In federal court—under Rule 68 of the Federal Rules of Civil Procedure—and in many states, there is an offer of judgment or offer of settlement procedure in which a party defending against a claim (defendant) may make an offer of judgment, or either party may make an offer of settlement.

If the party that receives the offer rejects it and does not win a better result at trial, the party who rejected the offer may be required to pay the offering party’s attorney fees and costs incurred after the offer was made.

An offer of judgment is an offer to allow a judgment to be taken against the party offering the judgment. An offer of judgment admits to liability and damages for a specific amount. An offer of settlement is similar but is in the form of an agreement or contract for settlement rather than a judgment from the court for the offered amount.

Laws vary from state to state and a state’s offer of judgment or offer of settlement procedure is usually located in its rules of civil procedure of code of civil procedure (statutes).

In California, the offer of judgment or offer of settlement procedure is governed by Section 998 of the California Code of Civil Procedure. This statute allows either party in a civil lawsuit to make a formal offer to settle the case at any time up to 10 days before the commencement of trial. If the offer is rejected and the party who refused the offer fails to obtain a more favorable judgment or award, that party may be required to pay the offering party's post-offer costs and, in some cases, a reasonable amount of the offering party's expert witness fees. This rule is designed to encourage settlement by penalizing parties who refuse reasonable offers and then fail to achieve a better outcome at trial. It's important to note that the specific consequences and procedures related to Section 998 offers can be complex, and parties are often advised to consult with an attorney to understand the potential implications of making or rejecting such an offer.