Arbitration Jiu Jitsu: Increasing the Pressure to Settle With a “Sealed Settlement Offer”
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The cost of arbitration, including attorneys’ fees, can be substantial, commensurate with the matters in dispute. Your desire to settle a dispute that is going to arbitration is often as or more substantial. But sometimes your adversary is not willing to settle at your very rational number. What next — increase your settlement offer or reduce your demand? How about using the anticipated arbitration costs to your advantage? Consider incentivizing your adversary with a “sealed settlement offer,” which could eventually make a settlement offeree pay a heavy price in such costs for miscalculation or intransigence.
The principal models for this mechanism are (i) an Offer of Judgment under the Federal Rules of Civil Procedure, Fed. R. Civ. P. 68, and (ii) a “Calderbank offer” under English law and practice, Civil Procedure Rules, Part 36. In U.S. federal court practice, if an Offer of Judgment is accepted by an offeree, then there is in effect a settlement. If the Offer of Judgment is not accepted, then
“[i]f the judgment that the offeree finally obtains is not more favorable then the unaccepted offer, the offeree must pay the costs incurred after the offer was made.” Fed. R. Civ. P. 68(d).
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