leveraging rule 68 offers of judgment in settlement...
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Leveraging Rule 68 Offers of Judgment in Settlement Negotiations
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TUESDAY, OCTOBER 21, 2014
Presenting a live 90-minute webinar with interactive Q&A
Scott R. Johnson, Goetz & Eckland, Minneapolis
Evan Mandel, Partner, Mandel Bhandari, New York
Daniel J. Singel, Partner, Goetz & Eckland, Minneapolis
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WELCOME TO RULE 68 6
Overview • What is a Rule 68 Offer of Judgment? • What is the purpose? • History of Rule 68. • How does it work? • Making an offer. • Cost-Shifting. • Strategic considerations. • Comparison with the states.
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Rule 68. Offer of Judgment (a) MAKING AN OFFER; JUDGMENT ON AN ACCEPTED OFFER. At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment. (b) UNACCEPTED OFFER. An unaccepted offer is considered withdrawn, but it does not preclude a later offer. Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs. (c) OFFER AFTER LIABILITY IS DETERMINED. When one party’s liability to another has been determined but the extent of liability remains to be determined by further proceedings, the party held liable may make an offer of judgment. It must be served within a reasonable time—but at least 14 days—before the date set for a hearing to determine the extent of liability. (d) PAYING COSTS AFTER AN UNACCEPTED OFFER. If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.
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THE PURPOSE OF RULE 68 Rule 68
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The Purpose. • Advisory Committee Notes and case law establish that the purpose
of the rule is to “encourage settlements and avoid protracted litigation.” Advisory Committee’s Notes on Fed. R. Civ. P. 68; Delta Air Lines, Inc. v. August, 450 U.S. 346, 352, 101 S. Ct. 1146, 1150, 67 L. Ed. 2d 287 (1981).
• In Delta Air Lines, the Supreme Court noted that Rule 68 “provides
an additional inducement to settle in those cases in which there is a strong probability that the plaintiff will obtain a judgment but the amount of recovery is uncertain.” Id. In Marek v. Chesney, the Court noted that “application of Rule 68 will require plaintiffs to ‘think very hard’ about whether continued litigation is worthwhile.” Marek v. Chesny, 473 U.S. 1, 11, 105 S. Ct. 3012, 3017, 87 L. Ed. 2d 1 (1985). 10
HISTORY OF RULE 68 Rule 68
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The History. • Originally adopted in 1938. Virtually identical to the modern rule. • Modeled after offer of judgment language found in state codes at the
time. • Some scholars argue that the language was not intended to encourage
settlement generally, instead was supposed to apply to limited cases where the debt was clear and the plaintiff insisted on litigating the case despite the defendant’s efforts to pay the amount in full. See Robert Bone, “To Encourage Settlement”: Rule 68, 102 Nw. U. L. Rev. 1561, 1585 (2008). Kent refers to this as the “unreasonable plaintiff model.” Id. at 1572.
• Major attempt at revising the rule in the 1980s. Proposal in 1983 would have made the rule two-way, applied it to losing plaintiffs, included fees in the sanction subject to the court’s discretion, added prejudment interest to the sanction, created bad faith exceptions, and changed the period for responding to an offer to 30 days. The proposal was strongly opposed by the plaintiffs’ bar. The proposal was withdrawn, and a weaker revised rule was similarly tabled in 1984.
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HOW RULE 68 WORKS Rule 68
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How it Works. • Rule 68 Offers of Judgment can result in costs being shifted
from defendants to plaintiffs. A defendant may make a Rule 68 Offer of Judgment at least 14 days before the start of trial. If the plaintiff does not accept the offer and then fails to beat the offer at trial (obtains a judgment “not more favorable than the unaccepted offer”), then the plaintiff “must pay the costs incurred after the offer was made.“
• Only “a party defending against a claim” may make a Rule 68 Offer of Judgment—defendants or plaintiffs defending against counterclaims.
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MAKING AN OFFER Rule 68
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Making an offer: Proper Form • Offers must include costs. Costs can be included as part of the
offer, or costs can be added after the fact. Erdman v. Cochise County, 926 F.2d 877, 880 (9th Cir. 1991).
• Rule 68 Offers are nonnegotiable by definition. • Plaintiffs must either accept or reject the offer. • Rule 68 leave the court no discretion to do anything but enter
judgment once an offer is accepted. Mallory v. Eyrich, 922 F.2d 1273, 1279 (6th Cir. 1991).
• If an offer is rejected, the cost-shifting goes into effect if “the judgment finally obtained . . . is not more favorable than the offer.” Fed. R. Civ. P. 68.
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Making an offer: Timing of Offer and acceptance • More than 14 days before trial. Rule 68 (a).
• Automatically withdrawn after 14 days. Multiple offers okay.
Rule 68 (b).
• Offers are “deemed withdrawn” after 14 days. Some courts have held that offers are irrevocable during the 14 day period, while others have held that offers may be revoked in limited circumstaces. See Cesar v. Rubie’s Costume Co., 219 F.R.D. 257, 259 (E.D.N.Y. 2004); Fischer v. Stolaruk Corp., 110 F.R.D. 74, 76 (E.D.Mich. 1986).
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Making an offer: Types of offers • Lump sum – Offer single dollar amount including damages,
costs, and interest accrued to date. Burden on plaintiff to determine if amount would exceed total judgment obtainable at trial.
• Itemization – Offer $X amount for damages and interest, $Y amount for costs.
• Damages only Lump Sum – Offer single dollar amount for damages and interest, costs to be determined by the court.
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Making an offer: Sample Language • Pursuant to Rule 68 of the Federal Rules of Civil Procedure,
Defendant hereby offers to allow Judgment to be entered against it in this action for the amount of $X,XXX, including all of Plaintiff’s claims for relief. Attorneys’ fees are included as a part of Defendant’s offer. This offer is not an admission of liability by Defendant, but is made for the purposes specified in Fed. R. Civ. P. 68 and is intended to compromise a disputed claim.
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Making and Accepting an offer: Perils • Offers must include costs. Marek, 473 U.S. at 6. Offers may
explicitly state that it includes costs or that costs may be added later by the court. • Costs may or may not include attorneys fees (i.e. § 1983 actions,
copyright actions). • Some courts have held that plaintiffs can recover attorneys fees
when the offer is silent as to costs. Nusom v. COMH Woodburn, Inc., 122 F.3d 830, 834 (9th Cir. 1997).
• Courts have gone both ways in ruling whether offers included costs, even when the offer lists a specific sum “with costs then accrued.” See Kyreakakis v. Paternoster, 732 F. Supp. 1287, 1289 (D.N.J. 1990).
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COST-SHIFTING Rule 68
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Cost-Shifting: Overview • A plaintiff who does not accept an offer faces the prospect of cost
shifting. • Rule 68 cost-shifting is separate from awards of costs to prevailing
parties under Rule 54(d). • Triggering of cost-shifting
• Cost-Shifting is triggered if the relief afforded the offeree is less favorable than the offer
• Can be challenging for defendants to establish that an offer was more favorable than judgment awarded. See Bevard v. Farmers Insurance Exchange, 127 F.3d 1147, 1148 (9th Cir. 1997); Webb v. James, 147 F.3d 617, 621 (7th Cir. 1998).
• Courts must make apples-to-apples comparison when possible. Can be difficult to value non-equitable relief.
• If prejudgment interest is awarded on the judgment obtained, then interests should be added to the judgment for comparison with the offer. See Barrow v. Greenville Indep. Sch. Dist., 3:00-CV-0913-D, 2005 WL 1867292 (N.D. Tex. Aug. 5, 2005) aff'd, 06-10123, 2007 WL 3085028 (5th Cir. Oct. 23, 2007).
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Effect of Cost-Shifting • Assume: Defendant makes an offer, go to trial
• If Defendant wins outright…
• Defendant taxes nothing under Rule 68 (because plaintiff did not obtain favorable judgment). See Delta Air Lines v. August, 450 U.S. 346, 352 (1981)
• Defendant may tax costs, at court’s discretion, under Rule 54 • Plaintiff taxes nothing (because not a prevailing party)
• If Plaintiff wins but is under offer… • Defendant taxes costs from date of offer • Plaintiff taxes from suit commencement (because prevailing party) up to date
of offer, but forfeits post-offer costs
• If Plaintiff wins and exceeds offer… • Defendant taxes nothing • Plaintiff taxes from suit commencement (because prevailing party)
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STRATEGIC CONSIDERATIONS Rule 68
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Strategic Considerations • Offers of Judgment, not Settlement.
• Defendants making offers under Rule 68 are offering to allow judgment to be entered against them. A Judgment entered against a defendant will be public, unlike a settlement agreement, which may contain a confidentiality clause.
• Possible to disclaim liability in an Offer of Judgment, but such an Offer may be deemed invalid or subject to further litigation.
• Must settle entire claim, not parts of claim. • Timing.
• Offers can be made at any time up until fourteen days before trial. Time limit avoids last-minute shenanigans. Offer can be made as soon as Complaint is filed. Earlier offers may result in more costs being shifted.
• Mooting a Plaintiff’s Claim. • Discussed more fully later. Possible to moot a plaintiff’s claim if the
offer provides complete relief.
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HYPOTHETICAL Rule 68
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Hypothetical • Defendant makes a Rule 68 offer of $10,000. At time of offer,
both sides have $1,000 in costs. Trial verdict: $6,000. Parties’ final costs: $10,000 each.
• Application: • Plaintiff recovers $6,000 verdict plus $1,000 in costs as prevailing
party (costs cut off at date of offer). $7,000 total. • Defendant recovers $9,000 in costs per Rule 68 (costs since date
of offer). • Plaintiff owes Defendant $2,000.
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COMPARISON WITH THE STATES Rule 68
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Comparison with the States • Forty-three states have enacted their own rules on Offers of
Judgment. • Twenty-four states allow two-way offers (Alaska, Arizona, California,
Colorado, Connecticut, Florida, Georgia, Hawaii, Louisiana, Maryland, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming).
• Numerous states allow Offers of Settlement in addition or in place of Offers of Judgment (Colorado, Florida, Georgia, Hawaii, Minnesota, New Mexico, North Dakota, Texas, and Utah).
• Ten have expanded definitions of “costs.” Five states explicitly include attorneys’ fees under costs (Alaska, Florida, Michigan, New Jersey, and Texas).
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Minnesota’s Rule 68 • Either party can make an offer. • Can make an Offer of Judgment or Offer of Settlement. • Can be either a total obligation or damages only offer. Rule
assumes offer is damages only unless offer expressly states that it is a total obligation offer.
• Provides instructions for comparing trial result to offer.
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Further reading • Danielle Shelton, Rewriting Rule 68: Realizing the Benefits of
the Federal Settlement Rule by Injecting Certainty into Offers of Judgment, 91 Minn. L. Rev. 865 (2007).
• Robert Bone, “To Encourage Settlement”: Rule 68, 102 Nw. U. L. Rev. 1561 (2008).
• http://www.settlementperspectives.com/category/offers-of-judgment/
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Rule 68 • Rule 68 and Class and Collective Actions • The Future of Rule 68
Evan Mandel em@mandelbhandari .com (212) 269-5600
Rule 68: class and collective actions
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Current State of the Law
What Is Relatively Clear: • Rule 68 Offers Likely Do Not Moot Class Actions in Three Contexts:
1. After the Class Is Certified. See Sosna v. Iowa, 419 U.S. 393 (1975).
2. During an Appeal of a Denial of Class Certification as Long as the Plaintiff Still Has a Personal Stake. See United States Parole Comm’n v. Geraghty, 445 U.S. 388, 396 (1980).
3. Inherently Transitory Claims. See County of Riverside v. McLaughlin, 500 U.S. 44 (1991).
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Current State of the Law
What Is Unclear: • Different Courts Take Different Approaches on Mootness at Other Points
in Litigation:
1. Action Is Mooted by Rule 68 Offer Made Prior to Certification of Class.
2. Rule 68 Offer Made Subsequent to Motion for Class Certification Cannot Moot a Class Action Unless the Movant Has Been Dilatory.
3. A Rule 68 Offer Generally Does Not Moot a Class Action.
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Genesis Healthcare Corp. v. Symcsyk
• Perfect Opportunity for Supreme Court to Resolve the Rule 68 Mootness Issue Once and for All
• Divided Court Declines To Decide the Issue, Ruling that the Parties Had Agreed Below that the Plaintiff’s Claim Was Moot:
• Third Circuit Ruled It Was Moot and Plaintiff Did Not File a Cross-Petition
• Plaintiff Conceded the Point at the District Court • Plaintiff’s Interest in the Collective Action, Alone,
Does Not Create a Live Case or Controversy
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Genesis Healthcare Corp. v. Symcsyk
The Dissent • Court resolves “an imaginary question. . . . The decision would turn out
to be the most one-off of one-offs. . . . Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise.”
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THE FUTURE OF RULE 68
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Rule 68 Falls Short
• Rule 68’s Potential Deficiencies • It’s Toothless • It’s Rarely Used • Provides No Incentives for Defendants To Settle • Sometimes Places Defendants in a Worse Position If They Prevail
Entirely
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Possible Solutions
• Amend Rule 68 • Create a New Rule Designed To Encourage Settlement • Use Alternative Devices to Encourage Settlement
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Proposed Amendments to Rule 68
• Make It Symmetrical • Expand It to Include Fee-Shifting • Abrogate Delta Airlines v. August, 450 U.S. 346 (1981) • Expand Rule to Include Offers of Settlement • Expand the Costs that Are Recoverable
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Possible Fee-Shifting Provisions
• Fees Shifted Only When Judgment Is At Least 5% to 10% Less Favorable than Offer
• Make Fee-Shifting Discretionary. Factors To Consider Could Include: • Complexity and Novelty of the Claims • Length of the Trial • Reasonableness of the Rates, Fees, Attorneys Selected, and Efforts To
Minimize Fees • Reasonableness of Claims and Defenses • Bad Faith • Amount of Work Performed and Significance of Matters Involved • Other Equitable Factors
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Creation of New Rule
• According to Professor Robert G. Bone, Any New Rule Should Be Based on the Following Principles:
• Reduce Identifiable Obstacles to Settlement Bargaining • Compare Fee Shifting to Other Methods for Encouraging Settlement • Consider the Quality of Settlements as well as the Quantity of
Settlements • Tailor Fee-Shifting to Different Types of Cases
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Practical Difficulties with Amending Rule 68
• NYCBA Federal Courts Committee Study • Historical Efforts to Amend the Rule
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Alternative Settlement Devices
• Judicial Intervention • Alternative Dispute Resolution
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