Advantages and Disadvantages of a Rule 68 Offer of Judgment
When you are a defendant in a complex federal case, you find yourself in a position where you have to make tough decisions. Depending on the nature of the lawsuit and its likelihood of success, you may wonder whether it is worth spending money defending against those claims or negotiating a favorable settlement. You may also consider the ramifications that this lawsuit could have on you, your family, business or employees.
There is a settlement tool that is designed to put the ball back in the plaintiff’s court and alleviate some of the pressure on you: a Rule 68 Offer of Judgment.
Federal Rule of Civil Procedure 68 allows a defendant to make an offer of judgment at least 14 days before trial. The plaintiff then has a 14-day window to serve written notice accepting the offer. If the offer is rejected, the case will move forward with one major caveat: if the plaintiff obtains a final judgment that is less favorable than the unaccepted offer, the plaintiff must pay all the costs incurred after the offer was made.
As the name suggests, a Rule 68 Offer of Judgment is, in fact, an offer permitting a plaintiff to accept and enter a judgment against a defendant on specified terms, subject to the court’s approval of the settlement via Rule 68. Given the legal consequences flowing from a final monetary judgment against you as a defendant, a Rule 68 Offer must be carefully drafted to specify (a) what claims are being resolved and (b) what damages are included in the settlement amount, including whether costs and attorneys’ fees are part of that final offer. “[T]he responsibility for clarity and precision in the offer must reside with the offeror.” Util. Automation 2000, Inc. v. Choctawhatchee Elec. Coop., Inc., 298 F.3d 1238, 1244 (11th Cir. 2002).
Consider, for example, the following offer:
“to Plaintiffs collectively to take a judgment against Defendants in the amount of $82,500.00, inclusive of interest, costs and attorneys’ fees, and without any admission of liability, on each of the Causes of Action contained in the Complaint.” Toth v. 59 Murray Enterprises, Inc., 2017 WL 3605493, at *1 (S.D.N.Y. Jul. 26, 2017) (emphasis added).
Is the offer for $82,500 or $82,500 on each of the causes of action (in that case, a $660,000 total offer)? The District Court for the Southern District of New York found that the word “collectively” contradicted “on each of the Causes of Action”, casting uncertainty on what sum was being offered. Id.
Clearly, when poorly drafted, a Rule 68 Offer may cause confusion, additional litigation costs and, possibly, render the settlement invalid due to ambiguity. Struthers v. City of New York, 2013 WL 5407221 (E.D.N.Y. Sep. 25, 2013); Steiner v. Lewmar, Inc., 2016 WL 860359, at *3 (2d Cir. Mar. 7, 2016) (“Where [a Rule 68] offer is silent on attorneys’ fees…such ambiguities will be construed against the offeror.”); Sanchez v. Prudential Pizza, Inc., 709 F.3d 689, 692 (7th Cir. 2013) (“[B]ecause the consequences of a Rule 68 offer are so great, the offering defendant bears the burden of any silence or ambiguity concerning attorney fees.”); Basha v. Mitsubishi Motor Credit of Am., Inc., 336 F.3d 451, 455 (5th Cir. 2003) (failure to quantify all damages in Rule 68 offer meant that “mutual assent did not exist between the parties,” affirming “district court’s refusal to enter judgment.”); contra Nordby v. Anchor Hocking Packaging Co., 199 F.3d 390, 392 (7th Cir. 1999) (finding a Rule 68 offer for “$56,003.00 plus $1,000 in costs as one total sum as to all counts of the amended complaint” not ambiguous because it can only mean one amount encompassing all the relief sought in the counts. One of those counts specified attorneys’ fees as part of the relief sought and was thus covered by the offer).
However, when used correctly, you can create tremendous leverage through a calculated Offer of Judgment. This tool can shift significant monetary risks onto the plaintiff, who is forced to evaluate and balance those risks against the likelihood of success—a decision that is not as easy to make as some would think. For example, if the plaintiff rejects your offer and “rolls the dice” on a month-long trial where they are awarded less than your unaccepted offer, they will have to pay for certain of your costs in addition to their own, including reasonable attorneys’ fees when any statute applicable to the case defines costs as including attorneys’ fees. An unaccepted Rule 68 Offer has the potential to significantly decrease, or even reduce to zero, the other side’s monetary award at trial.
Even when the offer is well crafted, the major disadvantage of a Rule 68 Offer remains the evident lack of privacy. Once the plaintiff accepts your Rule 68 Offer and a judgment is entered against you, that document is a public record available to anyone. Even if it does not contain an admission of liability and cannot be construed as such (meaning that it may not be used against you in other lawsuits), it nonetheless discloses the settlement and all its terms, including the settlement amount. By contrast, if you negotiate an out-of-court settlement agreement, you will not have to file that document with the Court and all your settlement terms will remain private. Traditional settlement agreements also offer far more flexibility between the parties regarding terms, particularly over settlement payments.
Federal litigation tends to be quite complex, even when the parties are working diligently to negotiate a settlement. A skilled and experienced attorney knows the best way of handling federal matters and can offer counsel as to the advantages and disadvantages of making a Rule 68 Offer in your federal case.
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