Considering Whether, When and Why to Use Offers of Judgment as an Effective Settlement Tool

In most cases, the grind of litigation moves forward under the careful scrutiny of courts and within the applicable rules of civil procedure. Settlement, on the other hand, is often separate and secretive; hammered out after extensive negotiations and behind closed doors—whether informally through counsel-to-counsel discussions or through mediation. The terms of settlement agreements and releases are confidential, and the parties agree never to speak of the hostilities (or each other) ever again.

Then, there are offers of judgment – a seemingly archaic and confusing vestige of historical trial practice – but the only one on the topic of settlement. My civil procedure classes in law school did not cover offers of judgment; or more accurately, I don’t recall covering them. And while my early litigation practice involved numerous opportunities to posture, negotiate and effectuate settlements, the thought of using an offer of judgment in place of those “traditional” settlement tactics rarely, if ever, crossed my mind.

If, like me, you have found yourself confused and even slightly intimidated by offers of judgment, you are not alone. The Advisory Committee on the Civil Rules – the fine folks that draft and revise the Federal Rules of Civil Procedure – have historically been hard on Rule 68. As the procedural experts Wright & Miller point out, Judge Walter Mansfield once called the rule a “dead letter” in a 1984 memorandum while serving as Chairman of the Advisory Committee.[1] Others have described it as “complex and ambiguous,” and have tried to offer solutions, in some cases embarking on lengthy dissertations about the history of the rule and how it should be adapted to either conform to its original intent or, at a minimum, be made more effective.[2]

The fact of the matter is that offers of judgment have been part of the federal procedural framework ever since the Federal Rules of Civil Procedure were first adopted in 1938. The rule recognized, in part, that many states already had these mechanisms in place to encourage and facilitate an efficient conclusion to litigation.[3] This is why offers of judgment have been a difficult and confusing option for lawyers, particularly those who practice in multiple jurisdictions, both state and federal. The vast majority of states (with a few, but notable, exceptions) have their own offer of judgment rules and/or statutes, some of which mimic the federal rule, and others that differ dramatically with exceedingly complex cost-shifting mechanisms that can be substantial. On top of that, there is some debate about whether state offer-of-judgment rules and statutes have any application in federal courts, bringing Erie considerations of “procedural versus substantive” into play – an analysis that Wright & Miller rightly dubbed “slippery in this area.”[4]

In brief, federal Rule 68 provides that an offer of judgment must be made by the defendant at least 14 days before trial, triggering a second 14-day period within which the plaintiff may accept it.[5] If the offer is rejected or not accepted within that 14-day period, the offer is considered withdrawn.[6] If the plaintiff rejects or does not accept the offer, but ultimately obtains a judgment that is not more favorable than the unaccepted amount in the offer of judgment, the plaintiff is required to pay the defendant’s costs incurred after the time the offer was made.[7]

There are a few key observations that could explain why practitioners are reluctant to utilize offers of judgment as constructed in the federal rules, particularly in comparison to the corresponding state rules and statutes. First, only a “party defending against a claim” may make an offer of judgment; the rule does not permit the prosecuting party to avail itself of Rule 68’s cost-shifting benefits. Second, the recovery is limited to “costs,” typically items such as filing and/or administrative fees and the costs associated with subpoenas, depositions, and trial testimony.[8] Most notably, costs are defined elsewhere in the federal rules to specifically exclude “attorney’s fees,” which oftentimes substantially exceed the amount of costs incurred.[9] Third, the amount of recoverable costs is further limited only to those incurred after the offer of judgment is made. And finally, the rule is only applicable to situations in which the offeree (normally, the plaintiff) prevails at trial, albeit for less than what was set forth in the offer of judgment.[10] Should the defending party prevail, Rule 68’s cost-shifting mechanism no longer applies, and the victor is instead entitled to rely upon Rule 54 to recover all costs associated with the litigation.

That said, practitioners should not be so quick to ignore or dismiss the offer of judgment as a real and meaningful way to force a settlement. While some might question the relative effectiveness of a rule aimed at forcing a settlement with only a limited amount of costs to show for it, the threat of some financial loss, even in the face of “victory,” might sway some plaintiffs to accept an offer. Defending parties – especially those who have thoroughly evaluated and properly valued the case – can view an offer of judgment as a hedge against a potential judgment. And, if the offer is made far enough in advance of trial (i.e., before a substantial portion of the costs has been incurred), the amount of those costs could be a real factor, particularly in cases involving multiple witnesses and experts. The time limits established by Rule 68 for a response also impose real and enforceable deadlines, as opposed to the arbitrary deadlines often threatened by litigants during informal settlement discussions.

Perhaps in recognition of the federal rule’s inability to provide sufficient leverage to resolve pending litigation, some states have adopted more robust offer-of-judgment provisions aimed at giving teeth to their application and providing a legitimate reason for both parties to strongly consider their position before taking a case to trial. Given the competing considerations and the myriad of applicable state rules and statutes across the country, we at Pro Te are providing a state-by-state resource in the pages that follow, highlighting the essential components of each.

As practitioners consider the offer-of-judgment provisions applicable to their case, there are several key factors to evaluate in determining whether invoking these provisions will be advantageous:

1. Who can make an offer of judgment? The federal rule and many states that have adopted a similar approach (like Delaware, Idaho, and Indiana) only permit defending parties to make an offer of judgment, whereas many states (like Alaska, California, and Colorado) permit any party to do so. Allowing both parties to litigate under threat of an offer of judgment levels the playing field and forces each side to contemplate their willingness to litigate and risk paying costs and/or fees or settle.
2. What disincentives are in play for a party who rejects an offer of judgment? The most significant consideration is likely to be whether the state statute or rule allows the offering party to collect costs and attorneys’ fees if the other party rejects the offer. A recovery of attorneys’ fees increases the penalty for rejecting an offer of judgment dramatically. For example, Florida’s offer-of-judgment statute provides that if a plaintiff rejects a defendant’s offer and obtains a judgment that is 25% less than the amount offered, the defendant is entitled to reasonable costs, including “investigative expenses, and attorney’s fees . . . incurred from the date the offer was serviced.”[11] The statute goes even further and allows a defendant to obtain a judgment against the plaintiff in the event the amount of the costs and fees exceeds the plaintiff’s judgment, “for the amount of the costs and fees, less the amount of the award to the plaintiff.”[12]
3. Will the state statutes and/or rules apply in federal court? While the removal analysis is multi-faceted and individualistic based on the needs of the case and tolerances of the litigants, the applicability of stronger offer-of-judgment provisions is an oft-overlooked factor and should be viewed as one of the many considerations weighing on this decision. As observed in the separate survey in this issue, several federal courts have already weighed in on this issue, and a surprising number of them have permitted state statutes to be applied in federal courts as substantive provisions under Erie.
4. When can an offer of judgment be made? Most statutes and rules (including federal Rule 68) simply require that offers of judgment be made a certain number of days prior to trial. Some states’ statutes go further, and allow pre-suit offers to be made, along with consequences for the offeree should they reject it, including all costs incurred during the course of the action.[13]
5. Will the offer of judgment be filed on the docket? For those litigants who are still squeamish about publicizing settlement discussions, the requirement in some states that offers of judgment be filed in order to take effect may preponderate against their use. Similarly, the phrasing of that filing (“judgment” versus “settlement”) may cause heartburn for some parties averse to willingly publicizing judgments against them. That said, other justifications may exist for this – notice to the Court, ease of enforcement in the event of a dispute, and a perception of formality in the process, for example.
6. Does complete victory permit you to collect costs/fees? As observed in the federal rule, the failure to accept an offer of judgment only triggers the cost-shifting mechanism if the offeree prevails, albeit for less than the offer of judgment amount. In some states, however, offers of judgment take on a “both/and” flavor, permitting recovery of costs and/or attorney’s fees even when the offeror prevails at trial.

As the settlement analysis is always more complex than a set of factors, it must include the individual needs and objectives of a given litigant when determining whether to use an offer of judgment. Litigants should, however, view offers of judgment as another weapon in their arsenal to obtain a favorable settlement. Put another way, while you may not always have your opponent “dead to rights,” offers of judgment have the potential to be much more than a “dead letter.”

[1] 9 Wright & Miller, Federal Practice and Procedure § 3001 (3d ed. 2023).

[2] See Lesley S. Bonney, Robert J. Tribeck, James S. Wrona, Rule 68: Awakening a Sleeping Giant, 65 Geo. Wash. L. Rev. 379 (1997) (observing that “[l]itigants and counsel find it extraordinarily difficult to make informed decisions on the merits of making or accepting an offer of judgment under Rule 68” and proposing “an amended Rule 68 that clarifies and strengthens the present rule”);Roy D. Simon, Jr., The Riddle of Rule 68, 54 G.W. Law Rev. 1 (1985) (proposing revisions to the rule, including (1) making it apply to both defendants and plaintiffs, (2) prohibiting premature offers so the parties can adequately investigate the merits of a claim, (3) allowing sufficient time to negotiate and make counter-offers once the offer of judgment has been served, and (4) cutting off negotiations sufficiently in advance of trial to incentivize settlement before the costliest part of litigation occurs).

[3] 9 Wright & Miller, Federal Practice and Procedure § 3001 (3d ed. 2023).

[4] 9 Wright & Miller, Federal Practice and Procedure § 3001.2 (3d ed. 2023).

[5] Fed. R. Civ. P. 68(a).

[6] Fed. R. Civ. P. 68(b).

[7] Fed. R. Civ. P. 68(d).

[8] 28 U.S.C.A. § 1920 defines “costs” to include:

(1) Fees of the clerk and marshal;

(2) Fees for printed or electronically recorded transcripts necessarily obtained for use in the case;

(3) Fees and disbursements for printing and witnesses;

(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;

(5) Docket fees under section 1923 of this title;

(6) Compensation of court appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section 1828 of this title.

[9] See Fed. R. Civ. P 54(d)(1) (permitting recovery of costs “other than attorney’s fees” to a prevailing party). However, the Supreme Court recognized an important exception to this in holding that attorney’s fees were recoverable as costs under Rule 68 if permitted and defined by a specific federal statute like 42 U.S.C. § 1988. Marek v. Chesny, 473 U.S. 1, 8–9 (1985) (“[A]bsent congressional expressions to the contrary, where the underlying statute defines ‘costs’ to include attorney’s fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.”).

[10] See Fry v. Bd. of Cty. Comm’rs of Cty. of Baca, State of Colo., 7 F.3d 936, 943–44 (10th Cir. 1993) (citing Delta Air Lines, Inc. v. August, 450 U.S. 346, 351 (1981)).

[11] Fla. Stat Ann. § 768.79(7)(a).

[12] Id.

[13] See, e.g., Iowa Code § 677.2 (providing that a plaintiff’s rejection of a “pre-action” offer exposes them to paying “all costs of the action” should they fail to obtain a judgment that exceeds the amount offered).

Finis