Court of Appeals Reverses Award of Defense Legal Fees Following “Ambiguous” Settlement Offer

In 2005, Georgia added what is now known as the “offer of settlement” rule to its personal injury law. This rule allows defendants to recover their legal fees even in cases where the plaintiff wins their case. Essentially, if the defendant offers to settle the case before trial, the plaintiff rejects that offer, and the jury returns a verdict that is less than 75% of the offer, the defendant can ask the judge for an award of fees.

CaseMetrix LLC v. Sherpa Web Studios

The offer of settlement rule only applies to tort claims. It does not apply to other types of civil lawsuits, such as breach of contract. And any settlement offer needs to be clear on this point.

A recent decision from the Georgia Court of Appeals, CaseMetrix LLC v. Sherpa Web Studios, explains why this is so. In this case, the plaintiff is a company that develops online databases. The defendant provided web hosting services for the plaintiff. The plaintiff alleged the defendant failed to properly backup or migrate one of its databases, causing the plaintiff to sustain more than $4 million in damages. The plaintiff’s lawsuit asserted both the tort of negligence and breach of contract claims.

Before the trial, the defendant offered to settle the case for $30,000. In one paragraph, the offer said it was “to resolve all pending claims … arising out of claims sounding in tort.” The next paragraph, however, said the offer was to “resolve all claims of Plaintiff.”

The plaintiff decided to reject the offer. The jury ultimately returned a verdict for the plaintiff, but awarded just $6,269 in damages on the tort claim. The jury further reduced that award by 46% to account for the plaintiff’s comparative fault, meaning the defendant was only liable for $3,385.26, which was obviously less than 75% of its original $30,000 settlement offer. (The jury awarded no damages on the plaintiff’s breach of contract claim.)

Based on the jury’s verdict, the trial judge awarded the defendants its attorney fees under the offer of settlement rule. The plaintiff appealed that award, arguing that the offer was “ambiguous as to the scope of the claims encompassed by it,” and therefore did not serve as a valid basis for invoking the rule. The Court of Appeals agreed and reversed the award of attorney fees.

As the appeals court explained, there was a clear “inconsistency” in the language of the defense’s settlement offer. More to the point, it was “ambiguous” as to whether the settlement was meant to cover all of the plaintiff’s allegations or just its tort claims. As noted above, the settlement of offer rule only applies to tort claims. The Court of Appeals clarified that a settlement offer “cannot be unclear or ambiguous as to the scope of claims to be resolved if the offer is accepted.” In other words, the defense was not entitled to recover its legal fees because its offer could be read as covering the plaintiff’s non-tort claims, which call outside the scope of the settlement rule.