Volume 85, No. 1, Fall 2012

Let’s Settle This: A Proposed Offer of Judgment Rule For Pennsylvania

The American judicial system faces numerous challenges, including backlogged court calendars, rising legal expenses, sparse judicial resources, and limited access to the courts for all potential litigants. Attorneys’ fees and the responsibility for paying them are central factors preventing access to the courts. In England, the English Rule, or the “loser pays” rule, is utilized where the losing party pays the attorneys’ fees and other costs of the prevailing party. In contrast, the American Rule, the general rule used in courts in the United States, provides that litigants will pay their own attorneys’ fees regardless of the outcome of the case.

One mechanism used by federal courts to help address some of the concerns with the judicial system is Federal Rule of Civil Procedure 68 (“Rule 68”). Enacted in 1938, Rule 68, also known as an offer of judgment rule, is a form of fee shifting that “serves as a hybrid of the English and American rules.” Under Rule 68, a defendant may make an offer to the plaintiff for judgment to be taken against the defendant. If the plaintiff accepts the offer, judgment is entered for the amount of the offer. If the plaintiff rejects the offer, and recovers less than the amount offered at trial, the plaintiff must pay for the defendant’s post-offer costs and cannot recover his own post-offer costs. The purpose of Rule 68 is to promote settlement, and it is the only federal rule of any kind that directly inflicts consequences upon a litigant who irrationally refuses to settle.

Despite its ambitious goal, Rule 68 has proven to have a minimal effect on encouraging settlement. A major criticism of Rule 68 is that the penalty for rejecting an offer is too weak to induce settlement, as Rule 68 only includes minimal taxable court costs and leaves out the most expensive item in the litigation, attorneys’ fees. Other critiques of Rule 68 are that the rule is only available for use by defendants, it requires a judgment to be entered rather than a settlement, and the timing requirements make pragmatic use of the Rule difficult. As a result of this criticism, scholars have written proposals to amend Rule 68, and most states have come up with their own variation of the Rule. However, Pennsylvania is one of the six states that does not have an offer of judgment rule in its Rules of Civil Procedure. In the absence of such a rule, this Comment will propose an offer of judgment rule for Pennsylvania that is well equipped to promote settlement and address the problems with the American Rule, the English Rule, and Rule 68.

Part II.A of this Comment provides an overview of the English Rule, exceptions to the English Rule, and situations in which the English Rule is waived. This Part also addresses the benefits and criticisms of the English Rule. Part II.B offers an overview of the American Rule, including its exceptions. This Part also provides an explanation of how the contingency fee system developed as a response to concerns about the American Rule. Finally, this Part discusses the benefits and criticisms associated with the American Rule and several scholarly proposals to amend the American Rule. Part II.C presents an explanation of Federal Rule 68. This Part also addresses the major criticisms of Rule 68 and the scholarly proposals to amend it. Finally, this Part provides a fifty-state survey of state offer of judgment rules.

Part III.A of this article proposes an offer of judgment rule for Pennsylvania (Proposed Rule 68). Part III.B explains Proposed Rule 68 and defends its most contentious provisions. Part III.B.1 discusses how Proposed Rule 68 will encourage settlement, reward litigants who make reasonable offers, and not suppress a party’s ability to bring a meritorious suit or advance a valid defense. Part III.B.2 clarifies why it is necessary to include attorneys’ fees in the sanctions imposed by Proposed Rule 68. Part III.B.3 explains how Proposed Rule 68 makes it easier for litigants to accurately create offers, examine offers, and estimate whether they will be subject to sanctions if they decline an offer. Part III.B.4 describes Proposed Rule 68’s margin of error provision and how it will encourage litigants to use the rule. Part III.B.5 explains how Proposed Rule 68’s counteroffer provision further promotes the goal of settlement. Part III.B.6 discusses Proposed Rule 68’s option to request a judicial conference before accepting or declining an offer and how the judge can be a valuable asset in facilitating settlement negotiations between the parties. Part III.B.7 describes the sliding percentage scale Proposed Rule 68 uses to determine the amount of post-offer attorneys’ fees to be awarded, and how this scale accurately reflects the objective of encouraging settlement and punishing litigants who unreasonably refuse to settle. Finally, Part III.C explains the inadequacies of the potential criticisms of Proposed Rule 68.