THE TERMS OF SETTLEMENT: INTRODUCTION 2

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Numerous jurisdictions in the United States have adopted such rules in order to encourage parties to settle out of court. The most notable example is Rule 68 of the Federal Rules of Civil Procedure. Like many parallel state rules, Rule 68 provides that a defendant may make a special offer of judgment. If the plaintiff accepts the offer, then court enters judgment as specified in the offer. Otherwise, the offer can trigger one-sided cost-shifting: if the plaintiff finally obtains a judgment that is not more favorable than the offer, then the plaintiff must pay the costs incurred by the defendant after making of the offer. Rule 68 has been the subject of substantial debate and has provoked proposals for reform.

Other countries also use offer-of-settlement schemes. For example, in England a defendant may mate a special offer through “payment into court” (see Toran (1986)). Under the English rule of cost allocation, a party that loses at trial bears the litigation costs (including attorneys’ fees) of the winning party. Under the “payment into court” procedure, if the plaintiff rejects the defendant’s special offer, then the plaintiff will recover costs and fees from the defendant only if it wins more at trial than the amount of the special offer. If the plaintiff wins at trial but foils to improve on the special offer, then the plaintiff must pay the costs incurred by the defendant since the date of the special offer.