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December 18, 2013 Articles

Attorney Fees in the Context of a Rule 68 Offer

Navigate this often confusing Federal Rule of Civil Procedure

By John B. Pinney and Jeremie W. Imbus

Federal Rule of Civil Procedure 68’s purpose is to encourage settlement and avoid litigation. Marek v. Chesny, 473 U.S. 1, 6–7 (1985). Yet, because of confusion surrounding the rule’s operation and its limited utility in cases that do not involve fee shifting, it is a procedural device that federal practitioners have rarely used. This article outlines how Rule 68 operates in the area of attorney fees and highlights issues federal court litigators should be aware of when drafting or considering a Rule 68 offer.

Rule 68 allows a party defending a claim, at least 14 days before the date set for trial, to make an offer of judgment to the other party. See Fed. R. Civ. P. 68(a). If the other party accepts the offer, the clerk must enter judgment per the offer’s terms. Id. However, if the other party rejects the offer and ultimately obtains a less favorable judgment, it then must pay the costs incurred after the offer was made. See Fed. R. Civ. P. 68(d).

On its face, Rule 68 is straightforward—a defending party makes an “offer of judgment,” and if the plaintiff accepts, the clerk automatically enters judgment as the judgment of the court. It is important to note that, on its face, Rule 68 applies only where a defendant makes an offer to the plaintiff, but not vice versa. The hook, though, is where the plaintiff does not accept the offer, in which case the plaintiff “must pay the costs incurred [by the defendant] after the offer was made” if the judgment finally obtained by the plaintiff is not more favorable than the unaccepted offer. However, ambiguous offers and confusion surrounding what constitutes “costs” have served to undermine the rule’s purpose and, in many cases, have led to further, not less, litigation. Specifically, in the context of fee-shifting cases, the matters most often litigated are whether attorney fees are or are not included in the term “costs” within the meaning of Rule 68 and whether the language used in the defendant’s offer was ambiguous as to whether it did or did not include the plaintiff’s attorney fees.

General Rule for Costs

In Marek v. Chesny, the Supreme Court in 1985 ruled that “costs” under Rule 68 do include attorney fees in a civil rights case brought under section 1983, although only in the context of the plaintiff’s post-verdict application for fees under section 1988. Under 42 U.S.C. § 1988, a prevailing party may be awarded attorney fees “as a part of costs.” The Supreme Court’s specific ruling in Marek was that the plaintiff’s accrual of attorney fees, as the prevailing party where his award was less than the offer, was cut off as of the date of the Rule 68 offer. The defendant did not seek an award of his attorney fees and expenses from the plaintiff, although in theory he could have done so.

By so interpreting the relationship between Rule 68 and section 1988, which allows for an award of attorney fees as costs for cases brought under section 1983, the Supreme Court breathed life into what had been a moribund Rule 68 since the Federal Rules of Civil Procedure were first adopted in 1938. The effect of the Marek decision is that for cases where attorney fees are considered to be part of “costs,” the defendant (but not the plaintiff) has been afforded a powerful tool under Rule 68 to get the case settled at an early stage.

Rule 68’s Application under a Fee-Shifting Statute

When a statute defines costs to include attorney fees, Rule 68 allows a defendant to turn the tables on a plaintiff. Specifically, a rejected Rule 68 offer of judgment potentially enables a defendant both to cut off the accrual of the plaintiff’s attorney fees incurred after the making of the offer and put the plaintiff at risk for having to pay the defendant’s fees from that point forward.

However, if the relevant statute specifies that attorney fees are recoverable for the prevailing party as a separate claim according to the fee-shifting statute and not as part of “costs,” attorney fees are then beyond the scope of Rule 68 because it, by its express terms, allows only for the recovery of “costs.” This was precisely the situation in Fegley v. Higgins, 19 F.3d 1126, 1134 (6th Cir. 1994), where the defendant argued that, because the plaintiff recovered less at trial than the defendant had offered in settlement, the plaintiff could not recover attorney fees incurred after the offer was made. The Sixth Circuit held, however, that the plaintiff could nonetheless still recover attorney fees, because unlike in Marek, the statute at issue in Fegley did not include attorney fees as costs but allowed for their recovery as a separate claim. Id. at 1135. (The statute in question in Fegley was the Fair Labor Standards Act, 20 U.S.C. § 201 et seq.)

A similar issue may arise in a case brought under multiple statutes that define the relationship between attorney fees and costs differently. The Second Circuit faced this dilemma in Wilson v. Nomura Securities International, Inc., 361 F.3d 86, 88 (2d Cir. 2004), where the plaintiff brought civil rights claims under both federal Title VII (for which attorney fees are recoverable as part of “costs” under Title VII) and a New York state statute that allowed for the recovery of attorney fees as a separate claim and not as part of the costs. The plaintiff had accepted a Rule 68 offer that stated that it was “inclusive of all costs available under local, state or federal statutes,” and the issue was whether the defendant remained liable for the plaintiff’s attorney fees in addition to the amount specified by the offer. Id. The Second Circuit held that because both the federal and state claims were factually and legally identical, the legal work on both claims was the same; therefore, acceptance of the defendants’ offer of judgment on the federal claim precluded a supplemental award of fees on the state law claim. Id. at 91.

Clarity in Drafting a Rule 68 Offer

A defending party must be clear if it wants attorney fees to be included within the scope of its Rule 68 offer. In Sanchez v. Prudential Pizza, Inc., 709 F.3d 689, 692 (7th Cir. 2013), a Title VII case decided in March 2013, the Seventh Circuit stated that “an offering defendant bears the burden of any silence or ambiguity concerning attorney fees.” In Sanchez, the defendant’s accepted offer referred to “all of [p]laintiff’s claims for relief.” Id. at 691. The defendant argued its offer included attorney fees because the plaintiff specifically had asked for attorney fees in her complaint. Id. at 692. The court rejected this argument and held that because the defendant’s offer was silent on the issue and thus ambiguous on whether it included the plaintiff’s attorney fees, the plaintiff was entitled to an award of her attorney fees as the prevailing party, in addition to the amount of the judgment entered upon plaintiff’s acceptance of the defendant’s offer. Id. at 694.

Yet, on nearly identical facts, the Sixth Circuit reached a different result. In McCain v. Detroit II Auto Finance Center, 378 F.3d 561, 563 (6th Cir. 2004), the plaintiff accepted a Rule 68 offer “as to all claims and causes of action” that was otherwise silent as to attorney fees and costs. Nonetheless, the court ruled that attorney fees were not recoverable because the plaintiff had specifically requested attorney fees in each of her claims. Id. at 565. The court did, however, provide a note of caution for future defense counsel, stating, “[T]here are other situations in which a prudent defense counsel, who after all has total control over the drafting of a Rule 68 offer, ought to (or sometimes must) add a specific reference to the inclusion of attorney’s fees to provide clarity—but this is not one of them.” Id.

A third approach taken by courts is to rule that an ambiguous Rule 68 offer is not a valid offer at all. In Stewart v. Professional Computer Centers, 148 F.3d 937, 939–40 (8th Cir. 1998), the Eighth Circuit vacated a judgment entered pursuant to a Rule 68 offer because the offer was silent as to whether attorney fees and costs were included. Applying contract principles, the court ruled that “no manifestation of mutual assent could be found.” Id. at 940.

Using Rule 68 Effectively

As this article highlights, poorly drafted Rule 68 offers can create unintended consequences for both parties, but the greatest risk lies with the party making the offer. This is partly due to the fact that under Rule 68 plaintiffs not have the opportunity to make a counteroffer and are therefore “at their peril whether they accept or reject” the offer. Webb v. James, 147 F.3d 617, 621 (7th Cir. 1998). Because of the limited options a plaintiff is left with once a defendant makes a Rule 68 offer, several courts have held that such offers will be strictly construed against the defendant. Sanchez, 709 F.3d at 694; Util. Automation 2000, Inc. v. Choctawhatchee Elec. Coop., Inc., 296 F.3d 1238, 1244 (11th Cir. 2002).

Thankfully, case law does provide some guidance as to how Rule 68 offers can be more clearly drafted. First, litigants should avoid drafting a Rule 68 offer that states it is for “[an amount] with costs.” Courts have found such offers to be ambiguous as to whether they include or don’t include costs. See Christian v. R. Wood Motors, No. 91-CV-1348, 1995 U.S. Dist. LEXIS 5560, at *31 (N.D.N.Y. Apr. 17, 1995). Therefore, defense counsel who wants to make an offer that includes costs then accrued should specifically say so. Second, as recognized in McCain, there are instances in which defense counsel must reference whether attorney fees are included in the Rule 68 offer. McCain, 378 F.3d at 565. The better practice would be to always state whether attorney fees are included in the offer.

In deciding the amount of a Rule 68 offer when attorney fees are included, defense counsel needs to be mindful that the adequacy of a rejected offer will be tested not only against the amount of damages that are ultimately determined at trial but also by the reasonable amount of the plaintiff’s attorney fees incurred as of the time the offer was made. The defendant offeror may include the attorney-fee component of the offer as simply part of a lump-sum total offer or could set forth an attorney-fee component as a separate part of the offer. For example, if the defendant elected not to combine attorney fees within a single lump-sum offer, it could make a fixed monetary offer covering only the plaintiff’s damages claim plus “the plaintiff’s reasonable attorney fees and court costs as determined by the court.” Alternatively, the defendant could include as a separate specified part of the offer a specific additional amount to cover “plaintiff’s attorney fees and costs,” which could be a useful strategy where the defendant has a good picture of the amount then being claimed by the plaintiff’s attorney from a contemporaneous mediation, settlement conference, or negotiations.

Finally, although plaintiffs concerned about an ambiguous Rule 68 offer may not have the opportunity to counteroffer, they should at least attempt to force the defendant to clarify the offer’s terms. Even an unsuccessful attempt to do so could still provide strong evidence for a plaintiff who later contends an effective Rule 68 offer never existed.

Keywords: litigation, trial practice, Federal Rule of Civil Procedure 68, offer of judgment, attorney fees, court costs, fee shifting

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