The Nevada Supreme Court, in an Opinion likely to have far-reaching ramifications for litigants and their attorneys, ruled that trial courts can award the entirety of a contingency fee as post-offer fees on a rejected Offer of Judgment. The court based its decision on the premise that the fees are not incurred until the plaintiff wins at trial.
Plaintiff, Bahram Yahyavi ("Yahyavi") brought a tort action against appellant Capriati Construction Corp., Inc. ("Capriati"), after an employee of Capriati drove a forklift into a street travel lane and collided with Yahyavi's vehicle. As a result, Yahyavi was injured. Yahyavi sued Capriati for negligence. Capriati denied liability and filed a petition for bankruptcy shortly thereafter.. Following the conclusion of Capriati's bankruptcy proceedings, the case was set for trial. However, prior to trial, Yahyavi served an Offer of Judgment for $4 million dollars to Capriati. Capriati rejected the Offer of Judgment nine months before trial.
After trial, the district court struck Capriati's answer as to liability as the forklift operator admitted fault in the collision with Yahyavi's vehicle. Capriati went on to present testimony from two witnesses showing that Yahyavi's damages were exaggerated. Also, because Capriati insinuated that it would be able to satisfy a jury award, the district court instructed the jury that Capriati had liability insurance to satisfy any verdict. As a result, the jury returned a $5.9 million dollar verdict in favor of Yahyavi. $2.3 million dollars was awarded to Yahyavi in attorney's fees as the jury's verdict exceeded the $4 million dollar Offer of Judgment.
Capriati appealed to the Nevada Supreme Court on two main grounds. First, Capriati , asserted that the trial judge improperly imposed case-ending sanctions by striking its witnesses, who were going to testify that Yahyavi's damages were inflated. Second, Capriati, argued Nevada law on Offers of Judgment only allowed Yahyavi's lawyers to be paid for work after the settlement offer was rejected, not their entire contingency fee. This summary addresses only the appeal issues involving Offers of Judgment.
Offers of Judgment
Plaintiff Yahyavi was being represented by counsel on a 40-percent contingency fee basis. The jury returned a verdict of $5.9MM in favor of Yahyavi resulting in a contingency fee of $2.3MM. The trial court awarded Plaintiff the full $2.3MM in attorney's fees.
The Nevada Supreme Court rejected Capriati's arguments that Nevada's Offer of Judgment statute (NRCP Rule 68) requires the court to analyze the attorney's fees incurred after the Offer of Judgment was rejected. The Nevada Supreme Court also disagreed with the argument that the trial court was required to apportion attorney's fees to those earned post-offer pursuant to the lodestar method.1
In addition, the Court also rejected Capriati's argument and agreed with Yahyavi that a contingency fee is contingent upon the plaintiff prevailing which cannot "happen until after an offer of judgement is rejected – never before." The opinion states that a plaintiff who is represented on a contingency-fee basis may recover the entirety of the contingency fee as a post-offer attorney fee under the NRCP Rule 68. This holding is consistent with public policy justifications supporting contingency-fee agreements as a contingency-fee-based award "properly serves as a punishment for rejecting a reasonable Offer of Judgment."2
The opinion includes a strong Dissent arguing that the attorney's fees under a contingency based fee agreement "begin to be earned at the inception of the case, when the attorneys' representation of the client begins, and they continue to be earned throughout the pendency of the case. They do not materialize only upon entry of the judgment." The Dissent also notes that "while fees are not yet owed by the client at the time of the offer, they have clearly been accrued by the attorney." A defendant may not always be aware of the plaintiff's fee arrangement at the time an offer was rejected. Further, the dissent states that some analysis should be conducted as to the reasonableness of contingency fee and the majority's opinion in effect (1) requires the entirety of the contingency fee to be awarded or (2) discourages the keeping of accurate billing records. The Dissent would have required remand for further proceedings as to what fees were reasonably incurred post-offer.
1. The Lodestar method is a method adopted for calculating attorneys' fees where the court multiplies a reasonable hourly rate by a reasonable number of hours expended.
2. MEI-GSR Holdings v. Peppermill Casinos, Inc., 134 Nev. 235, 242, 416 P.3d 249, 256 (2018)(explaining that one purpose of NRCP 68 is to punish parties for not accepting a reasonable Offers of Judgment).
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