by Kate Valent
An Offer of Settlement is a procedural tool that can be used to answer two of the biggest questions for any defense client: (1) “How do I get rid of this lawsuit?” and (2) “Can I recover my costs and attorney’s fees?” While this tool may not be appropriate for all cases, it can be critical for reaching a favorable settlement or an award for costs when there are quantifiable damages or a strong defense, and unreasonably high damages allegations.
Texas Rule of Civil Procedure 167 and Chapter 42 of the Texas Civil Practice and Remedies Code require the following steps to invoke an Offer of Settlement:
- The offer. A confidential written settlement offer must be served on the plaintiff. The settlement offer must be (1) in writing, (2) state that it is made under Rule 167 and Chapter 42 of the Texas Civil Practice and Remedies Code, (3) state the terms of the settlement—including any attorney’s fees, interest, and costs that would be recoverable up until the time of the offer, and (4) state a deadline.
- The declaration. At the time of making the confidential offer, the defendant must separately file a declaration with the Court that invokes the procedure.
- Timing. The offer must be made no later than 45 days before trial. The offer cannot be made within 60 days after either party’s appearance in the case. The offer must remain open for at least 14 days, but can remain open indefinitely.
- Counter-demands. Note that once the defendant serves an offer, the plaintiff can provide a counter demand that could allow for cost shifting.
If the plaintiff recovers a judgment that is less than 80 percent of the rejected offer, the defendant is entitled to an award of reasonable court costs, deposition costs, fees for two expert witnesses, and attorney’s fees incurred from the date of the offer. This award can both offset plaintiff’s verdict and result in a favorable final judgment award.
Texas case law also provides that the Court will not consider pre-judgment interest when determining whether plaintiff’s judgment is 80 percent less than the Offer of Settlement. The Court will only consider the verdict of the factfinder.
Be aware of some limitations. Defendant’s award for costs cannot exceed the plaintiff’s original award from the factfinder. In addition, an Offer of Settlement cannot be used for certain claims, including class actions, a shareholder’s derivative action, an action by or against the State, an action under the Family Code, an action to collect worker’s compensation benefits, or an action filed in the justice of the peace or small claims courts.
If your client landed in federal court—the “Offer of Judgment” found in Federal Rule of Civil Procedure 68 provides a somewhat similar vehicle. However, this is a judgment that is awarded against a defendant like any other judgment. If rejected, there is no “80 percent” buffer zone and there are no limitations. If the plaintiff’s judgment is less than the offer or even $0, the defendant is awarded the full amount of costs.
How does the Offer of Settlement Work?
Here is an example of how the Offer of Settlement works.
- Defendant invokes the Offer of Settlement after 60 days of making an appearance in the case and provides an offer of $50,000 to Plaintiff.
- Plaintiff rejects the Offer of Settlement. In order for the Defendant to be awarded defense costs going forward, the judgment must be less than $40,000 (less than 80% of the offer).
- Jury renders a verdict for Plaintiff of $30,000.
- Defendant spends $80,000 in reasonable attorney’s fees, costs, experts, and deposition costs after the date of its Offer of Settlement.
- Result: Defendant’s award is limited to $30,000 because Defendant’s award cannot exceed the jury’s original verdict.
An Offer of Settlement can help your defense client answer those two big questions--“How can we get this resolved?” and “How can I recover my costs?” A client cannot recover all costs using this procedure. It can be especially helpful in a case with real damages, because the defendant is not forced to take an unreasonable position that Plaintiff is entitled to $0 damages. In sum, this commonly underutilized tool forces the parties to take an honest evaluation of the case in order to promote early resolution, but also provides some teeth for leveraging your defense.
Kate Valent specializes in commercial and construction litigation at Sheef & Stone, L.L.P. She can be reached at firstname.lastname@example.org.