Kenneth E. Pitcoff and Andrea M. Alonso

An offer of judgment, pursuant to Federal Rule of Civil Procedure 68, is used to encourage settlements and protect parties willing to settle early in the litigation process. It is an extremely useful tool as it allows the defendant to make a pre-trial offer of judgment on specified terms, saving both parties the costs involved with extended litigation. There are, however, important nuances to using this strategy successfully.

The foundation of this tool comes from Rule 68(a) of the F.R.C.P., which reads:

At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment.

Section (d) of the rule continues by stating if the offeree does not accept the offer of judgment and the final judgment obtained by the offeree is less favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made. Rule 68(d) does not apply if judgment is rendered for the defendant. The offeree must pay for any costs incurred after the offer of judgment is made only when the judgment ultimately rendered for the offeree is less than the total offer of judgment. If there is a ruling for the plaintiff and the judgment is less favorable than the initial offer, the court may exercise discretion in the matter and the plaintiff must pay the costs incurred.

When using offer of judgment to settle a case with multiple plaintiffs, all offerees must agree to the offer before it can be considered accepted and valid. If a defendant sends an offer of judgment that is rejected by the plaintiff, and a trial judgment is then rendered for that defendant, defendant may request to recover costs under F.R.C.P. 54(d), which allows judicial discretion in the determination of costs awarded.

Counteroffers do not terminate the power to accept an offer of judgment. In Pope v. Lil Abner's, 92 F. Supp. 2d 1328 (S.D. Fla. 2000), defendant made an offer of judgment pursuant to F.R.C.P. Rule 68, which plaintiff counteroffered six days later. When defendant rejected the counteroffer, plaintiff accepted the initial offer of judgment, and the court upheld this acceptance as valid. Multiple courts have held that offers of judgment are irrevocable, and not subject to the doctrine of rescission, despite otherwise being interpreted according to basic rules of contract law. See Webb v. James, 147 F.3d 617, 620-21 (7th Cir.1998) (holding that Rule 68 contracts are not subject to the doctrine of rescission under principles that preclude the offeror from revoking its Rule 68 offer); see also Radecki v. Amoco Oil Co., 858 F.2d 397, 402 n. 6 (8th Cir.1988) (noting that federal courts deem Rule 68 offers to be irrevocable).

A Rule 68 offer of judgment remains valid for the statutorily prescribed 14-day period, despite an intervening entry of summary judgment in favor of the party making the offer of judgment. See Perkins v. U.S. W. Commun., 138 F.3d 336, 338 (8th Cir. 1998).

Drafting Concerns

Drafting an effective offer of judgment requires specificity. In order to satisfy the "more favorable" threshold, an estimated offer of judgment should include aggregate costs, including pre-offer of judgment costs such as clerk and marshal fees, costs for service of process of complaints, witness deposition costs, docket fees, costs for service of trial subpoenas, and more. It is wise for attorneys to look at the overall prayer for relief in the case complaint and specifically list each type of relief sought as being satisfied by the judgment if accepted. This will avoid any complication or confusion at the time of final settlement.

Attorney Fees?

Two notable types of offer of judgment are distinguished by the acknowledgement of attorney fees as included costs. While Rule 68 does not explicitly include attorney fees as costs for an offer of judgment, when the statute at issue in the case defines costs to include attorney fees, the offeree may be able to recover all reasonable attorney fees accrued after the delivery of the offer of judgment. Many statutes, such as 42 U.S.C. 1983, Title VII, and other antirust, securities and civil rights acts define the term "costs" in litigation to include attorney fees. However, statutes such as the Fair Labor Standards Act (FLSA), Age Discrimination in Employment Act (ADEA), and other statutes regarding credit, bankruptcy, housing and social security do not interpret costs as including attorney fees. See Federal Credit Union Act, 12 U.S.C. §1786(p); see also Fair Housing Act of 1968, 42 U.S.C. §3612(c); Social Security Act, 42 U.S.C. §406(b), among others.

If an offer states that costs are included or specifies an amount for costs, and the plaintiff accepts the offer, the judgment will necessarily include costs. However, if the offer does not state that costs are included or an amount for costs is not specified, the court will be obliged by the terms of the Rule to include (or omit) in its judgment an additional amount for costs. See Delta Air Lines v. August, 450 U.S. 346 (1991). When the offer of judgment settles both the underlying claim plus additional costs and attorney fees, there is a sense of overall cost-certainty, however, this number may not always be accurate.

Alternatively, if an offer of judgment is silent as to whether it includes costs and fees, the plaintiff may be able to recover more than the rejected offer, as extrinsic evidence will be brought in and could complicate the settlement proceedings. For example, the U.S. Court of Appeals in Crossman v. Marcoccio, 806 F.2d 329 (1st Cir. 1986) held that that Rule 68 can never require a prevailing civil rights plaintiff to pay the defendants' post-offer attorney fees.

When an offer of judgment settles only the underlying claim and leaves the recovery amount of costs and fees to the court's discretion, the offeror/defendant can accurately determine the projected judgement. However, this may be seen as "lowballing", and the judgment at trial will likely be more favorable for the plaintiff. The offer does not need to outline a breakdown of the proposed amount and explain what portion is designated to which underlying claims and costs. However, it is important when drafting to have an understanding of where the offer amounts would be separated and apportioned to in order to accurately draft the offer.

Conclusion

Using an offer of judgment, pursuant to Rule 68(a) of the F.R.C.P. can be very useful to expedite the settlement process. The decision to use an offer of judgment to settle a case should be determined ad-hoc, depending on the nature and circumstances of each case. However, in a potentially costly litigation, it may be wise to consider a Rule 68 offer of judgment. With careful calculation and effective drafting, a case can be quickly settled, saving all parties time, energy and money.

Kenneth E. Pitcoff and Andrea M. Alonso are partners at Morris Duffy Alonso & Faley. Michelle Capobianco, a paralegal, assisted in the preparation of this article.