United States: It's A Trap!! – Be Careful When Crafting Your Rule 68 Offers Of Judgment

Federal Rule of Civil Procedure 68 presents a valuable settlement tool for defense attorneys.  Specifically, it allows the defendant to make a pre-trial offer of judgment on specified terms, and provides for the recovery of all of the defendant's costs from the plaintiff if the ultimate judgment received is less favorable than the defendant's initial Rule 68 offer.  It is tough to imagine why one wouldn't take advantage of this favorable rule shortly before trial in order to place further monetary risk on a plaintiff who is close to facing the uncertainty of a jury decision.

As recognized by the Third Circuit Court of Appeals in Lima v. Newark Police Dept.¹, however, despite its usefulness Rule 68 also "presents a trap for the unwary."  The potential "trap" is sprung when a defendant incorrectly believes that their now-accepted Rule 68 offer finally and fully resolved the action and then thereafter is surprised by the assessment of substantial post-judgment attorneys' fees and costs in favor of the plaintiff.

In Lima, a federal civil rights action under 42 U.S.C. § 1983, the defendant offered the plaintiff a $55,000 judgment, the terms of which "include[ed] all of Plaintiff's claims for relief against all defendants...."  After accepting the offer, the plaintiff immediately filed a request for judgment with the Court that sought "judgment against Defendants in the amount of $55,000, with costs to be taxed by the Court upon application by Plaintiff pursuant to...42 U.S.C. § 1988."  Section 1988 is a statutory provision that allows for attorney's fees to be included in the taxing of costs in 1983 civil rights actions.

Thinking that the plaintiff was putting an asterisk on the judgment they had just agreed to, the defendant filed a response stating the Rule 68 offer of judgment was intended to cover such costs, and pointed to email correspondence surrounding the offer and acceptance as support for that intent.  The district court denied the plaintiff's motion, relying on the aforementioned emails emails and finding that the offer of judgment included all was inclusive of costs and fees.

The Third Circuit reversed the trial court, holding that because the offer of judgment had not explicitly stated that costs, and by extension attorney's fees, were included in the offer, the plaintiff retained their right to seek statutory costs and fees after the entry of the judgment.  The Lima court pointed to numerous other circuits that had also applied the requirement that inclusion of costs be explicitly stated, including the Sixth, Seventh, Ninth, and Eleventh circuits.  Thus, the Third Circuit found that the plaintiff could still seek their fees despite the fact that the offer they accepted stated that it would resolve the litigation "in its entirety."  Specifically, it reasoned that such a "catchall phrase" could not be said to explicitly cover attorney's fees and costs.

The lesson to be learned from Lima and other similar cases is that Rule 68 offers need to explicitly list each claim for relief of which it seeks to dispose.  To meet this burden, the best practice would be to look at the prayer for relief in the complaint and specifically list each and every type of relief sought as being satisfied by the judgment if accepted.

Footnote

1. Lima v. Newark Police Department, 658 F.3d 324 (3d Cir. 2011).

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