Centric-Jones Co. v. Hufnagel

848 P.2d 942, 17 Brief Times Rptr. 563, 1993 Colo. LEXIS 297, 1993 WL 88131

• Court: Supreme Court of Colorado
• Decided: March 29, 1993
• Docket: 92SA407
• Status: Published

Opinions

Justice MULLARKEY

delivered the Opinion of the Court.

The petitioners, Centric-Jones Company and its general partners, Nucon Construction Corporation and J.A. Jones Construction Company, have brought an original proceeding before this court pursuant to C.A.R. 21. For purposes of this opinion, we will refer to all three petitioners as Centric. Centric asks us to compel the respondent trial court to order the clerk to • enter judgment for it pursuant to its acceptance of an offer of judgment under section 13-17-202(3), 6A C.R.S. (1992 Supp.). Of concern in this case is whether the trial court was correct in finding that an entry of summary judgment in favor of one of the two defendants participating in a joint offer of judgment voids the offer. We issued a rule to show cause and now make the rule absolute, finding that the trial court erred as a matter of law.

I.

In 1987, the Colorado Department of Highways, since renamed the Department of Transportation (CDOT), undertook a project involving the modification and reconstruction of certain ramps on the I-25/6th Avenue Interchange. CDOT hired a private engineering firm, De Leuw Cather & Co., since renamed Parsons De Leuw, Inc. (De Leuw), to prepare the design, as well as the plans and specifications, and review the shop drawings for this project. Centric was hired by CDOT as the general contractor to implement the plans as set forth by De Leuw.

Errors committed by De Leuw in the design and in reviewing shop drawings caused the project to fall behind schedule. As a result, in 1989, Fought & Company, Inc., Centric’s subcontractor for the manufacture of the steel components needed in the project, brought suit and obtained a judgment against Centric for the damages it incurred due to the delay.

Centric then filed an independent action in 1991 against CDOT on grounds that, because of CDOT’s wrongful conduct, Centric suffered damages in terms of additional costs incurred from the delay and the Fought judgment. The complaint was amended in March 1992 to include De Leuw as a defendant. In June, De Leuw filed a motion for summary judgment on the grounds that Centric’s claims against it were barred by the statute of limitations. An offer of judgment was made jointly by De Leuw and CDOT on September 30, pursuant to section 13-17-202(3), 6A C.R.S. (1992 Supp.) which states in part:

At any time more than ten days before the trial begins, a party defending against a claim may serve upon the adverse party an offer of settlement to the effect specified in his offer, with costs then accrued. If within ten days after the service of the offer, the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance, together with proof of service thereof, and thereupon the clerk shall enter judgment... ,¹

The offer of judgment stated:

1. CDOT and De Leuw hereby make a joint offer of settlement, including any interest and costs to which plaintiff may be entitled as a matter of law, in the total amount of Seven Hundred Fifty Thousand and No/100 Dollars ($750,000) which shall be deemed withdrawn if this offer is not accepted by plaintiffs within ten (10) days from the date hereof.

2. This offer is intended to apply to the total amount of any judgment obtained by plaintiffs against one or both of the defendants, regardless of the claims and theory(ies) asserted by plaintiffs against the defendants, and regardless of the proration of liability between the defendants with respect thereto.

Centric orally gave a counteroffer for $1.4 million, which was rejected.

On October 8, the trial court granted the motion for summary judgment in favor of De Leuw. CDOT and De Leuw immediately attempted to withdraw the offer of judgment by a telephone call on that day and by formal letter on October 9. Knowing of the summary judgment, Centric accepted the offer of judgment despite De Leuw’s and CDOT’s attempted withdrawal. Centric filed the necessary documents with the District Court on October 9. A motion for an order directing entry of judgment was filed by Centric, but was denied by the trial court in an oral ruling. Centric then brought an original proceeding before this court.

The facts of this case raise two interrelated issues. First is the general question whether a defendant which has made an offer of judgment pursuant to the statute may withdraw that offer within ten days of making the offer. Second is the specific question whether an offer of judgment automatically is revoked if, within the ten-day period, the trial court enters summary judgment in favor of one of the two defendants which made a joint offer of judgment pursuant to the statute. In this case, the trial court held that the defendants could not revoke the offer within the ten-day period but that entry of summary judgment for one defendant made the offer “ineffectual for all purposes.” We agree that the offer was irrevocable during the ten-day period but reject the trial court’s conclusion that its entry of summary judgment voided the offer.

II.

We first address a preliminary matter of jurisdiction. The respondent trial court contends that the exercise of our jurisdiction under C.A.R. 21 is inappropriate since Centric could appeal the summary judgment order subsequent to trial. Both CDOT and Centric argue in favor of this court exercising its original jurisdiction and making the rule absolute. CDOT now wants the offer of judgment enforced and contends that it cannot settle unless De Leuw is bound by the joint offer of judgment. Both CDOT and Centric argue that it would be a waste of judicial resources to force them to go to trial.

Whether to take jurisdiction over an original proceeding is entirely within this court’s discretionary authority. See Halaby, McCrea & Cross v. Hoffman, 831 P.2d 902, 905 (Colo.1992) {citing White v. District Ct., 695 P.2d 1133, 1135 (Colo.1984)). An original proceeding is not a substitute for an appeal and in this case there are important reasons for exercising our original jurisdiction. Judicial economy favors the resolution of this matter on an original proceeding because, if the rule is made absolute, no trial is necessary. Further, the trial court’s ruling raises substantial doubt as to the proper implementation of the statute authorizing offers of judgment. Since public policy favors the early resolution of disputes in the most expeditious and inexpensive method possible, it is appropriate to review this case promptly and to provide suitable guidance to the trial courts and the bar. Accordingly, we decline to dismiss our order to show cause.

III.

A.

Having found the exercise of our jurisdiction to be appropriate under C.A.R. 21, we now turn to the question of the revoca-bility of an offer of judgment made pursuant to the statute. The parties to this action are in agreement that, generally, such an offer of judgment is not revocable within the ten-day period. We look for guidance to jurisdictions having similar statutes or rules in order to assess the correctness of the parties’ position.

The general weight of precedents, as the parties have recognized, is in consensus that offers of judgment are irrevocable.² See 12 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 3004 (1973) (and cases cited therein); 7 Part 2 James W. Moore, Moore’s Federal Practice ¶ 68.05 (Rel. 89-2/91) (and cases cited therein). See also, e.g., Mallory v. Eyrich, 922 F.2d 1273 (6th Cir.1991); Greenwood v. Stevenson, 88 F.R.D. 225 (D.R.I.1980); Rules v. Sturn, 661 P.2d 615 (Alaska 1983); Smith v. Kentucky State Fair Bd., 816 S.W.2d 911 (Ky.App.1991).

We find this approach to be well-established and persuasive. Although this is the first time we have addressed this issue, prior precedent of the court of appeals has adopted the general rule. The court of appeals found that an offer of judgment, although rejected by the offeree the day after the offer was made, remains open for the entire ten-day statutory period. Whitney v. Anderson, 784 P.2d 830 (Colo.App.) cert. denied (1989). This interpretation of the statute regarding the ten-day period is convincing to us. See also 5 Robert M. Hardaway & Sheila K. Hyatt, Colorado Civil Rules Annotated § 68.1 (2d ed. 1985) (under former C.R.C.P. 68, “the offeror has no power to withdraw his offer, once made, and ... the offeree has 10 days after the offer is served upon him in which to accept, and the offer can be deemed to be withdrawn only after there has been a failure to accept it”) (citing Wright & Miller, Federal Practice and Procedure § 3004, but noting that the opposite result may be reached under contract principles).

De Leuw acknowledges that offers of judgment are generally irrevocable, but argues that there are exceptions to the rule of irrevocability. It claims that, under contract principles, Centric’s counteroffer operated as a rejection of the offer which cut short the ten-day statutory period. Because we adopt the court of appeals’ ruling that an offer of settlement remains open for the entire ten-day period, regardless of whether the offer is rejected, however, we necessarily reject De Leuw’s contention. We hold that there are no exceptions to the irrevocability of the offer of judgment.

In our view, contract principles do not control this situation. An offer of judgment pursuant to section 13-17-202(3) is not a simple private offer of settlement. Rather, it invokes a special statutory process spelled out in clear and unambiguous language which can and should be enforced without engrafting contract principles onto it. The statute’s purpose is to encourage reasonable settlement offers by all parties. See Mallory, 922 F.2d at 1277; Janicek v. Hinnen, 34 Colo.App. 68, 73, 522 P.2d 113, 116 (1974). In order to accomplish this purpose, several key characteristics of an offer made pursuant to section 13-17-202(3) come into play.

First, the statute creates incentives to settle. Section 13-17-202(3) contains a cost-shifting provision which states, “If the judgment finally obtained by the offeree is not more favorable than the offer, the of-feree shall pay the costs incurred after making of the offer.” Both sides are required to assess carefully any offer of judgment. An offeree’s refusal of a reasonable offer shifts the cost of going forward with the lawsuit to the offeree, “who becomes exposed to the prospect of being saddled with the substantial expense of trial.” Mallory, 922 F.2d at 1278. Likewise the offeror has an incentive to make a reasonable offer. The offeror will be bound by the offer if it is accepted and the offeror can hope to recover its costs of going forward if, at trial, the offeree ultimately recovers less than the amount of the offer.

Second, the act provides very clear and definite steps to follow. The provisions of section 13-17-202(3) are mandatory and non-discretionary in several respects. Mallory, 922 F.2d at 1278-79. The parties, not the court, are the players under the statute, and the operation of the statute takes place largely outside the aegis of the trial court. Unless the offer is accepted or the amount recovered at trial is less than the offer, nothing is filed with the court concerning an offer of judgment. Furthermore, the court is required to award costs if the offer is refused and the subsequent trial judgment obtained is less favorable to the offeree than the offer, whether the offeree prevails or not. The court is not permitted to award costs to the prevailing party. The court also has no discretion to alter or modify the offer of judgment if accepted by the offeree, and the clerk must enter the judgment under the plain language of the statute, which states that "the clerk shall enter judgment.” The use of the word “shall” within a statute is presumed to be mandatory. People v. Clark, 654 P.2d 847, 848 (Colo.1982).

These characteristics, unique to a section 13-17-202(3) offer, cause this type of offer to be a matter of plain statutory interpretation, not a question of contract law. Thus, in interpreting the statute, we find that the statute states that if the offer is accepted “within ten days” of its making, judgment must be entered. We therefore hold that offers of judgment are not revocable by the offeror for the statutory period of ten days. If there has been an acceptance within that time, judgment automatically should be entered.

B.

Having established the irrevocability of the offer, we examine the voidability of the offer by the entry of summary judgment for one of the two offerors-defendants within the ten-day period. In this case, the trial court found that its summary judgment order rendered “ineffectual” the offer of judgment. In so ruling, the trial court relied on Preuss v. Stevens, 150 Ariz. 6, 721 P.2d 664, 665 (Ariz.App.1986), where the Arizona appellate court found that summary judgment voided an offer of judgment under an analogous statute. The trial court in the case now before us concluded that enforcing the offer of judgment would not be consistent with the purpose of section 13-17-202 to encourage settlement since the summary judgment “destroys the purposes for which the rule was designed.’^ Instead, the trial court stated:

If defendants can be assured that an intervening dismissal would make an offer under § 13-17-202, C.R.S. ineffectual, they could make such offers freely and in good faith in the hopes of putting an end to the litigation, but without the spectre that such an offer could deprive them of the benefit of being dismissed from the action.

We decline to adopt the Preuss approach. Although we agree that the purpose of our statute like that of Arizona is to encourage settlement, we disagree with the Arizona court’s assessment of the likely impact caused by allowing a summary judgment order to preempt an offer of judgment. We find that the purpose of the statute is served by enforcing the judgment acceptance. The defendants De Leuw and CDOT certainly knew of the pending summary judgment motion when the offer of judgment was made. At that time, they could have chosen to make a private offer of settlement with a caveat as to the outcome of the summary judgment motion. They decided to tender an offer of judgment under the statute, however, which acted to bind Centric with respect to costs regardless of whether Centric accepted the offer. Centric, of course, had no control over De Leuw’s and CDOT’s decision to make an offer of judgment or the timing of that offer. De Leuw and CDOT should not be able to put Centric at risk without any risk to themselves. Here, De Leuw and CDOT assumed the calculated risk that a favorable decision of the pending summary judgment motion might negate the need for settlement, and they lost their gamble.

Finally, as noted above, the court has a very limited role to play under the statute. It cannot initiate settlement proceedings under the statute and it has only ministerial duties to perform in enforcing the statute. It enters judgment if the offer is accepted and it awards costs if the amount recovered at trial is less than the offer. To allow the trial court’s order to preempt the running of the ten-day period would be completely contrary to the statute. The statute would lose the definitiveness and predictability which it needs to function as an effective method of settlement. If a summary judgment order served to void an offer of judgment, then presumably other significant court orders (such as an order resolving a discovery dispute) could be argued to have the same effect. If this were true, the offer-of-judgment process would be seriously impaired.

We hold that an offer under section 13-17-202(3) is both irrevocable and absolute for the ten-day statutory period. Centric’s attempted acceptance was effective because it was made within ten days of the offer. The trial court erred as a matter of law in holding that the entry of summary judgment for De Leuw voided the offer of judgment. The rule is made absolute, and the case is remanded with directions to enter judgment for Centric and against De Leuw and CDOT pursuant to the statute.

ERICKSON, J., concurs. VOLLACK, J., concurs in part and dissents in part, and SCOTT, J., joins in the concurrence and dissent.

1 . This provision replaces C.R.C.P. 68, which contained virtually identical language. The analogous provision is still set forth in the federal Code of Civil Procedure and in many state Codes of Civil Procedure as Rule 68.

2 . We are aware that there are a few jurisdictions which have found that an offer of judgment is revocable. See, e.g., T.M. Cobb Co., Inc. v. Superior Ct., 36 Cal.3d 273, 204 Cal.Rptr. 143, 682 P.2d 338 (1984); Everson v. Kapperman, 343 N.W.2d 19 (Minn.1984); Sonnenburg v. Grohskopf, 144 Wis.2d 62, 422 N.W.2d 925 (1988). These decisions are distinguishable, however, on various grounds. In Sonnenburg, 422 N.W.2d 925, the Wisconsin appellate court found a statute similar to the Colorado statute to be ambiguous in that it did not prohibit revocation. Thus it held that the contract right of revocation should be effective to promote settlement by ensuring offerors are not locked into the offer. In Cobb, 682 P.2d 338, the period within which the offeree must respond is thirty days. Applying contract principles, the California appellate court allowed negotiations, including revocation of the offer, during this extended time period in order to most effectively encourage settlement. In Everson, 343 N.W.2d 19, the statute lacked a finite time period for acceptance and the offer at issue was two years old. We find the reasoning behind these cases to be unpersuasive and to ignore other important considerations, which are discussed in the text.