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New Tool for Litigators? Offers of Judgment
& Rule 68 Recently, the Supreme Court’s advisory committee
recommended that the Court again amend the rule to accomplish three
purposes: (1) remove “traps” inherent in the rule, (2) make the rule
generally more specific and “user-friendly,” and (3) make it a more
effective tool in accomplishing its purpose of encouraging the settlement
of litigation where possible.2 On February 29, 2008, the Supreme Court
adopted the advisory committee’s recommended amendments.3 The effect
of the new, extensively revamped rule may be to change the way many
attorneys evaluate their cases early in litigation and recommend settlement
to their clients. This article will explain the changes to Rule 68
and the effect it may have on your cases—both the benefits and the
pitfalls. The Old Rule Don’t throw out your old rule books yet! The
changes to Rule 68 are not effective until July 1, 2008.4 The provisions
and case law interpreting the prior Rule 68 govern offers made before
that date. Under the current rule, at any time up to ten days before
trial, a party may serve on the other side an offer, including all
costs and disbursements then accrued, to (1) allow the court to enter
judgment for a specified amount against it or (2) pay or accept a
sum of money. The offeree must accept the offer within ten days of
service or the offer is “deemed withdrawn.”5 If the judgment finally
entered is not more favorable to the offeree than the offer, the offeree
must pay the offeror’s costs and disbursements. The effect of making
an offer of judgment was to shift to the offeree the burden of paying
for costs properly taxable under Minnesota Rule of Civil Procedure
54.04. In considering how to amend this rule, the Supreme
Court advisory committee identified common problems with the current
version. For instance, even if the judgment entered is less than a
defendant’s Rule 68 offer, the plaintiff is still considered a “prevailing
party” and therefore also entitled to costs and disbursements under
Rule 54.04. This usually made the threat of taxing costs a wash and
did not give Rule 68 the “teeth” it was supposed to have. Additionally,
the committee felt the current rule didn’t give plaintiffs incentive
to settle because plaintiffs who obtain a judgment greater than the
Rule 68 offer are already entitled to tax costs and disbursements
as the prevailing party. There have also been claims of “surprise”
that the rule was brought into play by an offer that didn’t mention
Rule 68, which was not a requirement. Finally, there were questions
as to whether a party who is on the losing end of the Rule 68 offer
is still entitled to attorneys fees if allowed for under statute as
a “cost. The New Rule While the time for offer and acceptance—ten
days—has not changed, there are now two types of offers: total obligation
and damages only. A total obligation offer includes then-accrued applicable
prejudgment interest, costs and disbursements, and attorneys fees,
if allowed.7 To determine if the relief awarded is less favorable
than the offer, the offer is compared against the amount of damages
awarded to the plaintiff plus applicable prejudgment interest, costs
and disbursements, and applicable attorneys fees—all as accrued as
of the date of the offer. A damages-only offer does not include prejudgment
interest, costs and disbursements or attorneys fees.8 It is compared
only with the amount of damages awarded to the plaintiff. The purpose
of this option is to allow a party entitled to attorneys fees to a
later calculation of such fees. Additionally, it puts the other side
on notice that simply paying the settlement amount will not resolve
the matter. In fact, the main reason for these distinct
types of offers is that the rule may operate with significantly different—or
even unexpected—results depending on how the law treats attorneys
fees.9 While ordinarily attorneys fees are not allowable at common
law (the “American rule”), there may be cases where a party may recover
them by contract or a fee-shifting statute. If those fees are recoverable,
by definition, as a “cost”—such as in some employment-action statutes
or under Minnesota’s private attorney general statute—fees may dramatically
change the amount and effect of the offer, and result in a dreadful
surprise for unsuspecting parties and counsel.10 Notably, for an offeror to take advantage of
the cost-shifting consequences of the rule, the offer must expressly
refer to Rule 68.11 Unaccepted Offers Where the plaintiff makes an offer to settle
and the relief awarded is greater than that amount, the defendant
must pay not only the plaintiff’s costs and disbursements allowed
under Rule 54.04, but an additional amount equal to the plaintiff’s
costs and disbursements incurred after service of the offer. This
can result in a plaintiff receiving double costs.13 Unlike the former rule, new Rule 68 affords
the district court some leeway to relieve a party of these obligations
in the event they would cause undue hardship or some other inequity.
If the court determines that the obligation to pay costs and disbursements
as a result of a party’s failure to accept an offer would impose undue
hardship or otherwise be inequitable, it may reduce the amount of
the offeree-party’s obligation. Presumably, an appellate court would
review the district court’s decision whether to do so for abuse of
discretion. Points in Controversy Although the recommendations of the advisory
committee reflected “a strong consensus of the committee,” a significant
minority were opposed to the rule, particularly as it attempted to
address plaintiffs’ disincentive to make use of the current rule.14
While the majority felt that the new rule allowing a plaintiff to
recover additional costs was more even-handed, the dissenters viewed
it as allowing double costs to one side without justification. Moreover,
there was concern that this would allow a plaintiff the opportunity
to “game” the process by making an early offer under the rule—before
the defendant had the opportunity to fully evaluate the case—and create
a right to a substantial costs-and-disbursements windfall. Finally,
there has been concern that the hardship exception will primarily
favor individual plaintiffs versus defendants. These issues may result
in future constitutional due-process challenges in the courts. Conclusion Assuming that the rule changes make a Rule 68
offer a more attractive route to early settlement of a lawsuit, presumably
practitioners on both sides will add this tool to their litigation
toolbox. And all counsel would be wise to carefully consider all the
implications that a Rule 68 offer will have for the value of their
case before dismissing such offers out-of-hand.
2 Supreme Court Advisory Committee on the Rules of Civil
Procedure, Report with Proposed Amendments to Rule 68 (Oct. 2008)
(“Recommendations”). 3 Minnesota Supreme Court Order Promulgating Amendments
to the Rules of Civil Procedure (02/29/08) (“Order”). 4 Id. 5 Minn. R. Civ. P. 68. 6 Order at
Minn. R. Civ. P. 68.04, advisory committee comment (2008). 7 Order at
Minn. R. Civ. P. 68.01(d). 8 Order at
Minn. R. Civ. P. 68.01(c). 9 Recommendations
at 5. 10 See, e.g., Minn.
Stat. §8.31, subd. 3a (2007); Minn. Stat. §181.65 (2007). 11 Order at
Minn. R. Civ. P. 68.01(b). 12 Order at
Minn. R. Civ. P. 68.03. 13 Id. 14 Recommendations
at 5. JENNIFER E. AMPULSKI is a partner at the Minneapolis law firm of Meagher & Geer, PLLP. She practices primarily in the areas of products-liability and commercial litigation. |
