September 30, 2009

Civil Rule 68 Offers of Judgment Must Be In Good Faith In Both Timing And Amount

Under Alaska Civil Rule 68, a litigant who beats their offer of judgment at trial can recover additional attorney’s fees and costs. On Friday, September 25, 2009, the Alaska Supreme Court ruled that an offer of judgment must be reasonable and good faith in both timing and amount before the penal provisions of Civil Rule 68 can be imposed. In Beal v. McGuire
, an offer of judgment for $1 was held to not be a bona fide attempt to settle the case because of its small amount and timing. The offer of judgment was served thirty days after the litigation was started.

The Alaska Supreme Court’s ruling will limit the utility of offers of judgment, and will cause greater uncertainty, and litigation, over the effectiveness of offers of judgment. For example, is an offer of judgment for defense costs a bona fide effort of settlement? When is an offer of judgment made in good faith, and how is that good faith to be determined? Those issues will now have to be decided by the courts, apparently on a case by case basis.

Most troubling about the Supreme Court’s decision is that it apparently requires that some meaningful amount of money must be offered in order for an offer of judgment to be valid. No longer can offers of judgment for $1 or likely even $100 be made. Thus, even in cases where a claim has no validity, and which will be summarily dismissed, an offer of judgment will be valid only if a meaningful amount of money for a worthless claim is offered. This may have the perverse effect of promoting additional litigation, rather than reducing it, as litigants will no longer be faced with the risk of an award of enhanced fees and costs under Civil Rule 68.