Third Circuit Approves Use of Rule 68 Offer of Judgment

Rule 68 of the Federal Rules of Civil Procedure has been characterized by some as the most overlooked or underutilized tool available to defense counsel in federal litigation. And until last month, the tool was more or less unavailable in environmental citizen suits because its cost-shifting provision was considered to be "simply inimical to the goal of encouraging law firms to represent plaintiffs in such actions." But that all changed when the U.S. Court of Appeals for the Third Circuit issued its June 4 decision in Interfaith Community Organization v. Honeywell International, Nos. 11-3813 and 11-3814, the first reported decision in the country holding that Rule 68 offers of judgment are in fact valid in the context of an environmental citizen suit.

Rule 68's cost-shifting provision is intended to make a plaintiff "think very hard" before rejecting a settlement offer and continuing with its litigation, according to Marek v. Chesny, 473 U.S. 1 (1985). Under the rule, a defendant may serve an offer of judgment "on specified terms, with the costs then accrued," on a plaintiff at any time during the case, provided that it is at least 14 days before the date set for trial (or, if the defendant's liability has already been determined, within a reasonable time preceding a hearing to determine the extent of such liability). If the plaintiff then rejects the offer, and obtains a judgment that is "not more favorable" than the rejected offer, the plaintiff must pay for "the costs incurred after the offer was made." Rule 68 thus places on plaintiffs the risk of being responsible for "costs" in the event they decline an offer of judgment. Though "costs" are, in many cases, limited to relatively modest court costs such as copying expenses, transcript costs and witness attendance fees, the fee-shifting provisions of most environmental statutes are different in that they specifically allow for the recovery of attorney fees as part of "costs." In this way, a Rule 68 offer of judgment can provide important strategic leverage to a defendant in an environmental citizen suit because a plaintiff that chooses to reject an offer of judgment not only risks having to pay both parties' court costs, but also risks losing its right to recover all of its post-offer attorney fees. Indeed, until the Third Circuit's decision in Interfaith Community, all of the reported decisions addressing the issue found these risks to be so significant that offers of judgment could not be made in environmental citizen suits.