Pay My Lawyer: Fee Shifting Provisions in New Jersey
Litigation expenses can make even the best litigation outcomes bittersweet. For that reason, whenever possible, parties take advantage of statutes and rules that force the losing party to pay for costs and attorney’s fees that were incurred in bringing a case to trial. Fee-shifting provisions in statutes such as the New Jersey Prompt Payment Act, the New Jersey Consumer Fraud Act, the Construction Lien Law, and the Offer of Judgment Rule provide opportunities to recover counsel fees and costs if successful at trial. These fee-shifting weapons can be equally effective in leveraging settlements, thereby helping to avoid unnecessary litigation and minimizing overall litigation expenses.
This article presents a brief overview of several New Jersey statutes and rules that contain fee-shifting provisions that can help you maximize your results at trial, or, at a minimum, force the opposing party to get realistic about settlement. Bear in mind that the application of these laws is fact-sensitive. Therefore, you should always consult with an attorney in order to make use of these legal options.
New Jersey Prompt Payment Act
The New Jersey Prompt Payment Act (“Payment Act”) is perhaps the most frequently invoked fee-shifting statute in construction litigation in New Jersey. The Payment Act reaffirms the basic principal that if a contractor or subcontractor performs work in accordance with its contract, and billing for the work has been approved, the contractor or subcontractor is entitled to be paid for the amount of work performed. The Payment Act also establishes that periodic payments will be due within 30 days after the billing date and that payment applications are deemed approved within 20 days of receipt unless the owner or contractor issues a written statement setting forth the reasons for nonpayment. If payment is not made in a timely manner, the delinquent party will be liable for the amount owed, plus interest.
While these provisions are helpful, the final provision of the Payment Act is the potential game changer. It establishes that in the event that a civil action is brought in order to collect payment, the prevailing party “shall be” awarded reasonable costs and attorney’s fees. This unambiguous language puts defendant owners and contractors on notice that they should not withhold payment unless they have supportable grounds for doing so.
The Consumer Fraud Act (CFA)
The New Jersey Consumer Fraud Act (“CFA”) was designed to prevent deception and misrepresentation in connection with the sale or advertisement of merchandise or real estate. The CFA is a powerful litigation tool because a party that is found to have violated the CFA may be assessed treble (triple) damages and may also be forced to pay the prevailing party’s attorney’s fees.
The CFA is not just a remedy for individual “consumers.” Unlike many other jurisdictions, New Jersey allows corporate entities to make claims under the CFA in litigation against other businesses. Over the last decade, however, New Jersey courts have narrowed the application of the CFA in the context of business disputes. While the CFA is still a viable and valuable cause of action, its application is particularly fact-sensitive.
The Construction Lien Law
It is critical for contractors and subcontractors to ensure that their lien claims are accurate and properly filed. Under the Construction Lien Law (“Lien Law”), if a court finds that a lien claim is without merit, willfully overstated, or not filed in the form, manner, or time required under the law, the claimant will be forced to forfeit all lien rights in the full amount of the lien claim. Wrongfully filed lien claimants also may be forced to pay court costs and reasonable litigation expenses incurred by the party defending against the lien claim.
Similarly, owners may be penalized if they maintain frivolous defenses to lien claims. If a court finds that a defense to a lien claim is without basis, the Lien Law provides that the party maintaining the defense shall be liable for all court costs and reasonable legal expenses, including attorney’s fees.
Offer of Judgment
Under the New Jersey Court Rules, a plaintiff or defendant may serve the opposing party with an “offer of judgment,” to settle the case for a sum certain. Under the Offer of Judgment Rule, if a plaintiff recovers a verdict in excess of 120 percent of its settlement offer, the plaintiff may be entitled to “reasonable litigation expenses” following non-acceptance of the offer, including pre-judgment interest and attorney’s fees. For example, if a plaintiff offers to settle a matter for $100,000, the defendant rejects the offer, and the plaintiff obtains $120,000 or more at trial, the defendant may be forced to pay interest, costs and attorney’s fees to the plaintiff.
The Offer of Judgment Rule can work in a defendant’s favor as well. If a defendant makes an offer of judgment and obtains a verdict that is less than 80% of its settlement offer, it may recover attorney’s fees from the plaintiff. For instance, if a defendant offers to settle for $100,000, its offer is rejected by the plaintiff, and the defendant obtains a verdict in which it is assessed liability in an amount less than $80,000, the defendant may obtain costs and attorney’s fees from the plaintiff.
The Offer of Judgment Rule is not appropriate for every case and should be used strategically. It is typically best to restrict use of the Rule to cases where the amount in dispute is a sum certain or the case has a nuisance value to the defendant. It is also important to realize that the Rule is a double-edged sword — if you file an Offer of Judgment, opposing counsel may be motivated to file a counter-offer against you, in which case you may be susceptible to potential penalties.
Conclusion
There are numerous strategic considerations that parties must evaluate with respect to each of these fee-shifting options, which are all fact-sensitive in their application and subject to interpretation by both parties. If you are faced with a claim that exposes you to liability for attorney’s fees or are wondering whether you can take advantage of any of these statutes in your business disputes, it is critical to consult with a lawyer who is familiar with these specialized areas of the law to ensure that you make the best strategic decisions possible.