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Using Rule 68 as a Sword in Federal Litigation

Rule 68 of the Federal Rules of Civil Procedure is designed to encourage settlement and avoid litigation and its associated costs. The rule permits a defendant to allow the plaintiff to take judgment against it for a specified amount, plus costs then accrued. The plaintiff has fourteen (14) days to accept the defendant’s offer. If the plaintiff does not respond or rejects the offer, the plaintiff must obtain a judgment in excess of the offered amount or pay the defendant’s post-offer costs. If the plaintiff fails to obtain a judgment in excess of the defendant’s offer, then the plaintiff also cannot recover his or her post-offer accrued costs.

If an offer of judgment is rejected and the case proceeds to verdict, three potential outcomes exist.  First, the plaintiff may receive an award greater than or equal to the amount of the offer of judgment.  Second, the defense may receive a verdict.  Third, plaintiff may obtain an award less than the offer of judgment.

In the first scenario, where the plaintiff receives an award equal to or greater than the defendant’s offer, Rule 68 is not triggered and defendant is not entitled to recover its post-offer costs.  In the second scenario, where a defense verdict is obtained, defendant is similarly not entitled to recover its post-offer costs.   Though somewhat counter-intuitive, the reasoning is that if a defense verdict is rendered, then the plaintiff did not obtain a judgment.

In the third scenario, where the plaintiff obtains an award in an amount less than the offer, the defendant is entitled to recover its post-offer costs.  Of course, the question every defendant asks is, “Are attorneys’ fees a recoverable cost?”  Unfortunately, the answer to this question is not straightforward.  Generally, whether attorneys’ fees are considered costs depends on the nature of the plaintiff’s claim.  Here, in the Eleventh Circuit, courts hold that attorneys’ fees may be considered costs when the plaintiff’s cause of action allows for the recovery of attorneys’ fees.  Jordan v. Time, Inc., 111 F.3d. 102, 105 (11th 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).  Other courts, however, do not allow defendants who lose the case to recover their attorneys’ fees.

To use a Rule 68 Offer of Judgment as an effective sword, the offer must be carefully and skillfully drafted. It must be “an offer to allow judgment on specific terms, with costs then accrued.” The Offer must clearly and unambiguously meet all the requirements of the statute and specifically identify the amount of the judgment, accrued costs, and attorneys’ fees. Done correctly, the Offer will potentially expose the plaintiff to significant costs and, therefore, provide proper incentive to avoid future risk. Therefore, the ability of Rule 68 to drive effective and early resolution of federal cases should not be overlooked.

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