Settlement Perspectives

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3 PerspectivesSeptember 23, 2008

Rule 68 and Offers of Judgment, Part I: How They Work and Why You Should Care

I once had a client tell me:  “I’m in the outsourcing business, not the litigation business.”  He would probably read the title to this post and say something like:  “I’m a client.  Why do I care about rule anything?”  Whether you are a client or a lawyer involved in US litigation, Rule 68 and similar state rules are important to you for two reasons:  they can get cases resolved when nothing else can, and few lawyers use them effectively.

Rule 68:  Formalizing the Settlement Offer Process

While the text of Federal Rule of Civil Procedure 68 is a bit dry, it’s not that difficult in practice.  In short, Rule 68 imposes a penalty on a plaintiff who refuses a reasonable settlement offer.  To avail himself of Rule 68′s benefits, a defendant has to offer the other side a judgment in writing – a settlement offer that, if accepted, has specific terms that can be enforced in court.  This usually means the defendant will offer the plaintiff a judgment for a specific amount, including attorneys’ fees and other items.  The offer must stay open for 10 days but, if the plaintiff does not accept the offer within those 10 days, he has to beat that offer at trial.  The upshot – if the plaintiff wins at trial but doesn’t do better than the defendant’s offer, the plaintiff is required to pay the defendant’s court costs.

What Do Offers of Judgment Actually Do?

A Quick Example First. By way of example, let’s say a defendant knows she has some liability and wants to settle the case before she spends too much more in legal fees.  She offers the plaintiff a $20,000 judgment under Rule 68.  The plaintiff, eager to hear the Court’s ruling on an important motion 11 days away, allows the offer to lapse.  A year later the plaintiff prevails in court, winning a judgment of $18,000.  Since the plaintiff failed to beat the defendant’s Rule 68 offer of $20,000, the plaintiff must pay the defendant her court costs.  If in this case court costs totaled $7,000, which wouldn’t be unreasonable for a small case, the plaintiff would only recover $11,000 from the defendant.

Technically They Only Put Court Costs at Risk. Most lawyers believe that offers of judgment don’t do much and, technically, they are right.  All Rule 68, and some similar state rules, really add is a way for defendants who lose to recover some of their expenses, like deposition costs, filing fees, and other costs incurred after the offer expires (although, as we will discuss in a later post, they can cut off plaintiffs’ claims for post-offer attorneys’ fees in some cases if those fees would have been awarded as costs).  Other rules, like California’s Rule 998 and Texas’s Rule 167, put additional fees and costs at risk, including some attorneys’ fees and expert witness fees – and, in some cases, plaintiffs can use them, too.  But our discussion of why Rule 68 works and how to make it work better in practice will apply generally to all of these rules.

They Create a Downside for the Plaintiff. If you believe plaintiffs and their lawyers ignore the exposure brought on by Rule 68, think again.  “I personally think it’s the most underutilized tool available to defense counsel,” says Louis H. Watson, Jr., who represents plaintiffs at his own firm in Mississippi.  Why is it so effective?  Watson, who occasionally has to consider Rule 68 offers, tells us that a thoughtful Rule 68 offer creates a floor he has to beat – an amount he has to better at trial, which can be a long way away.

How can we better use “the most underutilized tool available to defense counsel?”  I’ll write more on that in Part II and Part III of this series.

[In case you want links to all the posts in Settlement Perspectives' Rule 68 and Offers of Judgment Series, here they are:

Categories: Rule 68,Settlement,Tactics

3 Perspectives:

Jorge MafudSunday, September 13, 2009 12:18 pm

Hello,

I just read this article and I have to say I’m amazed… I’m a Mexican lawyer and I hope we had, in our law, a rule like this… it would certainly make things easier and, most certainly, make disputes shorter… too bad Mexican legislation doesn’t have a thing like this.

Best regards,

Jorge Mafud.
Mafud Abogados.

John DeGrooteSunday, September 13, 2009 8:24 pm

Jorge–
Thank you for visiting Settlement Perspectives, and I appreciate your comment. Even if you don’t have anything like Rule 68 in Mexico, I would hope that simply sending a written settlement offer would work for some of the reasons we mentioned in Part II of the series.

Thanks again for your thoughts–

JD

P.S. — I just took a look at your site at mafudabogados.wordpress.com; it looks great.

3 Settlement Techniques That Will Help Move A Case To Resolution – The Claims SPOTTuesday, May 25, 2010 10:03 am

[...] this tool is a great way to help move an opposing party to take a long hard look at their case. In Rule 68 and Offers of Judgment, Part I: How They Work and Why You Should Care, John gives another great overview of how these rules can assist in moving a case at impasse. We [...]

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