Federal Rule of Civil Procedure 68 permits a party defending against a claim to make a formal offer of judgment. If the plaintiff either rejects the offer or fails to respond within ten days and eventually obtains a trial judgment “not more favorable” than the rejected offer, it must pay for “the costs incurred after the offer was made,” which may include a recovery of attorney’s fees.
A Rule 68 offer of judgment is an often-overlooked tool for defendants. Used strategically, it can apply pressure on plaintiffs to settle early or enable the defendant to obtain some portion of its attorneys’ fees and costs. In effect, Rule 68 forces the plaintiff to (a) consider the likely value of its claim against the costs the defendant will incur to take the case to trial, (b) think long and hard before rejecting a reasonable settlement offer.
Rule 68 is not always a compelling deterrent to plaintiffs because the “costs” potentially taxable to the plaintiff are often limited to expenses itemized in federal law (which typically do not include attorney’s fees). However, in certain circumstances, Rule 68 does offer a defendant the opportunity to obtain its attorneys’ fees, in addition to costs.
Where the plaintiff sues under a statute that defines “costs” as including attorneys’ fees—such as the Clean Air Act, the Clean Water Act, or certain civil rights laws—a defending party may recover its attorney’s fees incurred after the offer of judgment is rejected if the plaintiff later obtains a recovery less favorable than the defendant’s offer. If the case involves the breach of a contract containing a fee-shifting provision which defines attorneys’ fees as included in “costs,” the successful use of an offer of judgment may also permit a defendant to recover its attorneys’ fees. Further, some states have their own corollaries to Rule 68 that expressly include attorney’s fees as part of the recovery following the plaintiff’s rejection of a reasonable settlement proposal.
There are many considerations that a defending party should discuss at length with its attorney prior to making an offer of judgment. First, the offering defendant must have a realistic idea of its likelihood of success at an eventual trial. If, for example, the defendant determines that it is unlikely to win at trial, but concludes that any award to the plaintiff would be minimal, it may be appropriate to make an offer of judgment. Second, the offering defendant should consider the timing of the offer of judgment. If the defendant has a dispositive motion pending, it may be inadvisable to make an offer of judgment, while it may be beneficial to make an offer of judgment just over ten days before the parties fly to London to take depositions.
The goal of Rule 68 is to make the plaintiff think carefully about accepting a reasonable settlement offer. However, because a defendant who wins at trial cannot take advantage of an offer of judgment, defendants should have the dual goals of setting up a potential award of attorney’s fees and obtaining a reasonable settlement of the case. If a defendant elects to make an offer of judgment, it should likewise be prepared for the plaintiff to accept that offer. If, however, the plaintiff does not accept the offer of judgment, the defending party has put itself in an advantageous position to obtain its attorneys’ fees at the end of litigation.