Offers of judgment encourage settlement by shifting litigation risks to the party that refuses a reasonable settlement offer, thus forcing the party to carefully assess whether proceeding to trial is worth the financial risk. Offers of judgment, if used properly, can provide strategic leverage in negotiations and serve as a decisive tool in bringing cases to a more efficient resolution.
In the March 20, 2025 edition of The Legal Intelligencer, Edward T. Kang writes, “Shifting the Balance: Use Offer of Judgment in Litigation.“
Litigation can be a lengthy, expensive, and uncertain process. A powerful but underused tool in litigation is the offer of judgment. Offers of judgment encourage settlement by shifting litigation risks to the party that refuses a reasonable settlement offer, thus forcing the party to carefully assess whether proceeding to trial is worth the financial risk. Offers of judgment, if used properly, can provide strategic leverage in negotiations and serve as a decisive tool in bringing cases to a more efficient resolution.
Understanding Offer of Judgment
An offer of judgment is a formal settlement offer made by one party (usually a defendant) to another (usually a plaintiff) in a lawsuit. What distinguishes it from ordinary settlement negotiation is that it comes with built-in consequences for rejection. Specifically, if the claimant declines the offer and later fails to obtain a more favorable judgment at trial, he could be liable for certain costs, including post-offer attorney fees and expenses. Therefore, an offer of judgment creates a strong incentive for plaintiffs (or counterclaim-plaintiffs) to consider reasonable settlement offers and whether continued litigation is worthwhile rather than taking on the risk of prolonged litigation.
Take business partnership disputes as an example. In that context, offers of judgment can be leveraged to encourage settlement and minimize litigation costs. For example, a business partner seeking a fair buyout can present an offer of judgment early in the case to pressure the other party into accepting a reasonable resolution, as rejecting a fair offer could lead to costly penalties later. A business partner seeking more than an even split in the litigation can use this tool strategically to set a baseline settlement figure and create leverage for negotiations. By making a strong, reasonable offer early in litigation, business partners can avoid prolonged court battles and focus on achieving an outcome that aligns with their financial and business goals.
Federal Rule of Civil Procedure 68 and Comparable Rules in State Courts
Federal Rule of Civil Procedure 68 governs offers of judgment in federal courts. Under Rule 68, a party defending against a claim can serve on the claimant an offer of a specified amount to settle the case at least 14 days before trial. The claimant has 14 days to accept the offer. If the claimant rejects the offer and later wins at trial but for an amount lower than the offered amount that was rejected, the claimant is then required to pay the offerors post-offer costs.
Under Rule 68, a plaintiff defending against a counterclaim may, with respect to that claim, make an offer of judgment. See Scottsdale Insurance v. Tolliver, 636 F.3d 1273 (10th Cir. 2011). Because the term “costs” includes all costs properly awardable in an action, Marek v. Chesny, 473 U.S. 1 (1985), the offeree of the settlement offer might have to pay the offeror’s potentially substantial legal fees. Refusing a Rule 68 offer might also cut off an offeree’s continuing right to collect attorney fees under the statute if he proceeds to receive a less favorable judgment than the offer. Id.
However, there is an important exception to the Rule. If, after rejecting a settlement offer, the offeree loses entirely at trial and a judgment is entered against the offeree and in favor of the offeror, the rule does not apply. See Delta Air Lines v. August, 450 U.S. 346 (1981). This exception can create a strange circumstance where an offeree may be better off losing a case than winning a small judgment after rejecting an offer of judgment. See Hopper v. Euclid Manor Nursing Home, 867 F.2d 291(6th Cir. 1989).
New Jersey’s offer of judgment rule is both broader and more nuanced than the federal rule. Under New Jersey Court Rule 4:58, either the plaintiff or the defendant of a claim can make an offer of judgment to the other side. If a plaintiff makes a formal offer that the defendant rejects and obtains a judgment that is 120% or more of the offer, the plaintiff is entitled to costs of suit, reasonable litigation expenses following non-acceptance, reasonable attorney’s fees incurred after non-acceptance, and prejudgment interest of 8% from the offer date or discovery end date, whichever is later. If a defendant makes a rejected offer and later receives a judgment that is 80% or less of the offer, the defendant is entitled to all the fees paid to the plaintiff in the earlier example. The consequences of rejecting an offer under Rule 4:58 are mandatory not only for trial costs but also for those incurred on appeal. See Wiese v. Dedhia, 188 N.J. 587 (2006).
Delaware also has a version of the offer of judgment rule under Delaware Superior Court Civil Rule 68. This rule allows a party defending against a claim to serve a formal offer to settle more than ten days before trial. Similar to the comparable rules, if the offeree rejects the offer and fails to obtain a better result at trial, the offeree must pay the offeror’s post-offer costs.
Unlike New Jersey and Delaware, Pennsylvania does not have an offer of judgment rule comparable to Rule 68. Adopting such a rule in Pennsylvania would provide an additional incentive for parties to resolve disputes efficiently, reducing litigation expenses and promoting fair outcomes. Given the broad utility of the rule, Pennsylvania should consider adopting an offer of judgment, especially one similar to the rule in New Jersey, that both the plaintiffs and defendants can use.
The Takeaways
The offer of judgment is a powerful yet often overlooked litigation tool that can drive settlement and shift litigation risks. Understanding and strategically using offers of judgment can help litigants achieve favorable resolutions without the unpredictability of trials. To maximize the effectiveness of an offer of judgment, parties should consider several factors. Timing is crucial, as an early offer can influence settlement discussions and pressure the opposing party to engage meaningfully. The probability or likelihood of success of a claim or defense is another crucial factor. The offer should be carefully calculated and supported by strong legal and factual arguments to increase the likelihood of acceptance.
Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.
Reprinted with permission from the March 20, 2025 edition of “The Legal Intelligencer” © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.