Considering an offer to settle?

By Anton Katz

There are many factors to consider when making or responding to an offer to settle an ongoing lawsuit. This blog post will discuss the purposes and effects of making, accepting, or rejecting an offer to settle, in general. For information and advice regarding the specific terms that are included in any actual offer to settle please seek legal advice.

What are the advantages of making an offer to settle?

Litigation is expensive. If possible, it is better for everyone to agree to a reasonable settlement and avoid the need for trial. However, (as I will discuss below) if a trial is required, a party who has made a reasonable offer to settle may be able to recover a portion of their litigation costs from the other party.

What are the risks of making an offer to settle?

An offer to settle should be made using Form 49A. Under the Rules of Civil Procedure, an offer made in this form is deemed to be made “without prejudice” which means that the offer is not an acknowledgment of wrongdoing and cannot be used as evidence of liability. Accordingly, no party is allowed to disclose the content or existence of an offer to settle to the trial judge unless a final decision with respect to liability and damages has already been made. This rule helps encourage parties to try to reach a settlement before trial by mitigating the risk that an unaccepted offer could later be used against the party that made it.

However, once an offer to settle is accepted by the other party its terms become binding and enforceable. If one party subsequently fails to comply with the terms of the accepted offer, the other party can resume the lawsuit as though the offer had never been accepted, or obtain a judgment to enforce the terms of the accepted offer. For this reason, it is important that both parties thoroughly understand the terms contained in the offer to settle.

When can I make, withdraw, or accept an offer to settle?

An offer to settle can usually be made or accepted at any time before the court’s final decision regarding the claim. However, it is open to the party making the offer to specify a certain time within which the offer can be accepted. If the other party does not accept the offer within the specified time the offer simply expires and the proceeding continues. Additionally, a party can withdraw its offer at any time before it is accepted by serving written notice on the party to whom the offer was made.

What are the risks of rejecting or ignoring an offer to settle?

After the court has made its final decision with respect to liability and damages, the court will consider whether or not to order costs. Generally, the unsuccessful party is ordered to pay some portion of the costs incurred by the successful party in relation to the proceeding. However, at this stage, the parties may disclose the existence and content of any unaccepted offers to settle. If either party rejected a reasonable offer that was as good as or better than the judgment that was eventually obtained, that party will likely face increased cost consequences:

For example, if a plaintiff (the party who initiated the lawsuit) rejected the defendant’s offer to settle for $120,000 and was subsequently awarded only $100,000 at trial, the court may order the successful plaintiff to pay a portion of the defendant’s costs.

Likewise, if a defendant rejected the plaintiff’s offer to settle for $60,000 and was subsequently ordered to pay $100,000 ($40,000 more than if the defendant had accepted the plaintiff’s offer to settle), the defendant may be ordered to pay a higher than usual portion of the plaintiff’s costs.

This rule is designed to discourage parties from pursuing costly litigation when the other party has made a reasonable offer to settle the dispute.

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