Court Decision Helps Define "Prevailing Party" for Paying Disbursements

The Court of Appeals issued an opinion that clarifies what constitutes a "prevailing party" for purposes of paying disbursements and whether the prevailing party is required to pay the opposing party's disbursements after service of the first offer of judgment or after the second.

The court held that a party has "prevailed" if the verdict is rendered in his or her favor, notwithstanding any pre-trial offers of settlement. The court also held that if more than one Rule 68 offer has been made, the later offers repeal and replace previous offers. The amount of costs to be paid, in the event of a verdict less favorable than the offer, is calculated based on the last offer.

Here's the background:

Appellant Steven Ernster brought a negligence action against respondents, Teddi and Terrance Scheele, seeking $500,000 in damages for injuries sustained in a motor-vehicle accident. The Scheeles admitted to liability, agreed to pay Ernster's past health-care expenses in the amount of $23,859.03, and served two total-obligation offers of judgment to the Ernster in accordance with Minn. R. Civ. P. 68.01. The first offer was for $50,000, and the second offer was for $100,000. Both offers were rejected by Ernster.

At trial, a jury awarded a total verdict of $43,859.03. A final judgment of $23,959.03 was entered in favor of the Ernster after collateral-sources received payment. Both parties applied for costs and disbursements.

In regard to the first issue, the district court determined that because Ernster obtained a judgment in his favor of more than $100, he was entitled to recover costs in the amount of $200. The court further determined that Ernster was not the prevailing party because the jury's verdict was less favorable than either of the offers of judgment. The court, therefore, required Ernster to pay the Scheeles for the disbursements they incurred after service of their first offer of judgment. Ernster appealed the decision, arguing that the district court erred in determining that he was not the prevailing party and not entitled to recover his disbursements.

The Court of Appeals of Minnesota reversed the district court's ruling, citing Borchert v. Maloney and Rush v. Jostochin its decision. In both cases, the court held the appellant is the prevailing party if the verdict and judgment rendered are in the his or her favor, even if the verdict is less than the offer of judgments served on the appellant. Importantly, the court noted the prevailing party is determined by the general result of an action, not the parties' position or strategies that produce the result.

Applying the analysis in Borchert and Rush to this case, the court held that where there has been an offer of judgment under Minn. R. Civ. P. 68.01, an offeree who obtains a verdict and judgment against the offeror is allowed reasonable disbursements as the prevailing party, even if the judgment is less favorable to the offeree than the offer of judgment and less favorable to the offeree than the limit on relief that the offeror sought at trial.

In regard to the second issue, the district court awarded the Scheeles the disbursements they incurred after service of their first offer of judgment. The Court of Appeals of Minnesota reversed that decision, holding that because the Scheeles second offer of judgment repealed and replaced the first, rejected offer of judgment, Ernster (as the prevailing party) must pay the Scheeles' disbursements incurred only after service of the second offer of judgment. Ernster was entitled only to the disbursements before service of the second offer of judgment.

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