PA’s Third Circuit Revitalizes Rule 68 Offer of Judgment

In Interfaith Community Organization v. Honeywell International, the Third Circuit revitalized the use of Federal Rule 68 Offer of Judgment in the context of environmental suits.  Under Rule 68, a defendant may serve on an opposing party an offer to allow judgment.  If the offer is not accept and the judgment that is eventually obtained is less favorable than the rejected offer, then the rejecting party must pay the costs incurred after the offer was made.  The purpose of this rule is to make a plaintiff carefully consider a settlement offer before rejecting it and continuing to litigate his or her claim.

Previously, courts had declined to use this rule because the cost-shifting provision was seen as inapposite to the goal of encouraging law firms to represent plaintiffs, especially in environmental actions.  This was due, in large part, to the fact that in environmental actions, certain statutes specifically allow for the recovery of attorney’s fees as part of the costs.  Thus to apply this rule, would force plaintiffs to risk paying their attorney’s fees, as well as costs to the opposing side and also risk losing their right to recover all post-offer attorney’s fees if they rejected a settlement offer.  Although, the court noted that this ruling might have a chilling effect on whether an attorney will take on a plaintiff’s environmental action, ultimately it held that applying the rule did not abridge or modify the plaintiff’s substantive rights and was thus valid.  Although, the ruling in this case is specific to environmental actions, it may ultimately have wider implications if other courts follow suit and continue to apply Rule 68; thus, making this rule a useful tool for defendants to encourage plaintiffs to enter into reasonable settlement agreements.

Special thanks to Colleen Hayes for her contributions to this post.  For more information, please contact Nicole Y. Brown at nbrown@wcmlaw.com.