Richard J. Plezia 0000-00-00 00:00:00
Shifting Costs Under The Texas and Federal Rules In 2003 and again in 2011, the Texas Legislature enacted and revised Civil Practice and Remedies Code Section 42.001 et seq., otherwise described as the offer of settlement rule. This means, when properly done, a defendant or plaintiff can send a written demand or offer, and if rejected, recover certain litigation costs if they win. Additional costs can be obtained by the plaintiffs, up to the entirety of the claimant’s award by the finder of fact. The defendant’s judgment may also, likewise, be offset by the entirety of the claimants’ award. This article provides the nuts and bolts of how to make an offer; how to accept, decline, or withdraw an offer; and what happens after trial if an offer, properly invoked, is significantly less favorable for the offeror. A look at the federal rules and its differences to the state rule will be considered. The Texas Rule Texas, in 2003, and again in 2011, legislated that the Supreme Court had to promulgate rules that if a specific offer of settlement is made, then certain costs can be awarded to those whose opponents choose foolishly in their response. The offer of settlement rule can be found in Texas Rules of Civil Procedure Rule 167 and originates in the Civil Practice and Remedies Code Sections 42.001–42.005 (2012). The Texas Civil Practice and Remedies Code provides instructions from the Legislature for the Texas Supreme Court to adopt rules consistent with Sections 42.001–42.005. Rule 167 of the Texas Rules of Civil Procedure is the Supreme Court’s rule implementing the Legislature’s mandate.1 Not all cases are subject to cost-shifting procedures. Rule 167.1 identifies the cases that are exceptions to the offer of settlement rule. These can also be found in Civil Practice and Remedies Code Section 42.002(b) and include the following: 1) a class action; 2) a shareholder’s derivative action; 3) an action by or against governmental unit; 4) an action brought under the Family Code; 5) an action to collect workers’ compensation benefits under Subtitle A, Title 5 of the Labor Code; or 6) an action filed in a justice of the peace court or small claims court. Essentially, all cases that are seeking monetary damages excepting those above are subject to this rule. Rule 167 also sets forth requirements for an offer of settlement. These procedures must be followed to obtain the relief afforded by Rule 167. The defendant must file a declaration that the settlement procedure allowed by this chapter is available in the action.2 If there is more than one defendant, the settlement procedure allowed by this chapter is available only in relation to the defendant that filed the declaration and to the parties that make or receive offers of settlement in relation to that defendant.3 The designation must be filed by the defendant, and thus, remedies found in the rule can only be initiated by the defendant. Once initiated, however, all parties can make use of the remedies encountered in the rule. Not all settlement offers are subject to the offer of settlement rule. Sending a settlement offer in writing does not, in itself, avail a party of the rule’s remedies. You must specifically invoke the provisions of this rule and send an offer that complies with the rule. Only upon that initial filing of a declaration will a defendant or, subsequently, a plaintiff, be allowed to act upon that rule. If the defendant does not file a separate declaration, or fails to file it timely, no settlement offers will carry with it the penalties of Rule 167 if it is not accepted or withdrawn. When the defendant files a declaration it is only good for that particular defendant. So in cases with multiple defendants, each defendant must file a separate Rule 167 designation. The defendant’s declaration must be filed no later than 45 days before the case is set for conventional trial on the merits.4 In addition, only a defendant — a party against whom a claim for monetary damages is made — can make this declaration on Rule 167. This also includes cross defendants, counter-claim defendants, and thirdparty claim defendants. When a defendant files a declaration, an offer or offers may be made under this rule to settle only those claims by and against that defendant who filed the declaration.5 Important requirements for the settlement offer to be effective under Rule 167 include the following: 1. be in writing; 2. state that it is under Rule 167 and Chapter 42 of the Texas Civil Practice and Remedies Code; 3. identify the party or parties making the offer and the party or parties to whom the offer is made; 4. state the terms by which all monetary claims — including any attorney’s fees, interest, and costs that would be recoverable up to the time of the offer — between the offeror(s) on the one hand and the offeree(s) on the other may be settled; 5. state the deadline — no sooner than 14 days after the offer is served — by which the offer must be accepted; and 6. be served on all parties to whom the offer is made.6 Rule 167 identifies what conditions can be made in the offer. An offer may be subject to reasonable conditions, including the execution of appropriate releases, indemnities, and other documents.7 Parties may object to conditions demanded by the defendant by giving written notice served on the offering defendant. This must be done before the deadline stated in the offer. If there is no objection, then the conditions made in the offer are presumed to have been reasonable.8 Rejection of an offer made subject to a condition determined by the trial court to have been unreasonable cannot be the basis for an award of litigation costs under this rule. An offer must not include non-monetary claims and other claims in which this rule does not apply.9 Therefore, when parties are served with an offer, they should closely examine the conditions that are demanded by the offeror. If conditions are unreasonable, the party should object and request a hearing by the trial court to determine the reasonableness of the conditions. However, the rule does not specify exactly when the hearing must be held. The penalty for unreasonable conditions is no relief under Rule 167. It is important to remember that a party would lose the right to complain about the unreasonableness of the conditions unless that party objects to that condition and that objection is made in writing. Once the defendant (cross defendant, third-party defendant, or counter defendant) files his or her declaration, any party, including the plaintiff or other defendants, can make an offer of settlement to that declaring defendant. The only requirement under this rule is that when the defendant files such a declaration, an offer or offers may be made under this rule to settle only those claims against that defendant. This can include other defendants and intervenors, as well. There are time limitations as to when an offer can be made. Rule 167.2(e) sets forth the time limitations as to when an offer may not be made: 1) before a defendant’s declaration is filed; 2) within 60 days after the appearance in the case of the offeror or offeree, whichever is later; 3) within 14 days before the date the case is set for a conventional trial on the merits, except that an offer may be made within that period if it is in response to, and within seven days of, a prior offer. Rule 167 also includes a provision for successive offers. A party may make an offer after rejecting a prior offer, however, a rejection of an offer is subject to imposition of litigation costs, only if the offer is more or less favorable to the offeree than was the prior offer.10 In these cases, the court must award the offeror litigation costs against the offeree from the time when the offer was rejected to the time of the judgment. A “significantly less favorable” offer if the offeree is a claimant means that the judgment would have to be less than 80 percent of the offer before the offeror would obtain litigation costs.11 If the offeree is a defendant and the judgment would be more than 120 percent of the offer, then the offeror would be entitled to litigation costs.12 Rule 167.3 explains the withdrawal, acceptance, and rejection of an offer and how they are to be accomplished. The withdrawal or acceptance of an offer may only be done upon written notice.13 Under Rule 167.3(a), an offer can be withdrawn before it is accepted. Once an unaccepted offer has been withdrawn, it cannot be accepted or be the basis for awarding litigation costs on Rule 167.14 An offer that has not been withdrawn can be accepted only by written notice served on the offeror, by the deadline stated in the offer.15 When the offer is accepted, either the offeror or offeree may file the offer in acceptance and may move the court to enforce the settlement.16 Any offer that is not withdrawn or accepted is rejected.17 An offer can also be rejected by written notice served on the offeror before the deadline stated in the offer.18 Therefore, unless the offer is withdrawn, by written notice served on the offeror, the offer will be considered rejected. A time delay is not contemplated by the rule and, therefore, a settlement offer that expires will be considered a rejected offer. Penalties of Rule 167 would then be in effect. If the defendant makes a settlement offer before he or she joins another party or designates a responsible third party, it will not be the basis for awarding litigation costs. This applies if a party files an objection to the offer within 15 days after service of the offeror’s pleading or designation.19 This appears to be the only time that an offer can be objected to outside the time provided elsewhere in Rule 167. This provision seems to allow a plaintiff who has let a settlement offer lapse to still object to that offer, if a defendant files a joinder to add another party or files a designation of responsible third party. A party then has 15 days to make an objection to that past offer because of that new pleading. For example, if the defendant in a lawsuit files a settlement offer for $10,000 upon the plaintiff and gives him or her 25 days to respond and the plaintiff does not respond, the defendant’s offer would be rejected. If 90 days before trial the defendant designates a responsible third party, the plaintiff can object to the previous offer that was rejected by filing an objection to that offer within 15 days of the defendant designating that responsible third party. In 2011, the Legislature changed the laundry list of litigation costs that had to be paid. Additionally, changes were made concerning the amount of litigation costs that can be offset by the defendant or to be paid to the plaintiff. That laundry list is dependent upon the filing of the case. Cases filed before Sept. 1, 2011, have different litigation costs and amounts to be collected than those cases filed on or after that date. On cases filed on Sept. 1, 2011, the party is entitled to receive litigation costs, including the following: 1) court costs; 2) reasonable deposition costs; 3) reasonable fees for not more than two testifying expert witnesses; and 4) reasonable attorney’s fees.20 In cases filed before Sept. 1, 2011, reasonable deposition costs are not included in litigation costs.21 Costs are not unlimited to the party awarded them. In cases that are filed before Sept. 1, 2011, they may not exceed the sum of the non-economic damages, the exemplary or additional damages, and one-half of the economic damages to be awarded to the claimant in the judgment.22 In cases filed after Sept. 1, 2011, the litigation costs that may be awarded to any party under Rule 167 cannot exceed the total amount that the claimant recovers or would recover before adding an award of litigation costs under this rule in favor of the claimant or subtracting as an offset an award of litigation costs under this rule in favor of the defendant.23 Hence, the Legislature has added reasonable deposition costs and allowed litigation costs, including reasonable attorney’s fees, to the total amount the claimant would recover in his or her action. This means that the litigation costs that are made by a defendant if successful on an offer of settlement under this rule can eliminate the complete recovery made by the plaintiff, if his or her litigation costs exceed the claimant’s recovery. In cases filed before Sept. 1, 2011, those costs are limited as stated above. Rule 167 does not allow double recovery of any party that is entitled to recover attorney’s fees in costs under another law.24 Furthermore, a party against whom litigation costs are awarded may not recover attorney’s fees and costs under another law incurred after the date the party rejected the settlement offer made the basis of the award. It is important to know that the litigation costs are awarded to the defendant only as a set off of the judgment.25 Therefore, if the plaintiff recovers nothing, the defendant receives nothing. The plaintiff ’s costs, however, subject the defendant to additional monies over and above the judgment. Finally, the court has discretion by motion and for good cause shown, to make a written order modifying the time limits for filing a declaration under Rule 167.2(a) or for making a settlement offer.26 Discovery can also be permitted but only upon motion and for good cause shown.27 This discovery can ascertain the reasonableness of the costs requested. If the court should determine the costs to be reasonable, it must order the party requesting discovery to pay all attorney’s fees and expenses incurred by that party in responding to such discovery. The court must also, upon a request of any party, conduct a hearing to determine appropriate litigation costs, at which the affected parties may present evidence.28 Under no circumstances can an offer for settlement be made known to the jury by any means.29 Rule 167 also has certain limitations, too. Rule 167 does not apply to any offer made in mediation or arbitration.30 Any other settlement offers made outside the scope of Rule 167 or not following any of its procedures will not be a basis for litigation costs either. That means settlement offers can be exchanged freely without any kind of danger of triggering the litigation costs recovery penalty if they are not accepted or withdrawn. Remember, filing the declaration is the kickoff. The Federal Rule The Federal Rules of Civil Procedure have what is called an offer of judgment as opposed to an offer of settlement. A party defending against a claim can serve upon the adverse party an offer to allow the judgment to be taken against the defending party for the money or property or to the effect specified in the offer with costs then accrued. That means that the defendant is the initiating party for an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure. However, if within 14 days after the service of the offer, the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance. The offer of acceptance must be filed with proof of service, and then the clerk shall enter judgment.31 This is a judgment that is then awarded against the defendant just like any other judgment. An offer not accepted shall be deemed withdrawn and evidence, thereof, is not admissible, except in the proceeding to determine costs.32 The consequences of making an offer of judgment under Rule 68 is that if the judgment finally obtained by the offeree is not more favorable than the offeror, the offeree must pay the costs incurred after the making of the offer. That means that these costs that are incurred would be from the time of the offer until judgment. However, the fact that an offer is made but not accepted does not preclude a subsequent offer.33 There is no buffer zone, such as in the Texas rule for an offer of judgment. Either you are on the money or you are not. Try predicting non-economic damages from a federal jury. Unless you are exactly right, you may find yourself out some costs — costs of court, not the other side’s attorney’s fees. The exception is where attorney’s fees are included as a part of recovery by another statute. Their attorney’s fees may be included as Rule 68 costs. Further, the claimant may have to pay even if he or she loses or gets a zero verdict. Here again, the offer of judgment rule depends on the defendant to start. Notes 1. Although the State Legislature adopted the provisions in Tex. Civ. P. Rem. Code §42.001 et seq. The implementation of the offer of settlement rules are also found in Tex. R. Civ. Proc. Rule 167. Although identical provisions exist in both Codes, practitioners are encouraged to apply the Tex. R. Civ. Proc. Rule 167 and its implementation of the procedures mandated by that Rule. 2. See Tex. R. Civ. Proc. Rule 167.2(a). 3. Id. 4. Id. 5. Id. 6. See Tex. R. Civ. Proc. Rule 167.2(b). 7. See Tex. R. Civ. Proc. Rule 167.2(c). 8. Id. 9. See Tex. R. Civ. Proc. Rule 167.2(d). 10. See Tex. R. Civ. Proc. Rule 167.2(f ). 11. See Tex. R. Civ. Proc. Rule 167.4(b)(1). 12. See Tex. R. Civ. Proc. Rule 167.4(b)(2). 13. See Tex. R. Civ. Proc. Rule 167.3(a). 14. Id. 15. See Tex. R. Civ. Proc. Rule 167.3(b). 16. Id. 17. See Tex. R. Civ. Proc. Rule 167.3(c). 18. Id. 19. See Tex. R. Civ. Proc. Rule 167.3(d). 20. See Tex. R. Civ. Proc. Rule 167.4(c). 21. See Tex. R. Civ. Proc. Rule 167.4(c)(2). 22. See Tex. R. Civ. Proc. Rule 167.4(d)(1)(A). 23. See Tex. R. Civ. Proc. Rule 167.4(d)(2). 24. See Tex. R. Civ. Proc. Rule 167.4(c). 25. See Tex. R. Civ. Proc. Rule 167.4(f ). 26. See Tex. R. Civ. Proc. Rule 167.5(a). 27. See Tex. R. Civ. Proc. Rule 167.5(b). 28. See Tex. R. Civ. Proc. Rule 167.5(c). 29. See Tex. R. Civ. Proc. Rule 167.6. 30. See Tex. R. Civ. Proc. Rule 167.7. 31. See Fed. R. Civ. Proc. Rule 68(a). 32. See Fed. R. Civ. Proc. Rule 68. 33. Id. Richard J. Plezia is a shareholder in the Law Firm of Richard J. Plezia & Associates in Houston, where he practices personal injury law on behalf of plaintiffs at both state and federal level. He is certified in personal injury trial law by the Texas Board of Legal Specialization.
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