Saturday, November 17, 2007

Offer of Judgment Rule Should Not be Applied to Consumer Fraud Claims -By Jay Chatarpaul

A few weeks ago, a defense counsel served upon us an offer of judgment for a specific sum of money to settle a plaintiff’s claim. One of the plaintiff’s causes of actions includes a claim made under the Consumer Fraud Act (CFA). Since I have never received an offer of judgment with respect to a CFA claim, I was compelled to do a little research. After having done so, I remain ever more convinced that the September 2006 amendments did not cure the confusion regarding the applicability of the Offer of Judgment Rule in the context of CFA claims, and there exist a need for a bright line rule to guide attorneys and litigants alike.

Rule 4:58 (the Offer of Judgment Rule)(hereinafter the “Rule”) permits a party to serve upon the other an offer of judgment to take monetary judgment against the offer or in favor of the offeree for a sum stated, including costs. Rule 4:58-1(a). The offeree has either 90 days after the making of the offer, or 10 days prior to the actual trial date, which ever comes first, to accept the offer. Rule 4:58-1(b). If the offer was made by a claimant (refer to as the “plaintiff” for simplicity) and rejected by the non-claimant (refer to as the “defendant”), the plaintiff is entitled to the recovery of all reasonable attorneys fees, actual costs, prejudgment interest for a specific time period, following the expiration of 90 days after the making of the offer, or 10 days before trial, whichever comes first, where the plaintiff’s recovery at trial is at least 120% of the offer. Where the offer is made by the defendant, R. 4:58-3 permits the defendant to recover their actual costs and reasonably attorneys fees incurred following either 90 days after the making of the offer, or 10 days prior to actual trial, whichever comes first, where the plaintiff’s recovery at trial is 80% or less than the defendant’s offer. However, when the offer is made by a defendant, the offer of judgment rule, among other exclusions, specifically precludes the granting of an allowance where a “ … fee allowance would conflict with the policies underlying a fee-shifting statute of rule of court…”R.4:58-3(c)(4).

R.4:58-3(c)(4) was added to the Offer of Judgment Rule in July 27, 2006 and became effective on September 1, 2006. See, 2006 Supplemental Report of the Supreme Court Civil Practice Committee, Proposed Amendments to R. 4:58 — offer of judgment, p78.

The New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., (hereinafter the “CFA” or the “Act”) in pertinent parts, prohibits the unlawful practice of “[t]he… act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby ….” N.J.S.A. 56:8-2.

The CFA specifically mandates the imposition of treble damages of a plaintiff’s ascertainable loss, plus reasonable attorneys’ fees and costs, where there was a finding of an unlawful practice under the Act. N.J.S.A.56:8-19. Even if a plaintiff cannot prove an ascertainable loss, she is still entitled to the recovery of attorneys’ fees and costs. Id.; Cox v. Sears Roebuck & Co., 138 N.J. 2, (1994).

There is a well-established principle, recognized by the courts all across the State, that the CFA’s fee shifting policy is the driving force behind the advancement of the goal of the CFA- to retain competent counsel in assisting consumers in eradicating fraud in the marketplace. See for ex., Performance Leasing Corp. v. Irwin Lincoln-Mercury, 262 N.J. Super. 23. 33 (App. Div. 1993)([“W]we have no doubt that there is a strong legislative policy in favor of fees both to make whole the victims of consumer fraud and to deter unconscionable practices.”); Wisser v. Kaufman Carpet Co. Inc., 188 N.J. Super. 574, 579 (App. Div. 1983)(the strong legislative policy of awarding attorneys fees under the CFA “…has the salutary purpose of promoting representation and therefore court access for consumer claims involving a minor loss to the individual plaintiff but a major gain to the community through ridding the marketplace of fraudulent and deceitful conduct.”) Furst v. Einstein Moomjy, Inc. 82 N.J. 1, 24 (2004)(“The Legislature undoubtedly was aware that in consumer fraud cases involving minor losses, attorneys' fees frequently would exceed the damages suffered. Nevertheless, the Legislature intended plaintiffs to have access to the court system to pursue relatively small claims against deceptive retailers. In that respect, the provision for attorneys' fees is one of the deterrent aspects of the legislation, and therefore, fraudulent retailers should beware… Fee-shifting provides an incentive to competent counsel to undertake high-risk cases and to represent victims of fraud who suffer relatively minor losses.” )

Based on the above, it would appear that an allowance for attorneys’ fees and costs against a plaintiff in a CFA case, where the plaintiff’s recovery is 80% or less than the defendant’s offer “… would conflict with the policies underlying a fee-shifting statute or rule of court….” (i.e., the CFA).

However, the question remains, in a context of CFA cases, should the trial court, as a matter of law, based on the wording of the CFA itself and/or or well-established case law, as indicated above, reject any application for fees and costs by a defendant, or would the trial court be required to hear arguments whether the granting of a defendant’s application for fees and costs would ‘conflict with the policies underlying [the CFA’s] fee-shifting statute…”?

It would seem to me based on the wording of the Rule and the CFA, as interpreted by the courts, that the Rule cannot be applied in the context of a CFA claim. Additionally, the Rule cannot and should not be interpreted to apply to CFA claims because the goal of the Rule in promoting settlement (a rule of convenience) should not trump the goal of the CFA in retaining competent counsel to assist consumers in eradicating fraud in the marketplace in the State of New Jersey. However, reasonable minds can differ, and that’s precisely why we need a clear-cut, bright line rule, specifically excluding the application of the Rule to CFA claims, and perhaps to other claims which permits a plaintiff to reasonable attorneys’ fees and costs, such as the Law Against Discrimination.

Another reason why a bight-line rule should be adopted to specifically exclude the Rule’s application to CFA claims is the very incongruity of its application to such claims. For instance, the defense attorney’s offer of judgment I received specifically stated that the offer was made for all claims as to “damages.” However, the CFA, unlike other statutes, does not refer to “damages,” but “ascertainable loss.” The CFA requires a court, in addition to reasonable attorneys’ fees and costs, to treble a plaintiff’s ascertainable loss where there was finding of an unlawful practice. Thus, where a plaintiff’s ascertainable loss is $5000, a court must treble that ascertainable loss and award the plaintiff $15,000, plus reasonable attorneys fees. Suppose now, for example, a few weeks prior to trial, a defendant offers the plaintiff $20, 000 to settle her “entire claim” and all “damages asserted in the complaint.” Suppose for example, at the time of the making of the offer, plaintiff’s counsel has exhausted 150 reasonable hours on the case, accumulating attorneys’ fees in the amount of $30,000 (at $200 per hour, for ex.). The $15,000 offer is then rejected, and at trial, having exhausted another 50 hours, plaintiff recovers $5000, when trebled totals $15,000. Obviously, if the Rule were to be applied there, since plaintiff’s recovery was only 75% of defendant’s offer (($15000), she would be required to pay the reasonable attorneys’ fees and costs of the defendant. But what about plaintiff’s counsel legal fees? Since the CFA mandates attorneys’ fees where there is a finding of an unlawful practice, even if there was no showing of ascertainable loss, how should this provision apply in the context of the Offer of Judgment Rule? Should or should not the plaintiff’s reasonable attorneys’ fees of $40,000 (200 hours at $200 p/hr) be counted as part of her in her award for purpose of the Offer of Judgment Rule? A party with greater superior financial power could easily take advantage of a plaintiff in a CFA context where the plaintiff sustained a minor ascertainable loss and a few weeks before the trial, the defendant makes an offer to pay the plaintiff her trebled damages and makes no mention of attorneys’ fees. If the Rule were interpreted in this matter, the CFA as a powerful too invoked by victims of market place fraud would cease to exist for all practical purpose in favor of a convenient rule to settle cases, as there will be few private attorneys willing to exhaust their often limited time and resources in pursuit of CFA claims given such a scenario.