On Leap Day, the Minnesota Supreme Court adopted significant changes to Rule 68 (PDF link), which outlines the procedure for making an offer of judgment or settlement (sometimes also referred to as a “firm offer”).
Rule 68 allows any party to offer judgment in a specified amount to the other party. That amount then becomes something like the measure of success of the lawsuit. The offeror must get a judgment of less than the amount offered, or it must pay the offeree’s costs and disbursements (under Minn. Stat. §§ 549.02 and 549.04). And vice-versa, if the offeree ultimately obtains a judgment of more than the amount offered.
The rule is, obviously, calculated to encourage settlement of cases. The new rule deviates significantly from both the old rule and the federal rule.
In cases where a party may recover attorney fees, the effect of Rule 68 is muddy. Do attorney fees count towards the amount offered, or not? (Under the old rule, for example, fees recoverable by contract would be subsumed in the offer; fees recoverable by statute would not.) The new rule attempts to solve the difficulty by differentiating between a “damages-only” offer and a “total-obligation” offer. As the terms (may) suggest, a damages-only offer does not include interest, attorney fees, or costs and disbursements. But a party may now make a total-obligation offer to avoid any ambiguity.
There has also been the question whether a plaintiff-offeree should be able to recover attorney fees after the offer was made if he or she ultimately recovers something less than the amount of the offer. The new rule says that a plaintiff-offeree may still collect attorney fees if he or she prevails on the merits but recovers less than the amount offered.
The rule now includes an even greater incentive for defendants to accept Rule 68 offers from plaintiffs. A defendant-offeree who rejects an offer of judgment must now pay double the plaintiff’s costs and disbursements if he or she ultimately loses the Rule 68 wager. Costs and disbursements under the rule, however, are those dating from the offer, giving parties an incentive to offer early.
The new rule includes some new procedural requirements, as well. A Rule 68 offer must explicitly reference the rule in order to be eliminate “accidental” Rule 68 offers. And a party wishing to make a total-obligation offer must explicitly call its offer a “total-obligation offer” to fall within that provision of the rule.
Confused yet? Rule 68 is a rather complicated bit of legal procedure, but it does give parties an incentive to come up with a fair offer, lay it all out on the table, and see what happens. It is a powerful strategic option, and the new rule appears to address some of the main reasons why the old rule was rarely used, so that more litigators may be offering and receiving Rule 68 offers in the future.