Friday, July 15, 2011

Offers of Judgment in South Carolina

By Shaun Blake

An Offer of Judgment may provide a litigant facing some exposure to a claim with cost-shifting leverage in aid of a potential resolution. However, the failure to “precisely draft” an Offer of Judgment can result in harsh consequences.

Rule 68: An Overview of the Federal and State Rules

In both South Carolina state court and in federal court, a litigant defending a claim can make an Offer of Judgment, before or after liability is determined, by allowing the claimant the chance to accept some judgment on specified terms. In federal court, the litigant may serve the claimant with the Offer, and the claimant has 14 days after service of the Offer to accept it in writing. In South Carolina state court, the rules require the Offer to be filed and served and allow the claimant 20 days to accept the Offer by filing an acceptance with the Court.

The advantage of an Offer of Judgment is that, if the claimant rejects the Offer and ultimately fails to recover an amount less than the Offer, the claimant must pay the “costs” incurred by the litigant after the date of the Offer. In South Carolina state court, the “costs” a litigant can recover are: 1) subsequent filing and court costs and 2) a reduction from the judgment or award of eight percent interest computed on the amount of the award from the date of the Offer to the entry of the judgment. Therefore, the

The principal disadvantage in making an imprecise Officer of Judgment is the possibility that the language of Rule 68 may entitle the claimant to additional “costs,” “fees,” or “other monies” over and above the amount specified in the Offer As described below, an Offer of Judgment may pose a much greater risk of expense to the litigant than anticipated or negotiated.

A Trap for the Imprecise Drafter

As described in a recent post by Mack Sperling of Brooks Pierce, the language of Federal Rule 68 contains a potential pitfall for attorneys drafting Offers of Judgment in federal court. Specifically, Federal Rule 68 distinguishes between the “judgment on specified terms” and “the costs then accrued,” leaving the court with discretion to determine appropriate “costs” when the Offer of Judgment does not specify the inclusion of costs and their specific amount. In Marek v. Chesny, the U.S. Supreme Court highlighted this distinction, concluding that the drafters of Federal Rule 68 intended “costs” to include “all costs properly awardable under the relevant substantive statute or other authority.”

The Fourth Circuit (which of course includes South Carolina) reiterated the Marek rule last month in Bosley v. Mineral County Commission, upholding a District Court award of more than $66,000 in statutorily authorized attorneys’ fees plus other recoverable costs, over and above the $30,000 offer.

The South Carolina rule authorizing an Offer of Judgment, which is substantially different from its federal counterpart, has a similar potential pitfall in the area of contractually negotiated attorneys’ fees. Rule 68, SCRCP, does not abrogate any contractual rights to attorneys’ fees or “other monies.” Therefore, litigants and their counsel need to evaluate the precise language used in operating agreements, sales agreements, or any underlying contract giving rise to the litigation, to determine whether any “loser pays” provision will be triggered if the claimant accepts the Offer.

Conclusion

A litigant must carefully and precisely craft any Offer of Judgment to ensure that all possible costs (statutory and contractual) are identified and subsumed thereby. Otherwise a litigant may pay a great deal more than the amount of its “bargain.”