Practitioner's handy guide to rule 68 offers of judgment: defense counsel's sword.

• Author: Staton, Georgia A.
• Position: Federal Rules of Civil Procedure

Offers of judgment can be used to expedite settlements and control fees and expenses. But the offers require thorough and complete draftsmanship

DEFENSE counsel shouldn't overlook Rule 68 of the Federal Rules of Civil Procedure, which outlines the procedure for making offers of judgment, a good weapon for defense counsel. The purpose of Rule 68 is to encourage settlement and avoid further litigation. It 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 l0 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 An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs.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 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 a reasonable time not less than 10 days prior to the commencement of hearings to determine the amount or extent of liability. The rule requires both parties to litigation to evaluate the risks and costs and to balance them against the likelihood of success on trial on the merits. The evaluation becomes more tricky, as illustrated by the U.S. Supreme Court's decision in Marek v. Chesny,(1) when attorneys' fees become a component of such an offer, as they do in actions brought under the Civil Rights Act, 42 U.S.C. [sections] 1989, by virtue of 42 U.S.C. [sections] 1988, and the offer becomes even more important than in other litigation.

The effect of an offer of judgment in civil rights cases is a cost-shifting provision designed to encourage settlement by forcing plaintiffs to weigh the risk of incurring post-offer costs and fees they may not be able to recover, even if they are successful on their basic claims. Because attorneys' fees are included as costs of a federal civil rights action under 42 U.S.C. [sections] 1988, the cost-shifting provision of Rule 68 applies to limit a prevailing plaintiff's recovery of fees if the plaintiff rejects an offer that exceeds the damages award.

In Marek, the Supreme Court made it clear that the term "costs" in a Rule 68 offer includes attorneys' fees awardable under 42 U.S.C. [sections] 1988. If an offer provides that costs are included or specifies an amount for costs and the plaintiff accepts the offer, then the judgment includes costs. If the offer is silent on the issue of costs, the court must include costs under the terms of Rule 68 in any judgment awarded. In short, a defendant making an offer of judgment that has an attorneys' fees component under 42 U.S.C. [sections] 1988 must take into account that attorneys' fees will be added as "costs" under Rule 68.

RULE 68 OFFERS

1. Careful Drafting

   Because the effects of a Rule 68 offer can be significant to both parties, careful drafting is in order. In Erdman v. Cochise County,(2) a defendant learned the effects of inartful drafting the hard way. The question was whether a Rule 68 offer of judgment may be withdrawn after acceptance based on the offeror's failure to recognize that "costs" in actions under 42 U.S.C. [sections] 1983 automatically include attorneys' fees under 42 U.S.C. [sections] 1988. The Rule 68 offer was simple: "The City of Douglas, pursuant to Rule 68, Fed. R. Civ. P., offers to allow judgment to be taken against the City of Douglas for the sum of $7,500 with costs now accrued."

   The question was: What does "with costs" mean? The city alleged that the phrase "with costs" was intended to mean "including costs" rather than "plus costs". It argued that its inartful drafting constituted grounds for rescission since the opposing party should have realized that the offer was misleadingly drafted. But the Ninth Circuit rejected this argument, stating that a settlement agreement is analyzed in the same manner as any contract--that is, ambiguities are construed against the drafter. The result was that the city was bound by the letter of its offer and was required to pay plaintiff reasonable attorneys' fees in addition to the $7,500 amount contained in its offer.

2. Timing

   Rule 68 specifically provides...