On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, MON-L- 1088-95.
Before Judges Stern,*fn1 A. A. Rodríguez and
The opinion of the court was delivered by: Rodriguez, A. A., J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
In this appeal, we hold that a trial court cannot compel acceptance of an offer of judgment made pursuant to R. 4:58-1. Instead, R. 4:58-2 and 4-58-3 mandate consequences when the offer is rejected and the offeree fails to obtain a judgment at least as favorable as the offer.
Plaintiffs Harry Hoehn, Gregg Hoehn and Dirk Hoehn (plaintiffs) sued Karen Giannelli and her employer, the law firm of Crummy, Del Deo, Dolan, Griffinger, and Vecchione (collectively "defendants") for legal malpractice.*fn2 The legal malpractice issue stems from the following facts. Plaintiffs owned real property in Sea Bright which was leased to Chuckling Oyster, Inc. (tenant) for the operation of a restaurant. The lease agreement required the tenant to maintain flood insurance on the property. After two years of operating the restaurant, the tenant defaulted on the lease.
Plaintiffs and the tenant negotiated a new agreement. The tenant was allowed to remain in possession on certain specified conditions. However, the next year the tenant defaulted again owing over $100,000 in rent. Plaintiffs demanded that the tenant's shares be turned over to them pursuant to the lease agreement. They filed an action to declare the lease terminated and to recover possession of the premises and operation of the restaurant.
The tenant's principal shareholder, Steven Cross, filed a petition in bankruptcy and an adversary proceeding against plaintiffs seeking damages and dissolution of the restraints plaintiffs had obtained. Plaintiffs retained defendants to represent their interests as creditors. The parties reached a settlement, memorialized in a consent order, whereby the tenant would be allowed to remain in possession of the premises under certain conditions.
On December 12, 1992, the property sustained severe storm damage. The tenant had not maintained flood insurance. As a result of the extensive damage, the tenant voluntarily surrendered possession of the premises. Plaintiffs allege that they incurred substantial lost profits and spent approximately $150,000 to partially repair damage caused by the storm.
Meanwhile, plaintiffs had failed to pay defendants for their legal services. Defendants provided "statutory notice to plaintiffs of [their] intention to formally recover the outstanding fees." Shortly thereafter, plaintiffs initiated this legal malpractice action alleging that defendants had failed to include in the consent order that the tenant was required to maintain flood insurance and to confirm that the tenant had subsequently acquired the insurance.
The parties exchanged discovery including the submission of plaintiffs' expert report concerning liability. Defendants served supplemental notices to produce documents. When plaintiffs failed to provide the documents, defendants moved to dismiss the complaint or, alternatively, to preclude plaintiffs from relying on or proffering any oral testimony about the documents not produced. Judge Louis F. Locascio dismissed the complaint without prejudice "subject to being reinstated if outstanding discovery is provided on or before 9/8/97." Thereafter, plaintiffs submitted a certification by plaintiff Gregg Hoehn, attaching all available documentation concerning defendants' discovery demands and moved to restore the complaint.
Defendants cross-moved: (1) to dismiss the complaint with prejudice; (2) to deny the motion to restore; or (3) in the alternative, to award counsel fees as a condition of restoration. Judge Locascio restored the complaint. However, he directed that "plaintiffs' damage claims are limited to claims alleged and documents provided in support thereof prior to 9/8/97." One year later, defendants filed a timely offer pursuant to R. 4:58, to allow judgment against them in the amount of $5,378.89, the exact amount of the only repair receipt submitted by plaintiffs. R. 4:58-1 provides in pertinent part,
[e]xcept in a matrimonial action, any party may, at any time more than 20 days before the actual trial date, serve upon any adverse party, without prejudice, and file with the court, an offer to take judgment in the offeror's favor, or as the case may be, to allow judgment to be taken against the offeror, for a sum stated therein or for property or to the effect specified in the offer (including costs). If at any time on or prior to the 10th day before the actual trial date the ...