New Guidance on Making and Accepting Statutory Offers of Settlement in Litigation

In the thick of litigation, you must make strategic decisions based on available information. One important decision is whether to accept a settlement offer or risk it at trial. In Colorado, another element comes into play: a statutory provision designed to encourage settlement by shifting the normal rules around payment of costs by the losing party after trial. Depending on what happens at trial, accepting or rejecting a reasonable offer can have big consequences. Much of the strategy around the offer centers around how costs are handled. A recent case from the Colorado Court of Appeals, Miller v. Hancock, gives us some extra guidance on how to make those offers and what to consider when deciding whether to accept the same.

Statutory Offers of Settlement: Section 13-17-202, C.R.S. 2017

Before diving in to the case, let us consider a bit of context. Colorado law has a statutory mechanism that is designed to encourage settlement in litigation. As relevant here, the statute provides:

If the defendant serves an offer of settlement in writing at any time more than fourteen days before the commencement of the trial that is rejected by the plaintiff, and the plaintiff does not recover a final judgment in excess of the amount offered, then the defendant shall be awarded actual costs accruing after the offer of settlement to be paid by the plaintiff. However, as provided in section 13-16-104, if the plaintiff is the prevailing party in the action, the plaintiff’s final judgment shall include the amount of the plaintiff’s actual costs that accrued prior to the offer of settlement.¹

Essentially, this statute punishes a plaintiff after he or she rejects a settlement offer before trial and then recovers less than the settlement offer after trial. It encourages settlement by adding in another risk for the plaintiff of going forward to trial. But the open question in this case was how costs are to factor into the equation of the plaintiff’s recovery v. the settlement amount. In other words, does a trial court have to include a plaintiff’s pre-offer costs when determining if the plaintiff recovered a final judgment in excess of the settlement amount previously offered?

Miller v. Hancock: The Facts

The parties were involved in a lawsuit after a multi-car accident. During the course of the litigation, both defendants made offers to settle the case. The plaintiff rejected those offers and decided to try his odds at trial. At trial, he prevailed, but the award was small—a fraction of the over $100,000 that had been sought. In the end, each defendant had to pay about $4,000 under the jury verdict.

But each of the defendants had previously offered more than their share of the final judgment ($6,000 and $12,000, respectively). So all parties moved for their costs—the plaintiff as the prevailing party, and the defendants under section 13-17-202, the Colorado statute that allows for shifting costs when the final judgment that the plaintiff recovered does not exceed a pretrial settlement offer. The trial court awarded costs for the plaintiff against one of the defendants, but not against the other. It also gave the defendant who offered more in settlement its costs against the plaintiff. An appeal followed.

The case before the Court of Appeals involved whether the trial court had erred in awarding these costs and in calculating whether the plaintiff was better or worse off for having gone to trial instead of accepting the settlement offers.

The Court’s Decision: The Language of the Settlement Offer Matters

A division of the Colorado Court of Appeals took a deep dive into this statute. After determining that the statutory language was ambiguous because it could support two different interpretations, the division turned to other considerations.

It looked to the legislative history, as well as the overall structure of the statute to “conclude that the 2008 amendment entitles a prevailing plaintiff to recover pre-offer costs if he or she prevails at trial, but it has no bearing on how a final judgment is compared to a statutory settlement offer.”²

Ultimately, a trial court is not required to always add a plaintiff’s actual costs incurred prior to the settlement offer in the final judgment when determining whether the plaintiff gambled correctly by going to trial. Instead, the language of the actual settlement offer makes all the difference. In this case, the defendant’s offer had offered to settle “all issues” in the litigation for $12,000. That language, explained the court, meant that the settlement offer included costs. This makes intuitive sense, said the court:

For the statute to work effectively and achieve its purpose, a plaintiff needs to know whether an offer includes or excludes costs when deciding whether to accept or reject the offer, and the answer to that inquiry can’t depend on whether the offer is accepted or rejected. Instead, it’s assessed at the time the offer is made.³

Because the court of appeals reversed and remanded, it then laid out how all of this was to work in practice, helping the reader understand the practical application. Essentially, the court had to calculate what the plaintiff’s recoverable costs would be up to the date of the settlement offer. Then, the court was to calculate a final judgment amount: what the plaintiff recovered from the defendant in terms of the jury verdict and the recoverable costs based on that first figure. If the final judgment was less than or equal to the settlement amount, then the plaintiff was only entitled to recover costs and prejudgment interest accrued as the date of the settlement, and the defendant would get her costs accrued after that date. The process in this case was complicated by the fact that there were several settlement offers that had to be taken into consideration.⁴

Key Takeaways

A great deal of the Miller opinion is spent explaining the logic behind the holding. But in the end, the case does provide litigants with some important guidance to take into account when considering the strategy behind settlement.

1. The 2008 amendment to section 13-17-202(1)(a)(II) abrogated the Bennett case.

In Bennett v. Hickman, a division of the Court of Appeals held that “section 13-17-202(1)(a)(II), C.R.S. 1998, not only entitled a defendant who made an offer in excess of a plaintiff’s recovery at trial to recover his or her post-offer costs, but also barred an otherwise prevailing plaintiff from recovering his or her pre-offer costs pursuant section 13-16-104.” The Miller case concludes that the General Assembly basically enacted some amendments to the statute in 2008 to overrule that holding. In other words, a prevailing plaintiff who doesn’t win enough can still get pre-settlement offer costs even if it must pay post-offer costs to a defendant who tried to settle. Making the argument that Bennett is still good law in this regard is now a harder sell.

2. “Talismanic” language is not required, but words still matter.

One key takeaway from this case is that when making an offer of settlement, words matter. If a defendant intends for the settlement offer to include costs, it must say so in the offer. It does not necessarily need to use the word “costs” however. In this case, for example, the words used were “all issues,” which the division concluded encompassed everything, including costs.

3. If costs are not included in the settlement, they will not be included when calculating the plaintiff’s final judgment.

When thinking about making a settlement offer, most of the time, the point is to end the matter and be done. But there may be some strategic reasons to offer a settlement that does not include costs. In such a scenario, the offer should indicate that it is exclusive of costs. If such an offer was rejected, it could set up a scenario where a prevailing plaintiff’s pre-offer costs would not be considered in determining whether she had recovered a judgment more than the settlement offer. This could make it more likely that a judgment would not exceed the settlement offer, and maybe increase the odds that the defendant could recover costs. But such a strategy is not without risk, as explained below, and there are many factors in play.

4. On the flip side, if costs are not included in the settlement, the plaintiff could seek them after accepting the settlement amount.

Essentially, a defendant cannot have it both ways. In some situations, not including costs in the final judgment will help ensure that the final judgment amount is less than the settlement offer, and thus, that the defendant is entitled to recover its costs. But in this situation, if a plaintiff accepts the offer, the defendant would also have to pay costs in addition to the settlement amount, because they were not included. So there are multiple considerations at play.

5. When evaluating costs, failure to adequately challenge the reasonableness of the other side’s cost request is not sufficient for an award.

The case also involved review of whether the trial court’s award of costs was reasonable. One key take away from that discussion is that the nonmoving party “does not bear the burden to establish that [the moving party’s] costs were not reasonable. Rather, the party against whom costs are awarded is ‘entitled to have the trial court make findings sufficient to disclose the basis for its decision to award costs and support the amount awarded.’” 5 When challenging another side’s submission of costs, be sure to adequately challenge the issue, but tactfully remind the court of its task to make findings supporting any award.

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¹ § 13-17-202(1)(a)(II), C.R.S. 2017.

² Miller v. Hancock, 2017 COA 141, ¶ 32.

³ Id. at ¶ 42.

⁴ See id. at ¶ 57-58

⁵ Id. at ¶ 51 (quoting Brody v. Hellman, 167 P.3d 192, 206 (Colo. App. 2007)).