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.
David D. Biklen
David L. Hemond
Jo A. Roberts
Connecticut Law Revision Commission
Hartford, Connecticut 06106-1591
FAX (860) 240-0322
To: Members of the Law Revision Commission Offer of Judgment Committee From: David L. Hemond Date: November 9, 1999 Re: Reflections on proposal, request for comment before November 24
After further review and consideration of the latest meeting discussions, I would like to offer the attached proposed draft. Your comments, if any, on this or on alternative proposals, submitted to me by phone, email, fax, or snail mail, are requested before November 24 so that we can determine whether a further meeting might be useful. My proposal is based on the following thoughts.
1. No objection was stated to revising the rule to allow more than one offer. The revised draft allows subsequent offers.
2. Objections were raised to invalidating an offer based on a substantive amendment. It was noted that judicial resources would be expended determining what was substantive and that, without such a determination, parties might be unfairly surprised by a subsequent determination of what was substantive. In light of those objections, language that would terminate an offer based on a substantive amendment has been deleted from the current draft.
3. I am concerned about procedural parity and the ability of plaintiffs, but not defendants, to invoke an interest penalty. In my judgment, the lack of parity, providing a procedural sanction against bad faith in favor of plaintiffs, but not defendants, when the judicial process should be inherently neutral, is inequitable. While one can generate sympathetic scenarios where one-sided sanctions are appropriate - the sympathetic personal injury victim being stonewalled by a cold-hearted corporation - clearly the scenario could also be reversed. Do we want the defendant, a down-trodden, legally unsophisticated former employee, to be coerced into settling with his cold-hearted former employer rather than contesting a dubious liability? We cannot judge the merits of a case, or of the parties, in advance.
The remedy to the lack of parity is to remove the current interest award for plaintiffs rather than, as suggested in the earlier staff draft, providing a discount penalty where a plaintiff rejects an offer made by a defendant.
I reach this conclusion for two reasons. First, the argument made at the recent meeting that the current interest penalty compensates the plaintiff for the lost opportunity cost of money held by the defendant is inaccurate. For most cases, existing law already provides for prejudgment interest as an element of damages. Interest is explicitly provided in any case where "the interests of justice require that the plaintiffs be allowed to recover legal interest as damages for the loss of use of their money." See Scribner v. O'Brien, Inc., 169 Conn. 389 (1975) and section 37-3a. Interest is already expressly awarded in condemnation cases. Section 37-3c. Interest is not, as a matter of practice, explicitly awarded in personal injury cases. However, the reason that interest is not separated out in such a case is that the award in a personal injury case already compensates for all past and future damages. Any lost opportunity cost (including lost interest on due but unpaid damages) is already an element of the underlying damages. See Connecticut Law of Torts, 3rd ed. (1991), section 171f. In short, existing law is intended to compensate for lost interest even without an offer of judgment.
As an equitable matter, to the extent that a plaintiff is entitled to compensation for interest, an award of compensatory interest should be made to all such plaintiffs, not just those making an offer. Conceptually, a plaintiff is entitled to be made whole with respect to damages incurred. Current law, without the offer of judgment provision, so provides.
(I note that Connecticut law as to when interest is included in an award allows substantial discretion for the court based on the interests of justice. Thus, in a given case, prejudgment interest may not be allowed - where, for example, the respective liabilities of the parties cannot be reasonably determined before judgment and to hold either party accountable for interest that could not have been calculated and paid is inequitable. It may be, in fact, that Connecticut's law should be more clear as to when prejudgment interest is awarded. However, that issue is not before this committee. It is, in any case, clear that existing law is intended to provide compensation for any interest that is justly due.)
Because interest is already included in the judgment, the current offer of judgment interest provision constitutes a penal award of interest to the plaintiff (a form of punitive damages) that is in addition to compensatory damages and that is not rationally related to any lost opportunity cost. As such, because the rule provides a procedural penal club for one party and not the other, it is disturbingly inequitable. A defendant is potentially chilled in exercising his right to contest liability.
Moreover, this "lack of procedural parity" cannot be equitably addressed by imposing a similar "interest" penalty on plaintiffs. The amount of the award to which an interest discount against a plaintiff would apply would vary from case to case and would, in fact, be less in cases where the defendant's case is stronger and the ultimate award is less. Thus, a plaintiff that wins a $100,000 case would be penalized by interest related to that $100,000, while a plaintiff who fails to accept a reasonable offer and then is awarded nothing would have no award on which to be penalized. This result has no reasonable relationship to the good or bad faith of the plaintiff. A plaintiff who wins $100,000 had a good cause, even if he mistook its value. A plaintiff who wins nothing is clearly more suspect of bad faith, frivolous litigation.
In short, the use of interest as a sanction in favor of plaintiffs provides plaintiffs with a penal club against defendants rather than merely compensating plaintiffs for lost interest. While awards of punitive damages based on the nature of a plaintiff's wrongdoing in the underlying action may address appropriate policy, such a one-sided procedural club awarding interest where the defendant fails to settle seems dubious. And, as noted above, attempting to redress the balance with an interest discount in favor of defendants and against plaintiffs does not work.
Moreover, according to discussions, most cases settle before trial and the interest is therefore rarely added. Interest is, therefore, not generally factored in by defendants as a prospective cost in settlement negotiations. In the real world, the prospect of an interest award has not worked well to shorten cases or avoid litigation.
This draft therefore deletes the interest sanctions.
4. An alternative approach: real costs/ in an appropriate case real attorney fees.
The purpose of allowing an offer of judgment is to provide equitable incentives for settlement and to provide a disincentive to needless, prolonged, and expensive litigation. A two pronged approach might be considered.
First, it seems equitable to shift full litigation costs to any party that declines an offer that was more favorable to him than the judgment. If a party has offered to settle for less than his ultimate award, why should that party then be penalized by incurring unnecessary expenses to further litigate? Yet, because Connecticut limits attorney's fees to $350 and because Connecticut's allowable costs do not include a substantial portion of actual litigation expenses, the current statute does not fully shift those costs and provides only an anemic threat to a party that unreasonably prolongs litigation. See sections 52-257, 52-259, 52-260, and 52-261 for reference to the usual allowable costs.
The costs provision could be expressly expanded for purposes of an offer of judgment to include reasonable actual costs of litigation incurred after the offer, including reasonable actual costs of expert witnesses and other reasonable documented expenses. Those expenses would automatically apply where an offer more favorable to a party than the judgment was rejected by that party.
Second, I suggest using the award of reasonable attorney fees to provide an incentive to make a reasonably calculated offer that might lead to settlement. When Representative Farr suggested that counter-offers be mandated, the primary objection seemed to be that the mandating of an offer would not ensure that the offer would be reasonable. In particular, it was suggested that some defendants would simply offer zero. Without a useful mechanism to ensure a reasonable offer, mandating offers may be simply spinning wheels.
However, if an offer is mandated and a party making an offer that is better than or equal to the judgment may be rewarded with real attorney fees, parties would be given an incentive to make competitive, rather than pro forma, offers. The dangers of the chilling effect of that incentive system can be ameliorated by protecting an opposing party against the award of attorney's fees if his offer is reasonable. Such an offer system, in effect, requires that parties calculate the possibility of the award of or exposure to attorney's fees and calculate their offers of judgment accordingly. However, because the system should not unduly chill the exercise of rights where those rights may be uncertain - for example, where liability is unclear under existing law - an element of judicial discretion in making the award is necessary. As proposed by this draft, attorney's fees could not be awarded if the opposing party's actions were "substantially justified" or the party's own offer was itself "reasonable". The opposing party's offer would be deemed reasonable if it was within 25% of the judgment or was otherwise reasonable in the light of the damages awarded.
Consideration was given to a pure "game theory" proposal in which both parties are required to make an offer and the party making the offer closest to the actual award is rewarded with attorney's fees. Such a process would put substantially more settlement pressure and pressure to make a real offer by rewarding the party making the most realistic effort to avoid further litigation. The proposal was not followed further because it may deny a wronged plaintiff access to court for full compensation. In the case where the defendant's offer is the "closest" but is not as much as the judicial award, the defendant would be rewarded even though the plaintiff was not given the choice of being fully compensated without litigating. The plaintiff's protection in such a case would be making a realistic offer but the proposal might unreasonable pressure settlement for less than full compensation. While we did not go with this proposal, concerns might be ameliorated with an appropriate buffer for the party that did not make the closest offer.
5. Time windows
Representative Farr expressed a primary concern that the existing statute provides no incentive for a defendant to make an early offer. However, committee discussions noted the problem a defendant has in evaluating a case to make an offer without completion of discovery.
I suggest resolving this problem by requiring that an offer be made within 18 months of commencement of the case, or within such longer period as the court may expressly authorize. The language would require timely offers but allow the court to expand the window as necessary to make the process equitable. A draft containing these proposals is enclosed.
Hypotheticals under the proposal:
Plaintiff's offer Defendant's Award Result $20,000 $10,000 $15,000 Offer of no effect/ regular costs to P $20,000 $10,000 $25,000 P awarded actual costs and atty fees, unless D's acts substantially justified or D's offer "reasonable" $20,000 $10,000 $5,000 or $0 D awarded post offer actual costs and atty fees unless P's acts substantially justified or P's offer "reasonable" $20,000 $13,000 $15,000 Offer has no effect/ P awarded regular costs $17,000 $10,000 $15,000 Offer has no effect/ P awarded regular costs $100,000 0 0 D gets real cost, atty fee unless P substantially justified or offer "reasonable" $100,000 0 $100,000 P gets real cost, atty fee unless D substantially justified or offer "reasonable"