When used effectively, Rule 68 of the Federal Rules of Civil Procedure gives defendants a powerful and often underestimated tool. Rule 68 allows “a party defending against a claim” to serve an offer of judgment with “the costs then accrued.”[1] The offeree then has 14 days to accept the offer, or the offer is considered withdrawn. If the offer of judgment is not accepted and the judgment that the claimant eventually obtains “is not more favorable than the unaccepted offer,” the claimant “must pay the costs incurred after the offer was made.”[2]
The Rule’s importance is enhanced in situations when it acts to impact the recoverability of—or even to shift the recoverability of—attorneys fees. As described in a prior post (http://www.sbwllp.com/rule-68-offers-of-judgment/), where attorneys’ fees can be included in the definition of “costs,” Rule 68 also cuts off such a claimant’s ability to recover these fees incurred after the date of the unaccepted offer, again, provided that the eventual judgment is less favorable than that offer. And, in cases in involving a contractual prevailing-party fee clause, a defendant’s unaccepted Rule 68 offer will usually set the bar the plaintiff must clear to be the prevailing party for fees incurred after receipt of the offer.
Although the Rule 68 offer can be made at any time until 14 days before the date set for trial,[3] it thus can have its greatest impact when used early—in particular in cases where attorneys’ fees are within the offer’s scope. Consider the scenario where a defendant makes a Rule 68 offer at the very outset of a case—for example, with the answer to the complaint—and the plaintiff does not accept it within 14 days. The parties continue to litigate for many months, perhaps years, and the offer is forgotten.
With trial approaching, the parties engage in mediation. At that point, the attorneys’ fees on both sides are likely significant. But the only way the plaintiff can now recover those fees is by obtaining a judgment that is more favorable than the Rule 68 offer made early on in the case. Indeed, the plaintiff in such a situation may be required to pay the other side’s fees—even if it obtains a judgment in its favor—if that judgment is less favorable than the Rule 68 offer, because the other side would be the “prevailing party” following an affirmative judgment that failed to equal the Rule 68 offer.[4] Meanwhile, discovery and other developments in the case may have made the likelihood or amount of the recovery less certain. The unaccepted Rule 68 offer thus leverages the risk for the plaintiff, who must win not just a judgment but a judgment in excess of the early offer if it is to recover its fees and avoid paying the defendants’ fees.
However, a defendant faces several challenges when making an early offer of judgment. Most importantly, defense counsel must identify the appropriate offer amount. The offer has to be high enough to create risk and, at least as the case proceeds, a genuine concern for the plaintiff that its final judgment, even if affirmatively in its favor, is still lower than the Rule 68 offer. Of course, the earlier the offer is made in the case, the more challenging it is for the defendant to assess the merits of the case and determine this figure.
Furthermore, it usually would be necessary to provide, in the early Rule 68 offer, that the offered amount is exclusive of fees and costs—i.e., that the offer is for a stated amount “plus reasonable attorneys’ fees,” which are to be added if the offer is accepted. This way, in most circumstances, the “number to beat” will be exclusive of costs as well—and all of the offeror’s post-offer fees would be eligible for recovery. But this means that one must offer to pay “reasonable fees” without knowing precisely what they are (but knowing that it is early in the case and that they are relatively low).
Finally, it may be hard for many defendants to accept the notion of making a substantial offer at the outset of a case, before discovery is done and battle fatigue has set in. There may be other considerations that weigh against an early offer of judgment as well. But later in the case the leverage to be gained by an offer of judgment may be significantly diminished. To put a Rule 68 offer to its greatest use, a defendant should give careful and early attention to its use.
[1] Fed. R. Civ. P. 68(a)
[2] Fed. R. Civ. P. 68(d)
[3] Fed. R. Civ. P. 68(a)
[4] This assumes that the basis for the recovery is a bilateral, prevailing-party fee-shifting agreement, as opposed to a statute entitling successful plaintiffs to recover fees.
Sarah Gohmann Bigelow
Sarah has developed her commercial litigation experience in a variety of cases in both state and federal court. She has participated in all stages of litigation in disputes arising from business tort, contract, fiduciary duty, class action, and securities claims.