Be Wary of the Effect Substantive Law Provisions Have on Offers of Judgment

It is well known that Offers of Judgment and Florida Courts’ interpretations of the Statute and Rule governing them are continually changing. Certainly Florida Rule of Civil Procedure 1.442 and Florida Statute § 768.79 provide the requirements for the form, language, method and timing of service of an Offer of Judgment; however, Florida Circuit Courts are still split on various issues related to the Offers. We will address these splits in a later entry as in this entry we will focus on a recent Florida Supreme Court Decision that has answered several questions as to Offers of Judgments that are of particular concern to contractors and sureties. The Florida Supreme Court in Southeast Floating Docks, Inc., et al. v. Auto-Owners Ins. Co., 82 So.3d 73 (Fla. 2012) looked at the status of Fla. Stat § 768.79 as substantive or procedural law, the enforcement of an Offer of Judgment made in a matter in which the parties entered into a contract with a choice-of-law provision applying another states substantive law and the interplay of public policy concerns related to both Offers of Judgment and choice-of-law provisions.

Southeast, involved a construction matter in which Auto-Owners, as surety, issued a bond in favor of the general contractor securing performance of a subcontractor, Southeast Floating Docks, Inc., (“SFD”) for the construction of a floating dock. SFD had contracted with Rivermar Contracting Company (“Rivermar”) for the construction of the floating dock, after which a dispute arose as to the construction of the dock and Rivermar filed suit against SFD and Auto-Owners for breach of contract. Prior to trial, Auto-Owners entered into a settlement agreement with Rivermar and settled the underlying action. Auto-Owners then instituted an action against SFD based on an indemnity clause in the contract with SFD and its president, Alan Simpson, individually. The contract containing the indemnity clause between Auto-Owners, SFD and Simpson included a choice-of-law clause that provided for the substantive law of Michigan to apply to all disputes arising under the contract. At trial, the jury determined that Auto-Owners had entered into the settlement agreement with Rivermar in bad faith and as a result, negated the indemnity clause of the contract between Auto-Owners, SFD and Simpson. Thereafter, Auto-Owners moved for a new trial which was granted. The retrial was scheduled for ten (10) months after the end of the initial trial. Approximately four (4) months prior to the retrial, SFD served Auto-Owners with an Offer of Judgment in the amount of $300,000.00 for settlement of all claims. Auto-Owners did not accept the Offer and the trial court entered summary judgment in their favor. SFD appealed the order granting a new trial. The granting of the retrial was reversed with the direction that the jury finding of bad faith in the initial trial be reinstated. SFD then moved for attorneys’ fees and costs pursuant to their rejected Offer of Judgment served prior to the entry of summary judgment following the granting of a new trial. The trial court denied SFD’s motion for fees and costs and the denial was appealed. The question as to the status of Fla. Stat. § 768.79 as substantive or procedural law was certified to the Florida Supreme Court.

The Court turned to Article V, section 2(a) of the Florida Constitution in determining the status of Fla. Stat. § 768.79. The Court noted that Article V, section 2(a) grants the Court the exclusive authority to adopt rules of judicial practice and procedure for state actions brought in Florida. Alternatively, the Legislature is charged with the responsibility of enacting substantive law. Southeast, at 78. See also Allen v. Butterworth, 756 So.2d 52, 59 (Fla. 2000); TGI Friday’s, Inc. v. Dvorak, 663 So.2d 606, 611 (Fla. 1995). However, as is the case with Offers of Judgment, both the Legislature and the Court have enacted measures controlling their use and availability. In situations where two branches of government are both given authority to enact rules and laws on a subject, the Court must look to the requirements placed on the Court by the Legislature in determining the nature of the statute and rule. Massey v. David, 979 So.2d 931 (Fla. 2008).

The Court had previously determined that the Offer of Judgment statute was both substantive and procedural in nature. See Knealing v. Puelo, 675 So.2d 593 (Fla. 1996); TGI Friday’s 663 So.2 at 611. The Court noted that because the statute sets out the circumstances under which a party was entitled to fees and costs under which a court must award fees and costs, the Legislature had created a substantive right to the fees and costs. Id. Additionally, the Court relied on its ruling in TGI Friday’s, noting that since the Offer of Judgment statue altered the common law rule that a party is responsible for its own attorney’s fees, it was “clear that the circumstances under which a party is entitled to costs and attorney’s fees is substantive.” Southeast, 82 So.3d at 79. Finally, the Court relied on the plain language of the statue in determining that due to the statute’s express limiting of judicial discretion as to the calculation of the fees and costs awarded when the provided requirements are met, the statue is substantive in nature as it relates to both constitutional and conflict of law issues. Id.

The Court stated that, “[a]n agreement between parties to be bound by the substantive laws of another jurisdiction is presumptively valid, and this Court will enforce a choice-of-law provision unless applying the chosen forum’s law would contravene a strong public policy of this State.” Id at 80. It is undisputed that there is a public policy concern with the enforcement of the Offer of Judgment statute as it has been widely held that the statue was enacted to deter parties from rejecting reasonable settlement offers by imposing sanctions through a requirement to pay the opposing party’s fees and costs incurred in either bringing or defending an action. See Attorneys’ Title Ins. Fund, Inc. v. Gorka, 36m So.3d 646 (Fla. 2010); and, TGI Friday’s, 663 So.2d at 611. However, the public policy at play in the desire for litigants to accept reasonable offers does not out way the even greater public policy of protecting ones freedom to contract. Southeast, 82 So.3d at 81. Accordingly, the Court determined that the Offer of Judgment statue was a substantive right and that in an instance where parties mutually agree, through contract, to be bound by the substantive laws of another jurisdiction, Fla. Stat. § will not apply. Id at 82.

Therefore, general contractors, subcontractors and carriers should consider the effects of choice-of-law clauses regarding the substantive law to be applied in a dispute arising out of a contract. Should such a clause be agreed to, special care must be taken by the attorneys litigating the dispute to determine the controlling state’s laws regarding Offers of Judgments and their like.