Does a Proposal for Settlement Impact Who Recovers Legal Fees?

You’ve likely heard that to recover your incurred legal fees in a case, you either have to have a prevailing party attorney’s fee provision in your construction contract or you must be suing or be sued under a statute which allows for the recovery of fees. That’s true. But what you may not know is that a proposal for settlement (previously called an offer of judgment) may also allow a party to recover his/her legal fees.

Here’s how it works.

The party being sued (the defendant) makes an offer to settle a particular dispute for a specified and reasonable amount. If the offer is rejected by the party who brought the suit (the plaintiff), and the plaintiff is unable to obtain a verdict equivalent to 75% or more of the amount proposed, then the defendant will be entitled to his/her incurred legal fees from the plaintiff. Vice versa, if the plaintiff files a proposal for settlement under the statute and obtains a verdict which exceeds the offer by 25% or more, then the defendant must pay the plaintiff his/her incurred legal fees and costs.

These proposals have to be in writing and must follow the statute’s specific requirements. The party receiving the offer has 30 days from receipt of the proposal to accept or reject it.

Notice that I said the offer has to be reasonable. Many a proposal has been thrown out by a judge because it was either not made in good faith or was for an unreasonable amount. $100 is not generally going to work. Likewise, including a general release as part of the offer can be problematic. That release has to exactly outline who and what will be released, especially if the underlying suit involves multiple parties.

A party shall be entitled to recover its reasonable costs and attorney’s fees incurred from the date of the filing of the offer. And the rejection of an offer does not preclude the making of a new and subsequent offer. An offer can also be withdrawn in writing before it is accepted in writing.

Proposals for settlement can be excellent tools for fee shifting, but they must be prepared accurately and taken seriously.