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GA Appeals Court: The Reasonableness of Rejected Settlement Offer Key to Fee Request

December 24, 2018 | Posted in : Fee Award, Fee Dispute, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Reduction, Fee Request

A recent Daily Report story by Greg Land, “Appeals Court: ‘Reasonableness’ of Rejected Settlement Offer Key to Fee Demand,” reports that the Georgia Court of Appeals has ruled that a trial judge should not have summarily dismissed as bad faith a bank’s rejected settlement offer, which the bank later wanted to use to collect attorney fees.  The opinion noted that it addresses “a recurrent issue: what constitutes good faith under Georgia’s offer of settlement statute."  Although the spurned offer was far less than the settlement the other parties finally agreed to, Coastal Bank credibly argued that its offer was “reasonable,” said the opinion released Monday.

While the trial court made a “passing reference” to Coastal Bank’s arguments in challenging a lawsuit naming it as a party in a dispute over a dead man’s estate, the judge “failed to consider and weigh [the] objective factors against whether Coastal’s position was reasonable at the time the offer was made,” said the opinion, authored by Judge Carla Wong McMillian with the concurrence of Presiding Judge Anne Elizabeth Barnes and Judge Clyde Reese.

As detailed in the order, the dispute involved the estate of Willard “W.R.” Rawlins, who died in 2008.  Rawlins’ heirs included Constance Ellis and Larry Rawlins Jr. and his wife.  Prior to his death, Rawlings had presigned blank checks on his Coastal Bank account. After Rawlings died, Ellis took some of the checks and wrote about $40,000 to herself, her children and her grandchildren, and Coastal “mistakenly honored those checks,” the opinion said.

The Rawlinses found out and sued Ellis and Coastal in Chatham County Superior Court.  The case was transferred to the county’s probate court, and Ellis “evened up” the distribution by giving the Rawlinses $40,000 to the estate, and the “executor determined that any damages to the estate had been corrected.”  Coastal moved for summary judgment, arguing the Rawlinses lacked standing to assert any claims against it and had suffered no damages. The probate court denied the motion.

Coastal then sent the Rawlinses an offer to settle the case for $3,000 under Georgia’s offer of settlement statute.  That provision states that a plaintiff who declines an offer to settle a claim and then is awarded no more than 75 percent of that offer may be held liable for the opposing party’s attorney fees and expenses dating from the date of the rejected offer.  But the law also allows a judge to deny a fee award, if the offer “was not made in good faith.”

The Rawlinses declined Coastal’s offer and later settled with Ellis for 2 acres of property worth about $40,000 or $50,000.  They dismissed their claims against Ellis with prejudice and against Coastal without prejudice.  The Rawlinses subsequently sued Coastal again in Chatham County State Court, and the bank again moved for summary judgment, arguing that the plaintiffs did not have standing “either in their individual capacities or on behalf of W.R.’s estate to maintain an action against Coastal for mishandling W.R.’s checking account and that they had no damages because Ellis had evened up the estate distribution,” the opinion said.

State Court Chief Judge H. Gregory Fowler denied the motion, but the Court of Appeals reversed him in 2016.  Fowler entered a final judgment in favor of Coastal on remand.  Coastal then moved for attorney fees and expenses under the offer of settlement statute.  The Rawlinses’ argued that the motion should be denied because, among other things, it “had not been made in good faith because the $3,000 offer to settle all claims was low compared to the alleged damages.”

Coastal countered that the offer was reasonable, “because it believed that its arguments of no standing and no damages were strong, a belief borne out by Coastal’s success on appeal.”  Fowler denied Coastal’s fee request after finding the offer was not made in good faith.

Citing prior court precedent, McMillian wrote that the issue of good faith rests on whether it was based on a “reasonable foundation,” a decision governed “solely on the offerer’s own subjective motivations and beliefs.”  In considering a “nominal offer,” McMillian wrote, a trial judge can can weigh objective factors, including whether it “bore no relationship to the amount of damages,” whether it reflects a “realistic assessment of liability” and if the offerer “lacked intent to settle the claim.”

But, the opinion said, a trial judge’s ruling cannot be based “exclusively on the objective factors” and must include consideration of the offerer’s “subjectively reasonable belief” of its merits.  Although Fowler’s order “contains a passing reference to Coastal’s lack-of-standing argument,” the opinion said, it failed to weigh whether Coastal’s offer was reasonable when it was made.