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NJSBA Construction Law Section Newsletter - September 2016
Those familiar with New Jersey practice are well aware that the courts of this state strongly encourage settlements as a matter of public policy because they facilitate the amicable resolution of disputes and lighten the increasing load of litigation faced by courts.1 Rule 4:58-2 of the New Jersey Rules of Court, otherwise known as the offer-of-judgment rule, operates as a mechanism to encourage and promote the early, out-of-court settlement of damages claims that ought to be settled without trial, by imposing financial consequences on a party who rejects a settlement offer that turns out to be more favorable than the ultimate judgment in a case.2
Particularly, under Rule 4:58–2, when a claimant’s pretrial offer is rejected, and the monetary award exceeds 120 percent of the offer, the offeror is entitled to recover its reasonable costs, prejudgment interest and reasonable attorneys’ fees for subsequent services compelled by the non-acceptance.3 The rule is not discretionary; rather, it strictly demands that the court award the offeror its reasonable fees and costs of suit where the elements of the rule are satisfied.4
Recently, the New Jersey Superior Court, Appellate Division, in an unpublished opinion, analyzed, for the first time, the offer-of-judgment rule in the context of multiple defendants where their liability is not joint and several. In Vincent Pools, Inc. v. APS Contractors, Inc., the plaintiff sued multiple parties for contract, bond and lien claims arising from a municipal construction project. More specifically, the single plaintiff was a subcontractor and the claims and defendants included a mechanic’s lien claim against the municipal owner, a breach of contract claim against the general contractor and a payment bond claim against the general contractor’s surety.
Prior to the Vincent Pools decision, New Jersey decisions only addressed the offer-of-judgment rule in the context of multiple defendants, where the defendants were held jointly and severally liable for the underlying wrong. In those decisions, for purposes of offers of judgment, plaintiffs were held only to have to deal in terms of the entire liability of all defendants, and not individual defendants’ shares of liability, based on the fundamental purpose behind joint and several liability, which was designed to remove the burden of proving the allocation of liability between and among multiple defendants from the innocent plaintiff.
The Appellate Division in Vincent Pools upheld the same application of the offer-of-judgment rule in the context of multiple defendants where there is no joint and several liability alleged and the plaintiff demands one amount to settle all claims against all defendants. The Appellate Division rejected the defendants’ claim that Rule 4:58-2 does not apply to a single plaintiff’s offer to multiple defendants in a contract-based case.
By way of further background, Vincent Pools involved the construction of a new municipal pool complex (the project), owned and operated by Jersey City. The city hired APS Contractors, Inc. to serve as the general contractor for the project. Pursuant to its contract with the city, APS obtained a labor and material payment bond from Colonial Surety Company, Inc. guaranteeing payment for work by APS’s subcontractors. APS subcontracted with Vincent Pools, Inc. to perform certain plaster installation work in connection with two swimming pools located at the project.
When a problem with the condition of the plaster in one of the two pools was discovered by the city’s architect, the city demanded that APS have the plaster in the pool removed and replaced. When APS failed to do so, the city terminated APS. Prior to termination, the city had paid APS for the work performed by Vincent Pools. When APS withheld payment to Vincent Pools for its unpaid work on the project, Vincent Pools submitted a claim against the payment bond and filed a municipal mechanic’s lien against the project funds for the outstanding amounts.
Thereafter, Vincent Pools commenced its lawsuit against APS, Colonial and the city, asserting a breach of contract claim against APS and seeking to recover the amounts owed to it for work on the project, a payment bond claim against Colonial and a municipal lien claim against the city. APS sought cross-claims against the city for unrelated contract balances and change orders, and the city defended against liability to Vincent Pools on the basis that it had already paid APS for that work. At trial, the jury rendered a verdict in favor of Vincent Pools and, following entry of the judgment, Vincent Pools filed a petition for counsel fees pursuant to Rule 4:58-2, based on rejected offers of judgment issued to the defendants prior to the trial.
The defendants opposed the petition, arguing inter alia that the offer-of-judgment rule should not be applied to a single plaintiff’s offer to multiple defendants in a contract, or non-tort, case. The trial court granted Vincent Pools’ petition and awarded counsel fees, holding that the defendants were equally responsible for the plaintiff’s reasonable attorneys’ fees associated with the trial pursuant to the offer-of-judgment rule. The city, APS and Colonial appealed the Rule 4:58-2 award and, in an unpublished decision dated March 18, 2016, the Appellate Division affirmed.
The Appellate Division found that it was acceptable for the plaintiff in Vincent Pools to issue an offer to settle the entire liability of all defendants and to hold the defendants to the financial consequences of non-acceptance when trial resulted in a more favorable judgment to the plaintiff notwithstanding the fact that the claims against the defendants did not implicate joint and several liability. The Appellate Division reasoned that acceptance of the offer by any of the individual defendants would have resolved all claims the plaintiff had against the defendants, and the defendants could have sought reimbursement and any cross-claims between themselves thereafter.
In Vincent Pools, the Appellate Division has signaled that the offer-of-judgment rule, and its financial consequences under Rule 4:58-2, are applicable to a plaintiff’s single offer of judgment made to multiple defendants, even where liability of one or more defendants is dependent upon the liability of another, and where no joint and several liability is alleged. Practitioners representing clients in commercial, contract and construction-related disputes should be aware of the decision in Vincent Pools and its potential implications regarding offers of judgment in multi-defendant cases.
This article was originally published in the September 2016 Vol. 18, No. 1 edition the New Jersey State Bar Association Construction Law Section Newsletter. You can access the article here.