An offer of judgment under Rule 68 of the Federal Rules of Civil Procedure is a formal settlement proposal served by a party defending against a claim; if the other side rejects it and then fails to win a more favorable judgment at trial, that party must pay the offering party’s litigation costs incurred from the date of the offer forward.1Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment That built-in penalty is what makes the rule a serious forcing mechanism in federal litigation.
How the Rule Works Step by Step
The offer must be served on the opposing party at least 14 days before the trial date. The receiving party then has 14 days to accept in writing. If they do, either side files the offer, the notice of acceptance, and proof of service with the court, and the clerk enters judgment on the stated terms. If the 14 days pass without acceptance, the offer is automatically considered withdrawn.1Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment
The offer is served on the other party only. It is not filed with the court unless it is accepted. That keeps a jury from ever hearing what the defendant was willing to pay.
Who Can Make an Offer
Only a “party defending against a claim” can serve a Rule 68 offer. That is almost always the defendant, though a plaintiff can use the rule when defending against a counterclaim.1Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment A plaintiff cannot serve a Rule 68 offer on their own claim to trigger cost-shifting against the defendant.
What Happens If You Accept
Acceptance ends the case. The clerk enters judgment on the agreed terms, and no further litigation is needed.1Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment
Read the language on costs carefully before you sign off. Rule 68 requires the offer to be made “with the costs then accrued.” If the offer states a lump sum that includes costs, that is what you get. If the offer is silent on costs, the court adds costs on top of the stated amount. The Supreme Court confirmed in Marek v. Chesny that an offer does not need to spell out costs to be valid, so long as it does not try to exclude them.2Justia U.S. Supreme Court Center. Marek v Chesny, 473 US 1 (1985) Before accepting, confirm whether costs are baked in or will be added.
What Happens If You Reject
Rejection is where the risk lives. If the judgment you finally obtain is not more favorable than the offer, you must pay the offering party’s costs incurred after the offer was made.1Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment The comparison is arithmetic: offer amount versus judgment amount. Match or fall short, and cost-shifting applies.
One important limit. In Delta Air Lines, Inc. v. August, the Supreme Court held that Rule 68 applies only when the plaintiff actually obtains a judgment. If the defendant wins outright and the plaintiff recovers nothing, Rule 68’s cost-shifting does not kick in, because the plaintiff never “obtained” a judgment to compare against the offer.3Legal Information Institute. Delta Air Lines, Inc v August, 450 US 346 (1981) The defendant may still recover costs through other rules, just not through Rule 68’s automatic mechanism.
What Counts as “Costs”
“Costs” in federal court is a defined term, not a synonym for everything the other side spent. Under 28 U.S.C. § 1920, taxable costs are limited to:
- Clerk and marshal fees
- Transcript fees for depositions and hearings necessarily obtained for the case
- Witness fees and expenses
- Copying costs for materials necessarily obtained for use in the case
- Compensation for court-appointed experts and interpreters
Attorney fees are not on that list. Under the default federal rule, attorney fees are not “costs” and cannot be shifted through Rule 68. The exception comes from Marek v. Chesny: when the statute that created the underlying claim defines “costs” to include attorney fees, those fees are subject to Rule 68’s cost-shifting.2Justia U.S. Supreme Court Center. Marek v Chesny, 473 US 1 (1985) The difference is enormous in practice. Rejecting an offer in an ordinary contract case might cost a few thousand dollars in shifted costs. Rejecting one in a civil rights case under 42 U.S.C. § 1988, where the statute treats attorney fees as costs, can cost tens of thousands in fees you would otherwise have been awarded.
The Offer Stays Out of Trial
Evidence of an unaccepted Rule 68 offer is not admissible at trial. It can only surface later, in a proceeding to determine costs.1Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment The jury never hears the offer, and neither side’s negotiating position gets used against them during the merits phase. The offer only matters again if the plaintiff wins less than the offer, or wins nothing at all, at which point the court applies the cost-shifting rule.
Making a Second Offer After the First Lapses
An offer cannot be withdrawn during the 14-day acceptance window. Once that window closes without acceptance, the offer is automatically withdrawn. Rule 68 expressly states that an unaccepted offer “does not preclude a later offer.”1Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment A defendant can serve a modest offer early in the case, then raise it as the record develops. Each new offer starts a fresh 14-day clock and resets the number the court will compare against the final judgment. The last unaccepted offer is the benchmark for cost-shifting.
State Court Offers of Judgment Work Differently
If your case is in state rather than federal court, Rule 68 does not govern. Many states have their own offer-of-judgment rules, and they can differ in meaningful ways. States including California, Florida, New Jersey, Arizona, and Michigan allow either party to make an offer, not just the party defending against a claim. Some state rules require the offer to be served 30 days before trial rather than 14. Cost-shifting penalties in state court can be more aggressive than the federal rule, sometimes including attorney fees automatically instead of only when a fee-shifting statute applies. Check the specific rule for the court your case is in.
How to Weigh an Offer You Receive
The decision turns on comparing the certainty of the offered amount to the realistic range of trial outcomes, not the best-case scenario. Add in the specific post-offer costs you would owe if you reject and fall short. In a run-of-the-mill federal case, those costs are relatively contained because attorney fees are not part of them. In a case brought under a fee-shifting statute, the calculation changes sharply, because you would also forfeit the post-offer attorney fees you would otherwise recover from the defendant if you win.2Justia U.S. Supreme Court Center. Marek v Chesny, 473 US 1 (1985)
Timing matters on both sides. An early offer, before discovery costs mount, presses the plaintiff to reckon with cost-shifting before investing heavily in the case. An offer served closer to trial locks in the cost-shifting date when the offering party’s costs are at their highest, which sharpens the penalty on the party deciding whether to reject.