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Settlement Analysis

The decision in this case will result in systematic extortion of inflated settlements in fee shifting cases. That is not a criticism of the decision, however, for a contrary holding would result in deflated settlements, just as systematically.

The problem lies with sec. 807.01, which simply does not account for fee shifting statutes.

To understand why, let us assume that Pachowitz’s offer was not invalid because of the multiple defendants. Under the court’s reasoning, had there been only one defendant involved, Pachowitz would have been a prevailing party.

The court did not discuss how much of Pachowitz’s attorney’s fees were incurred before the offers, and how much afterwards, except to state that the offers occurred before the summary judgment motion.

Here, the underlying claim had a value of $3,000, and at some point, the defendants offered $5,000. If, up to that point, Pachowitz had already incurred more than $2,000 in attorney fees, then Pachowitz was right to reject it, and LeDoux would not be found a prevailing party under the statute.

If, however, Pachowitz had only incurred $1,000 in attorney fees at the time of the offer, the just holding would be that the defendants were the prevailing parties, and they, rather than Pachowitz, should recover costs.

Given the small difference between $3,000 and $5,000, we can assume that Pachowitz had already incurred $2,000 in attorney fees by the time of the offer, and that Pachowitz was right to reject it. The court’s holding that the defendants’ offer was invalid is thus a just one.

Had the court held that only the jury award should be compared to the settlement offers, not including any attorney’s fees, plaintiffs would routinely and unjustly be saddled with defendants’ costs, merely because they rejected what were obvious lowball offers that did not account in any way for the attorney’s fees that they had incurred and for which they were entitled to be compensated.

Here, Pachowitz’s settlement offer was $25,000 for a claim worth only $3,000. This offer was made, not merely before trial and the various postverdict motions, but even before the summary judgment motion, and a request to the court of appeals for leave to file an interlocutory appeal.

We can thus safely assume that, while her attorney’s fees exceeded $2,000 at the time of the offer, they were nowhere near $22,000. Viewed in this light, Pachowitz’s offer was unreasonably high, and the defendants were reasonable to reject it.


Wisconsin Court of Appeals

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Settlement offers must
account for attorney fees

A fair statutory scheme would not punish the defendants with double costs and prejudgment interest for rejecting such an offer. The court’s interpretation of the statute, however, has exactly that effect.

Thus, the decision necessarily results in defendants being coerced into settling cases for more than they are worth — not the value of the claim, plus the attorney’s fees incurred at the time of the offer, but the value of the claim, plus whatever the attorney’s fees would have been if the case did not settle at an early date.

There is Supreme Court precedent which would strongly support a defendant who argues that settlement offers should be compared to the jury award, plus only those attorney’s fees incurred at the time of the offer.

In Nelson v. McLaughlin, 211 Wis.2d 487, 565 N.W.2d 123 (1997), the Supreme Court spoke at great length about the purpose of sec. 807.01 being to “encourage,” but not “unreasonably force” settlements. Nelson, 211 Wis.2d, at 501-504.

However, the statute itself is void of any similar support, and so there is a good chance that, even if the Supreme Court agreed, it would
tell the defendant making the argument to go look to the legislature for relief.

– David Ziemer

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David Ziemer can be reached by email.

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