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From John DeGroote's Settlement Perspectives
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.
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. 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.
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