Federal Rule of Civil Procedure 68 is a risk-shifting tool designed to encourage settlements in civil litigation—in essence, it serves to penalize a plaintiff who refuses to accept a reasonable settlement offer by making him responsible for all “costs” incurred after the date on which the offer was made.  It is triggered where the plaintiff offeree refuses to settle, and then fails to obtain a judgment that is more favorable than the settlement offer.  Because an offer of judgment shifts liability for costs to the plaintiff as of the date on which it is extended, it is advantageous to the offeror to extend the offer as early in litigation as possible.  Moreover, because statutory “costs” are frequently small in relation to the overall expense of litigation, the device is most useful when it operates not only to shift responsibility for those “costs” but also when the failure to beat a Rule 68 offer can be used to require one’s adversary to pay your attorneys’ fees.

When a plaintiff asserts claims that would entitle him to collect attorneys’ fees if he prevails in litigation, whether because of an applicable statute or because of a contractual provision calling for prevailing party attorneys’ fees, a defendant making a Rule 68 offer of judgment must be absolutely clear in describing what the offer does and does not include.  For instance, if a defendant wishes to avoid a situation where the plaintiff seeks a separate award of attorneys’ fees after accepting an offer of judgment, attorneys’ fees should be expressly included in the language of the offer, either by making clear that the offer amount is inclusive of attorneys’ fees or by offering a set amount “plus reasonable attorneys’ fees.”[1]  The latter has the advantage of preventing a plaintiff who refuses the offer from including the eventual attorneys’ fee award in determining whether the judgment is more favorable than the offer—i.e., it limits inquiry to whether the judgment regarding liability is more or less than the amount offered to satisfy the defendant’s potential liability.

The effectiveness of a Rule 68 offer in encouraging a plaintiff who seeks attorneys’ fees to settle may depend on whether attorneys’ fees can be included in the definition of “costs” that are subject to the rule.  If they can, Rule 68 cuts off the plaintiff’s entitlement to seek attorneys’ fees as of the date of the offer.  However, Rule 68 itself is silent as to whether the “costs” that it covers include attorneys’ fees, and this omission is most vexing in situations when the claim for fees is based on a statute.  The Supreme Court has held that whether or not a Rule 68 offer will preclude a plaintiff from seeking attorneys’ fees is dependent upon the definitions employed by the statute giving rise to the claims asserted in the case.[2]  Where the underlying statute defines “costs” to include attorneys’ fees, such fees are to be included as costs for purposes of the Rule 68 cost shifting.  In this scenario, plaintiffs who obtain a judgment that is not more favorable than the offer of judgment will be responsible for their own attorneys’ fees incurred following the offer of judgment even if they are the prevailing party.  Such a plaintiff will not, however, be responsible for the defendant’s attorneys’ fees incurred during that period.[3]  Where the statute giving rise to an award of attorneys’ fees lists costs separately from attorneys’ fees, fees are not covered by Rule 68.  This distinction seems arbitrary—it is hard to believe that Congress was thinking about Rule 68 when it passed Title VII or other statutes allowing for recovery of attorneys’ fees.  But the rule has been around for some time now, and there does not seem to be a any significant pressure to change it.  In short, read the statute well before concluding that your Rule 68 offer will include fees.

Stay tuned for an upcoming blog post addressing the operation of Rule 68 offers in the context of Federal Rule of Civil Procedure 23 class actions and FLSA collective actions.