Offer of Judgment

Rule 68 is an effective settlement tool. It provides that if the judgment that an offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs included after the offer was made. For example, if a plaintiff rejects a defendant's offer and then recovers less than that offer at trial, the plaintiff must pay all of the defendant's costs that were incurred after the date the offer was made.

Courts have held that "costs" include attorney fees when the underlying statute provides for the recovery of attorney fees as costs. Accordingly, attorney fees are recoverable costs in civil rights, employment discrimination, unfair and deceptive trade practice and consumer protection cases. Moreover, breach of contract cases may also provide a basis for attorney fees if the contract at issue contains a fee-shifting provision.

The Third Circuit addressed this issue in Lima v. Newark Police Dep't , 658 F.3d 324 (3d Cir. 2011), a civil rights case. The Third Circuit held that a defendants' Rule 68 offer that "allow[ed] judgment to be entered against defendants in the amount of $55,000, including all of plaintiff's claims for relief against all defendants" did not preclude the plaintiff from subsequently seeking attorney fees. The court reasoned that the claim for attorney fees survived because the agreement did not expressly stipulate was (1) inadmissible extrinsic evidence and that (2) defendants' "expectations and intentions" were not terms to the Rule 68 offer.

The Third Circuit stated that when the costs are included in the offer of judgment, the offeror is not subject to any additional liability. When, however, the offer of judgment is silent as to fees and costs, they must be fixed by the court after the offer of judgment is accepted. Moreover, extrinsic evidence of the parties' subjective intent is not admissible to determine whether a Rule 68 offer of judgment includes costs and attorney fees.