Many of you may be thoroughly familiar with the Offer of Judgment rule in your state, assuming there is one (or at least an equivalent), and how it can be used to recover costs if a judgment more favorable than the offer is not obtained.  But, do you know whether the “costs” recoverable under an offer of judgment include expert witness fees?  Is it debatable in your state (i.e., up to the discretion of the court perhaps, or a clear-cut rule)?  PBS said it first, but it still rings true.  One of the most valuable tools in litigation (cue the shooting star) is: “The more you know...”

The most common version of the offer of judgment rule is a cost-transferring tool that can be slapped on a party who fails to: 1) accept an offer of judgment; and 2) obtain a more favorable judgment.  Assume you’re representing a business in a breach of contract case.  The defendant makes you an offer of judgment to settle the case for $50k.  You think the case is worth more, so you reject the offer.  You go to trial and obtain a judgment for $40k.  Under a typical offer of judgment rule, not only can you not recover your costs from the time of the offer forward, you now have to pay the defendant’s costs from the time of offer forward.  Ouch.  It’s kind of like a one-two punch.  But, a well-calculated offer of judgment can be a very helpful tool in providing incentive for parties to make, and truly consider, reasonable settlement offers before enduring a costly trial. 

California, Texas, New York and Florida have essentially adopted the standard version of the rule, with some variations.  Where most states permit “any party” to file an offer of judgment, in Texas an offer of judgment may not be made until the defendant files an initial declaration, opening the floor for offers of judgment.  In addition, while some states (New York) have no set definition of a “more favorable judgment,” other states have put a precise percentage as the benchmark.  Texas requires a twenty percent difference, where Florida and Georgia require twenty-five.  This means if the plaintiff extends an offer of judgment in Texas to settle the case for $100k, he must obtain a judgment of $120k or higher before he can invoke the offer judgment rule and reap the cost-shifting benefits.  The inverse is true as well.  If the defendant extends the $100k offer and the plaintiff obtains a judgment of less than $80k, the defendant would then be entitled to costs.  If used effectively an offer of judgment can set a pretty intimidating hurdle to clear.  As such, many attorneys and mediators view offers of judgment as a sadly underutilized tool.

However, even when the rule is available and effectively used, one item that is still hotly debated is whether the “costs” available under an offer of judgment include expert witness fees.  In Texas, the rule only allows for recovery of “reasonable fees for not more than two testifying experts.”  Meaning, if you’ve got an expert-heavy fraud case with ten varying experts discussing forensic accounting, business practices, banking, money transfers, etc., the recovery of costs for only two of those experts is probably not going to put your expert budget back in the black.  Also, while some states (California) allow for recovery of costs, including attorney’s fees, the inclusion of expert fees in that award is simply left to the court’s discretion.  Ouch again.  But, at least with discretion there’s hope.  New York only permits recovery of precisely-defined statutory fees which range in the $200-$500 range─not an amount that’s going to make your heart leap if you’re looking at several hundred thousand dollars in trial expenses.

The bottom line is that it’s important to know what is recoverable exactly.  If you’re planning to use an offer of judgment as an effective early settlement tool or potential recovery option assuming a favorable outcome at trial, you need to determine whether your state’s version of the cost-shifting tool permits recovery of expert witness fees.