Commercial Litigation

Rule 167 Offers: Encouraging Early Settlement

Rule 167 of the Texas Rules of Civil Procedure, titled "Offer of Settlement; Award of Litigation Costs," went into effect on January 1, 2004, and is still considered to be a new procedure in Texas. The general premise of the rule is to encourage early settlements by minimizing risks to the party making the offer, and increasing risks to the offeree. Specifically, certain litigation costs may be awarded against a party who rejects an offer to settle a claim for monetary damages, provided the offer is made pursuant to the procedure outlined in the rule. The rule applies to the settlement of monetary claims, including counterclaims, crossclaims, and third party claims, but it does not apply in certain types of cases, including, among others, class actions, shareholder's derivative suits, and actions brought by or against State or units of state government.

Before the rule can be utilized, a defendant must invoke the procedure by filing a declaration with the court. Once this is done, both the plaintiff and defendant are able to make offers pursuant to the rule. Making an offer "pursuant to the rule" simply means the party must follow the steps set forth in the rule itself. Specifically, the offer must: (1) be made in writing; (2) state it is being made pursuant to the rule; (3) identify who is making the offer and to whom it is made; (4) state the specific terms of the offer; and (5)
include a deadline to accept the offer. Additionally, the offer must be served on all parties to whom it is being made. Acceptance of an offer made pursuant to the rule must be made in writing. The offer must be made at least 14 days before the case is set for trial and the acceptance deadline must be at least 14 days after the offer is served. Due to certain aspects of this Rule, it is probably in the best interests of the Defendant to consider invocation of this rule as early as possible in this case.  

If an offer is rejected and the case proceeds to trial, then depending on the outcome, the party to whom the Rule 167 offer is made could potentially be liable for the offeror's litigation costs. Specifically, if a judgment at trial is "significantly less favorable" to the offeree than the Rule 167 offer was, the court must award the party that made the offer its litigation costs against the offeree from the time the offer was rejected until the time of judgment. Thus, in the right situation, Rule 167 can be a helpful procedure in encouraging litigants to determine their interests and settlement options early on in a case. However, it may not be the best approach for every defendant in a lawsuit, so you should consult with trial counsel on whether to consider this litigation strategy.

By J. Allen Smith and Katherine L. Killingsworth