Arbitration & Mediation

Third DCA Rejects Proposal for Settlement Sanction When Co-Defendant Pays

By Christopher B. Hopkins, Esq.

A split Panel on the Third District (Shepherd, Suarez and Schwartz) held that a defendant cannot collect on a valid Proposal for Settlement when the Plaintiff received payment from the co-defendant which released all parties and dismissed the case. Given the unusual ruling and the apparent strong positions of the parties, Central Motor Company d/b/a Central Hyundai et al v. Earlene P. Shaw may see its way to the Florida Supreme Court.

While confusing, this decision sits nicely with the other Proposal for Settlement/Offer of Judgment cases which lead to dizzying and uncertain results.

The dispute involves a plaintiff car-buyer, defendant dealership, and co-defendant finance company. The underlying Circuit Court case has a docket number of "98-12530," which indicates the suit dates back to 1998 -- which means it is a 10 year old case. In February 2004, year five of the suit, defendant-dealer serves the plaintiff with a $1,000 Proposal. Over two and a half years later, in October 2006 (7th or 8th year of litigation), defendant finance company settles the entire case for $10,000.

The finance company's settlement explicitly indicates it is settling the entire case (essentially paying on behalf of the co-defendant dealer) and its payment requires dismissal of both defendants. The dissent hints this was done because plaintiff and finance company were ready to settle while dealer refused to settle.

The majority held that the Proposal for Settlement statute provides attorney's fees as a sanction and, under the circumstances, the plaintiff should not be sanctioned. It held that, under a 2003 Florida Supreme Court case, there was no evidence of the plaintiff unreasonably continuing litigation, thus causing "delay costs and expenses unnecessarily prolonging litigation..." It noted that the settlement benefited the defendant dealer, who knew of the settlement and never objected. Indeed, the majority held that the dealer got a "windfall."

The dissent (Shepherd) points out that there was two and a half years of litigation between the Proposal and the settlement; moreover, defendant dealer had the "right" not to settle. Judge Shepherd noted that the Proposal for Settlement statute was a "mandatory right" and that the only basis on which a court can disallow entitlement to fees is that the offer was not made in good faith. No such argument was made. As the dissent summed up, "[plaintiff and defendant finance company] had no right to decide what 'profit' Central Motors should receive as a result of its ten-year defense of this action brought against them."

Admittedly, the plaintiff was in a box since defendant-1 was clearly not settling while the plaintiff and defendant-2 were ready to move on. The court's desire to soften the blow and give a way out is understandable. But it stands in contrast to the strict interpretation applied to the Proposal for Settlement in prior cases.

Having been the defense lawyer who has sought to enforce my share of Proposals, there is a bit of a concern when the court talks about the "profit" made by the successful offeror seeking enforcement. It's not profit. That company was accused of deceptive and unfair trade practices and defended itself for ten years. That's expensive. Probably embarrassing. It has a right to not settle and want to take the matter to court. Perhaps they wanted to make law so they would not have to face the same types of lawsuits over and over. To not recover its paid attorney's fees after the period of time is a serious loss, even if they were not exposed to liability. To use the word "profit" to describe the recovery of the fees is a misnomer.

Full post as published by Florida Arbitration Law on January 14, 2009 (boomark / email).