Attorneys’ Fees Under an Unaccepted Offer of Judgment

Feliciano v. Faldetta, 434 N.J. Super. 543 (App. Div. 2014).  Rule 4:58-1 allows a plaintiff to make an offer of judgment.  If the defendant does not accept the offer, and the plaintiff then tries the case and achieves an award that is 120% of the offer or more, the plaintiff can apply under Rule 4:58-2 for the attorneys’ fees that were incurred thereafter.  That is what happened in this personal injury case.  Plaintiff served an offer of judgment for $15,000.  Defendant, or the insurer that was defending the case, rejected that offer.  The jury awarded plaintiff $50,000.  Plaintiff then sought $62,780 in attorneys’ fees.  The Law Division awarded a fee of $42,230, plus additional sums in expenses and interest.  Both parties appealed.  In a concise opinion by Judge Waugh, the Appellate Division affirmed.

Defendant’s appeal raised several points.  The first two– a constitutional challenge to Rule 4:58-2, on the grounds that it treats plaintiffs differently than defendants, and an assertion that the fee award failed to consider alleged “undue hardship” to defendant, in violation of Rule 4:58-2– were rejected under the familiar principle that an argument not raised below normally will not be considered on appeal.

In addition, on the former issue, defendant failed to notify the Attorney General, as required by Rule 2:5-1(h), if the constitutionality of a state “enactment” were being challenged.  A court rule is considered an “enactment” for that purpose.  On the latter issue, there was no evidence in the trial level record as to defendant’s financial condition, and it was unclear whether defendant might have had a viable claim against his insurer for having rejected the offer of judgment, in which case the insurer, not defendant, would be responsible for paying plaintiffs’ claimed fees.

Defendant’s third argument was that the fee award was duplicative and a windfall to plaintiff’s counsel because those counsel also were entitled to one-third of the judgment amount.  Judge Waugh rejected that notion, citing the language of Rule 4:58-2 that “the claimant shall be allowed” costs of suit, legal fees, and interest.  Plaintiffs’ counsel were “entitled to the fee awarded pursuant to Rule 4:58-2 for the work done after the offer of judgment was rejected and fair compensation from their client for the period prior to that.”

Finally, both parties objected to the amount of fees awarded.  Judge Waugh rightly observed that the “clear abuse of discretion” standard of review governed as to the amount of the award.  Defendant contended that the hourly rates awarded were too high, and asserted that some of the claimed hours should not have been accepted.  Plaintiff’s cross-appeal was that the hourly rates should have been higher, and that an enhancement of the lodestar should have been awarded.

Judge Waugh observed that the Law Division judge had “carefully reviewed both the hours requested and the hourly rates sought.”  That judge had not accepted the rates advocated by either side, and instead had selected rates that were “more in line with the relevant legal community.”  The judge had also determined that the number of hours was reasonable, and that there was no duplicative or inflated time.  There was “adequate support in the record” for those rulings, and no “clear abuse of discretion.”

Nor did the Law Division err in denying an enhancement.  Though that court did not explain its reasoning with the level of detail required by the precedents, the purpose of fee-shifting under Rule 4:58 is “to encourage settlement rather than to provide an incentive for representation of plaintiffs in certain types of cases.”  Even if the Law Division had the discretion to enhance the fee, an enhancement was not required, and there was no error in denying an enhancement.