Representative Arthur J. O'Neill, Chairman
William R. Breetz
Representative Robert Farr
Jon P. Fitzgerald
Robert W. Grant
Representative Michael P. Lawlor
Michael W. Lyons
Mary Anne O'Neill
Joel I. Rudikoff
Edmund F. Schmidt
Joseph J. Selinger, Jr.
Judge Elliot N. Solomon
Professor Colin C. Tait
Professor Terry J. Tondro
I. Milton Widem
Senator Donald E. Williams, Jr.

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David D. Biklen
Executive Director

David L. Hemond
Chief Attorney

Jo A. Roberts
Senior Attorney

Connecticut Law Revision Commission
State Capitol
Room 509A
Hartford, Connecticut 06106-1591
(860) 240-0220
FAX (860) 240-0322
Email: lrc@po.state.ct.us

To:   Members of the Law Revision Commission Offer of Judgment Committee
From:   David L. Hemond
Date:   September 9, 1999
Re:   Preliminary Analysis. Offers of Judgment

 
This memorandum provides background material for the Law Revision Commission study of the laws concerning offers of judgment.

The Judiciary Committee letter requesting the study makes reference to Raised Bill 1342, An Act Concerning Offers of Judgment. That bill would have increased penalties for a plaintiff's failure to accept a reasonable defendant's offer. The bill indicates the Judiciary Committee's concern over the balance between plaintiffs and defendants (defendants currently face the greater sanction for failure to reasonably settle) and the effectiveness of possible remedies.

Current Connecticut law on offers of judgment is governed by parallel provisions in the Connecticut General Statutes and in the Rules for the Superior Court contained in the Connecticut Practice Book. The law restricts offers to actions involving contracts or suits for money damages. Offers are filed with the Clerk of the Superior Court.

The basic rules are as follows:

Offers by the plaintiff (Rules 17-14, 17-15, 17-16, 17-17, 17-18, CGS 52-192a)

1. The plaintiff may make an offer at any time before the trial begins.

2. The defendant must accept the offer within 30 days and before the verdict or the potential penalty for failure to accept under subsection 3 may apply.

3. If the defendant does not accept and the plaintiff recovers equal or more than the offer, the plaintiff recovers an additional 12% from the date the complaint was filed and up to $350 attorneys fees, except that if the offer was made more than 18 months after the complaint was filed, the plaintiff only recovers the 12% from the date the offer was filed, plus up to $350 attorney fees.

Offers by the defendant (Rules 17-11, 17-12, 17-13, CGS 52-193, 52-195)

1. The defendant may make an offer at any time before evidence is offered.

2. The plaintiff must accept the offer within 10 days or the potential penalty in subsection 3 for failure to accept may apply.

3. If the plaintiff does not recover more than the offer plus interest, the plaintiff does not recover any costs accruing after the offer and must pay the defendant's costs accruing after the offer plus up to $350 attorney's fees.

Raised Bill 1342

Raised Bill 1342 would have increased the possible penalty for a plaintiff's failure to accept a defendant's offer, requiring that attorney's fees be awarded and increasing the possible award for attorney's fees to $10,000.

The bill would also have required that a plaintiff's offer include a "complete documentation of the plaintiff's injuries and losses".

One purpose of the bill was to increase the incentive for a defendant to make and a plaintiff to accept a defendant's offer.

Discussion

The statutes and rules concerning offers of judgment are intended to provide fair incentives to induce the parties to settle their claims prior to trial, thus bypassing the risks, vagaries, and costs to the judicial system and the parties of the trial itself.

The current incentive for a defendant to accept a plaintiff's offer is the possibility that the defendant will be required to pay 12% interest from the date of the complaint and attorney's fees up to $350.

The incentive for a plaintiff to accept a defendant's offer is the possibility that the plaintiff will be required to pay the defendant's costs accruing after the date of the offer and attorney's fees up to $350 because the plaintiff's judgment was less than the defendant's offer, notwithstanding that the plaintiff has "won" the case.

One common perception, and indeed a matter that has been unsuccessfully litigated (as noted in the Blakeslee case below), is that the current scheme does not provide an equal incentive for the parties to settle. In fact, current law, by providing the plaintiff with punitive interest if the defendant fails to settle for an amount less or equal to the amount ultimately awarded, conveys a litigation advantage to plaintiffs through use of the process. However, the Connecticut Supreme Court found in Blakeslee that those concerns do not reach constitutional dimensions because the parties are not "similarly situated" for equal protection purposes.

Several important Connecticut cases have addressed offer of judgment issues as follows:

Blakeslee Arpaia Chapman, Inc. v. EI Constructors, Inc, 239 Conn. 708, 687 A2d 506 (1997).

In this primary case resolving the construction of the Connecticut statute, the Connecticut Supreme Court ruled that:

1. There is no equal protection problem with the statutory scheme because the plaintiffs and defendants are not similarly situated. Writes the majority opinion, "As long as the disparate treatment is, as here, rationally based, we may not judge the wisdom, desirability or logic of the legislative determination." Judge Borden dissented, writing with respect to the majority opinion as a whole, "Thus, the majority has put all of the weapons created by section 52-192a in the hands of the plaintiff, with practically no risk, and all of the exposure on the defendant."

2. Use of the term "defendant" in the statute reasonably and logically should be interpreted to include the plural "defendants". Therefore the statute allows either submission of a unified offer of judgment to all defendants or individual offers of judgment to each defendant individually. "If the plaintiff files a unified offer of judgment that is not accepted, each defendant will be subject to offer of judgment interest only if the ultimate judgment rendered against that particular defendant equals or exceeds the amount of the offer." Ramifications of allowing the plaintiff this option are also discussed in the Superior Court case of Cacozzo v. Wickes, noted below.

3. Amendments allowed to the plaintiff's complaint after a plaintiff's offer of judgment do not invalidate that earlier offer. See also discussion of Lutynski v. BB and J Trucking, Inc, below.

4. There is no stay of interest during a period informally staying a proceeding because of other litigation.

Shawhan v. Langley, 249 Conn. 339 (1999)

In this case, the Connecticut Supreme Court concluded "that section 52-192a permits a plaintiff to file only one offer of judgment as to a particular defendant."

This particularly troublesome ruling seems to preclude further use of an offer of judgment once an initial offer has been rejected. Given that the public policy of the offer of judgment is to provide the parties with an inducement to settle and to remove litigation from the courts where possible, it is unclear to me what policy this "one offer" rule advances. Indeed, I found the dissent in the case persuasive both on technical and policy grounds.

Lutynski v. BB and J Trucking, Inc, 229 Conn. 525, 642 A2d 7 (1994)

In this case, the Connecticut Supreme Court affirmed an Appellate Court decision which had held that a plaintiff's offer of judgment survived a later amendment of the claim and that the award of interest was mandatory and did not depend on an analysis of the underlying circumstances of the case. Those appellate decisions reversed the trial court finding that allowing the plaintiff to amend the claim superceded the effect of the earlier offer. As noted in the trial court opinion, survival of the effect of the offer beyond the amendment of the claim has disturbing implications because the ultimate trial is based on claims that were not before the defendant at the time that the offer was made. I find this rule, particularly because it is coupled with the "one offer" rule, to raise important policy questions.

Cocozzo v. Wickes, 1999 WL 417315

In this Superior Court case, Judge Radcliffe questions the ramifications of Connecticut's rule allowing the plaintiff the option of a unified offer or individualized offers in the context of certain negligence cases. Thus, he writes: "Although a change in the offer of judgment statute requiring unified offers of judgment in cases involving vicarious liability, respondeat superior, or automobile owner/operator negligence where permissive use is admitted might be a welcome alteration, any change should come from the General Assembly, or a reexamination of Blakeslee."

Connecticut issues:

As a minimum, then, these cases raise the following issues for our review:

1. Plaintiff/Defendant Equity.

The availability of punitive interest against a non-settling defendant, but not against a non-settling plaintiff seems to bias this system without any sound policy rational. It is unclear why a plaintiff's failure to accept a reasonable defendant's offer differs from similar recalcitrance by a defendant. One method of addressing this inequity, floated by Representative Farr, would be to allow interest to run similarly against the non-settling plaintiff. Under such a scheme, the amount of the plaintiff's award would be reduced at the penal interest rate where the litigated verdict failed to exceed an earlier defendant's offer.

2. The One Offer Rule.

Why parties should be limited to making a single offer is unclear. If a party wishes to make a different later offer that supersedes rights under an earlier offer, why shouldn't that be allowed?

3. Unified offers versus individualized offers against defendants.

This matter has been the subject of considerable litigation and deserves our review.

4. Effect of an Amendment of the Claim

As noted above, an amendment to a complaint changes the essential nature of the litigation. We should review the current rule that allows an offer to survive the amendment of the claim.

Other jurisdictions

I scanned some other jurisdictions to get a sense of what other penalty options for failure to accept an offer might be out there. The following briefly portrays various rules. However, the details of the various rules are more complex than indicated here. For example, the rules governing costs, attorney's fees, expert witness fees, and applicability of rules to civil cases all vary between states. An accurate portrayal of the rules would, of necessity, be much more detailed than can be accommodated in this preliminary review.

I have also attached an article that reviews the offer of judgment issue in more detail. A number of other articles are also available. From my preliminary research, it is clear that this issue is much discussed and that a variety of proposals have been developed. A document list produced by a database search is attached.

Federal Rules

Federal Rule of Civil Procedure 68 contains an offer of judgment provision allowing an offer by a defendant. The plaintiff becomes liable for post-offer costs if the plaintiff fails to recover more than the offer. Curiously, this federal rule provides an offer of judgment remedy only for a defendant. Connecticut, by contrast, provides a stronger remedy for a plaintiff than for a defendant.

State Court Rules

The attached article, State Court Regulation of Offers of Judgment and its Lessons for Federal Practice, notes that twenty-two states follow the Federal Rule and another thirteen states use a variant of that Rule. The remaining states, including Connecticut, use different rules.

The following survey reflects those state laws that were most easily searched using an electronic database. As noted above, the search should be considered incomplete.

Alaska

If the judgment finally entered is at least five percent less favorable to the offeree than the offer (or if there are multiple defendants at least ten percent less favorable), the offeree pays all allowable costs and reasonable actual attorneys fees incurred from the date of the offer. However, the amount of attorneys fees recoverable decreases on a sliding scale if the offer is made after discovery is completed. Rule applies equally to plaintiffs and defendants. Sec. 09.30.065.

California

Failure to accept results in an adjustment to costs and may include liability for expert witness fees and attorneys fees. Sec. 998, sec. 1021.1. Awards of attorneys fees are subject to a detailed list of criteria. Sec. 1021.1. Applies equally to plaintiffs and defendants.

Colorado

Provisions for adjustment of costs, no attorneys fees. Sec. 13-17-202. Applies equally to plaintiffs and defendants.

Florida

If offer is "unreasonably rejected", court, on motion of offeror, determines whether to impose sanctions. The statute (sec. 45.061) provides, in part, that:

"In determining the amount of any sanction to be imposed…, the court shall award:

(a) The amount of the parties' costs and expenses, including reasonable attorneys' fees, investigative expenses, expert witness fees, and other expenses which relate to the preparation for trial, incurred after the making of the offer of settlement; and

(b) The statutory rate of interest that could have been earned at the prevailing statutory rate on the amount that a claimant offered to accept to the extent that the interest is not otherwise included in the judgement."

See, also, sec. 768.79. Rules apply equally to plaintiffs and defendants.

Indiana

The penalty it to include attorney's fees, costs, and expenses to the offeror on the offer's motion.

Attorney's fees are to be awarded at a rate of not more than $100/hour, not to exceed $1,000.

Sec. 34-50-1-6. Applies equally to plaintiffs and defendants.

Iowa

Iowa adjusts costs. Sec. 677.2 et seq. Applies equally to plaintiffs and defendants.

Louisiana

Adjusts post-offer costs, exclusive of attorney's fees, if award is at least 25% less favorable to offeree than offer. Art. 970. Applies equally to plaintiffs and defendants.

Massachusetts

Costs of plaintiff who fails to accept defendant's offer are limited to entry fee and fee for service of process. 246 sec. 29.

Michigan

Adjusts allowable interest rate. For example, 2% surcharge on allowable interest rate against a defendant for rejecting "reasonable offer" under section 600.6013(11). A plaintiff refusing an offer may lose interest from the date of the offer. 600.6013(7).

Minnesota

Adjusts allowable interest rate depending on which party's offer is closest to final award. Section 549.09.

Montana

Similar to Federal Rule. Adjusts costs. Rule 68.

Nebraska

Defendant may offer judgment. Rule adjusts costs. Secs. 25-901 and 25-906.

Nevada

Either party may offer. Rule adjusts costs, including interest, expert witness fees, and attorney's fees. Sec. 17.115.

New York

Award of costs and payment of costs of defending against claim or of trying claim from time of offer. CPLR Rules 3219, 3220, 3221.

North Carolina

Adjustment of post-offer costs pursuant to defendant's offer. Follows Federal Rule 68.

Oklahoma

Adjusts costs if plaintiff refuses offer and fails to recover amount of offer. May preclude plaintiff recovering attorney fees. 12 sec. 940, 1101, 1106.

South Carolina

Defendant may make offer. Costs may be adjusted if plaintiff rejects. Rule 68. (Not identical to Federal Rule.) See also 22-3-220.

South Dakota

Almost identical to Federal Rule. Sec. 15-6-68.

Texas

Texas provision can toll running of prejudgment interest of if judgment is less than defendant's offer. Sec. 304.105.

Wisconsin

Adjusts costs. Provides double costs and 12% interest for prevailing plaintiff from date of plaintiff's offer of settlement. Plaintiff responsible for defendant's costs where defendant makes offer that plaintiff inappropriately rejected. Section 807.01.

Preliminary Staff Recommendation

Offer of judgment provisions merely provide a tool for encouraging reasonable settlements and reducing the load on the courts of unnecessary litigation. However, as sanctions available become stronger, they risk chilling the right of legitimate claimants to access the courts and of imposing settlements on defendants where claims are dubious. Current experience suggests that the effectiveness of such provisions are limited and that substantial penalty provisions, such as shifting full attorneys fees, are viscerally objected to by the American Bar as an adoption of the English Rule.

All of this suggests to me that only modest revisions are in order. I recommend the following:

1. The system should balance the rights of plaintiffs and defendants. We should enact similar sanctions where any party fails to settle for an amount that is offered and ultimately equaled or bettered by the other party on adjudication. I recommend a consistent interest penalty, together with consistent provisions concerning costs and limited attorneys fees, in accord with the existing penalty imposed on nonsettling defendants.

2. The one-offer rule should go. If offers are useful, any offer should be allowed provided that an earlier offer has expired and the new offer does not interfere with litigation. The new offer should supercede rights under the old offer. Any interest penalty should run from the date of the latest offer if the offer replaces an original offer.

3. Amendment of a complaint by a party should automatically terminate any rights which that party has under an earlier offer. It is inequitable to impose sanctions that were based on one claim when the nature of the litigation has changed.

4. We should further review issues raised concerning the "unified offer". The nature of complex tort litigation can make use of offers problematic for both parties. However, at this time, it is not clear to me that the existing rule, with its various consequences, can be improved on.

5. We should also review the triggering mechanism for sanctions. Some states require that an award better an offer by a specified percentage before the sanction is triggered. Such a provision weakens the offers but may better preserve necessary rights to litigate. The issue is one of line drawing. In my judgment we should avoid any provision that further invokes court discretion or judgment (such as a consideration of reasonableness of the failure to settle) because any such complication will invoke new collateral litigation.

I have attached a staff draft proposing such a new rule.