“[I]n this world, nothing can be said to be certain, except death and taxes.” This oft-cited quote attributed to Benjamin Franklin may be timeless, but it fails to tell the whole story in the modern world—at least for businesses facing unwelcome litigation. As companies conduct more and more of their business digitally, the cost of defending a lawsuit is increasing, due in large part to the impact of electronic discovery obligations. Electronic discovery, or e-discovery, generally involves the identification, collection, and production of all electronically stored information (such as e-mails, document drafts, spreadsheets, electronic archives, instant messages, and the like) that may be even remotely relevant to a dispute. For many companies, this means they are paying lawyers to review and produce hundreds upon hundreds of thousands of documents, substantially increasing the costs and attorneys’ fees incurred for even minor suits.
Although rarely used, Rule 68 of the Federal Rules of Civil Procedure can offer a reprieve. Under that rule, a defendant in a lawsuit pending in federal court can make an “offer of judgment” to the plaintiff. An offer of judgment is a written offer made to the opposing party to resolve the plaintiff’s claim “on specified terms, with the costs then accrued.” For instance, a defendant might offer to pay the plaintiff $50,000.00, plus the costs accrued by the plaintiff to that point in the litigation to fully and finally resolve the case. If the plaintiff intends to accept the offer of judgment, it must do so within 14 days.
In one sense, offers of judgment sound a lot like settlement offers. But, there are important drawbacks and benefits associated with offers of judgment that are not likewise associated with standard settlement offers.
First, the drawbacks. If the offer of judgment is accepted in writing, either party may then file the offer and notice of acceptance with the court (although neither party is required to do so). If a party elects to file the offer and acceptance, the court is required to enter the judgment, which would then become a public record. Thus, the procedure would destroy the confidential nature of settlement negotiations; potentially impact the company’s credit or reputation; and, in an employment-based lawsuit, telegraph to other employees that the company may be willing to settle such claims. These may not be risks the company is willing to take.
And, now the benefits. If the plaintiff does not respond to an offer of judgment within 14 days, or it rejects the offer of judgment outright, the offer of judgment is considered to be withdrawn, and the offer retains the confidentiality and inadmissibility benefits of standard settlement offers. Most importantly, the rule provides that if the plaintiff ultimately earns a judgment less favorable than the terms proposed in the offer of judgment, the company can recover “the costs incurred after the offer was made” from the plaintiff. The term “costs” may include things like deposition, hearing, and trial transcripts expenses, court reporter fees, filing fees, service of process expenses, witness fees, necessary printing and copying costs, and other expenses allowable by law. Reimbursement of these types of costs can make a dent in the significant cost of defending the suit.
But wait, there’s more. Where a statute at issue in the case defines the term “costs” to include attorneys’ fees, the company can also recover all reasonable attorneys’ fees accrued after the delivery of the offer of judgment. Under that analysis, federal courts have previously awarded attorneys’ fees to a defendant in civil rights cases filed under Title VII of the Civil Rights Act, such as employment discrimination and sexual harassment cases.
Each case is different, and settlement posture should be determined on a case-by-case basis. However, if your business is facing the prospect of costly litigation, particularly an employment discrimination or sexual harassment case, you may want to consider a Rule 68 offer of judgment; it could save you time and money and ultimately protect your company’s bottom line.
About the Author: Matt Feinberg is an associate with PilieroMazza who practices in the areas of litigation, labor and employment, and business and corporate law. He may be reached at firstname.lastname@example.org.