US SUPREME COURT DECISIONS

Held: Federal Rule of Civil Procedure 68 -- which provides that, if a plaintiff rejects a defendant's formal settlement offer "to allow judgment to be taken against him," and if "the judgment finally obtained by the offeree is not more favorable than the offer," the plaintiff "must pay the costs incurred after the making of the offer" -- does not apply to a case in which judgment is entered against the plaintiff-offeree and in favor of the defendant-offeror. Pp. 450 U. S. 350-361.

(a) This interpretation is dictated by Rule 68's plain language -- "judgment finally obtained by the offeree . . . not more favorable than the offer" -- which confines the Rule's effect to a case in which the plaintiff has obtained a judgment for an amount less favorable than the defendant's settlement offer. Moreover, because the Rule contemplates that a "judgment taken" against a defendant is one favorable to the plaintiff, it follows that a judgment "obtained" by the plaintiff is also a favorable one. Pp. 450 U. S. 350-352.

(b) Such interpretation of Rule 68 is also consistent with the Rule's purpose to encourage the settlement of litigation, since the Rule provides an inducement to settle those cases in which there is a strong probability that the plaintiff will obtain a judgment but the amount of recovery is uncertain. It could not have been reasonably intended, on the one hand, affirmatively to grant the district judge discretion to deny costs to the prevailing party under Rule 54 (d) -- which provides that costs shall be allowed to the prevailing party unless the trial court otherwise directs -- and then, on the other hand, to give defendants -- and only defendants -- the power to take away that discretion by performing a token act of making a nominal settlement offer. In both of the situations in which Rule 68 does not apply -- judgments in the defendant's favor or in the plaintiff's favor for an amount greater than the settlement offer -- the trial judge retains his Rule 54(d) discretion. Rule 68's plain language makes it unnecessary to read a requirement into the Rule that only a reasonable settlement offer triggers the rule. A literal interpretation avoids the problem of sham offers, because such an offer will serve no purpose, and a defendant will be encouraged to make only realistic settlement offers. Pp. 450 U. S. 352-356.

(c) The above interpretation of Rule 68 is further compelled by its chanrobles.com-red

Page 450 U. S. 347

history -- the state rules upon which the Rule was modeled, the cases interpreting those rules, and the view of the commentators, including the members of the Advisory Committee. Pp. 450 U. S. 356-361.

600 F.2d 699, affirmed.

STEVENS, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, and BLACKMUN, JJ., joined. POWELL, J., filed an opinion concurring in the result, post, p. 450 U. S. 362. REHNQUIST, J., filed a dissenting opinion, in which BURGER, C.J.,and STEWART, J., joined, post, p. 450 U. S. 366.