Nowdy and I, with the help of an unlikely commenter and the offline perspective of others may have an explanation that reconciles the settlement offer made by State Farm as reported by Duesouth to the amount State Farm publicly disclosed.
The first tip was the 404 error I got when proofing Nowdy’s first post on the settlement yesterday. Nowdy is a stickler for accurately naming her linked court docs but out of habit she named it an “order for dismissal” originally when it was actually a “Judgment of Dismissal”. What we initially thought was strange wording of the document made more sense when Rule 68 of Federal Civil Procedure was mentioned today. We sent out the email plea for background information and received this reply:
I wonder if there was a FRCP, Rule 68 “offer of judgment” in McIntosh…. It means if the plaintiff does not recover more than the offer of judgment, the plaintiff has to pay all costs incurred by the defendant after plaintiff refuses the offer. These costs could be significant in a case like McIntosh.
That started to tie things together and the mystery leverage State Farm had on the McIntoshes becomes more clear. Nowdy, the consummate researcher found an article out of Massachusetts that expanded on the concept:
Offers of Judgment pursuant to Mass. R. Civ. P. Rule 68 are often used in civil cases in an attempt by the defendant/insurer to gain leverage in settlement negotiations against a plaintiff by imposing the potential for an award of costs against the plaintiff. In theory, a Rule 68 Offer of Judgment should have the effect of forcing an otherwise unrealistic plaintiff to consider the consequences of rejecting a good faith offer by a defendant/insurer by imposing a sanction on the plaintiff in the event that he/she ultimately does not obtain a more favorable judgment than the settlement offered by the insurer. (emphasis added)
The rules vary from state to state – Mississippi’s are here – and contain some pitfalls for the defendant as the piece points out; but, what we saw in McIntosh with the Judgment of Dismissal was the end result of a Rule 68 Offer of Judgment, no doubt. It certainly explains State Farm’s disclosure of the amount.
The offer is phrased as an offer to “allow judgment to be entered” on the specified terms; hence the offer of judgment moniker. Although settlement is here often used as shorthand for offer of judgment, it is important to recognize that the two are not identical.(emphasis added)
Settlements often include provisions that prohibit the parties from revealing the settlement terms to others. An offer of judgment, on the other hand, is an offer to allow entry of judgment on the record of the case, which would ordinarily be a public record.
The impact of not having the Rigsby sisters and their testimony certainly greatly impacted the odds Merlin could meet or exceed the $1.4MM hurdle cited by Duesouth. Given the costs of the legal firepower State Farm had on its team it would be easy to whittle anything less than $1.4MM to nothing which would explain the “mystery” leverage State Farm used to get the McIntosh family to their bidding.
Explain it in part – and this explains even more: Merlin said a motion the McIntoshes filed last week asking a federal judge to dismiss their claim for punitive damages was part of the settlement agreement. Judge Senter has encouraged settlement but an order of Judgment isn’t a settlement – and three years after Katrina and two after the case was filed, it could easily be perceived as a threat.
We worked separately and then combined our effort to create the post. This background information on Rule 68 didn’t go with the flow; so, it’s added below for those who might want to know more.
We’ve heard a lot from State Farm about Scruggs use of every trick in the book; however, there’s one trick available only to defendants – Rule 68, Federal Rules of Civil Procedure, better known as An Offer of Judgment.
Rule 68, the offer of judgment rule, has been described as among the most enigmatic of the Federal Rules of Civil Procedure. This Rule allows a defendant to serve an offer of judgment on the plaintiff and makes the plaintiff who rejects the offer liable for post-offer costs if she fails to improve on the offer at trial. It is universally accepted today that Rule 68 was adopted to encourage settlements, but the Rule’s text makes it an extremely poor settlement device. The Rule operates only one-way (in favor of defendants); the penalty is too small to be meaningful; the requirement of a judgment (rather than just a settlement) discourages its use, and the Rule’s timing requirements are puzzling.
Rule 68 seems to be at the top of a lot of lists of Rules to change- and for good reason.
Contrary to the conventional view, the 1938 drafters did not intend Rule 68 to encourage settlement in the way we understand that today. They adopted the offer of judgment rule that existed in state practice, the primary purpose of which was litigation fairness not settlement promotion. The state rules aimed to prevent plaintiffs from imposing costs unfairly when the defendant offered everything the plaintiff was entitled to receive from trial.
The text of Rule 68 makes much more sense when it is viewed in fairness terms. The prevailing settlement promotion view became entrenched in the 1970s and 1980s, when concerns about litigation cost, case backlog, and litigation delay grew acute and interest in settling cases intensified.
Because the settlement promotion view has caused problems for interpretation of the Rule and for efforts to revise it, clarifying the history of Rule 68 is important. Moreover, empirical work on Rule 68 is nearing completion and the Advisory Committee is considering another look at the Rule, so the time is ripe for a clearer understanding. With the FRCP about to celebrate their seventieth anniversary, the history of Rule 68 also sheds light on two of the most important changes in federal civil procedure over the past seventy years: the rise of settlement and the politicization of the rulemaking process.
Rule 68 may make more sense to legal scholars when it is viewed in fairness terms; but, its fairness to plaintiff’s and their attorneys is subject to debate.
Rule 68 is an offer-of-judgment provision that seeks to encourage settlement and to avoid unneeded trials. It permits a defendant to make a settlement offer that raises the stakes for the plaintiff who would continue the litigation: If the offer is not accepted within ten days and the ultimate judgment is not greater than the offer, the plaintiff must pay the statutory costs2 incurred by the defendant after the offer is made.
Critics of Rule 68 claim it is ineffective for two reasons. First, attorneys’ fees, which account for the bulk of litigation expenses, are not usually included in statutory costs. Statutory costs are usually far lower than the amount at stake in the case; thus the incentives for defendants to make offers of judgment and for plaintiffs to accept them are weak. Second, Rule 68 is available only to defendants—it is a one-way rule.