Drastic changes may have reset Rule 68’s teeth, but is it only to the benefit of one side?
Have you ever made an offer of judgment or settlement? Many attorneys, particularly plaintiffs’ counsel, have not. The stated purpose of Minnesota Rule 68, governing such offers, is to encourage settlement of disputes by all parties. The original language of the rule was modeled on its federal counterpart, which the Minnesota Supreme Court revamped in 1985 to encourage both plaintiffs and defendants to use it as a pathway to settlement.1
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 The offeree must accept the offer within ten days of service or the offer is “deemed withdrawn.”5 If the judgment finally entered is not more favorable to the offeree than the offer, the offeree must pay the offeror’s costs and disbursements.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
The new Rule 68, which is really four new rules—Rule 68.01 through 68.04—contains extensive substantive changes from top to bottom. As a result, much of the prior case law interpreting the old rule as well as Federal Rule 68 and decisions interpreting it may not be persuasive guidance in construing the new rule.6
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
If a defendant made the Rule 68 offer, when the relief awarded is less favorable than the offer, the plaintiff must pay the defendant’s costs and disbursements, but only those incurred after service of the offer. Moreover, the plaintiff will not, as the “prevailing party,” recover any costs and disbursements incurred after service of the offer, except that applicable attorneys fees available to the plaintiff are not affected.12
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.
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.
1 Minn. R. Civ. P. 68, advisory committee note (1985).
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”).
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.
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.