Most Texans are familiar with the idea that each party pays their own attorneys’ fees in a lawsuit unless a statute says otherwise. But Texas has an additional, often-overlooked rule that can dramatically shift the financial risk of litigation: Texas Rule of Civil Procedure 167 and Chapter 42 of the Texas Civil Practice & Remedies Code, commonly known as the “offer of settlement” fee-shifting rule.

This rule gives parties a powerful tool to encourage reasonable settlement—and penalizes those who refuse them.

How the Rule Works

Under Rule 167, a party may formally invoke the offer-of-settlement procedure in a civil case for monetary damages (with some exceptions). Once invoked, either side may make a written settlement offer following the rule’s requirements.

If the other party rejects the offer and the final judgment is not favorable enough to them, they may end up owing the offering party’s litigation costs—including attorneys’ fees incurred after the offer was rejected.

This flips the usual default: rejecting a reasonable settlement can make you pay the other side’s fees.

When Fee-Shifting Applies

Fee-shifting occurs if the rejecting party does worse than the offer by a certain margin:

If the Defendant Makes the Offer

Fee-shifting applies if:

• The plaintiff rejects the offer, and
• The plaintiff later obtains a judgment that is at least 20% less than the defendant’s offer.

Example:
Defendant offers $100,000.
Plaintiff gets $79,000 or less at trial.

Because the final award is more than 20% below the offer, the plaintiff may now owe a portion of the defendant’s litigation costs.

If the Plaintiff Makes the Offer

Fee-shifting applies if:

• The defendant rejects the offer, and
• The plaintiff obtains a judgment that is at least 20% more than their offer.

Example:
Plaintiff offers to settle for $100,000.
Plaintiff wins $121,000 or more at trial.

Now the defendant may owe a portion of the plaintiff’s litigation costs.

What Costs Can Be Shifted?

Rule 167 allows recovery of certain litigation costs incurred after the settlement offer, including:

• Reasonable attorneys’ fees
• Court costs
• Deposition costs
• Expert-witness fees
• Other specified litigation expenses

However, the amount recoverable cannot exceed the total amount the offering party is ordered to pay in damages. This places a ceiling on fee-shifting to prevent runaway awards.

Why This Rule Matters

The settlement-offer rule has real consequences:

1. It forces parties to evaluate risk realistically.

Rejecting a reasonable offer may expose your client to substantial financial liability.

2. It deters frivolous stubbornness.

The rule rewards parties who make good-faith offers early and punishes gamesmanship.

3. It changes negotiation leverage.

A well-crafted Rule 167 offer can put the opposing party on notice:
“If you push this to trial and lose ground, you may pay our fees.”

4. It promotes efficient resolution of cases.

The Texas Supreme Court has repeatedly endorsed the rule as a tool to reduce unnecessary trials.

When Rule 167 Cannot Be Used

Rule 167 does not apply to certain cases, including:

• Class actions
• Divorce or family-law cases
• Cases where the plaintiff seeks injunctive relief (unless claims can be segregated)
• Workers’ compensation cases

It applies most often in personal-injury, contract, and property-damage disputes.

Key Practice Tips for Lawyers and Litigants

1. Invoke early. The rule must be affirmatively invoked by a party; it is not automatic.
2. Follow the formalities. Offers must comply strictly with Rule 167’s requirements.
3. Document everything. Fee-shifting depends on costs incurred after the offer.
4. Use it strategically. A well-timed settlement offer can significantly shift pressure in your favor.
5. Explain the risk to your client. A party who rejects an offer without understanding the consequences may face a harsh lesson at the end of trial.

Conclusion

Texas Rule of Civil Procedure 167 empowers litigants to make strategic settlement offers that carry real weight. A rejected offer can come back to haunt the opposing party—sometimes in the form of having to pay the other side’s attorneys’ fees.

For lawyers, understanding this rule is an essential part of litigation strategy. For clients, it can be the difference between a manageable outcome and a costly one.

At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.