THE NEW TEXAS OFFER OF SETTLEMENT PRACTICE

Abstract

The Texas Legislature has adopted an Offer of Settlement statute as a part of House Bill 4 (and as new Chapter 42 of the Civil Practices and Remedies Cod), that will significantly affect settlement strategies and potentially the ultimate judgment rendered in Texas civil suits. It provides for shifting of certain "litigation costs" when an offer to settle is rejected and the ultimate judgment is less favorable to the offeree, by a 20 percent margin. (See Appendix A, HB 4 Offer of Settlement Statutory Provisions) The litigation expenses to be shifted and imposed on the party who "unreasonably" rejected an offer (even though they may win the case), include post-rejection costs, reasonable attorney's fees, and fees for two expert witnesses. HB4 directs the Texas Supreme Court to adopt rules of civil procedure implementing this new fee shifting mechanism within defined parameters, with some discretion in a few areas.

The Texas Supreme Court through its Advisory Committee (SCAC) has been working on a proposed offer of judgment/settlement rule for the last year and a half. The full committee debates and reports can be found at the Supreme Court website. The implementing rule, Rule 167 of the Texas Rules of Civil Procedure, as adopted by the Texas Supreme Court is attached as Appendix B. Pursuant to HB 4, fee-shifting will apply to actions "filed on or after January 1, 2004."

1. I Introduction .............................................................................................................................................................. 1
2. II. Overview of Offer of Judgment Practice-In General................................................................................................... 1
3. III. Historical Overview of Fee and Cost Shifting ............................................................................................................... 1
4. IV. Propriety of Court Rule Making Power to Effectuate Fee Shifting - Procedural or Substantive? ......................................3
5. V. Pros vs Cons - Offer of Judgment/Settlement Rule.......................................................................................................4
1. A. Pros - Promotion of Earlier Settlement and Serious Consideration of Offers to Settle ......................................4
2. B. Criticisms of Offer of Judgment/Settlement Rule ............................................................................................4
6. VI. Rule 167 Implementing the Texas Offer of Settlement Statute.......................................................................................5
1. A. Overview............................................................................................................................................................ 5
2. B. The Mechanics of Offer of Settlement Practice............................................................................................... 5
1. Cases Covered by the Offer of Settlement Statute ............................................................................... 5 2. Putting Fee Shifting in Play - The Defendant's Declaration................................................................. 6 3. Time for Making Offer - HB 4 Directs Supreme Court to Decide...................................................... 6 4. The Offer........................................................................................................................................7 a. HB 4 — The Fee Shirting Rule Applies to Both Plaintiffs and Defendants.............................7 b. The Offer Must Extend to All Monetary Claims...................................................................7 c. Form and Contents of the Offer to Settle ..............................................................................7 d. Adding Conditions to the Offer to Settle............................................................................. 8 e. Joint Offers ....................................................................................................................... 8 f. Service of Offer (Admissibility).......................................................................................... 8 g. May a Party Make an Offer to Settle. But "Opt Out" of the Fee Shifting Provisions? ............ 8 5. Time Period for Keeping the Offer Open.......................................................................................... 9 a. Revocability of Offer ......................................................................................................... 9 6. Withdrawal of Offers and Subsequent Offers..., ......................... ......................................................9 a. Withdrawal.......................................................................................................................9 b. Successive Offers...............................................................................................................9 7. Offer "Void" Upon Subsequent Joinder of Parties ..............................................................................9 8. Acceptance of Offer of Settlement..................................................................................................10 a. Procedures to Accept .......................................................................................................10 b. Terms of the Acceptance..................................................................................................10 9. Rejection of Offer of Settlement .....................................................................................................10 a. Procedures to Reject Offer............................................................................................... 10 b. Date of Rejection............................................................................................................. 10 10. Consequences of Rejection of Offer - Triggering the Fee Shifting Event........................................ 10 a. When the judgment rendered is significantly less favorable than the rejected offer fee shifting is triggered ..................................................................................................................... 10 b. Is a significantly less favorable judgment limited to a verdict after a trial on the merits or does it include summary judgment, directed verdict, or other final disposition of the case? 11 c. Fees and Costs incurred before and after the expiration of a refused offer - determining the 20 percent margin ............................................................................................................11 d. The Take Nothing Judgment ............................................................................................11 e. Judgment N.O.V.s, Remittiturs, and Other Changes to the Amount of the Judgment...........11 11. The Fee Shifting Formula: Court Costs, Reasonable Expert and Attorney's Fees..............................12 a. What Litigation Costs Are Shifted?..................................................................................... 12 b. Costs ................................................................................................................................12 c. Fees..................................................................................................................................12 1) "Reasonable" attorney's fees:................................................................. 12 a) Who determines what fees are reasonable-court or jury? ......................................................12 b) How are reasonable attorney's fees determined? Are contingent fees reasonable? ................12 c) Are reasonable attorneys fees limited to post-rejection trial fees or are appellate fees recoverable as well? ............................................................................................................................12 d) When a Statutory Basis Already Exists for Recovery of Attorney's Fees or Other Litigation Costs 13 e) Reasonable Expert Fees ......................................................................................................13 f) Discovery Pertaining to Reasonableness of Litigation Costs................................................ 13 g) Caps on Litigation Expenses Shifted................................................................................... 14 h) How Does a Defendant Recover Fees That Have Been Shifted? ........................................... 14 12. Court Discretion to Deny Fee Shifting.............................................................................................. 14 13. Changes To the Judgment and Modifications to Fee Shifting ............................................................ 15 14. Application of Texas Offer of Settlement Scheme - Federal Court Actions; Preemption: Actions Brought in Texas Where the Substantive Law of Another State Applies........................................... 15 APPENDIX A......................................................................................................................................................................... 16 APPENDIX B......................................................................................................................................................................... 19

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