Does unaccepted Rule 68 that gives away the case moot the case?

Under Rule 68 of the Federal Rules of Civil Procedure, if a defendant serves the plaintiff with a Rule 68 Offer of Judgment, plaintiff has a short time (14 days) to decide whether to accept it. That limited window can induce panic because the consequences of declining the Rule 68 offer can be quite serious, and the plain language of the Rule does not tell us what it really means. The courts are still interpreting the meaning of Rule 68.

The case is Tanasi v. New Alliance Bank, decided on May 14. Under Rule 68, if the defendant serves the Offer on plaintiff in the amount of $20,000, and plaintiff declines that Offer and wins only $10,000 at trial, then Rule 68 says plaintiff must pay defendant's costs incurred after the Offer was made. This is the penalty for guessing wrong about the value of the case. (This does not mean the plaintiff pays defendant's attorneys fees, but it does mean plaintiff gets no attorneys' fees after the date the Offer was made).

In this case, plaintiff sued the bank for improper overdraft fees. The bank served an Offer of Judgment that exceeded the amount of plaintiff's damages. Plaintiff declined the Offer. The district court dismissed the case as moot, as the Offer would have given plaintiff all the money to which he was entitled. The Court of Appeals (Katzmann, Walker and Chin) reverses, further deepening an inter-Circuit split on this issue.

While prior Second Circuit case law has not been clear on this issue, it is clear now. "[A] rejected settlement offer under Rule 68, by itself, cannot render moot a case. If the parties agree that a judgment should be entered, or a defendant unconditionally surrenders ... such that only the plaintiff's obstinacy or madness prevents her from accepting total victory, then the district court may, in its discretion enter judgment against the defendant. Absent such agreement or obstinacy, the district court should not enter judgment against the plaintiff; nor, of course, should judgment be entered if it does not provide complete relief."