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April 20, 2020 Practice Points

Beware a Stipulated Dismissal That Is Silent on Attorney Fees!

Is a stipulated dismissal a judgment for preserving the right to file for attorney fees under FRCP 54(d)(2)?

By Bradford S. Babbitt

Imagine you represent a client in a matter in federal court. After hard-fought litigation, you negotiate a settlement. The settlement agreement provides which party will be paying how much money to the other party and that the case will be dismissed. You and opposing counsel file a stipulated dismissal, ending the case. The client is happy and so are you. On to something else.

Then, 14 days after the stipulation was filed, your client’s opponent files a motion for attorney fees under FRCP, Rule 54(d)(2). You pull out the stipulation that was filed and see that it provided that each party would bear its own costs but said nothing about attorney fees. You grab the settlement agreement: It says nothing about attorney fees under Rule 54. You read Rule 54 and see that motions for attorney fees must be filed within 14 days of entry of judgment. Because opposing counsel waited until the last minute to file the motion, it is now too late for you to file such a motion.

Your hands grow clammy and you start to breathe a little heavier. But you note that Rule 54 says that a motion for attorney fees must be filed within 14 days of “entry of judgment.” No problem, you think, a stipulated dismissal can’t be a judgment on which attorney fees could be awarded. Right? Wrong: Not in the Tenth Circuit or the Federal Circuit, and perhaps not in a circuit even closer to you.

In Keith Mfg. Co. v. Butterfield, No. 2019-1136 (Fed. Cir. April 7, 2020), the Federal Circuit followed the Tenth Circuit decision in Xlear, Inc. v. Focus Nutrition, LLC, 893 F.3d 1227, 1235-36 (10th Cir. 2018), in ruling that a party to a stipulated dismissal under Rule 41(a)(1)(A)(ii) could seek an award of attorney fees under Rule 54. There, Keith Mfg. sued its former employee, Butterfield, after he sought a patent based on inventions made while he worked for Keith Mfg. After 18 months of litigation, the parties filed a stipulation of dismissal, likely as part of a settlement although the court is silent on that issue. The parties’ stipulation did not address attorney fees or costs.

Twelve days after the parties filed their stipulation of dismissal, Butterfield moved for an award of attorney fees under Rule 54 and state law. Not surprisingly, Keith Mfg. opposed the motion. The district court denied Butterfield’s motion, ruling that a stipulated dismissal did not constitute a judgment as required by Rule 54.

After Butterfield appealed, the Federal Circuit reversed. The court ruled that a stipulated dismissal constitutes a judgment on which a party can move for an award of attorneys’ fees under Rule 54. The court noted that some non-appealable orders can still constitute a judgment under the rule. The court distinguished the Supreme Court case of Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017), on which the district court relied in denying attorney fees. The Federal Circuit opined that the policies underlying Microsoft were not implicated because allowing parties to seek attorney fees after stipulating to dismissal would not promote piecemeal appeals or undermine class action procedure. The court also noted that, because both parties could move for attorney fees, permitting a Rule 54 motion after a stipulated dismissal would not affect “the overall balance of litigation.” The Federal Circuit remanded for further proceedings.

Under this decision, a plaintiff who negotiates a substantial recovery and stipulates to dismissal on that basis could face a demand to give up some of that recovery as attorney fees of the defendant. Similarly, a defendant who negotiates a settlement to end litigation in return for a specific, quantifiable sum could be obliged to continue litigating over attorneys’ fees for the plaintiff. The 14-day time limit imposed by Rule 54 also suggests a party that files a motion under Rule 54 late on the fourteenth day could lull the opposing party into missing the opportunity to file a countervailing motion. Given that the time limit could be exploited in that way, the Federal Circuit’s assertion that its decision would not affect the “overall balance of litigation” appears overly optimistic. Keith Mfg. and the similar Tenth Circuit decision identify risks posed by stipulations to dismissal that do not address attorney fees and costs.

There are at least two responses to the risk of an attorney fee motion under Rule 54 after the parties have stipulated to dismissal: adding language to settlement agreements and adding language to stipulations to dismissal. Settlement agreements necessarily identify which party is to pay what amount and to whom, but rarely provide that the parties will not seek an award of attorneys’ fees under Rule 54 or substantive statutes. Keith Mfg. suggests that they should. Even if there was such a provision, it might only create grounds for opposing a motion at the district court. More court proceedings are precisely what the stipulated dismissal was intended to avoid. Better to explicitly rule out a Rule 54 motion in the settlement agreement and include an affirmative assertion in the stipulation that neither party will move for an award under Rule 54.

Bradford S. Babbitt is a partner with Robinson & Cole LLP, Hartford, Connecticut.

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