Like the federal courts and other states, Colorado law has a powerful mechanism to encourage the settlement of civil disputes outside the courtroom. This is the offer of settlement statute, which allows parties to make settlement offers and potentially recover their court costs if the opposing party rejects the offer and fails to achieve a better result through litigation. But Colorado's offer of settlement statute differs from both its federal analog, the offer of judgment rule, and similar rules from other states in key ways that are important to understand.
At a high level, the offer of settlement statute, codified at C.R.S. § 13-17-202, seems basic enough. A party can serve a formal written offer of settlement. That offer must remain open for at least 14 days unless withdrawn.
The offer of settlement is more powerful when made by the defendant. If the defendant makes an offer, and the plaintiff does not recover a "final judgment" more than the amount offered--but perhaps still wins and recovers less than the offer amount—then the defendant is awarded its actual costs incurred after the date of the offer of settlement.
The statute works similarly if the plaintiff makes an offer, and recovers more than the offer. If the plaintiff makes the offer of settlement, and the defendant does not accept the offer within 14 days, but the plaintiff "recovers a final judgment in excess of the amount offered," then the plaintiff is entitled to recover its "actual costs" incurred after the date of offer of settlement. Since the plaintiff would ordinarily recover costs as a "prevailing party," though, the practical reality is that a plaintiff's offer of settlement will make a difference in very few cases.
The consequences of an offer of settlement are potentially significant. Under the offer of settlement statute, as with Colorado's prevailing party costs statute, "actual costs" are defined quite broadly. Although they exclude attorneys' fees, they encompass nearly every other form of litigation costs, "including but not limited to filing fees, subpoena fees, reasonable expert witness fees, copying costs, court reporter fees, reasonable investigative expenses and fees, reasonable travel expenses, exhibit or visual aid preparation or presentation expenses, legal research expenses, and all other similar fees and expenses." C.R.S. § 13-17-202(1)(b).
The breadth of the forms of “costs” captured by Colorado’s rule differs meaningfully from those available under the federal analog, Rule 68, and the accompanying definition at 28 U.S.C. § 1920, which includes only filing fees, transcript fees, witness fees, photocopies, and interpreter fees. As litigators and companies alike well know, the inclusion of expert witness fees as compensable costs under the Colorado statute alone could make a six-figure difference in complex litigation, and in some cases may even exceed attorneys' fees.
The decision whether to include pre-offer costs, interest, and attorneys' fees requires careful consideration in every situation. Whatever components are included in the offer, the court is required to compare the final judgment with the offer "in a like manner." Ferrellgas, Inc. v. Yeiser, 247 P.3d 1022, 1029 (Colo. 2011) (internal quotation marks and citation omitted). So if an offer includes pre-offer costs, interest, and fees, then the court will compare the offer with the final judgment--including such pre-offer amounts--to determine whether litigation should have been avoided by acceptance of the offer. Note, however, the offer is not assumed to include pre-offer amounts, so in order for those amounts to be included, the offeror must so expressly state in its offer.
Unlike private settlement agreements, statutory offers of settlement cannot include non-monetary conditions. For example, parties may wish to require confidentiality or non-disparagement, or even expand the scope of the release beyond the discrete claims, damages, and other issues present in the lawsuit. But Colorado courts have repeatedly held the inclusion of such non-monetary conditions renders an offer of settlement invalid, and thus removes it from within the confines, and benefits, of the statute. See, e.g., Taylor Morrison of Colo., Inc. v. Terracon Consultants, Inc., 410 P.3d 767, 777 (Colo. App. 2017) (inclusion of "full releases" and "mutual dismissal" impermissibly "inject[ed] terms beyond the settlement of existing claims"); Martin v. Minnard, 862 P.2d 1014, 1019 (Colo. App. 1993) (confidentiality provision removed offer from offer of settlement statute because "it would be contrary to the purpose of § 13-17-202 to allow non-monetary conditions to be imposed as part of a settlement offer pursuant to the statute"). Of course, if a party happens to accept an offer that includes non-monetary conditions, that simply forms a "settlement agreement based upon contract principles," Taylor Morrison, 410 P.3d at 777, even if it does not qualify for cost-shifting under the statute.
Finally, a statutory offer of settlement does not require a specific form or magic words. On the contrary, the Court of Appeals has made clear that a letter offering to settle for a sum certain--and transmitted by fax--will qualify under Section 13-17-202, even though it "was not entitled 'settlement offer,' did not refer to the statute, and did not state that it was a 'final offer.'" Dillen v. HealthOne, L.L.C., 108 P.3d 297, 301 (Colo. App. 2004). Today's version of the faxed letter in Dillen would be an offer sent by email, which should still be valid. Nonetheless, as the Dillen court noted, explicitly calling the offer an "offer of settlement" and citing the statute would be the "better practice" so as to eliminate later doubt. Id. Further, if the point of the offer is to encourage settlement, citing the statute should remind opposing counsel to confer with her client about the risks of rejecting the offer.
Colorado’s statutory offer of settlement can be a powerful tool to drive settlement, if done correctly and with the right dollar amount to make the opposing party and counsel nervous about the potential for a costs award even if they win. Often, the rejected offer of settlement continues to loom as a threat during mediation and other pre-trial settlement negotiations. Litigators and their clients should invest the time upfront to assess whether an offer of settlement makes sense in each case, and, if so, to craft a valid and strategically helpful offer.
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