Feature Article in DRI’s Business Suit – July 2006

TO OFFER OR NOT TO OFFER JUDGMENT: A Brief Look at Federal Rule 68

            This article will address factors to consider when determining whether an offer of judgment pursuant to Federal Rule of Civil Procedure 68 will be an effective tool in a case.  There are two critical factors to be considered before making an offer of judgment.  First, is making an offer of judgment strategically appropriate?  Second, how much money to offer?

I.          UNDERSTANDING AN OFFER OF JUDGMENT

            Before addressing these two issues, an understanding of Rule 68 is required.

            Rule 68 in its entirety states:

At 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.  If within 10 days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and thereupon the clerk shall enter judgment.  An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible accept in a proceeding to determine costs.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 fact that an offer is made but not accepted does not preclude a subsequent offer.  When the liability of one party to another has been determined by verdict or order or judgment, but the amount or extent of the liability remains to be determined by further proceedings, the party adjudged liable may make an offer of judgment, which shall have the same effect as an offer made before trial if it is served within in a reasonable time not less than 10 days prior to the commencement of hearings to determine the amount or extent of liability.  

Fed.R.Civ.P. 68.

            Once an offer of judgment has been made, the plaintiff has ten (10) days to accept it in writing.  An offer of judgment not accepted within ten (10) days is deemed rejected.  Once an offer of judgment has been rejected and the case proceeds to verdict, three potential outcomes exist.  First, the plaintiff receives an award greater than or equal to the amount of offer of judgment.  Second, a defense verdict is rendered.  Third, the plaintiff obtains an award less than the offer of judgment.

            If the award is equal to or greater than the offer of judgment, it is as though the offer was never made.  Similarly, if the defendant prevails and obtains a defense verdict after an offer of judgment has been rendered, defendant is not entitled to reimbursement of costs accrued post-offer from plaintiff.  Delta Airlines, Inc. v. August, 450 U.S. 346, 356-58, 101 S.Ct. 1146, 1152-1154 (1981).  The reasoning is, if a defense verdict is rendered, then the plaintiff did not obtain a judgment.  Based upon this reasoning and the plain language of the Rule, courts have not awarded defendants post-offer costs when a defense award is rendered.  Id.  

            If the award is less favorable than the offer, then the defendants are entitled to post-offer costs.  The logical question is, are attorneys’ fees a recoverable cost?  Unfortunately, this is not an easy question to answer.  In general, whether attorneys’ fees are considered as costs depends on the plaintiff’s claim.  The courts have found attorneys’ fees may be included as costs when plaintiff’s cause of action allows the recovery attorneys’ fees.  Jordan v. Time, Inc., 111 F.3d. 102, 105 (11^th Cir. 1997) (plaintiff in copyright case who obtained judgment for less than offer of judgment to pay defendants’ costs and fees incurred after offer was made).  However, other courts have not allowed defendants who lose the case to recover attorneys’ fees because they were not the prevailing party.  Crossman v. Marcoccio, 806 F.2d. 329, 333-34 (1^st Cir. 1986), cert.  denied, 41 U.S. 1029, 107 S.Ct. 1955 (1987) (where underlying copyright statute awards attorneys’ fees only to prevailing party, defendant who lost case – except for amount less than offer of judgment – cannot recover attorneys’ fees because defendant did not prevail in case).  

            The Supreme Court has held attorneys’ fees are to be included as costs when attorneys’ fees are awardable under the relevant statute upon which the plaintiff’s claim is based.  Marek v. Chesny, 473 U.S. 1, 8, 105 S.Ct. 3012, 3016 (1985).  Unless otherwise provided by statute, costs include the following:

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 the use of the case;

5.         Docket fees; and

6.         Compensation of court appointed experts, compensation of interpreters and salaries, fees, expenses, and costs of special interpretation services.

28 U.S.C.A. §1920.  

            If an offer of judgment states costs are included or specifies the amount of costs and plaintiff accepts the offer of judgment, the offer will necessarily include costs.  If the offer of judgment does not state costs are included and an amount for costs is not specified, then the court will be obliged by the terms of Rule 68 to include in its judgment an additional amount it determines to be sufficient to cover the costs.  Marek, 473 U.S. at 7, 105 S.Ct. 3815.  In either case, the offer of judgment has allowed judgment to be entered against the defendant both for damages caused by the challenged conduct and for costs.  Attorneys’ fees will be included as costs if the statute upon which plaintiff’s cause of action is based permits recovery of reasonable attorneys’ fees if plaintiff is successful.  An offer of judgment will be valid unless it implicitly or explicitly provides the judgment does not include costs.  Id. 

            In determining whether the judgment finally obtained is as favorable as the offer of judgment, costs accrued by the plaintiff at the time of the offer are included in the calculations.  For example, the offer of judgment in Marek stated “for a sum including costs that include attorney’s fees $100,000.00.”  Marek, 473 U.S. at 3-4, 105 S.Ct. at 3013-14.  Following trial, plaintiff was awarded $60,000.00 in damages.  Marek, 473 U.S. at 7, 105 S.Ct. at 3016.  The parties stipulated plaintiff’s accrued costs including attorney’s fees at the time the offer of judgment was made totaled $32,000.00 and the post-offer costs were $139,692.47.  Id.  The court stated “the $139,692.47 in post-offer legal services resulted in a recovery [of] $8,000.00 less than the [defendants’] settlement offer.”  Marek, 473 U.S. at 11, 105 S.Ct. at 3017.  Accordingly, the Marek court determined defendants were entitled to recover post-offer costs because the plaintiff’s pre-offer costs ($32,000.00) together with the award ($60,000.00) was less than the defendants’ offer of judgment ($100,000.00).

II.        FACTORS TO CONSIDER WHEN CONTEMPLATING AN OFFER OF JUDGMENT

             Conveying an offer of judgment is not beneficial in all cases.  An offer of judgment becomes an effective tool when it places substantial risk on plaintiff of being exposed to having to pay the defendant post-offer costs if they do not accept the offer of judgment.  This scenario exists when the plaintiff faces a reasonable chance of obtaining an award which is less favorable than the offer of judgment.  In cases where attorneys’ fees are included as costs because of the nature of plaintiff’s claims, the earlier in the case the offer of judgment is made, the greater the risk plaintiff faces in rejecting the offer of judgment.

In cases where a defense verdict is likely, plaintiff faces little risk in rejecting the offer of judgment because a defendant will not be entitled to recovery of costs if a defense verdict is awarded.  Similarly, if plaintiff’s cause of action does not allow for the recovery of attorneys’ fees, the penalty for rejecting an offer of judgment is minimal because costs would not include attorneys’ fees.  The best cases for making an offer of judgment are those in which plaintiff would be entitled to a recovery of attorneys’ fees and where there is some exposure to the defendant less than plaintiff’s demand.  This situation would give plaintiff the biggest risk if the offer of judgment is not accepted because it would allow the defendant the greatest chance of recouping defense costs incurred after the rejection of the offer of judgment.  The more realistic a recovery will be less than the offer of judgment, the more effective an offer of judgment can be.

             Determining the amount of the offer of judgment is critical.  There are many things to consider when making the decision of how much to offer.  First, the amount of the offer must be an amount your client would be willing to pay to resolve the case.  If the offer of judgment is accepted, judgment will be entered in plaintiff’s favor.  An offer of judgment which is too low is of little to no benefit.  An offer of judgment which is rejected must be greater than the ultimate award in order to benefit the defendant.  If the award is greater than the offer of judgment, it is as though the offer was never extended.  An offer of judgment which is too low does not effectively expose plaintiff to having to pay defendant’s post-offer costs.  A defense verdict also results in no payment of defendant’s post-offer costs.

            The amount of the offer must exceed the potential award.  This amount could be reflective of a partial victory for the plaintiff, but an amount less than plaintiff’s total claim.  

            To determine whether the award is greater than the offer, the costs incurred by plaintiff up to the date of the offer are added to the award.  Depending on the nature of plaintiff’s claims, this could include attorney’s fees.  Marek, supra.  Accordingly, this point must be considered when making the offer.  Fixing the amount of the offer of judgment must be carefully considered to use the tactical tool to its fullest advantage.

            When making an offer to judgment you must state the offer includes costs.  The failure to do this exposes one to the possibility of having the offer accepted and when judgment is entered – having to pay plaintiff’s costs in addition to the amount of the offer of judgment.  Marek, 473 U.S. at 11, 105 S.Ct. at 3017.

            In any case, subsequent offers of judgment can be extended.  In this connection, the most recent offer of judgment supersedes the prior offer.  However, settlement offers extended after an offer of judgment is extended do not have any effect on the offer of judgment.

III.       CONCLUSION

Many states’ Rules of Civil Procedure permit offers of judgment.  Consult the Rules to determine whether offers of judgment are recognized in the venue of your case.

            Although Rule 68 limits the effectiveness of the use of offer of judgments in the right case, it still can be a very effective tool.  Not every case is right for an offer of judgment because if a defense verdict is rendered after an offer of judgment is made, the defendant is not entitled to recover post-offer costs.  When making an offer of judgment, careful consideration must be given to the amount of the offer of judgment.  To be most effective, the offer of judgment should expose the plaintiff to the possibility of having to pay substantial post-offer defense costs if rejected.  Consideration must also be taken when crafting the offer of judgment with specific language to avoid the possibility of having to pay plaintiff’s costs in addition to the amount of the offer of judgment if plaintiff accepts it.  To avoid having to pay costs in addition to the amount of the offer of judgment, it is critical to state the amount offered includes costs.

 Daniel S. Strick is an attorney with Lucas and Cavalier, LLC, a regional litigation firm with its main office in Philadelphia.  He routinely defends professionals in malpractice cases throughout Pennsylvania and New Jersey.