Rule 68: The Often-Overlooked Defense Tool

The often-overlooked offer of judgment rule ' Federal Rule of Civil Procedure (FRCP) 68 ' may be a valuable tool for defendants if carefully employed. An offer of judgment's primary benefit is its obvious risk-shifting effect. Rule 68 forces plaintiffs, particularly small plaintiffs, to proceed cautiously in the face of mounting costs and uncertainty. FRCP 68 provides, in pertinent part, that:

[a]t any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued … An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs. If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.

The Supreme Court has found Rule 68 to express a clear policy of favoring the settlement of lawsuits.

Ian H. Fisher, Federal Rule 68, A Defendant's Subtle Weapon: Its Use and Pitfalls, 14 DePaul Bus. L.J. 89, 91 (2001) (citing Marek v. Chesny, 473 U.S. 1, 6 (1985)). Where a plaintiff rejects an offer of judgment, it is thereafter faced with the possibility of: 1) paying a defendant's post-offer costs; and 2) being precluded from recovering its own post-offer costs. Moreover, Rule 68 may be particularly effective against the contingency fee plaintiff. Plaintiffs who have retained counsel on a contingency fee basis are especially sensitive to Rule 68 offers of judgment. Until a Rule 68 offer is made, the contingency fee plaintiff faces no real direct financial risk in pursuing the litigation. A Rule 68 offer, however, forces the contingency fee plaintiff to weigh the possibility of having to pay the defendant's costs against the likelihood of obtaining a judgment more favorable than the Rule 68 offer. (This article does not address the application of Rule 68 in the class action and multiple plaintiff contexts. Some of the suggestions contained in this article may not be applicable in those contexts.) In product liability cases 'particularly damages cases involving years of discovery and expensive experts ' Rule 68 may be an invaluable defense weapon.

Using Rule 68 to Drive Settlement Negotiations

Like any litigation tactic, Rule 68 must be employed skillfully in order to achieve the desired outcome. In particular, the timing and language of a Rule 68 offer are critically important.

It is important to note that Rule 68 places no limits on the number of offers that can be made over the course of a given case. As such, it may be advantageous to make an early and relatively unsubstantial Rule 68 offer. Making an early and relatively unsubstantial offer has several upsides and involves little risk. A plaintiff is only responsible for post-offer costs under Rule 68. An early offer necessarily yields a higher aggregation of costs. As such, the earlier the offer, the greater the financial pressure that is placed on the plaintiff. The sooner the offer is made, the sooner the plaintiff will have to consider the possible application of Rule 68's cost-shifting provisions.

While earlier, less substantial offers may involve relatively simple calculations, subsequent offers ' which are made with the more immediate intent to drive settlement ' typically involve more sophisticated calculations. As with any settlement negotiation, offers made pursuant to Rule 68 require a case-specific inquiry. Beyond the obvious considerations involved in making general settlement offers, some additional factors should be considered when making a Rule 68 offer of judgment.

Publicity. It is necessary to consider the sensitivity of a given defendant to negative publicity. This is especially true when the defendant is a large corporation and there is a potential “street precedent” that might be set by settlement. The publicity concerns, however, arise out of a common misperception of the language contained in Rule 68. Specifically, Rule 68 states that a defendant may “offer to allow judgment to be taken against” it. If an offer under Rule 68 is accepted, a judgment will be entered against the defendant. The possible negative implications are obvious ' the media may report that a judgment was obtained against the defendant when, in fact, an offer of judgment is much more akin to a settlement.

Although the prospect of negative publicity may counsel against the use of Rule 68 by certain defendants, offers that are carefully crafted may actually mitigate publicity problems. Generally, plaintiffs will accept a confidentiality provision in exchange for a higher settlement amount. An offer made pursuant to Rule 68 should be calculated with this in mind ' as it allows a publicity-sensitive defendant to use Rule 68 in its favor.

Another way to deal with the publicity concern is to refocus media attention on the fact that a judgment under Rule 68 is, in actuality, a settlement. In his article, Fisher makes several suggestions for publicity-sensitive defendants; for example, they may highlight the fact that the judgment is for an amount less than the plaintiff sought in its complaint. He also suggests that the use of liability and admissions disclaimers may aid in overcoming publicity concerns. The inclusion of an admission or liability disclaimer as part of a Rule 68 offer of judgment has been held not to invalidate the offer. See Mite v. Falstaff Brewing Corp., 10 F.R.D. 434, 435 (N.D. Ill. 1985). However, the inclusion of such language may affect a court's decision as to who “prevailed” for purposes of Rule 68.

When is the Judgment More Favorable than the Offer? In order for the cost-shifting provisions of Rule 68 to be triggered, the offer made pursuant to Rule 68 must have been more favorable than the judgment finally obtained. Although at first blush this might appear to be a simple determination, a closer look reveals that whether a judgment on the merits is more or less favorable than a Rule 68 offer is a complicated issue.

For example, suppose that an offer pursuant to Rule 68 is made in the amount of $100 and includes a statement disclaiming any liability, and subsequently the plaintiff is awarded a $99 judgment on the merits. Is the judgment more favorable than the offer? At least one court has held that such an offer was less favorable than the judgment because it included a liability disclaimer. See, e.g., Spiegel v. Cortese, 196 F.3d 717, 722 (7th Cir. 1999).

Likewise, when non-monetary relief is involved, it is possible for a judgment reflecting a lesser dollar value to be deemed more favorable based on the inclusion of non-monetary relief, such as injunctive relief. As Fisher cautions, it is important to note that while some courts have refused to consider non-monetary relief in determining whether the Rule 68 cost-shifting provision has been triggered, most courts will consider non-monetary relief for this purpose.

Consequently, it is important to consider the effect of non-monetary relief and disclaimers in determining whether a Rule 68 offer is more or less favorable than a judgment on the merits. It should also be noted that these considerations may bear on the determination of whether attorneys' fees are awarded – especially where an underlying statute allows the court to award attorneys' fees to the prevailing party.

Defining Costs Under Rule 68. The costs typically recoverable under Rule 68 are those described in 28 U.S.C. '1920, which include:

1) Fees of the clerk and marshal;

2) Fees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case;

3) Fees and disbursements for printing and witnesses;

4) Fees for exemplification and copies of papers necessarily obtained for use in the case;

5) Docket fees under section 1923 of Title 28;

6) Compensation of court appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section 1828 of Title 28.

Although these costs are usually awarded in connection with a Rule 68 offer, additional costs provided by law cannot be overlooked. For example, some statutes provide for an award of attorneys' fees. Where a contract or statute provides for an attorneys' fees award, the practitioner must take this into account when crafting the Rule 68 offer.

In determining how to deal with a statute that permits the awarding of attorneys' fees, it is first important to discern whether the statute refers to the attorneys' fees as part of costs generally ' or as separate from costs. Where attorneys' fees are included within the definition of costs, the drafter of an offer of judgment must take this into account. Where attorneys' fees are separate from costs, the drafter of an offer of judgment must be careful to account for the attorneys' fees in some manner. If an offer pursuant to Rule 68 is silent as to attorneys' fees ' where the underlying statute treats fees as separate from costs ' the court may award attorneys' fees beyond the specifications of the offer. Therefore, where attorneys' fees must be dealt with separately from costs, the Rule 68 offer must clearly define the treatment that attorneys' fees are to receive under the offer.

Conclusion

The power of Rule 68 in driving settlement negotiations should not be overlooked. This is especially true with regard to contingency fee plaintiffs. However, careful drafting is of the utmost importance when making an offer pursuant to Rule 68. For the unwary practitioner, a Rule 68 offer can result in an undesirable situation for the client from a publicity standpoint. Likewise, defense counsel must be careful to ensure that acceptance of the offer does not result in an unintended award of attorneys' fees for the plaintiff. While attention to detail is imperative, defense counsel should not shy away from a Rule 68 offer, but instead, carefully and aggressively evaluate the corresponding costs and benefits of making an offer of judgment ' particularly at the onset of the case.

The often-overlooked offer of judgment rule ' Federal Rule of Civil Procedure (FRCP) 68 ' may be a valuable tool for defendants if carefully employed. An offer of judgment's primary benefit is its obvious risk-shifting effect. Rule 68 forces plaintiffs, particularly small plaintiffs, to proceed cautiously in the face of mounting costs and uncertainty. FRCP 68 provides, in pertinent part, that:

[a]t any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued … An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs. If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.

The Supreme Court has found Rule 68 to express a clear policy of favoring the settlement of lawsuits.

Ian H. Fisher, Federal Rule 68, A Defendant's Subtle Weapon: Its Use and Pitfalls, 14 DePaul Bus. L.J. 89, 91 (2001) (citing Marek v. Chesny , 473 U.S. 1, 6 (1985)). Where a plaintiff rejects an offer of judgment, it is thereafter faced with the possibility of: 1) paying a defendant's post-offer costs; and 2) being precluded from recovering its own post-offer costs. Moreover, Rule 68 may be particularly effective against the contingency fee plaintiff. Plaintiffs who have retained counsel on a contingency fee basis are especially sensitive to Rule 68 offers of judgment. Until a Rule 68 offer is made, the contingency fee plaintiff faces no real direct financial risk in pursuing the litigation. A Rule 68 offer, however, forces the contingency fee plaintiff to weigh the possibility of having to pay the defendant's costs against the likelihood of obtaining a judgment more favorable than the Rule 68 offer. (This article does not address the application of Rule 68 in the class action and multiple plaintiff contexts. Some of the suggestions contained in this article may not be applicable in those contexts.) In product liability cases 'particularly damages cases involving years of discovery and expensive experts ' Rule 68 may be an invaluable defense weapon.

Using Rule 68 to Drive Settlement Negotiations

Like any litigation tactic, Rule 68 must be employed skillfully in order to achieve the desired outcome. In particular, the timing and language of a Rule 68 offer are critically important.

It is important to note that Rule 68 places no limits on the number of offers that can be made over the course of a given case. As such, it may be advantageous to make an early and relatively unsubstantial Rule 68 offer. Making an early and relatively unsubstantial offer has several upsides and involves little risk. A plaintiff is only responsible for post-offer costs under Rule 68. An early offer necessarily yields a higher aggregation of costs. As such, the earlier the offer, the greater the financial pressure that is placed on the plaintiff. The sooner the offer is made, the sooner the plaintiff will have to consider the possible application of Rule 68's cost-shifting provisions.

While earlier, less substantial offers may involve relatively simple calculations, subsequent offers ' which are made with the more immediate intent to drive settlement ' typically involve more sophisticated calculations. As with any settlement negotiation, offers made pursuant to Rule 68 require a case-specific inquiry. Beyond the obvious considerations involved in making general settlement offers, some additional factors should be considered when making a Rule 68 offer of judgment.

Publicity. It is necessary to consider the sensitivity of a given defendant to negative publicity. This is especially true when the defendant is a large corporation and there is a potential “street precedent” that might be set by settlement. The publicity concerns, however, arise out of a common misperception of the language contained in Rule 68. Specifically, Rule 68 states that a defendant may “offer to allow judgment to be taken against” it. If an offer under Rule 68 is accepted, a judgment will be entered against the defendant. The possible negative implications are obvious ' the media may report that a judgment was obtained against the defendant when, in fact, an offer of judgment is much more akin to a settlement.

Although the prospect of negative publicity may counsel against the use of Rule 68 by certain defendants, offers that are carefully crafted may actually mitigate publicity problems. Generally, plaintiffs will accept a confidentiality provision in exchange for a higher settlement amount. An offer made pursuant to Rule 68 should be calculated with this in mind ' as it allows a publicity-sensitive defendant to use Rule 68 in its favor.

Another way to deal with the publicity concern is to refocus media attention on the fact that a judgment under Rule 68 is, in actuality, a settlement. In his article, Fisher makes several suggestions for publicity-sensitive defendants; for example, they may highlight the fact that the judgment is for an amount less than the plaintiff sought in its complaint. He also suggests that the use of liability and admissions disclaimers may aid in overcoming publicity concerns. The inclusion of an admission or liability disclaimer as part of a Rule 68 offer of judgment has been held not to invalidate the offer. See Mite v. Falstaff Brewing Corp., 10 F.R.D. 434, 435 (N.D. Ill. 1985). However, the inclusion of such language may affect a court's decision as to who “prevailed” for purposes of Rule 68.

When is the Judgment More Favorable than the Offer? In order for the cost-shifting provisions of Rule 68 to be triggered, the offer made pursuant to Rule 68 must have been more favorable than the judgment finally obtained. Although at first blush this might appear to be a simple determination, a closer look reveals that whether a judgment on the merits is more or less favorable than a Rule 68 offer is a complicated issue.

For example, suppose that an offer pursuant to Rule 68 is made in the amount of $100 and includes a statement disclaiming any liability, and subsequently the plaintiff is awarded a $99 judgment on the merits. Is the judgment more favorable than the offer? At least one court has held that such an offer was less favorable than the judgment because it included a liability disclaimer. See, e.g., Spiegel v. Cortese , 196 F.3d 717, 722 (7th Cir. 1999).

Likewise, when non-monetary relief is involved, it is possible for a judgment reflecting a lesser dollar value to be deemed more favorable based on the inclusion of non-monetary relief, such as injunctive relief. As Fisher cautions, it is important to note that while some courts have refused to consider non-monetary relief in determining whether the Rule 68 cost-shifting provision has been triggered, most courts will consider non-monetary relief for this purpose.

Consequently, it is important to consider the effect of non-monetary relief and disclaimers in determining whether a Rule 68 offer is more or less favorable than a judgment on the merits. It should also be noted that these considerations may bear on the determination of whether attorneys' fees are awarded – especially where an underlying statute allows the court to award attorneys' fees to the prevailing party.

Defining Costs Under Rule 68. The costs typically recoverable under Rule 68 are those described in 28 U.S.C. '1920, which include:

1) Fees of the clerk and marshal;

2) Fees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case;

3) Fees and disbursements for printing and witnesses;

4) Fees for exemplification and copies of papers necessarily obtained for use in the case;

5) Docket fees under section 1923 of Title 28;

6) Compensation of court appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section 1828 of Title 28.

Although these costs are usually awarded in connection with a Rule 68 offer, additional costs provided by law cannot be overlooked. For example, some statutes provide for an award of attorneys' fees. Where a contract or statute provides for an attorneys' fees award, the practitioner must take this into account when crafting the Rule 68 offer.

In determining how to deal with a statute that permits the awarding of attorneys' fees, it is first important to discern whether the statute refers to the attorneys' fees as part of costs generally ' or as separate from costs. Where attorneys' fees are included within the definition of costs, the drafter of an offer of judgment must take this into account. Where attorneys' fees are separate from costs, the drafter of an offer of judgment must be careful to account for the attorneys' fees in some manner. If an offer pursuant to Rule 68 is silent as to attorneys' fees ' where the underlying statute treats fees as separate from costs ' the court may award attorneys' fees beyond the specifications of the offer. Therefore, where attorneys' fees must be dealt with separately from costs, the Rule 68 offer must clearly define the treatment that attorneys' fees are to receive under the offer.

Conclusion

The power of Rule 68 in driving settlement negotiations should not be overlooked. This is especially true with regard to contingency fee plaintiffs. However, careful drafting is of the utmost importance when making an offer pursuant to Rule 68. For the unwary practitioner, a Rule 68 offer can result in an undesirable situation for the client from a publicity standpoint. Likewise, defense counsel must be careful to ensure that acceptance of the offer does not result in an unintended award of attorneys' fees for the plaintiff. While attention to detail is imperative, defense counsel should not shy away from a Rule 68 offer, but instead, carefully and aggressively evaluate the corresponding costs and benefits of making an offer of judgment ' particularly at the onset of the case.