NJ Supreme Court Declares Substance Over Form in Breach of Contract Case
On June 4, 2008, the New Jersey Supreme Court in Romagnola v. Gillispie, Inc. (A-57-07), held that a litigant who complied with a procedural court rule that was subsequently amended was entitled to enforce the rule as it existed pre-amendment. The plaintiff in this case availed himself of the offer of judgment rule, R. 4:58-2, which allows a litigant to recover his/her counsel fees if the litigant offers to accept a judgment for a specific amount, the defendant rejects the offer, and the litigant prevails at trial. Prior to September 1, 2004, to trigger an award of counsel fees R. 4:58-2 required that the litigant obtain a money judgment for a sum "as least as favorable as the rejected offer." On September 1, 2004, R. 4:58-2 was amended to increase the money judgment requirement to be "an amount that is 120% of the offer or more."
In 2002 plaintiff sued the defendants for breach of contract and other related claims. The parties engaged in extensive pretrial discovery and motion practice. During the course of the case, on March 20, 2002 plaintiff submitted an offer of judgment to defendant, offering to accept judgment in the amount of $1,165,000. In compliance with R. 4:58-2, plaintiff's offer of judgment notified defendants that they had 10 days before trial started or 90 days after service of the offer, whichever expired sooner, to accept the offer or it would be withdrawn. Defendants did not accept plaintiff's offer of judgment, and the offer was deemed rejected as of June 28, 2002. Under R. 4:58-2 as it existed then, plaitniff would have been entitled to recoup all of his litigation expenses and reasonable attorney's fees incurred after June 28, 2002 plus 8% interest on the judgment from the date of completion of discovery.
The case was tried without a jury between October 2003 and March 2004. Post-trial written submissions were completed by June 2004. Before the trial court ruled on the outcome, R. 4:58-2 was amended effective September 1, 2004, so that the qualifiying amount of money judgment required to trigger the remedies under the Rule was increased from a sum "at least as favorable as the rejected offer" to an "amount that is "120% of the offer or more." 3 weeks later the trial court returned a a judgment in favor of plaintiff and against defendants for the sum of $1,315,909.63, excluding pre-judgment interest. Significantly, the judgment satisifed the prior version of R. 4:58-2 in that it was "at least as favorable as the rejected offer" of $1,165,000, but did not satisfy the amended version of R. 4:58-2 because it was not "120% of the offer or more."
The trial court denied plaintiff's post-judgment application for attorneys' fees and expenses, finding that although the result was harsh it had no choice but to enforce the current version of R. 4:58-2 thereby barring plaintiff's remedy even though plaintiff fully complied with the Rule as it existed at the time he submitted his offer of judgment. Defendants appealed the underlying judgment and plaintiff cross-appealed. The Appellate Division agreed with the trial court's decision to enforce R. 4:58-2, as amended, reasoning that the Rule is procedural in nature, and normally, procedural rules in effect on the date a judgment is entered govern. The Appellate Division determined that plaintiff had no vested right in the pre-amendment operation of R. 4:58-2.
In a victory of substance over form, the Supreme Court reversed the Appellate Division's decision denying plaintiff a remedy under R. 4:58-2 by applying R. 1:1-2 -also known as the "relaxation rule". R. 1:1-2 provides that the NJ Rules of Court "shall be construed to secure a just determination, simplicity in procedure, fairness in adminstration and the elimination of unustifiable expense and delay." If further provides that, "unless otherwise stated, any rule may be relaxed ... if adherence to it would result in an injustice." "Determining whether relaxtion [under R. 1:1-2] is appropriate ... requires an examination and balancing of the interests that are at stake." State v. Williams, 184 N.J. 432, 433 (2005). Nevertheless, our courts have held that resort to R. 1:1-2 "should be used sparingly..." See Bender v. Adelson, 187 N.J. 411, 431 (2006).
This case represents a strong example of the New Jersey Supreme Court's willingness to reward substance over form. In my opinion, it is difficult to comprehend why 2 courts (trial court and appellate court) did not share the view espoused by the NJ Supreme Court. A question not addressed here, however, is whether the plaintiff would be entitled to recover his attorneys' fees and expenses incurred in the appeals to the Appellate Divison and NJ Supreme Court. The NJ Supreme Court remanded (or returned) the case to the trial court for furthe proceedings.
In 2002 plaintiff sued the defendants for breach of contract and other related claims. The parties engaged in extensive pretrial discovery and motion practice. During the course of the case, on March 20, 2002 plaintiff submitted an offer of judgment to defendant, offering to accept judgment in the amount of $1,165,000. In compliance with R. 4:58-2, plaintiff's offer of judgment notified defendants that they had 10 days before trial started or 90 days after service of the offer, whichever expired sooner, to accept the offer or it would be withdrawn. Defendants did not accept plaintiff's offer of judgment, and the offer was deemed rejected as of June 28, 2002. Under R. 4:58-2 as it existed then, plaitniff would have been entitled to recoup all of his litigation expenses and reasonable attorney's fees incurred after June 28, 2002 plus 8% interest on the judgment from the date of completion of discovery.
The case was tried without a jury between October 2003 and March 2004. Post-trial written submissions were completed by June 2004. Before the trial court ruled on the outcome, R. 4:58-2 was amended effective September 1, 2004, so that the qualifiying amount of money judgment required to trigger the remedies under the Rule was increased from a sum "at least as favorable as the rejected offer" to an "amount that is "120% of the offer or more." 3 weeks later the trial court returned a a judgment in favor of plaintiff and against defendants for the sum of $1,315,909.63, excluding pre-judgment interest. Significantly, the judgment satisifed the prior version of R. 4:58-2 in that it was "at least as favorable as the rejected offer" of $1,165,000, but did not satisfy the amended version of R. 4:58-2 because it was not "120% of the offer or more."
The trial court denied plaintiff's post-judgment application for attorneys' fees and expenses, finding that although the result was harsh it had no choice but to enforce the current version of R. 4:58-2 thereby barring plaintiff's remedy even though plaintiff fully complied with the Rule as it existed at the time he submitted his offer of judgment. Defendants appealed the underlying judgment and plaintiff cross-appealed. The Appellate Division agreed with the trial court's decision to enforce R. 4:58-2, as amended, reasoning that the Rule is procedural in nature, and normally, procedural rules in effect on the date a judgment is entered govern. The Appellate Division determined that plaintiff had no vested right in the pre-amendment operation of R. 4:58-2.
In a victory of substance over form, the Supreme Court reversed the Appellate Division's decision denying plaintiff a remedy under R. 4:58-2 by applying R. 1:1-2 -also known as the "relaxation rule". R. 1:1-2 provides that the NJ Rules of Court "shall be construed to secure a just determination, simplicity in procedure, fairness in adminstration and the elimination of unustifiable expense and delay." If further provides that, "unless otherwise stated, any rule may be relaxed ... if adherence to it would result in an injustice." "Determining whether relaxtion [under R. 1:1-2] is appropriate ... requires an examination and balancing of the interests that are at stake." State v. Williams, 184 N.J. 432, 433 (2005). Nevertheless, our courts have held that resort to R. 1:1-2 "should be used sparingly..." See Bender v. Adelson, 187 N.J. 411, 431 (2006).
Circumstances as unique as those presented here -- where a party fully complies with the letter and spirit of a Rule but the Rule changes after a party can no longer alter or modify its position to comply with the amended Rule -- animate the more flexible approach Rule 1:1-2 embodies and weigh heavily in favor of relaxation. At its core, plaintiff's plea is that, once trial had started, his offer of judgment was fixed and could not be changed and, hence, the application of the rules other than those under which the offer of judgment was made violates fundamental principles of fairness. In this limited instance, we agree.
This case represents a strong example of the New Jersey Supreme Court's willingness to reward substance over form. In my opinion, it is difficult to comprehend why 2 courts (trial court and appellate court) did not share the view espoused by the NJ Supreme Court. A question not addressed here, however, is whether the plaintiff would be entitled to recover his attorneys' fees and expenses incurred in the appeals to the Appellate Divison and NJ Supreme Court. The NJ Supreme Court remanded (or returned) the case to the trial court for furthe proceedings.
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