On March 4, 2013, the Seventh Circuit issued an opinion in Sanchez v. Prudential Pizza, Inc., holding that the plaintiff was entitled to costs and fees because the defendant’s Rule 68 offer, which stated only that it included all claims for relief, was silent as to costs and fees. The Seventh Circuit found that the plaintiff, who had brought the action under a statute that entitled successful plaintiffs to attorney’s fees, should have been granted those fees in addition to the amount in the proffered Rule 68 offer, and reversed the district court’s denial of plaintiff’s motion.

Plaintiff Juana Sanchez sued defendant Prudential Pizza for sex discrimination, sexual harassment and retaliation under Title VII. Before trial, Prudential Pizza made a Rule 68 offer of judgment, which offered $30,000 "including all of Plaintiff's claims for relief," but did not specifically address attorney's fees. Plaintiff accepted the offer and then moved for attorney's fees. The district court, applying basic contract law principles, determined that the plain meaning of the language in the offer encompassed costs and fees and denied the plaintiff's motion.

The Seventh Circuit reversed, noting that Rule 68 offers are not like typical offers in contract law, which can be rejected without legal consequences. Rejection of a Rule 68 offer carries with it a risk for the plaintiff, who, if she later wins a judgment, may lose her entitlement to a substantial portion of otherwise awardable attorney fees and costs if she does not win more than the rejected Rule 68 offer.

The court further noted that, if the defendant did not bear the burden of silence or ambiguity concerning attorney fees, the defendant could have it both ways. If the plaintiff accepts the offer, the defendant can assert that fees were included. If she rejects the offer and later wins a modest judgment, the defendant can argue that fees were not included, meaning that the ultimate judgment was less than the rejected offer and the plaintiff's recovery should be limited under Rule 68(d).

Applying this standard, the Seventh Circuit found that because the offer was silent as to costs and fees, it did not include them, and the defendant was liable for them under Title VII, as well as the amount of the proffered settlement.

Practitioners should be conscious of this when drafting Rule 68 offers. General statements that an offer satisfies all the plaintiff's claims are unlikely to be found to include costs and fees. If the offer of judgment is meant to include costs and fees, it should do so explicitly.