[i]The offer of judgment rule, ORCP 54 E, is a potentially powerful tool for mitigating attorney fee exposure.[ii] Offers of judgment are particularly useful in cases involving minimal actual damages. An early offer of judgment for the amount of the actual damages, plus reasonable attorney fees incurred to date, will often be difficult (if not impossible) for the plaintiff to improve upon at trial. Offers of judgment should also be considered in commercial disputes where liability is likely but damages are disputed.
Still, an offer of judgment, if accepted, results in entry of judgment against the defendant. For many defendants, entry of an adverse judgment is undesirable because it might later be deemed a judicial determination that the defendant’s conduct was improper. To mitigate this concern, defendants should consider including a disclaimer of liability within the offer. Cautious litigants may wonder whether such a disclaimer impacts the validity of the offer of judgment.
ORCP 54 E does not mention liability disclaimers. The rule states only that the defendant must “offer to allow judgment to be entered against” it “for the sum” or “to the effect therein specified.”[iii] The Oregon Supreme Court has recognized that “the nature and content of offers of compromise are unrestricted[,]” and the words “‘to the effect therein specified’ are broad[.]”[iv] Since the plain language is broad and unrestrictive, to insert a requirement that the defendant refrain from disclaiming liability would arguably violate the mandate of ORS 174.010 “not to insert what has been omitted” from a statute.
The Court of Appeals applied this plain meaning approach to ORCP 54 E in Miller v. Am. Family Mut. Ins. Co.,[v] a case involving a dispute over unpaid PIP and UIM benefits for a surgery. The defendant insurer made an ORCP 54 E offer of judgment for the full amount of the PIP benefits. The offer was expressly limited to the PIP benefits and stated the UIM claim would endure. After accepting the offer, the plaintiff argued (and the trial court agreed) that since the necessity of the surgery was at issue on the PIP claim, the accepted offer of judgment precluded defendant from relitigating that same issue on the UIM claim.
The Court of Appeals reversed. It began by noting that an offer of judgment is “an agreement between the parties and is ‘in the nature of a contract, approved by the court.’”[vi] The Court then observed the “accepted principle that ORCP 54 E permits a defendant to define the terms of an offer of judgment[.]”[vii] Since the offer stated it did not apply to the UIM claim, the defendant was entitled to litigate that claim. The Miller decision is in line with the hornbook rule of contract law that the offeror is the “master of the offer.”[viii] The defendant, as the master of its offer, should be entitled to include a liability disclaimer within the offer.
While it seems virtually undisputed that offers of judgment may disclaim liability, such a disclaimer might, in certain cases, impact the later determination of whether the plaintiff improved upon a rejected offer.[ix] However, in a typical case involving only monetary relief, a liability disclaimer is not likely to impact this determination.
Defendants, as the masters of their offers, should consider including liability disclaimers in their offers of judgment. This is particularly true when the defendant risks issue preclusion arguments by future claimants.[x] With this safeguard in place, offers of judgment may be utilized more effectively to encourage settlement and mitigate attorney fee exposure.
[i] This post is a condensed version of an article published by Chris Parker in The Verdict in 2014.
[ii] ORCP 54 E(1) provides that a party may, up to 14 days before trial, offer to allow judgment to be taken against it for a particular sum, inclusive or exclusive of attorney fees. If the offer is accepted, judgment is entered per the offer. Id. If the offer is rejected, the case proceeds to trial. If the claimant fails to recover more than the amount of the offer, the claimant is not entitled to its post-offer attorney fees or costs. ORCP 54 E(3).
[iii] ORCP 54 E(1).
[iv] For Counsel, Inc. v. Nw. Web Co., 329 Or 246, 253, 985 P2d 1277, 1280 (1999).
[v] 262 Or App 730 (2014).
[vi] Id. at 737 (citing Nieminen v. Pitzer, 281 Or 53, 57 ).
[vii] Id. at 738.
[viii] Case law interpreting FRCP 68 – the federal analogue to ORCP 54 E – supports the viability of liability disclaimers in offers of judgment. See Fisher v. Kelly, 105 F3d 350 (7th Cir 1997); Mite v. Falstaff Brewing Corp, 106 FRD 434 (ND Ill 1985); Aynes v. Space Guard Prods., 201 FRD 445, 450 (SD Ind 2001).
[ix] See e.g., Lish v. Harper’s Magazine Found., 148 FRD 516, 519-20 (SDNY 1993) (judgment in plaintiff’s favor for $0 on copyright claim deemed more favorable than $250 offer of judgment disclaiming liability because vindication of plaintiff’s copyright was more favorable than the nominal money offer).
[x] The Miller decision expressly left open the possibility of issue preclusion in a subsequent case based on an accepted offer of judgment. Miller, 262 Or App at 742 n7.