In 2005, the Georgia Legislature adopted comprehensive tort reform legislation. One component of that initiative is known as the offer of settlement statute. Rule 68 is designed to encourage litigants to make and accept reasonable settlement offers instead of going to trial. It can work in one of two ways:
- A defendant makes a settlement proposal for the resolution of a tort claim under the offer of settlement statute. The plaintiff rejects the offer, goes to trial and “wins”, but recovers less than 75% of the sum offered by the defendant in settlement. In that instance, the offer of settlement statute generally requires the plaintiff to pay all reasonable attorney’s fees incurred by the defendant that accrued from 30 days after the offer was conveyed, through the end of trial.
- A plaintiff makes a settlement proposal of a tort claim under the offer of settlement statute. The defendant rejects the offer, goes to trial, wins and recovers at trial more than 125% of what it offered to accept in settlement. In this instance, the defendant generally must pay all reasonable attorney’s fees incurred by the plaintiff from 30 days after the offer was made through trial.
The statute encourages parties to think twice before rejecting a reasonable settlement offer and rolling the dice in court.
There is an exception within the offer of settlement statute that allows the trial judge to elect not to award attorney’s fees (even if the percentage thresholds are satisfied) where the judge finds that the settlement offer was not made in “good faith.” But the statute provides no guidance as to what constitutes a good faith proposal.
Hedging their bets, many defendants make aggressively low settlement offers, particularly where they feel confident that they have no liability. When that feeling is vindicated with a defense verdict or a low plaintiff’s recovery, the defendant is well positioned to recover its attorney’s fees incurred in defending the case. However, many trial courts have resisted awarding attorney’s fees in these circumstances, availing themselves of the exception and finding that “nominal” settlement offers are not made in good faith.
An opinion issued last month by the Georgia Court of Appeals attempts to offer guidance as to what constitutes a good faith settlement offer and to limit the circumstances in which a trial court can invoke the lack of good faith exception. In Coastal Bank v. Larry Rawlins, Jr., Coastal, made a $3,000 offer of settlement for a claim that Rawlins valued at $40,000 or more. Rawlins rejected the offer. After Coastal prevailed in court, it moved to recover its attorney’s fees based on the offer of settlement statute because zero-recovery judgment is less than 75% of $3,000. The trial judge invoked the exception and declined to award Coastal any attorney’s fees, characterizing its $3,000 offer as “nominal.” and therefore not made in good faith.
Coastal appealed and the Georgia Court of Appeals reversed and remanded the case back to the trial court for a determination as to “whether Coastal had a subjectively reasonable belief on which to base its settlement offer.” The Court of Appeals further held that:
[w]hether the offeror has a reasonable basis to support the offer is determined solely by the offeror’s own subjective motivations and beliefs. In the context of a nominal offer, the trial court may consider objective factors including: (1) whether the offer bore no reasonable relationship to the amount of damages, (2) a realistic assessment of liability, or (3) that the offeror lacked intent to settle the claim. However, the trial court “cannot base a ruling exclusively on the objective factors” but is instead “required to consider the offeror’s explanation and then determine whether, despite consideration of the objective factors . . . the offeror had a subjectively reasonable belief on which to base its offer.
Let’s unpack that:
- There must be a reasonable basis (an objective standard) for the offeror’s subjective motivations and beliefs.
- If the offer is “nominal” (a subjective standard), the trial court is to apply the three objective standards enumerated in the quote above.
- But in considering the objective standards, the court must also balance the “subjectively reasonable” belief on which the offer is based.