The American Rule
In the United States, each party is responsible for its own legal fees. This is known as the “American Rule.” In other countries, the U.K. for example, the loosing party is responsible for the winner’s legal fees. This critical difference in approach to the general legal framework explains why litigation in the United States runs amuck as compared to our British counterparts. New Jersey however has an oft forgotten procedural rule that when used properly turns the “American Rule” on its head and effectively makes the losing party pay for the winner’s attorney fees if certain conditions are met.
Attorney Fees in NJ
A Typical Situation
In NJ, litigants are responsible for their own attorney fees and costs associated with their own case. Therefore, every plaintiff has presumably made an economic analysis before filing his case that the costs (legal fees, costs of litigation ) associated with bringing the lawsuit are much less than the anticipated upside of winning his case. Similarly, the defendant has also made a determination that the cost of settling the case is too high when compared to the cost of prevailing on the merits of the case. In other words, it will be cheaper in the long run to pay my attorney and successfully defend the case than to just pay the plaintiff what he or she is asking. But what if each party had to consider paying the legal fees and costs of the other?
How the Offer of Judgment changes everything
In NJ if a litigant serves an Offer of Judgment on an opposing party for a specific monetary amount and the other party refuses, the refusing party may be responsible for all of the other party’s legal fees and costs incurred after the Offer of Judgment was made. Let’s take a closer look.
- Timing and Manner of Making and Accepting Offer — Any party may serve on the other party an Offer of Judgment so long as it is served at least 20 days before the actual trial date. The offer is not valid unless it is for a specific dollar amount. In addition, the issues set forth in the case must only be monetary in nature. If this is not the case, the Offer of Judgment rule does not apply. Acceptance of an Offer is made by filing an Notice of Acceptance with the court. This must be done on or before the 10th day before the actual trial date or another Offer is made. If a party makes another Offer, the previous Offer is deemed withdrawn. The making of a counter-offer by an adverse party does not make the initial Offer deemed withdrawn.
- Consequences of Not Accepting Claimant’s Offer — If the Offer of a claimant is not accepted and the claimant obtains a monetary judgment at trial that is 120% of the Offer that was NOT accepted, then the Claimant is entitled to, in addition to the monetary award he or she won at trial: all reasonable litigation expenses incurred after the offer was made plus interest at the rate of 8% per anum and all reasonable attorney’s fees incurred in connection with collecting on the judgment.
- Example — Claimant makes an offer of $1,000 and the offer is rejected. If the plaintiff is awarded the sum of $1,200 or greater, the defendant will be responsible for the plaintiffs attorney fees, interest and costs of collection as set forth above.
- Consequences of Not Accepting Offer Made By Party Not a Claimant — If a party who is not a claimant makes an offer (the defendant for example) that is not accepted and is deemed to be “favorable” under the Offer of Judgment rules, then the party not a claimant is entitled to all of the remedies the claimant is entitled to as set forth above. A favorable outcome is defined as an amount that is 80% of the Offer or less.
- Example — Defendant makes an offer of $1,000 and the offer is rejected. If the plaintiff only receives an award of $800 or less, the plaintiff , even though he may have “won” the case, will still be responsible for paying the plaintiff’s legal fees.
The take away here is that the Offer of Judgment Rule was designed to force litigants to take realistic looks at their cases and properly evaluate what they are worth. The failure to do this if an Offer is made can be disastrous when you factor in not only attorneys’ fees but the costs of experts as well. Judges have very limited, if any, discretion if this rule is invoked. If invoked, fees and costs must be awarded if made timely. The only discretion is that the attorney fees must be reasonable. Please feel free to call Doug Leavitt, or any of the attorneys with Danziger Shapiro & Leavitt, P.C. to discuss your case and other issues affecting you or your company.
This entry is presented for informational purposes only and is not intended to constitute legal advice.