the litigation before he won on summary judgment.

Jain argues that Morgan, not the firm, made the settlement offer to her, and because he himself never incurred any attorney fees, he is not entitled to recover them under the offer-of-judgment statute.  But the appeals court disagreed, finding that fees and costs were incurred on his behalf by Buchanan Ingersoll, which was also named as a defendant in her legal malpractice suit stemming from an $11 million judgment against her.

"While we agree with Jain that Morgan himself did not incur attorney's fees, we disagree with Jain's contention that attorney's fees were not incurred on his behalf," the court said.  The appeals court in June already affirmed the summary judgment ruling for Morgan and Buchanan Ingersoll, denying Jain's bid to make them pay the millions in damages, interest and attorney fees she was found to owe a former business partner.