Opinion
1957
MAY OFFERS OF JUDGMENT UNDER RULE 68 BE REVOKED BEFORE ACCEPTANCE? By MORRIS K. UDALL, Member of the Tucson, Arizona Bar
More than a decade of discussion and drafting preceded adoption of the Federal Rules of Civil Procedure, 28 U.S.C.A. Eighteen years of use have produced judicial clarification and text interpretation on hundreds of points left unsettled by the actual language of particular rules. Today the two standard works (Moore and Barron Holtzoff) run to a total of thirteen volumes, and the cases, commentaries and articles of Federal Rules Decisions add nineteen more.
One might therefore justify surprise on encountering a Federal rules problem which is left ambiguous by the wording of the rule, untouched by judicial decision, and ignored by the texts and writers. Such an experience was the author's stimulus for this article, which, it is hoped, will provide a small amount of fill for this procedural chuck hole.
My problem arose in an otherwise undistinguished negligence suit filed in Arizona's Graham County Superior Court (Merritt v. Gardner, No. 4899). As the date of trial appeared over the horizon settlement sparring commenced. After a few preliminary sallies from each side the defendant's insurer announced $1500 as the last dollar it would pay for a "questionable claim on which we will undoubtedly prevail", while the author for the plaintiff reached a "rock-bottom-go-to-court" figure of $2000. To call our bluff the defense resorted to Arizona (and Federal) Rule 68, the text of which reads:
"At any time more than ten days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against him for the money or property or to the effect specified in his offer, with costs then accrued. If within ten days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and thereupon the clerk (at the direction of the court) shall enter judgment. An offer not accepted shall be deemed with-drawn and evidence thereof is not admissible except in a proceeding to determine costs. If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer. The fact that an offer is made but not accepted does not preclude a subsequent offer."
The bracketed words do not appear in Federal Rule 68.
The chronology of the offer and the subsequent events is important:
June 1 — The defendant filed an offer of judgment in the amount of $1750. Plaintiff was inclined to accept, but decided to take three or four of his allotted ten days to think it over.
June 3 — Defendant filed a pleading entitled "Withdrawal of Original Offer of Judgment" reciting that the plaintiff had not yet accepted the $1750 offer, and that the defendant was therefore withdrawing the same and substituting an offer of $1250 only.
June 5 — Plaintiff filed a notice of acceptance of the original $1750 offer, together with a proper proof of service.
June 12 — Plaintiff moved to strike the alleged withdrawal and asked for judgment for $1750 plus costs.
June 14 — The defendant countered with a motion to strike the plaintiff's acceptance and to have the action set down for trial. Thus the issue was sharply drawn, and the question squarely presented:
"Is an offer of judgment under Rule 68 revocable during the ten day period provided by the rules?"
The motions were heard by the Honorable Porter Murry, Judge of the Superior Court, Clifton, Arizona, who held the original offer irrevocable, and ordered that the plaintiff have judgment for $1750. This ruling, it is submitted, was clearly correct.
Defense counsel argued that offers under Rule 68 are analogous to ordinary offers of contract, and under the time honored rule may be withdrawn at any time prior to acceptance. On the other hand plaintiff asserted that these offers are anomalous creatures of the rule, and that the unqualified language of the second sentence of Rule 68 absolutely requires the clerk to enter judgment if a notice of acceptance is filed within the ten days:
Restatement of Contracts, Sec. 35(e); Dickinson v. Dodds, 2 Ch. Div. 463; Moffett, Hodgkins and Clarke Co. v. City of Rochester, 178 U.S. 373, 20 S.Ct. 957, 44 L.Ed. 1108.
"* * * If within 10 days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and there-upon the clerk shall enter judgment."
The relatively few Federal decisions on Rule 68 were of scant assistance. Maguire v. Federal Crop Insurance Corp., 5 Cir., 181 F.2d 320, 322, and Nabors v. Texas Co., D.C., 32 F.Supp. 91 suggest that offers of judgment under Rule 68 are not ordinary offers of compromise, and indicate that the procedure provided by the rule must be strictly followed, but they do not approach the problem considered here.
The Maguire and Nabors cases as well as Barron Holtzoff (Vol. III, p. 328) make it clear that the purpose of the rule is to "encourage settlements and avoid protracted litigation." Such a purpose, we contended, would be flaunted by permitting a defendant to dangle offers which might be instantly revoked. But despite the most diligent search neither counsel could find a Federal Rules decision on this precise point, and both Barron Holtzoff and Moore's Federal Practice were completely silent. The plaintiff's search of the literature prior to adoption of the Federal Rules uncovered a report of the 1938 New York Symposium on the proposed Rules. At this symposium Judge Donworth, a member of the drafting committee, was asked one question on this problem:
"Question 18. Rule 68. May defendant withdraw his offer of judgment prior to its written acceptance by plaintiff?
"A. My view is in the negative. It is like an option that you have for ten days based upon a valuable consideration. If you have paid for any option, you are entitled to it, and it cannot be withdrawn. The fact that the offer is made under these rules takes out of it the element of gratuity, and gives to it an enforceable legal effect. It is put in there for compliance in accordance with these rules and cannot be with-drawn."
However, we were unable to find reported cases or texts bearing on this problem, and we turned in our research to the reports of the early Code Pleading States, and were finally rewarded by coming upon a line of New York decisions solving this very problem under ancient Section 738 of the New York Code of Civil Procedure. Section 738 is undoubtedly a direct ancestor — if not the sire — of Federal Rule 68, and its language is remarkably similar:
"Section 738. The defendant may, before the trial, serve upon the plaintiff's attorney, a written offer, to allow judgment to be taken against him, for a sum, or property, or to the effect, therein specified, with costs. If there are two or more defendants, and the action can be severed, a like offer may be made by one or more defendants, against whom a separate judgment may be taken. If the plaintiff, within ten days thereafter, serves upon the defendant's attorney, a written notice that he accepts the offer, he may file the summons, complaint, and offer, with proof of acceptance, and thereupon the clerk must enter judgment accordingly. If notice of acceptance is not thus given, the offer cannot be given in evidence upon the trial; but, if the plaintiff fails to obtain a more favorable judgment, he cannot recover costs from the time of the offer, but must pay costs from that time."
In three old decisions the New York courts declared that offers of judgment under Section 738 were irrevocable during the ten days allowed the plaintiff to accept. Perhaps the best discussion of the problem appears in Hackett v. Edwards, where defendant filed an offer of judgment in the sum of $500. At 2:00 in the afternoon of the sixth day the attorneys for a minor plaintiff obtained an order of the probate court authorizing the guardian ad litem to accept the $500. But at 3:00 the same day the defendant's counsel (for unstated reasons) sent plaintiff's counsel a notice purporting to withdraw the offer.
Hackett v. Edwards, 1898, 22 Misc. 659, 49 N.Y.S. 609; McVicar v. Keating, 1897, 19 App.Div. 581, 46 N.Y.S. 298; and United States Mortgage Trust Co. v. Hodgson, 1899, 30 Misc. 84, 61 N.Y.S. 868.
But plaintiff's attorney proceeded to serve notice of acceptance and judgment was entered by the clerk for the amount of the offer. The defendant moved to set aside the judgment. In denying this effort Judge Pryor made a clear analysis of the purpose and meaning of the rule:
"It is a statutory provision, and it reserves no right of retraction to the defendant. On the contrary, 10 days are secured to the plaintiff for acceptance of the offer, — a plain implication that for that period the offer is to stand. * * * The defendant is under no obligation to make the offer, but, having made it, the law holds him to it until by the expiration of the option allowed the plaintiff for acceptance he is restored to his original rights. * * * Upon any other construction, the statute would become an instrument of trifling and chicane. The right of the defendant, after rejection of one offer, to make another, is no way inconsistent with the conclusion that an offer may not be withdrawn before rejection." [ 22 Misc. 659, 49 N.Y.S. 610.]
Judge Pryor doubtless had in mind that under a contrary interpretation a defendant might for harassment serve a series of daily offers and withdrawals on a hesitant plaintiff, withdrawing the previous day's offer and substituting one in a regularly reducing amount.
McVicar v. Keating, 1897, was the first in time of the three cases cited above. It arose by another attempt to withdraw an unaccepted offer before the ten days had run. The Appellate Division here first held that such offers could not be withdrawn and likened defendant's offer to an option, with the consideration supplied by the statute.
In an interesting piece of dicta the court suggests, citing Eagan v. Moore, 2 Civ.Proc.R., N.Y., 300, that in a proper case — for instance where a mistake had been made — the court might allow a party to amend or withdraw an offer before the ten days had run. Absent such circumstances, however, the decision declares offers may not be withdrawn.
In the third of the cases, United States Mortgage Trust Co. v. Hodgson, the McVicar and Hackett doctrine is reaffirmed. The question of revocability arose in this case, however, by defendant filing a counterclaim after he had served an offer to allow judgment as to plaintiff's claim. Acceptance by plaintiff during the ten days the court said put an end to the suit, though a counter-claim was pending. Defendant it was suggested could, under existing New York practice, pursue his counterclaim in a separate action.
As an interesting aside both the Hodgson and McVicar cases cite Stillwell v. Stillwell, 81 Hun 392, 30 N.Y.S. 961 as authority that an offer of judgment and an acceptance thereof constitute not only a judgment, but a contract as well, and that a court which could theoretically set aside a judgment, could not on motion set aside a judgment which is also a contract. We have found no case where such a problem has actually been decided.