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Cannabis Litigation: What is an Offer of Judgment?
1d ago Cannabis harrisbricken Views: 65

Like all commercial litigation, cannabis business litigation is expensive and in
most circumstances a party cannot recover its attorneys’ fees. The exception is
where recovery is authorized by a contract or a statute. This post discusses how
a party in commercial litigation—whether involving cannabis or not—can use an
Offer of Judgment to leverage a more favorable settlement and potentially
recover its attorneys’ fees.

The federal rules of civil procedure and most, if not all, state court
procedural rules provide that party may make an Offer of Judgment. This post
uses the federal rules of civil procedure as an example. The relevant rule is
Fed. R. Civ. P. 68 and you can read more about offers of judgment here.
(Disclaimer: State rules may not work the same as the federal rule).

Understanding what an Offer of Judgment is and how it works first requires
understanding what a “judgment” is. A judgment is the court decision that
settles the dispute between the parties. A judgment may occur (among other ways)
as result of a motion to dismiss, or a motion of summary judgment, or after a
bench or jury trial. In a case for money damages, the judgment will represent
the decision on who is liable for paying damages to whom. When a party receives
a judgment awarding it money damages, that party may seek to enforce the
judgment, i.e. collect the money, in a variety of ways. A judgment typically
brings a case to an end, absent a motion to vacate or appeal.

An Offer of Judgment is an “offer” by one of the parties in a lawsuit to allow
judgment to be entered against it. Suppose that X sues Z for breach of contract
for $100,000. And suppose the contract does not allow for the prevailing party
to recover its attorneys’ fees, so that each side is presumptively responsible
for paying its own legal costs, regardless of who prevails. Using an Offer of
Judgment, Z may “offer” to allow a judgment against itself in favor of X for
some dollar amount less than $100,000. For example, Z may offer to allow X to
enter a judgment against Z in the amount of $35,000. If the offer is accepted,
the case comes to an end and Z is liable to X for $35,000.

Why would a party ever offer to let judgment be entered against itself?

Because if X does not accept Z’s Offer of Judgment, and X recovers less than
$35,000 at trial, then Z may recover from X all of its attorneys’ fees, costs,
and disbursements incurred after the date the offer was made. These amounts may
total tens of thousands of dollars (or more) and may even equal or exceed the
actual damages. (Trials are expensive!)

Suppose, for example, Z does not dispute that is liable to X for $35,000 but X
will not accept that amount as settlement. Or suppose Z calculates its likely
legal expenses as $50,000 and wants to avoid the risk of a trial — where it
might end up paying X $100,000 on top of the $50,000 it paid its attorneys. Z
may make an Offer of Judgment early in the case so that, if Z’s estimate of
damages is borne out later, Z may recover it’s attorneys’ fees, costs, and
disbursements. On flip side, from X’s perspective, nobody wants to pay the other
side’s attorneys’ fees, so the Offer of Judgment, even if not accepted, is a
strong incentive for X to settle the case.

So by making an Offer of Judgment, a defendant is in a sense testing how
strongly the plaintiff believes in its case. When a party making the Offer of
Judgment does not have any counterclaims for money damages, an Offer of Judgment
is a way to create financial risk for the plaintiff or counterclaimant and
incentivize finding a resolution.

A party may make an Offer of Judgment any time after a lawsuit is commenced and,
under the federal rule, must do so at least 14 days before trial. Notably,
evidence of an unaccepted offer is admissible only to determine the costs of the
action, and not for any other purpose. So a party who makes the offer need not
worry about an unaccepted offer being used as an admission to prove liability.

So if your cannabis company finds itself in litigation, consider carefully how
you may use an Offer of Judgment, or, alternatively, how one may be used against
you.

For more practical litigation guidance, see:

 * Our Cannabis Business Insurer Denied Our Claim. What’s Next?
 * Reminder: The Parody Defense to Trademark Infringement is Tricky
 * Cannabis Bankruptcy 101
 * Cannabis Litigation: How Effective Are Motions to Dismiss?

 

Cannabis Litigation: What is an Offer of Judgment? on Harris Bricken Sliwoski
LLP.




- Posted on Apr 30, 2022
+ Read More
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