District Court’s Discretion Under Rule 68 Does Not Allow Plaintiff-Offeree to Recover Post-Offer Costs and Disbursements
On May 28, 2019, the Minnesota Court of Appeals ruled that when a defendant makes an offer of judgment under Minn. R. Civ. P. 68, and the defendant-offeror prevails or the relief is less favorable than the offer, Minn. R. Civ. P. 68.03(b)(1) precludes the plaintiff-offeree from recovering post-offer costs and disbursements. The district court’s discretion under Minn. R. Civ. P. 68.03(b)(3), to reduce the amount of a party’s obligations to eliminate undue hardship or inequity, does not extend to awarding the plaintiff-offeree post-offer costs and disbursements.
Overview of Case
In Althaus v. Krueger, Althaus sued Krueger seeking damages arising from a motor-vehicle collision. Prior to trial, Krueger served Althaus with a total-obligation offer of judgment pursuant to Minn. R. Civ. P. 68.01, which Althaus rejected. The case proceeded to trial. After trial, the district court determined that the relief awarded to Althaus was less favorable than the offer of judgment. Applying Minn. R. Civ. P. 68.03(b)(1), the district court nevertheless awarded Althaus certain costs and disbursements that Althaus incurred after service of the offer of judgment.
Under Minn. R. Civ. P. 68.03(b)(1):
If the offeror is a defendant, and the defendant-offeror prevails or the relief awarded to the plaintiff-offeree is less favorable than the offer, the plaintiff-offeree must pay the defendant-offeror’s costs and disbursements incurred in the defense of the action after service of the offer, and the plaintiff-offeree shall not recover its costs and disbursements incurred after service of the offer, provided that applicable attorney fees available to the plaintiff-offeree shall not be affected by this provision.
On appeal, it was undisputed that the offer of judgment was less favorable than Althaus’s relief. The main issue was therefore whether the district court properly relied on Minn. R. Civ. P. 68.03(b)(3) to circumvent rule 68.03(b)(1) to award Althaus post-offer costs and disbursements.
That rule provides “[i]f the court determines that the obligations imposed under this rule as a result of a party’s failure to accept an offer would impose undue hardship or otherwise be inequitable, the court may reduce the amount of the obligation to eliminate the undue hardship or inequity.” Minn. R. Civ. P. 68.03(b)(3).
The district court reasoned that if did not award Althaus post-offer costs and disbursements related to expert witness testimony at trial, the result be “inequitable” because it would “completely undermine [Althaus]’s right to call witnesses in the case in chief” and would also “undermine, or at least chill, a party’s constitutional right to trial by jury.” On appeal, Krueger argued that awarding Althaus post-offer costs and disbursements, regardless of what those costs related to, was necessarily not a “reduction” in any of the obligations imposed under rule 68.
The court of appeals agreed with Krueger. The court held that while rule 68.03(b)(3) provides the district court with discretion to reduce an obligation imposed by rule 68—such as Althaus’s obligation to pay Krueger’s post-offer costs and disbursements—that rule does not provide the district court with discretion to impose an obligation on Krueger—e.g., pay Althaus’s post-offer expert costs and disbursements—that is contrary to the plain language of rule 68.03(b)(1).
What Does this Mean?
An offeree who rejects a rule 68 offer suffers two adverse consequences: (1) loss of the right to recover her costs and (2) required payment of the defendant-offeror’s costs. Under Minn. R. Civ. P. 68.03(b)(3), a district court may exercise its discretion to reduce an award related to the second consequence. However, a district court has no discretion to avoid the first consequence by awarding post-offer costs and disbursements to avoid an undue hardship or inequitable results.
Parties that reject a rule 68 offer of judgment and do not obtain relief is that more favorable than the offer must therefore be prepared to bear their post-offer offer costs and disbursements.