Offer of Judgment
A formal pretrial offer that shifts post-offer costs onto a party who rejects it and fails to beat it at trial.
An offer of judgment is a formal settlement offer made under Federal Rule of Civil Procedure 68 or a state equivalent, served on the opposing party more than a set number of days before trial. If the offer is rejected and the final judgment the offering party obtains is not more favorable than the offer, the rejecting party must pay the costs incurred after the offer was made. In federal practice this is limited to Rule 68 costs, which do not include attorney's fees unless the underlying statute defines fees as part of recoverable costs; state versions of the rule vary considerably and some sweep in more.
Rule 68 is deliberately one-sided in federal court: only a defending party may make the offer, and the cost-shifting consequence only bites a plaintiff who rejects it and then fails to beat it at trial. That asymmetry is intentional, meant to pressure plaintiffs to settle reasonable claims early rather than pursue speculative upside at trial. Several states have adopted broader offer-of-judgment or offer-of-compromise statutes that let either side make an offer and that reach attorney's fees, which changes the strategic calculus considerably.
The mechanism only functions as a threat when the plaintiff can win something; if the plaintiff takes nothing at trial, or the eventual judgment is worse than the offer even by a small margin, the cost-shifting consequence attaches regardless of how close the case was. That makes the offer a useful, low-cost way to force an opposing party to put a number on the table and compare it honestly against their own view of trial risk.
If final judgment ≤ offer amount, offeree pays offeror's post-offer costs (FRCP 68)
How it actually shows up
Defense counsel and insurers use offers of judgment early in a case to test a plaintiff's settlement posture and to create real financial consequences for rejecting a reasonable number. Plaintiffs' counsel must weigh a rejected offer against a probability-weighted expected trial outcome, since guessing wrong carries a real cost-shifting penalty.
- What happens if you reject an offer of judgment and lose?
- If you reject the offer and the final judgment is not more favorable than what was offered, you generally must pay the costs incurred by the other side after the offer was made. In federal court this excludes attorney's fees unless the underlying statute counts fees as costs, but many state statutes reach further.
- Can a plaintiff make a Rule 68 offer of judgment?
- Under the federal rule, no; only a party defending a claim can make a Rule 68 offer. Some states have adopted broader offer-of-compromise statutes that allow either side to make a qualifying offer, so the answer depends on whether the case is proceeding in federal or state court.
- Why would a defendant make an offer of judgment early in a case?
- It creates real financial risk for a plaintiff who rejects a reasonable settlement and later recovers less at trial, which can push early, efficient resolutions and cap the defendant's own litigation cost exposure. It also forces the plaintiff to formally confront the value of the case well before trial.
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