THE TERMS OF SETTLEMENT: IMPLICATIONS FOR OUTCOMES UNDER THE EXISTING RULE 68

201_2611091
Equation (8) reveals why Rule 68 currently has little practical significance and why defendants in many cases do not take advantage of the opportunity to make special offers. The only difference that the existing Rule 68 mates is the introduction of the cost-shifting term, 0CdPr(O < D < S*), in the equation for the equilibrium settlement amount. If 0 is small, as it is likely to be under the existing rule, this term will be small even if the optimal special offer implies that Pr(0 < D < S*) is positive.

Moreover, given that the defendant receives no reimbursement if it wins on liability, even the best special offer S* may imply that the probability of reimbursement equals zero. To illustrate, consider the example we have used above, with D = 100, Cp = 60, Cd = 20, and 0 = 1, but suppose that the dispute is over only liability rather than damages. In particular, suppose that the plaintiff will win either 200 or 0, and each outcome is equally likely. In this case, the solution to (8) would be S* = 80, which implies that the probability of reimbursement is zero: Pr(0 < D < S*) = 0. In fact, any special offer below 200 in this example would foil to trigger any Rule 68 cost-shifting. Thus, under Rule 68 as it currently stands, the expected settlement in this case would be the same with a special offer as without any special offer, and the defendant would have nothing to gain by invoking the rule.

Note that our analysis also enables identifying the settlement terms that would result from any of the various amendments of Rule 68 that have been proposed. Amendments have been proposed to (i) allow either party to make a special offer of settlement under Rule 68, (ii) to include attorneys’ fees in the costs that may be shifted to the party rejecting the offer, and (iii) to allow a defendant that wins on liability to invoke the rule. 20 As is suggested by the preceding analysis, if these amendments would have been adopted, they would have considerably increased the use of Rule 68 offers. And, by using our Lemma 1 and our propositions, it is possible to identify the effect that each of these amendments would have on the terms of settlement.instant loan Texas