BRUCE NESS v. NEW JERSEY MANUFACTURERS INSURANCE COMPANY Cross-

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4896-07T14896-07T1

BRUCE NESS, ADMINISTRATOR

OF THE ESTATE OF PATRICIA

M. NESS AND BRUCE NESS,

individually,

Plaintiff-Respondent/

Cross-Appellant,

v.

NEW JERSEY MANUFACTURERS

INSURANCE COMPANY,

Defendant-Appellant/

Cross-Respondent.

_______________________________________________________

 

Argued March 25, 2009 - Decided

Before Judges Lihotz and Messano.

On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-5375-05.

Stephen R. Dumser argued the cause for appellant/cross-respondent (William H. Hanifen, IV, attorney; Mr. Dumser, on the brief).

Michael J. McKenna argued the cause for respondent/cross-appellant.

PER CURIAM

Defendant New Jersey Manufacturers Insurance Company (NJM) issued a personal automobile insurance policy to plaintiff Bruce Ness that provided uninsured motorist (UM) coverage benefits in the amount of $300,000. On December 4, 2001, plaintiff's wife, Paticia M. Ness, was fatally injured in a motor vehicle accident, and plaintiff, individually and on behalf of her estate, made a claim for UM benefits under the policy. The matter was arbitrated, resulting in an award of $245,000 to plaintiff. NJM refused to pay the award, and plaintiff filed suit.

Shortly thereafter, on August 31, 2005, plaintiff served an offer of judgment, Rule 4:58-1 through -5 (the Rule), upon NJM in the amount of the arbitration award. The matter proceeded through discovery, and ultimately to trial, NJM not accepting plaintiff's offer. The jury returned a verdict of $737,000 in plaintiff's favor, apportioned $137,000 to the estate, and $600,000 personally to plaintiff.

NJM moved to mold the judgment to the limits of its policy. Plaintiff moved to recover "costs, fees and interest in accordance with R. 4:58-2." NJM opposed the request. During oral argument on the motions, plaintiff conceded that "it[] [was] appropriate under the law" for the judge to mold the verdict to the UM policy limits. Over NJM's objection, however, the judge awarded plaintiff prejudgment interest of eight percent under the Rule, computed upon the jury verdict of $737,000. Plaintiff also voiced objection to this calculation, arguing that under the Rule, he was also entitled to prejudgment interest pursuant to Rule 4:42-11(b). The judge then awarded plaintiff attorney's fees in the amount of $38,000 under the Rule, specifically finding counsel's hourly rate of $300 reasonable. Lastly, the judge awarded costs, pursuant to the Rule, in the amount of $8396.72. She specifically refused to include in her award of costs, hours of work performed by an investigator, Gary R. Krohn, who was an employee of plaintiff's counsel.

NJM appeals from that portion of the order that awarded plaintiff interest under the Rule computed "upon the entire verdict as rendered" by the jury. It argues the interest award must be calculated using the "molded verdict" of $300,000. Plaintiff counters that the judge properly computed the interest portion of the award based upon the entire verdict, citing, as did the trial judge, Gonzalez v. Safe & Sound Sec. Corp., 185 N.J. 100 (2005), for authority.

Plaintiff cross-appeals. He contends the judge erred in arriving at the counsel fee portion of the judgment. He argues that although the judge approved his hourly rate of $300, she failed to explain the reasons why she disallowed a significant portion of hours contained in his certification of services. Plaintiff further contends that the hours spent by the investigator were not "overhead," and he should be permitted to recoup them as expenses. In addition, plaintiff appeals from the interest portion of the judgment, arguing that he was also entitled to prejudgment interest pursuant to Rule 4:42-11(b).

In its brief in opposition to plaintiff's cross-appeal, NJM contended the judge's award of counsel fees was reasonable. However, at oral argument before us, it conceded that the judge failed to make adequate findings and conclusions regarding the disallowance of a portion of counsel's time spent on the case. NJM did not oppose a remand in this regard. As to the other points of plaintiff's cross-appeal, NJM argues the judge correctly denied any award of expenses based on the investigator's time, and correctly denied plaintiff's prejudgment interest request under Rule 4:42-11(b).

We have considered these arguments in light of the record and applicable legal standards. We affirm in part, reverse in part, and remand the matter for further proceedings consistent with this opinion.

The Rule provides in pertinent part

If the offer of a claimant is not accepted and the claimant obtains a money judgment, in an amount that is 120% of the offer or more . . . the claimant shall be allowed, in addition to costs of suit: (1) all reasonable litigation expenses incurred following non-acceptance; (2) prejudgment interest of eight percent on the amount of any money recovery from the date of the offer or the date of completion of discovery, whichever is later, but only to the extent that such prejudgment interest exceeds the interest prescribed by R. 4:42-11(b), which also shall be allowable; and (3) a reasonable attorney's fee, which shall belong to the client, for such subsequent services as are compelled by the non-acceptance.

[R. 4:58-2(a).]

The molded verdict resulting in the $300,000 judgment in favor of plaintiff exceeded the offer of judgment plaintiff made in the amount of $245,000 by more than 120%. Thus, it is conceded plaintiff was entitled to the sanctions provided by the Rule.

We first consider plaintiff's cross-appeal of the judge's award of counsel fees. "The [R]ule is cast in mandatory and not exhortatory terms, and, thus, accords judges no discretion regarding whether or not to award attorney's fees and costs of suit in an offer of judgment case." Wiese v. Dedhia, 188 N.J. 587, 592 (2006). The Rule permits the award of "reasonable" counsel fees for subsequent services "compelled by the non-acceptance" of the offer. R. 4:58-2(a). The application for all "allowances" permitted by the Rule "shall be made in accordance with the provisions of R. 4:42-9(b)." R. 4:58-5.

Initially, we note that in reviewing a counsel fee award, we accord significant deference to the trial judge's determinations, which we will "'disturb[] only on the rarest of occasions, and then only because of a clear abuse of discretion.'" Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001) (quoting Rendine v. Pantzer, 141 N.J. 292, 317 (1995)). The starting point in awarding counsel fees is a determination of the "lodestar," or "the 'number of hours reasonably expended multiplied by a reasonable hourly rate.'" Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 21 (2004) (quoting Rendine, supra, 141 N.J. at 335). The factors that inform the court's determination of what is a reasonable fee are those set forth in R.P.C. 1.5(a). Id. at 22. The court must determine both the reasonableness of the rates and the reasonableness of the time actually expended in the litigation. Id. at 22-23.

Plaintiff's counsel submitted a request for fees in the amount of $45,480, based upon 151.60 hours of work at $300 per hour. The judge specifically found counsel's hourly rate was "reasonable," however, she also concluded, without any explanation, that "a reasonable number for the attorney's fees at a rate of $300 per hour [was] $38,000." We have noted in the past that the absence of factual findings by the trial judge regarding the reasonableness of the time expended by counsel inhibits our appellate review. Best v. C & M Door Controls, Inc., 402 N.J. Super. 229, 248-49 (App. Div.), certif. granted, 197 N.J. 13 (2008). Such findings are required under Rule 1:7-4 (a). Pressler, Current N.J. Court Rules, comment 1 on R. 1:7-4 (2009). We cannot determine why the judge disallowed more than $7000 of the requested fees. Therefore, we reluctantly remand the matter to the trial judge for further proceedings in this regard.

We affirm, however, the judge's decision that excluded plaintiff's request to include his investigator's fees as compensable "litigation expenses" under the Rule. Plaintiff's motion was supported by a certification from Krohn, a former municipal fire chief, who was employed by plaintiff's law firm since September 2005. Krohn claimed to have expended 104.5 hours working on the case, at an hourly rate of $125. Adding Krohn's parking fees from trial, plaintiff sought compensation under the Rule for $13,102.50. Citing In re Estate of Reisen, 313 N.J. Super. 623 (Ch. Div. 1998), the judge found Krohn to be "an employee of the law firm," likened the expenses to "overhead," and denied plaintiff's request.

Plaintiff argues the judge "ignored R[ule] 4:42-9(b) which [was] cited in Reisen," and likens Krohn's expenses to those of a "paraprofessional," whose services are compensable under that rule. He alternatively contends that the "costs associated with an investigator employed by the law firm is analogous to the award of counsel fees to a law firm suing pro se[,]" citing our decision in Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone, P.C. v. Ezekwo, 345 N.J. Super. 1 (App. Div. 2001). We find both arguments unpersuasive.

Rule 4:42-9(b) permits an attorney to include in his fee request the "rendition of paraprofessional services[.]" Those are defined as "services rendered by individuals who are qualified through education, work experience or training who perform specifically delegated tasks which are legal in nature under the direction and supervision of attorneys and which tasks an attorney would otherwise be obliged to perform." Ibid. (emphasis added). Plaintiff argues that Krohn was performing "paraprofessional services" and that counsel would have otherwise had to perform them in Krohn's absence. However, it is clear that Krohn's sundry activities--scheduling and transporting witnesses for trial, taking statements, and serving subpoenas--were not services that an attorney "would otherwise be obliged to perform." In Krohn's absence, based upon the size of the law firm or the schedule of its employees, perhaps an attorney would have necessarily performed the same tasks. But such circumstances do not transform a particular service into something a member of the bar was obligated to perform. Likewise, plaintiff's reliance upon our holding in Brach, supra, 345 N.J. Super. at 18-19, is inapposite. There, we simply held that a law firm representing itself was entitled to recover reasonable counsel fees under the Rule. Ibid. We fail to see its relevance to the issue presented here.

Moreover, we agree with the trial judge that Krohn was an employee of the firm and, as such, his expenses were part of the law firm's overhead. Routinely, the costs of the firm's own employees are not recoverable as part of a fee request submitted under Rule 4:42-9(b). Reisen, supra, 313 N.J. Super. at 635-36; and see In re Trust of Brown, 213 N.J. Super. 489, 493 (Law Div. 1986) (noting that "[o]ffice overhead consists of all expenses incurred by an attorney in the operation of a law office, e.g., rent, insurance, salaries, assistants, supplies and utilities"). We therefore affirm this portion of the judge's order.

The final issue, presented by both the appeal and cross-appeal, concerns the proper amount of prejudgment interest that plaintiff was entitled to recover. The judge awarded $89,226.68 in interest, calculated as eight percent of the jury verdict of $767,000, from the discovery end date, September 8, 2006, to the date of the verdict, March 13, 2008. She did not award any interest under Rule 4:42-11(b), finding "that rule would be applicable [only] if [its interest rate] exceed[ed] the [eight] percent [contained in Rule 4:58-2(a)(1)]."

NJM argues that any interest award under the Rule should have been computed upon the molded verdict amount, $300,000, which was the actual judgment entered and "the amount of [plaintiff's] money recovery." R. 4:58-2(a)(1). We agree.

The trial judge and plaintiff placed reliance upon the Supreme Court's holding in Gonzalez. 185 N.J. at 125. There, the plaintiff tendered an offer of judgment for $800,000. Id. at 112. The defendant, who was in bankruptcy at the time, maintained a liability insurance policy with a limit of $1,000,000. The plaintiff settled with another defendant for $100,000 insured under the same policy, thus limiting the defendant's insurer's exposure to $900,000. Id. at 113. The bankruptcy court lifted its stay to permit the plaintiff's personal injury action to proceed, limiting any recovery to the policy limit. Id. at 123-24. At trial, the plaintiff obtained a multi-million dollar verdict against the defendant, and sought the penalties provided under the Rule. Id. at 124.

The defendant contended "that in light of the bankruptcy court's decree limiting any recovery against [it] to its insurance coverage, the rejected offer should have been measured against the $900,000 remaining on the policy. By that standard . . . [the] plaintiff did not recover more than 120% of its settlement offer." Ibid. However, the Court rejected this argument, holding

The fee-shifting provisions of Rule 4:58-2 are triggered by a "verdict" or "determination." Here, the verdict in favor of plaintiff far exceeded 120% of plaintiff's offer. The language, structure, and policy rationale of the rule do not support the notion that plaintiff's offer should be measured against the insurance coverage rather than the verdict.

[Id. at 124-25.]

In this case, NJM concedes that plaintiff was entitled to an award under the Rule which was "triggered" when the molded verdict exceeded plaintiff's offer of judgment by more than 120%. However, the Court in Gonzalez never addressed how the interest award under the Rule should be calculated. Gonzalez, therefore, does not support plaintiff's position that the interest provided by the Rule must be calculated on the verdict amount.

A plain reading of the Rule requires that the calculation be computed "on the amount of any money recovery" plaintiff obtains. The Court, construing the Rule in the past, has instructed

When interpreting court rules, we ordinarily apply canons of statutory construction. Accordingly, as with a statute, the analysis must begin with the plain language of the rule. The Court must ascribe to the [words of the rule] their ordinary meaning and significance . . . and read them in context with related provisions so as to give sense to the [court rules] as a whole . . . . If the language of the rule is ambiguous such that it leads to more than one plausible interpretation, the Court may turn to extrinsic evidence.

[Wiese, supra, 188 N.J. at 592 (citations and quotations omitted).]

Plaintiff's money recovery in this case was $300,000, and that was the figure upon which all interest calculations should have been based.

In Malick v. Seaview Lincoln Mercury, 398 N.J. Super. 182 (App. Div. 2008), we considered the issue in the context of a high-low settlement. There, the plaintiff's offer of judgment, $650,000, was made prior to trial, during which the parties negotiated a high-low agreement with $175,000 as the "low," and $1,000,000 as the "high" figure. Id. at 184-85. The jury returned a verdict of $5 million, and the plaintiff sought penalties under the Rule, including prejudgment interest calculated upon the amount of the jury verdict. Id. at 185. We concluded that based upon the plaintiff's acceptance of the high-low agreement, "the verdict was molded to a $1 million judgment. That [was] the amount on which the Rule 4:58-2 interest . . . [wa]s to be calculated." Id. at 191. In a footnote, citing Gonzalez, supra, 185 N.J. at 124, we noted that even under the "version of the Rule in effect prior to [the] 2006 amendments[,]" "'verdict' meant the resulting judgment after the verdict was molded by the trial court." Malik, supra, 398 N.J. Super. at 190 n.4 (emphasis added).

NJM also argues that our decision in McMahon v. N.J. Mfrs. Ins. Co., 364 N.J. Super. 188 (App. Div. 2003), implicitly supports its position, and we agree. There, the plaintiff brought suit seeking to recover the difference between the tortfeasor's policy limits already obtained in settlement, i.e., $125,000, and her underinsured motorist policy limits (UIM) of $300,000. Id. at 190. She tendered an offer of judgment for $129,000, which the defendant rejected, resulting in a trial at which the jury returned a verdict in the plaintiff's favor for $500,000. Ibid. The plaintiff contended that she was entitled to an award of interest, attorney's fees, and litigation expenses under the Rule, while the defendant argued that any award, when combined with the judgment amount of $175,000, would exceed its contractual liability under the policy limits. Id. at 191. We rejected the defendant's argument, however, concluding that the defendant's "policy limits . . . [we]re not so sacrosanct to afford protection . . . where it chooses not to participate, despite having the opportunity and ability to do so, in the activity fostered by the [Rule] to avoid the very sanction imposed for non-participation." Id. at 193 (internal quotation omitted). However, as NJM notes, the actual penalties awarded by the trial court, which we affirmed, seem to have been calculated upon the $175,000 judgment, and not upon the $500,000 verdict.

In short, in calculating the amount of interest plaintiff was entitled to under the Rule, the judge should have used the actual "money recovery" in the case, i.e., the judgment of $300,000 that resulted from the molded verdict. We therefore must reverse that portion of the order awarding plaintiff $89,226.68 in prejudgment interest under the Rule, and remand the matter to the trial judge for computation of the interest award utilizing $300,000 instead of the jury's verdict.

Plaintiff contends, however, that the judge erred by not including prejudgment interest under Rule 4:42-11(b) in the calculation. We agree with plaintiff that the trial judge misconstrued the interplay between the two rules.

The relevant portion of the Rule permits a prevailing plaintiff to obtain "prejudgment interest of eight percent . . . from the date of the offer or the date of completion of discovery, whichever is later, but only to the extent that such prejudgment interest exceeds the interest prescribed by R. 4:42-11(b), which also shall be allowable[.]" R. 4:58-2(a)(2) (emphasis added). Thus, the Rule provides for an enhanced amount of prejudgment interest, i.e., the difference between eight percent and any lesser rate otherwise applicable under Rule 4:42-11(b). However, unlike that rule, which permits interest to run from "the date of the institution of the action or from a date 6 months after the date the cause of action arises, whichever is later," R. 4:42-11(b), interest awarded under the Rule is only calculated from a much later date, i.e., when the offer is made or when discovery ends. "The purpose of the stipulation of the later of these dates . . . is obviously designed to afford the defending party a reasonable opportunity to make his own evaluation of the reasonableness of the offer in terms of the probable financial worth of the claim." Pressler, supra, comment 2 on R. 4:58.

The plain language of the Rule, however, permits recovery of ordinary prejudgment interest, "which also shall be allowable," even though an offer of judgment was made and plaintiff prevailed. Thus, to the extent the judge believed the Rule permitted recovery of only enhanced interest, and not, in addition, ordinary prejudgment interest under Rule 4:42-11(b), i.e., one or the other but not both, she erred.

NJM concedes that pursuant to our holding in McMahon, the recovery of interest in excess of the policy limits is permitted because of the "punitive" purposes of the Rule. It argues, however, that plaintiff was not entitled to ordinary prejudgment interest on her contractual UM claim because any award, on top of the molded judgment, would exceed its policy limits. We disagree.

While the language of Rule 4:42-11(b) "addresses only tort judgments, it is clear that prejudgment interest may run on contract claims, even unliquidated claims, as well, not as a matter of right but rather in accordance with equitable principles." Pressler, supra, comment 3.1 on R. 4:42-11(b). In the UM/UIM context, "interest is allowable only on contract principles . . . and not under paragraph (b) of [Rule 4:42-11(b)]." Pressler, supra, comment 2.2.1 on R. 4:42-11(b); see Taddei, supra, 401 N.J. Super. at 466 ("Prejudgment interest in UM cases is allowable on the same terms and conditions as permitted in similar contract actions") (citing Derfuss v. N.J. Mfrs. Ins. Co., 285 N.J. Super. 125, 135 (App. Div. 1995); Childs v. N.J. Mfrs. Ins. Co., 199 N.J. Super. 441, 452 (App. Div. 1985), rev'd on other grounds, 108 N.J. 506 (1987)).

Although it has been held that an insurer is not under any obligation to pay prejudgment interest in excess of its policy limits, Kotzian v. Barr, 81 N.J. 360, 363-67 (1979), we distinguished Kotzian in Jones v. Bennett, 306 N.J. Super. 476, 486-88 (App. Div. 1998). There, we held that Kotzian did not bar prejudgment interest "merely because the verdict exceeded the 'amount [the carrier] contracted with its assured.'" Id. at 487 (quoting Kotzian, supra, 81 N.J. at 367). More recently, in N.J. Mfrs. Ins. Co. v. Nat'l Cas. Co., 393 N.J. Super. 340, 344 (App. Div.), certif. denied, 192 N.J. 481 (2007), we held an insurer might be responsible for prejudgment interest in excess of its policy limits if "the carrier did not engage in good faith negotiations to settle the claim within the policy's coverage limit."

Neither that case nor Jones involved UM/UIM contract limits. However, Taddei, which involved a first-party claim similar to the one presented here, we exercised our original jurisdiction, R. 2:10-5, and awarded the plaintiff prejudgment interest on his UM claim in addition to the molded judgment that exhausted the policy's limits. 401 N.J. Super. at 467. In the present case, we believe it inappropriate to exercise our original jurisdiction, particularly in light of the need to remand the matter to the trial judge for the reasons already expressed. We therefore remand the matter to the trial judge for her consideration of whether, in the exercise of her sound discretion, equitable principles dictate the award of prejudgment interest to plaintiff. N.J. Mfrs. Ins. Co., supra, 393 N.J. Super. at 344 (discussing relevant factors). We express no opinion on the ultimate merits of the issue.

In sum, the order under review is: 1) affirmed to the extent it denied plaintiff's request to recoup investigator expenses pursuant to the Rule; 2) reversed with respect to the award of prejudgment interest; 3) remanded to the trial judge who shall calculate prejudgment interest under the Rule based upon the molded jury verdict of $300,000, and further consider whether plaintiff is entitled to prejudgment interest in accordance with the rate set forth in Rule 4:42-11(b), utilizing equitable principles; and 4) reversed with respect to the award of attorney's fees under the Rule. In this last respect, we specifically express no opinion on the merits of plaintiff's fee request. We only hold that the award the judge made is not supported by adequate factual findings and conclusions, R. 1:7-4(a), and the matter must be remanded for this reason.

 
Affirmed in part; reversed in part; remanded. We do not retain jurisdiction.

The Court was construing a prior version of the Rule that provided that the plaintiff was entitled to penalties if he "obtain[ed] a verdict or determination at least as favorable as the rejected offer . . . . In an action for unliquidated damages, however, no allowances under this rule shall be granted to the offeror unless the amount of the recovery is in excess of 120% of the offer." R. 4:58-2 (2002). By subsequent amendment, a plaintiff is entitled to a recovery under the Rule only if he "obtains a money judgment" in excess of 120% of the offer.

Thus, this case does not implicate the observation we made in Taddei v. State Farm Indem. Co., 401 N.J. Super. 449, 462 n.8 (App. Div. 2008), that for purposes of deciding whether the penalties of the Rule are triggered, "a sensitive reading of 'judgment' in Rule 4:58-2(a) . . . would probably be to deem it the jury's verdict."

The total award for interest, attorney's fees, and litigation expenses was $16,715.41, an unlikely small amount if the interest calculation was based upon the jury's $500,000 verdict. McMahon, supra, 364 N.J. Super. at 191.

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