New Method of Calculating Sanctions for Offers of Judgment in Arizona

Under the previous rule, if an offeree failed to best the offeror’s offer of judgment by obtaining a more favorable final judgment, it would pay as a sanction the offeror’s expert witness costs, double the offeror’s taxable costs, and prejudgment interest on unliquidated sums accruing from the date of the offer. Because there is no floor for an offer of judgment, the rule had led to countless $1.00 offers of judgment. In practice, this resulted in potentially steep sanction awards, even if the offeror earned a final judgment just nominally “better.”

The new version of Rule 68 seems to placate that concern. Under the new iteration, the sanction will be calculated as “twenty percent of the difference between the amount of the offer and the amount of the final judgment.” Thus, for example, if a defendant offeree rejects an offer of judgment for $100,000, and final judgment is rendered against it for $300,000, the offeree will owe an additional $40,000 as a sanction (e.g., 20% of the $200,000 difference).

Notably, the new iteration of Rule 68 also authorizes a court to “reduce or eliminate” the sanction if it finds the sanction to be “manifestly unjust.” What qualifies as “manifestly unjust” is yet to be seen, but, presumably, this provision is meant to prevent unusually high sanction awards.