OFFERS OF SETTLEMENT – AN IMPROVED LITIGATION WEAPON

I once represented a client who was sued for over $400,000.  My objective analysis showed that my client actually owed somewhere between zero and $100,000.  So, my client offered in writing $100,000 to settle the case.  That offer, which was rejected, put the opposing side “on the ropes,” as case became more about beating the $100,000 offer than winning $400,000.  A settlement offer can act as a weapon in litigation and turn a losing case into a winning case.  As you see, rather than being a sign of weakness, an early settlement offer can actually turn the tide for a defendant in a difficult spot. 

A new law supports early settlement offers even more strongly. As of January 1, 2013, the Arizona Legislature changed A.R.S. 12‑341.01, regarding attorneys’ fees in a contract action, to allow the court to consider written offers of settlement in determining the reasonableness of attorneys’ fees for the party who is granted judgment.  Under this statute, if a party that makes an offer of settlement that is equal to or more favorable than the ultimate award, then the offeror may be deemed the successful party and, therefore, may be awarded attorneys’ fees.   The exact language of the statute reads like this:

In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees. If a written settlement offer is rejected and the judgment finally obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out of a contract, the offeror is deemed to be the successful party from the date of the offer and the court may award the successful party reasonable attorney fees. This section shall not be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney fees. 

In other words, settlement offers can make a losing party the successful party. 

Therefore, as a strategy, a defendant with a difficult case should honestly analyze the case early in the action and determine what the defendant may owe.  Thereafter, the defendant should make a settlement offer to reflect what the plaintiff may win at the end of the litigation. If the defendant’s guess is ultimately correct, but the plaintiff rejected the offer, the defendant can lose the case but still collect attorney’s fees.  At the end, the defendant’s award of attorneys’ fees could potentially be used to offset the final award.

A recent case styled Hall v. Reed Development, Inc., analyzes this very strategy.  In that matter, the defendant made numerous settlement offers.  However, each time the defendant offered settlement, the settlement offer was significantly less than the attorneys’ fees plaintiff had incurred at that stage in the litigation.  The court of appeals reasoned that “we conclude that comparing the ‘judgment finally obtained’ under Section 12‑341.01(A) to a settlement offer should involve only those reasonable fees and costs incurred as of the date the offer was made.” The takeaway from this case is that a defendant should make a reasonable offer of settlement early and include the current attorneys’ fees and cost to that point.     

 
Therefore, in a difficult fight, make realistic offers, make them early, and fight hard if those offers are rejected – even if you “lose” you can still win!