Rule 1-068.Offer of settlement

This rule also applies to actions seeking relief other than money damages. See e.g., Assoc. of Apartment Owners of Wailea Elua v. Wailea Resort Co., Ltd., 58 P.2d 608 (Hawaii 2002) ("[F]ederal courts have overwhelmingly applied Rule 68 to cases dealing with equitable relief.").

Rule 1-068 previously permitted only a party defending against a claim to make an offer of judgment. At least sixteen states have rules that allow the claimant as well as the defending party to do so. Allowing either party to make offers of settlement increases the likelihood that settlement will occur and provides equality of opportunity to all parties to initiate the settlement process.

Rule 1-068 has always provided that when a defending party's offer of judgment is not accepted and the claimant fails to obtain a judgment more favorable than the offer, the claimant must pay the costs of the defending party incurred after the making of the offer. The rule continues to provide this remedy. Rule 1-068 also now makes explicit what has been the universal construction of the rule - that when the claimant does not obtain a judgment more favorable than the offer, the claimant not only must pay the defending party's costs, but also is not entitled to its costs incurred after the making of the offer. E.g., Crossman v. Maroccio, 806 F.2d 329, 333 (1st Cir. 1986), cert. denied, 481 U.S. 1029 (1987); see Moore's Federal Practice Digest Par. 68.08[2] (3rd ed. 2002).

When a claimant's offer of settlement is declined and the claimant obtains a judgment greater than the offer, the appropriate sanction is more complicated. Because the claimant is normally entitled to costs if the claimant prevails in obtaining a judgment in any amount, see Rule 1-054(D)(1) NMRA, an award only of costs would not provide additional incentive for the defending party to accept the offer. To provide additional incentive, the rule provides that costs incurred by the claimant after the making of the offer of settlement shall be doubled and the doubled amount awarded as costs.

The plaintiff often has the opportunity for extensive investigation and preparation of the claim prior to filing suit. The claimant thus may be in a position to make an offer of settlement very early in the proceedings, before the defending party has had a fair opportunity through discovery to determine the relative merits of claimant's case. For this reason, the rule provides that an offer of settlement may not be made by a claimant until one hundred twenty days after the service of a responsive pleading by the defending party who thus has additional time to evaluate the offer before deciding whether to accept or reject it. For example, if the claimant is the plaintiff, the time for making an offer begins upon service of the answer by the defendant. If the claimant is a defendant who has filed a counterclaim, the time for making an offer begins upon service of the plaintiff's reply to the counterclaim. See Rule 1-007(A) NMRA.

"Costs" awardable pursuant to this rule are those provided for in Rule 1-054(D). Attorney's fees are not included in Rule 1-054(D), see Rule 1-054(E) NMRA, and are excluded from the cost-shifting provisions of this rule even if attorney's fees are included as costs for other purposes or in other contexts. E.g., 28 U.S.C. Sec. 1988(b) (attorney's fees included as costs awardable in cases involving civil rights actions). While a cost award is mandatory under the conditions specified in Rule 1-068, the amount of those costs is separately determined by the trial court pursuant Rule 1-054(D). See Key v. Chrysler Motors Corp., 2000-NMSC-010, 128 N.M. 739, 998 P.2d 575.

This rule does not apply to domestic relations actions because such actions frequently provide for the award of attorney's fees in the discretion of the court and this provides sufficient incentive for parties in domestic relations cases to seek to settle their disputes. The excluded "domestic relations actions" are those described in the Committee commentary to Rule 1-120 NMRA.

A statute, Section 56-8-4(B) NMSA 1978, authorizes the court to award interest to a plaintiff under certain circumstances if the defendant fails to make reasonable and timely offers of settlement to the plaintiff. This statute operates differently from Rule 1-068 NMRA in that the statute penalizes a defendant for not making offers rather than providing an incentive for plaintiffs to make offers of settlement. Nonetheless, awarding plaintiffs both double costs under this rule and interest pursuant to the statute is unduly punitive.

The broader terms "claimant" and "defending party" are used in the Rule instead of "plaintiff" and "defendant" because, for example, when a defendant files a counterclaim, the defendant also become a claimant and the plaintiff also becomes a defending party.