Offers of Judgment in State and Federal Court: An Overview

An "offer of judgment" is a legal tool used in civil litigation to encourage settlement by allowing either party to propose a resolution to the case before it goes to trial. This mechanism exists in both federal and state court systems, though the specific rules governing offers of judgment can vary widely between jurisdictions. This article provides an overview of the purpose, process, and implications of offers of judgment in both state and federal courts in the United States.

What Is an Offer of Judgment?

An offer of judgment is essentially a proposal made by one party (typically the defendant) to resolve the case for a specified amount. If the offer is accepted, judgment is entered against the defendant for the amount offered, thus ending the litigation. If the offer is rejected, certain consequences may apply if the final judgment is less favorable to the rejecting party than the offer. The purpose of offers of judgment is to encourage settlements and reduce the burden on the courts by rewarding parties who make reasonable settlement offers.

Federal Court: Rule 68 of the Federal Rules of Civil Procedure

In federal court, offers of judgment are governed by Rule 68 of the Federal Rules of Civil Procedure. Here are the key components of Rule 68:

1. Making an Offer: Under Rule 68, a defendant may serve an offer of judgment on the plaintiff at least 14 days before trial. This offer states that judgment shall be entered on specified terms, usually an amount of money.

2. Acceptance or Rejection:

   • Acceptance: The plaintiff has 14 days to accept the offer in writing. If the plaintiff accepts, the clerk of the court enters judgment according to the offer’s terms.

   • Rejection: If the plaintiff rejects the offer and later obtains a judgment that is not more favorable than the offer, the plaintiff is responsible for the defendant's post-offer costs, potentially including attorney’s fees if applicable.

3. Consequences of Rejection: Rule 68 is a powerful incentive because it puts financial pressure on the plaintiff to consider reasonable settlement offers. If the plaintiff rejects an offer and ultimately wins less than the offer’s amount, they are required to pay the defendant’s costs from the date of the offer, which could significantly reduce or even eliminate their net recovery.

4. Limitations: Rule 68 only applies to monetary judgments, and it is generally used only by defendants. Additionally, Rule 68 does not apply to non-monetary claims, and there is ongoing debate over its applicability to certain types of cases, such as class actions and claims brought under specific federal statutes.

   
   

State Court Offers of Judgment

Most states have their own versions of offers of judgment, though the details and consequences of these rules differ. Some states mirror Rule 68 closely, while others impose distinct procedural and substantive requirements. Here are some common features and notable differences in state systems:

1. Timing of the Offer: Many states require that offers of judgment be made within a specific timeframe before trial, similar to the federal 14-day rule. However, some states allow for greater flexibility, permitting offers to be made closer to trial or even during trial.

2. Cost-Shifting Consequences:

   • In most states, the general principle is that if a party rejects an offer and does not achieve a better result at trial, they may be liable for certain costs incurred after the offer was made. These costs often include attorney’s fees, court costs, and expert witness fees.

   • Some states, such as Florida, have particularly stringent cost-shifting rules. In Florida, if a plaintiff rejects a defendant’s offer of judgment and wins less than the offered amount, the plaintiff may be liable for the defendant's costs and attorney’s fees, which can be financially devastating.

3. Applicability to Plaintiffs: Unlike Rule 68, which is generally used only by defendants, some states allow plaintiffs to make offers of judgment to defendants. This is often structured to encourage defendants to settle early, penalizing them if they reject a reasonable offer and later lose at trial.

4. Special Considerations in Specific States:

   • In California, Code of Civil Procedure § 998 governs offers of judgment and allows either party to make an offer. California’s law is particularly flexible in terms of timing, and its consequences can include attorney’s fees and expert witness fees.

   • In New York, CPLR § 3221 allows defendants to make offers of judgment and may involve different cost-shifting consequences than Rule 68, which can affect how attorneys and clients strategize around offers.

     
     

Strategic Considerations in Offers of Judgment

1. Encouraging Settlement: Offers of judgment can be a powerful tool to encourage settlement, especially when one party is confident in their case or believes the other party is being unreasonable in settlement discussions. By presenting the possibility of cost-shifting, offers of judgment prompt both sides to seriously consider settlement.

2. Risk Management: Making or responding to an offer of judgment requires careful assessment of the case’s strengths and weaknesses. An offer that is too low may be easily rejected, but an offer that is close to the case's realistic value might pressure the opposing side to settle rather than risk going to trial and potentially incurring additional costs.

3. Financial Implications: For plaintiffs, rejecting an offer can mean a reduction in recovery if they fail to beat the offer at trial. For defendants, failing to make a reasonable offer could lead to a higher payout if the plaintiff wins at trial. In certain states, the cost-shifting rules can be significant enough to influence the financial strategy of both parties.

4. Timing and Jurisdictional Differences: Since offers of judgment rules vary by state, parties must carefully consider the specific requirements and potential consequences in the jurisdiction where the case is filed. An offer that might have little impact in one state could have substantial financial consequences in another.

   
   

   

   
   

Conclusion

Offers of judgment are a unique litigation tool designed to promote settlements and reduce unnecessary trials. Whether used in federal court under Rule 68 or in state courts under similar provisions, they offer a mechanism for parties to put pressure on each other to resolve cases early and avoid costly, protracted litigation. Parties and their attorneys should understand the specific rules governing offers of judgment in their jurisdiction to use this tool effectively. By strategically deploying or responding to offers of judgment, parties can better manage the financial risks of litigation and, in some cases, achieve more favorable outcomes.