Can Rule 68 be Made a More Effective Tool for Settlement?1

[Pages:31]Can Rule 68 be Made a More Effective Tool for Settlement?1 In the fall of 2014, the Chief Judge of the U.S. Court of Federal Claims (CFC) charged the Court's Advisory Council with the task of exploring new ways of alternative dispute resolution (ADR). One possible target of opportunity is presented in Court of Federal Claims Rule 68 (RCFC 68), the only rule of this Court solely addressed to settlement.2 Wright & Miller recently observed that there has been a rekindled interest in amending Rule 68 based on "empirical work indicat[ing] that, despite misgivings about whether current Rule 68 actually accomplished what it was supposed to do, allowing both sides to make offers and magnifying the adverse consequences of rejection of offers would promote earlier settlements and save significant expense."3 While many proposals for improving RCFC 68's twin--Federal Rule of Civil Procedure 68--have been put forth over the years, this Court appears not to have addressed how those proposals might impact the cases lying within this Court's unique jurisdiction. Nor does it appear that the Court or the litigants have given RCFC 68 much thought at all. The CFC's recent examination of ADR presents a good opportunity explore whether Rule 68--either in its present form or with some enhancements--might in fact emerge as a valuable mechanism for resolving cases in this Court without resorting to trial.

1 By Nancie G. Marzulla and Roger J. Marzulla 2 The CFC's current Alternative Dispute Resolution procedures are set forth in Appendix H to the Court's Rules and General Order No. 44 issued by the Chief Judge in 2007. 3 12 CHARLES ALAN WRIGHT, ARTHUR R. MILLER, MARY KAY KANE, RICHARD L. MARCUS & ADAM N. STEINMAN, FEDERAL PRACTICE AND PROCEDURE ? 3007 (2d ed. 2015).

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Accordingly, this article first examines Rule 68 as it currently operates in this Court and in the district courts. Although this Court appears to have decided only one case construing Rule 68, a significant number of cases in the district court have laid out its mechanics. They have also identified a surprising number of ambiguities in the rule, which courts have not always interpreted in the same way.

In fact, while most commentators agree that the rule has not achieved its full potential as a settlement tool, they seem to vary widely in their explanations of why this is the case. Some believe the rule is not well-drafted; others believe parties will litigate no matter how elegantly an offer-of-judgment rule is written. And still others argue that the parties have a right to trial, and the court should not urge them to settle.

Yet over the years many proposals for improving Rule 68 have been put forward by the ABA, by rules committees, by prominent judges, and even by members of Congress. This article will examine the most thoughtful of those proposals in an effort to identify possible ways of improving Rule 68 to make it a more effective settlement mechanism.

Finally, this article will identify and discuss the pros and cons of the most prominent suggestions for improving Rule 68. Our hope is that this analysis will stimulate discussion within the Court and the bar that may point the way to improved alternative dispute resolution in the Court of Federal Claims. I. How Rule 68 currently operates

As one leading treatise on federal civil procedure describes Rule 68: It is roundly agreed in the courts that Rule 68 was intended to encourage

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settlements and avoid protracted litigation, although there is academic dissent. It permits a party defending against a claim to make an offer of judgment. If the offer is not accepted, and the ultimate judgment is not more favorable than what was offered, the party who made the offer is not liable for costs accruing after the date of the offer. Ordinarily, of course, a prevailing party will recover its costs of suit pursuant to Rule 54(d) unless the court exercises its discretion to deny costs. It has been said that Rule 68 gives the plaintiff the right to obtain "the equivalent of a default judgment," albeit on terms defined by the defendant.4

A. Text of Rule 68

RCFC 68 provides:

Rule 68. Offer of Judgment

(a) Making an Offer; Judgment on an Accepted Offer. At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment.

(b) Unaccepted Offer. An unaccepted offer is considered withdrawn, but it does not preclude a later offer. Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs.

(c) Offer After Liability Is Determined. When one party's liability to another has been determined but the extent of liability remains to be determined by further proceedings, the party held liable may make an offer of judgment. It must be served within a reasonable time--but at least 14 days--before the date set for a hearing to determine the extent of liability.

(d) Paying Costs After an Unaccepted Offer. If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.

4 12 CHARLES ALAN WRIGHT, ARTHUR R. MILLER, MARY KAY KANE, RICHARD L. MARCUS & ADAM N. STEINMAN, FEDERAL PRACTICE AND PROCEDURE ? 3001 (2d ed. 2015) (footnotes omitted).

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B. Mechanics of Rule 68

Under RCFC 68 the defendant (but not the plaintiff) may make an offer for

judgment anytime more than 14 days prior to trial.5 If the plaintiff accepts the offer in

writing within 14 days, either party may file the documents with the Clerk, who then

enters judgment per the accepted offer.6 If the plaintiff does not accept the offer within

14 days, it is withdrawn and may not be introduced in evidence except in a hearing on

costs.7 And if the judgment the plaintiff then obtains is less favorable than the

defendant's unaccepted offer (including a stipulated judgment), the plaintiff must pay

defendant's costs accrued after the date of the offer.8

Because Rule 68 allows the defendant to make an "offer to allow judgment on

specified terms, with the costs then accrued," a Rule 68 offer must include costs, either as

a separate item or as part of the lump sum offered:

Under well-established case law following the Supreme Court's decision in Marek v. Chesny, an offer must include costs.27 Costs can be included as part of the offer (i.e., the defendant makes a lump-sum offer that is inclusive of costs) or costs can be included after the fact (i.e., the defendant makes an offer for a certain amount that is not inclusive of costs, thus allowing costs to be added later).9

Once the defendant makes the offer, automatic consequences begin to follow:

Once a defendant makes a Rule 68 offer, the offer itself is non-negotiable. The offeree-plaintiff has only two choices: accept the offer on its face or

5 RCFC 68(a). 6 RCFC 68(b). 7 Id. 8 RCFC 68(d). 9 Danielle M. Shelton, Rewriting Rule 68: Realizing the Benefits of the Federal Settlement Rule by Injecting Certainty into Offers of Judgment, 91 Minn. L. Rev. 865, 873 (2007).

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reject it. Either way, a plaintiff must assess what exactly the offer is, because "a Rule 68 . . . offer has a binding effect when refused as well as when accepted." If the offer is accepted, Rule 68 operates automatically and without the court's discretion. As such, if the plaintiff accepts the offer, the court must enter judgment for the amount specified in the offer. The court may not second guess the terms of the offer, as "[e]ntry of a Rule 68 judgment is ministerial rather than discretionary.""10

Having rejected the defendant's offer, if the plaintiff does not receive a more

favorable judgment than offered, the court's duty to award post-offer costs to the

defendant is mandatory:

If the plaintiff chooses to reject the offer and instead elects to proceed to trial, the rule's cost-shifting mechanism is triggered if "the judgment finally obtained by the [plaintiff] is not more favorable than the offer." The costshifting mechanism is mandatory; under the rule, the plaintiff "must pay the costs incurred after the making of the offer." In practice, this means that the plaintiff must bear her own post-offer costs (that otherwise would be recoverable) and also must pay the post-offer costs of the defendant. The offer "stands as the marker by which the plaintiff's results are ultimately measured." That is, the offer becomes the benchmark a plaintiff must surpass at trial to avoid the shifting of costs--both her own and those of the defendant--under Rule 68.11

Although one Court of Federal Claims case cited the Government's Rule 68 offer

as support for denying plaintiff post-offer attorneys' fees in a rails-to-trails taking case,12

it is unclear how that offer came into evidence since Rule 68 provides that "[e]vidence of

an unaccepted offer is not admissible except in a proceeding to determine costs."13

10 Id. 11 Id. at 874. 12 See Hubbert v. United States, 62 Fed. Cl. 73 (2004). 13 RCFC 68(b).

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C. History and purpose of Rule 68

While Rule 68 was included in the original Federal Rules of Civil Procedure

adopted in 1938, there was no parallel Rule 68 in this Court until creation of the Claims

Court in 1982:

There was no Rule 68 in the Rules of the United States Court of Claims, our predecessor court. The Claims Court, however, does have a Rule 68, fashioned verbatim on Rule 68 of the Federal Rules of Civil Procedure (FRCP). The court is not aware of any Claims Court precedents relative to RUSCC 68. Accordingly, it is reasonable and sensible, under such circumstances, to look to case law precedents under FRCP 68 for guidance and assistance in our initial confrontational encounter with RUSCC 68.e."14

FRCP 68 has remained essentially unchanged since its adoption in 1938:

Rule 68 has remained essentially unchanged from its form when originally adopted in 1938, although there have been periodic proposals to change it. But no significant changes have been made. In 2007, the language of Rule 68, along with the language of all the other Civil Rules, was amended as part of the general restyling of the Civil Rules to make them more easily understood. The objective of this effort was to be stylistic only; no changes in meaning were intended unless specifically noted.

Then in 2009, as part of a general revision of time periods shorter than 30 days in the civil rules, Rules 68(a) and 68(c) were amended to permit 14 instead of 10 days for actions under the rule. In addition, the language of these two subsections was clarified so that instead of focusing on when the trial or hearing "begins," they refer instead to "the date set for" the trial or hearing. If that date is reset, the date on which a Rule 68 offer may be served is similarly changed.15

14 State of Wash. v. United States, 8 Cl. Ct. 693, 694 (1985). 15 12 CHARLES ALAN WRIGHT, ARTHUR R. MILLER, MARY KAY KANE, RICHARD L. MARCUS & ADAM N. STEINMAN, FEDERAL PRACTICE AND PROCEDURE ? 3001 (2d ed. 2015).

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RCFC 68, too, has remained essentially the same since the Claims Court adopted

it in 1982, having undergone only stylistic changes in 2002, 2008, and 2010 to conform

to similar changes in the FRCP version of the rule.16

The Supreme Court described the purpose of Rule 68 in Delta Airlines, Inc. v.

August:17

The purpose of Rule 68 is to encourage the settlement of litigation. In all litigation, the adverse consequences of potential defeat provide both parties with an incentive to settle in advance of trial. Rule 68 provides an additional inducement to settle in those cases in which there is a strong probability that the plaintiff will obtain a judgment but the amount of recovery is uncertain. Because prevailing plaintiffs presumptively will obtain costs under Rule 54(d), Rule 68 imposes a special burden on the plaintiff to whom a formal settlement offer is made. If a plaintiff rejects a Rule 68 settlement offer, he will lose some of the benefits of victory if his recovery is less than the offer.18

Although new to the federal courts, Rule 68 had its roots in existing state court

procedures and deeper still in the inherent power of the court to deal with vexatious

litigation:

This device was entirely new to the federal courts when the Federal Rules were adopted in 1938. But it was familiar in the practice of some states. And the general principle, that even a prevailing party could be denied costs for persisting vexatiously after refusing an offer of settlement if it recovered no more than it had been previously offered, has been held to be within the powers of an equity court regardless of the existence of a rule such as this one.19

Rule 68 seems to have been little-used, and gained little attention, in its early years:

16 RCFC 68 Rules Committee Notes to 2002, 2008, and 2010 amendments. 17 Delta Airlines, Inc. v. August, 450 U.S. 346 (1981). 18 Id. at 352. 19 12 CHARLES ALAN WRIGHT, ARTHUR R. MILLER, MARY KAY KANE, RICHARD L. MARCUS & ADAM N. STEINMAN, FEDERAL PRACTICE AND PROCEDURE ? 3001 (2d ed. 2015).

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[I]t is not clear that very much thought was given to . . . Rule 68, at the time it was adopted. There is at least some reason to doubt that the rule was important in accomplishing these objectives during the years after the Civil Rules were adopted. The frequency of trials in civil cases was relatively low at the time the Civil Rules were adopted and has declined since then, perhaps suggesting that Rule 68 did accomplish its purpose of fostering settlement, but there seems little reason to credit that conclusion. To the contrary, the rule is largely thought to have had little effect. Thus, when the Advisory Committee on the Civil Rules proposed amendments to Rule 68 in 1983, its Note began by acknowledging that the rule "has rarely been invoked and has been considered largely ineffective in achieving its goals." In a 1984 memorandum, Judge Walter Mansfield, then chairman of the Advisory Committee, described Rule 68 as "dead letter." In the same year, Judge Richard Posner characterized it in an opinion as a "little known rule of court."20

In the 1980s, the Supreme Court twice focused attention on Rule 68 by deciding

two cases that changed the course of Rule 68 practice. First, in Delta Airlines v. August,

the Supreme Court decided that Rule 68 had no application in cases where the defendant

prevailed, since the rule was triggered only when a plaintiff obtained a judgment, which

was then measured for favorability against the defendant's Rule 68 offer:

Rule 68 prescribes certain consequences for formal settlement offers made by "a party defending against a claim." The Rule has no application to offers made by the plaintiff. The Rule applies to settlement offers made by the defendant in two situations: (a) before trial, and (b) in a bifurcated proceeding, after the liability of the defendant has been determined "by verdict or order or judgment." In either situation, if the plaintiff accepts the defendant's offer, "either party may then file the offer ... and thereupon the clerk shall enter judgment." If, however, the offer is not accepted, it is deemed withdrawn "and evidence thereof is not admissible except in a proceeding to determine costs." The plaintiff's rejection of the defendant's offer becomes significant in such a proceeding to determine costs.21

Relying on the plain language of the rule, the Supreme Court rejected the

20 Id. 21 Delta Air Lines, Inc., 450 U.S. at 350.

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