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Best v. C&M Door Controls

October 14, 2009

THOMAS BEST, PLAINTIFF-APPELLANT,
v.
C&M DOOR CONTROLS, INC., DEFENDANT-RESPONDENT, AND CHRISTOPHER O'KEEFE AND MICHAEL CRAVEN, DEFENDANTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 402 N.J. Super. 229 (2008).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Before the Court is the interplay between fee-shifting statutes, in particular the Conscientious Employee Protection Act (CEPA) and the Prevailing Wage Act (PWA), and the offer-of-judgment rule.

In 2004, Thomas Best sued his former employer, C&M Door Controls, for violations of the PWA and the CEPA, claiming that he had been underpaid on PWA work and that, when he complained, his employer retaliated against him. Invoking Rule 4:58, the offer-of-judgment rule, Best offered to take judgment in the amount of $100,000, inclusive of counsel fees against C&M. C&M countered with two offers -- one for $15,000 and one for $25,000, also inclusive of fees, which Best rejected. A jury awarded Best $2,600 on the PWA claim and returned a verdict of no cause for action on the CEPA claim.

Best thereafter sought counsel fees of $122,000 plus costs under the fee-shifting provision of the PWA. C&M sought fees under Rule 4:58-3(b) because the jury verdict was less than eighty percent of its offer of judgment.

In addition, C&M requested an award under the frivolous-claim provision of CEPA. Citing Rule 4:58-3(c)(4), the judge denied fees to C&M, declaring that such an award would contravene the policies of fee shifting. He further denied C&M fees under CEPA's frivolous-claim provision because there had been no finding that Best's action was instituted "without a basis in law or fact," as required under N.J.S.A 34:19-6. The judge went on to award Best fees under the fee-shifting provisions of the PWA, limited to those that had accrued up until C&M's "more than adequate offer of judgment." That award, which was in the amount of $62,529.65, reflected a reduction of forty percent based on Best's "limited success" in the case.

Both parties appealed. In a published opinion, the Appellate Division affirmed the denial of C&M's fee application under the frivolous-claim provision of CEPA for the reasons expressed by the trial judge and, additionally, because the denial of C&M's motion to dismiss the CEPA claim prior to trial obviated the possibility that the litigation could be proved frivolous. The panel further identified CEPA as the kind of statute contemplated by the exception in Rule 4:58-3, thus eliminating an offer-of-judgment award in a CEPA case. However, it distinguished the PWA from CEPA, declaring that because the PWA was intended to benefit both employers and employees, it would not be undermined by application of Rule 4:58-3. Accordingly, the panel permitted C&M to recover fees based on its offer of judgment and reversed and remanded the trial judge's contrary ruling. The panel also reversed and remanded the award to Best under the PWA because the judge had failed to make specific findings regarding the forty percent reduction based on "limited success." Finally, the panel affirmed the trial judge's decision to limit Best's award to the fees accrued prior to the July 2006 offer.

The Court granted Best's petition for certification. C&M did not file a cross-petition, thus abandoning the claims for relief that it had advanced before the Appellate Division.

HELD: A defendant can never be awarded fees under Rule 4:58, the offer-of-judgment rule, in a case involving the Conscientious Employee Protection Act (CEPA), the Prevailing Wage Act (PWA), or a similar fee-shifting statute. However, a trial judge may take into account a plaintiff's unreasonable rejections of an offer of judgment in calculating plaintiff's award under such a statute.

1. A fee-shifting statute is one that permits a deviation from the so-called American Rule that requires each party to bear its own litigation costs. Fee shifting affords access to the judicial process to persons who have little or no money with which to hire a lawyer by providing an incentive to lawyers to undertake litigation. Under CEPA, a prevailing employee is entitled to an award of reasonable counsel fees. A prevailing employer may also be awarded fees, but only where a judge determines that the action was instituted by plaintiff "without basis in law or in fact." The PWA provides a fee-shifting remedy to a prevailing employee. The purpose of that provision has been recognized as an effort to vindicate the public policy underlying the PWA by ensuring that "competent counsel" will represent "plaintiffs with bona fide claims," even if the amount in controversy is not great. (Pp. 5-7)

2. The offer-of-judgment rule permits a party to offer to take a monetary judgment or to allow judgment to be taken against it for a sum certain. The fundamental purpose of the rule is to induce settlement by discouraging the rejection of reasonable offers of compromise. That goal is achieved through the imposition of financial consequences (the award of fees and costs) where a settlement offer turns out to be more favorable than the ultimate judgment. Under Rule 4:58, an offer of judgment must distinguish between the substantive claim and any fee component. Rule 4:58-3(c) seeks to reconcile the offer-of-judgment rule with fee shifting by assuring that the palliative fee-award provisions that provide an incentive to lawyers to take on public interest litigation are not diluted by an award of fees to a defendant under Rule 4:58. (Pp. 7-10)

3. The trial judge and the Appellate Division properly recognized the applicability of the fee-shifting exception to a CEPA case. Although CEPA entitles a prevailing employee to the benefits of fee shifting, the Act does not permit a prevailing employer to receive an award of fees except in a narrow band of cases in which "the court determines that an action brought by an employee under this act was without basis in law or in fact." N.J.S.A. 34:19-6. In other words, the employer must be vindicated and the employee must have proceeded without basis in law or in fact in order for the employer to recover fees. Because a rule can never trump a statute, it is clear that an employer cannot obtain an award of fees under the offer-of-judgment rule where the employer would not be entitled to such an award under CEPA. The Court reaches a similar conclusion with respect to the PWA. Under the PWA, only the employee can obtain an award of fees. The reason is obvious: employers generally have the wherewithal to defend an employee's claim. Fee shifting evens the playing field for employees who may have been denied the prevailing wage, and whose damages may be small, by providing an incentive to lawyers to take their cases. There is nothing in the fee-shifting provision of the PWA that would place it outside the reach of the exception in Rule 4:58-3(c). The award of fees to C&M on Best's PWA claim was barred by Rule 4:58-3(c) and the Appellate Division's contrary holding cannot stand. (Pp. 10-13)

4. The Appellate Division agreed with the trial judge that Best's award should have been limited to the fees accrued at the point at which an "entirely reasonable" offer of judgment had been proffered. The Court is in accord, in theory, with that approach. The Court agrees with the courts below that if a judge determines, under all the circumstances, that defendant proffered a reasonable offer of judgment that plaintiff unjustifiably rejected, that is a factor to be taken into account in determining plaintiff's entitlement to fees. The problem with the application of that modality in this case is twofold. First, the offer was a global one that did not distinguish the substantive claims from the fees, but included all damages for plaintiff's CEPA and PWA claims "and any and all costs, expenses and/or attorneys fees." As a result, on this record the Court does not know what was offered on Best's PWA claim. More importantly, the Court cannot reconcile the judge's award of $62,529.65 in fees and costs accrued up to the time of C&M's offer with his conclusion regarding the reasonableness of the offer. On this point there is a disconnect requiring a reversal and remand for reconsideration of the issue of whether, under all relevant circumstances, C&M's offer, in fact, was reasonable and whether Best rejected it without cause. Finally, the Appellate Division was on solid ground in requiring the trial judge to explain why he reduced Best's award by forty percent. (Pp. 13-15)

5. Summing up, with respect to C&M, the Court affirms insofar as the Appellate Division approved the trial judge's denial of C&M's application for fees under CEPA. The Court reverses insofar as the panel declared the offer-of-judgment rule to warrant an award of fees to C&M under Rule 4:58-3 on Best's PWA claim. Regarding Best, the Court affirms the Appellate Division's order that he be awarded fees under the PWA, but remands the fee calculation for reconsideration in respect of the percentage reduction related to the failed CEPA claim, the reasonableness of C&M's offer of judgment, and, ultimately, the reasonableness of the fee award in its totality. The matter is remanded for a recalculation of Best's fee in accordance with the principles to which the Court has adverted. (Pp. 15-16)

The judgment of the Appellate Division is AFFIRMED in part, REVERSED in part, and REMANDED.

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE, RIVERASOTO, and HOENS join in this opinion.

Per curiam.

Argued March 10, 2009

In 2004, Thomas Best sued his former employer, C&M Door Controls, for violations of the Prevailing Wage Act (PWA), N.J.S.A. 34:11-56.25 to -56.47, and the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -14, claiming that he had been underpaid on PWA work and that, when he complained, his employer retaliated against him. Invoking Rule 4:58-3, the offer-of-judgment rule, Best offered to take judgment in the amount of $100,000, inclusive of counsel fees against C&M. C&M countered with two offers -- one for $15,000 and one for $25,000, also inclusive of fees, which Best rejected. A jury awarded Best $2,600 on the PWA claim and returned a verdict of no cause for action on the CEPA claim.

Best thereafter sought counsel fees of $122,000 plus costs under the fee-shifting provisions of the PWA, N.J.S.A. 34:11-56.40. C&M sought fees under Rule 4:58-3(b) because the jury verdict was less than eighty percent of its offer of judgment. In addition, C&M requested an award under the frivolous-claim provision of CEPA, N.J.S.A. 34:19-6.

Citing Rule 4:58-3(c)(4), which provides an exception from the operation of the offer-of-judgment rule in cases in which "a fee allowance would conflict with the policies underlying a fee-shifting statute," the judge denied fees to C&M, declaring that such an award would contravene the policies of fee shifting. He further denied C&M fees under CEPA's frivolous-claim provision because there had been no finding that Best's action was instituted "without a basis in law or fact," as required under N.J.S.A. 34:19-6.

The judge went on to award Best fees under the fee-shifting provisions of the PWA, limited to those that had accrued up until C&M's "more than adequate offer of judgment." That award, which was in the amount of $62,529.65, reflected a reduction of forty percent based on Best's "limited success" in the case. According to the judge, "others ...


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