3 PerspectivesSeptember 26, 2008

Rule 68 and Offers of Judgment Part II: Why They Work and How to Use Them

While I wrote previously about how Rule 68 works in Rule 68 and Offers of Judgment Part I:  How They Work and Why You Should Care, most people haven’t considered why it works.  This post outlines some of the reasons why offers of judgment, under Rule 68 or otherwise, can be so effective in getting cases settled.

As outlined in Part I, Rule 68 imposes a penalty on a plaintiff who refuses a reasonable settlement offer and doesn’t beat that offer at trial.  At risk are court costs which, admittedly, don’t create a significant financial exposure.  Big numbers or not, the Rule can still be effective if used under the right circumstances.

Why Does Rule 68 Work?

Rule 68 works because lawyers have to communicate settlement offers to their clients, and a Rule 68 offer of judgment is a settlement offer that creates a downside risk for the plaintiff. The discussion between a plaintiff and his lawyer, and the risks and rewards a Rule 68 offer presents, create opportunities to get the case settled.  Why?

• It’s a new risk. This rule can significantly reduce (or even eliminate) a plaintiff’s victory if the plaintiff ultimately wins less than the defendant offered;
• It’s a new fact. Rule 68 often gives defendants control over when the plaintiff first learns that he has any litigation risk at all – a timing advantage that should not be ignored;  and
• It’s a new opportunity. A Rule 68 offer can serve as the catalyst to force decisions by the plaintiff and his lawyer – decisions that can get cases settled.

What Happens Behind (The Other Side’s) Closed Doors?

No two cases, lawyers or clients are the same, so I can’t tell you what will happen when you serve a Rule 68 offer in your case.  But I do know that, because Rule 68 offers have a 10-day fuse, a conversation between the plaintiff and his counsel will happen soon after you serve your Rule 68 offer.

There is no way to know what your opposing counsel and her client will focus on in the 10 days (and nights) the offer is open — will it be the 2 years it has taken to get to this point, their concerns about what Ms. Jones will say in her deposition 11 days away, the reputational exposure the case presents, their own cash flow requirements, their other cases, or something else?  Will your offer be just the platform the plaintiff’s counsel needs to have that “tough discussion” with her client?  How will the plaintiff, already in unfamiliar territory, react to the fact that he didn’t know until now that he might have to pay your costs?

We can only guess when the tough questions would have been asked in your case without your Rule 68 offer.

What Options Do They Really Have?

Several situations are particularly well-suited for Rule 68 offers, and I’ll discuss those cases further in Part III of this series.  But no matter what type of case you have, you know your opponents have to act on your offer.  And it seems they only have 4 paths to take once they do:

• Proceed anyway, ever mindful of this new risk if the matter goes to trial;
• Proceed anyway, but abandon or limit their most venturesome claims and discovery in order to keep costs down;
• Propose further settlement discussions or mediation since you appear serious about settlement;  or
• Accept your offer outright (for whatever reason).

I don’t mind any of those outcomes.  Do you?

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

• Rule 68 and Offers of Judgment, Part I:  How They Work and Why You Should Care;
  
• Rule 68 and Offers of Judgment, Part II:  Why They Work and How to Use Them (this post);
  
• Rule 68 and Offers of Judgment, Part III:  9 Situations Where They Just Might Work;
  
• Claims for Attorneys' Fees: How Rule 68 Can (Sometimes) Help;
• Ambiguities in Rule 68:  Why Are They Relevant to You?; and
  
• Rule 68 Offers:  A Few Sample Forms to Get You Started.]
  

Categories: Rule 68,Settlement,Strategy,Theory

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