An intent-based approach to the acceptance of benefits doctrine in the federal courts.

• Author: Friedman, Benson K.

INTRODUCTION

A plaintiff wins a judgment in federal district court. Although the plaintiff believes that the judgment does not fully address her claim, the defendant tenders and the plaintiff accepts the full amount or a substantial portion of the judgment. The plaintiff then proceeds to appeal in an effort to increase the judgment. The defendant may have tendered the payment in an attempt to settle the litigation. Alternatively, the defendant may have offered the payment for a variety of reasons not based on an offer to settle: the defendant may have sought, but been denied, a stay of the judgment pending appeal; the defendant may have sought to convince the plaintiff to release liens on the defendant's property; the defendant may have wished to encourage the plaintiff to drop the appeal because the prospect of winning more does not justify incurring the cost of proceeding further; or interest on the judgment may be greater than the value of the money to the defendant. On appeal, the defendant claims that the plaintiff may not now appeal after accepting the payment.

Under the common law acceptance of benefits doctrine, a plaintiff who accepted a substantial portion of the benefits of a judgment(1) could not appeal the amount of the award unless the case fell within one of two exceptions.(2) First, a plaintiff could appear if the defendant did not contest the amount of the payment. This exception allowed a plaintiff to proceed if the defendant admittedly owed the amount of the payment. Second, the plaintiff could appeal despite accepting the payment if the judgment involved divisible issues. Under this exception, the plaintiff could still appeal when the payment concerned a completely distinct claim from the one the plaintiff contested on appeal.

This traditional formulation of the acceptance of benefits doctrine

prevailed in the U.S. circuit courts until 1960,(3) when the Supreme Court invalidated the common law rule in United States v. Hougham.(4) In Hougham, the federal government won a judgment in district court against a defendant who had fraudulently acquired surplus war materials.(5) The defendant tendered a promissory note for the amount of the judgment and asked the United States to release liens on his property. The government complied, and both parties appealed the trial court decision. In the Supreme Court, the defendant, relying on the acceptance of benefits doctrine, argued that acceptance of the promissory note prevented the United States from appealing. The Court rejected the argument and stated: "It is a generally accepted rule of law that where a judgment is appealed on the ground that the damages awarded are inadequate, acceptance of payment of the amount of the unsatisfactory judgment does not, standing alone, amount to an accord and satisfaction of the entire claim."(6) The dissent disagreed with this statement and would have adhered to the traditional formulation of the rule.

Both the majority and dissenting opinions in Hougham relied on Embry v. Palmer(7) for their conflicting conclusions. In Embry, the plaintiff accepted the defendant's payment of $2,296.25 out of a $9,185.18 award. The Supreme Court rejected the defendant's argument that, by accepting the $2,296.25, the plaintiff waived his right to appeal because the defendant admittedly owed the plaintiff the amount of the payment. The Court said:

Without entering upon a discussion of the general question, it is sufficient

for the present purpose to say that no waiver or release of errors,

operating as a bar to the further prosecution of an appeal or writ of

error, can be implied, except from conduct which is inconsistent with the

claim of a right to reverse the judgment or decree. . . . The amount

awarded, paid, and accepted constitutes no part of what is in controversy.

Its acceptance by the plaintiff in error cannot be construed into an

admission that the decree he seeks to reverse is not erroneous; nor does it

take from the defendants in error anything, on the reversal of the decree,

to which they would otherwise be entitled; for they cannot deny that this

sum, at least, is due and payable from them to him.(8)

The reliance on Embry by both the majority and the dissent in Hougham made for a confusing situation. The Court in Embry explicitly refused to extend the holding beyond the specific facts of the case. The Hougham Court, however, extended the rule in Embry to a case in which the defendant contested the entire award and cited Embry for the proposition that acceptance of the benefits of a judgment does not prevent appeal.(9) The dissent, though, read Embry differently and pointed out that Embry did not upset the prevailing rule because the facts fell within a well-recognized exception that allowed appeal by the plaintiff when the defendant did not contest the amount of the payment.(10) Justice Whitaker's dissenting opinion also demonstrates that, despite assertions to the contrary in the majority opinion, the rule stated in Hougham ran contrary to the prevailing rule in the circuit courts of appeals.(11)

The vague scope of the holding in Hougham, combined with the apparent departure from the prevailing rule, caused confusion in the federal courts. Some circuits followed the literal language of Hougham to the extent possible, some maintained the old rule, and still others manufactured new rules.(12) This confusion has multiplied in diversity actions. In diversity actions since Hougham, circuits have divided on whether to apply the federal rule or a state rule to address acceptance of benefits problems. The conflicting views on the federal rule under Hougham and on the choice of law in diversity cases leave a confusing trap for the unwary plaintiff who might wish to accept payment of all or part of an unsatisfactory judgment.

This Note discusses the question of when federal courts should allow a party who accepts payment of a judgment subsequently to appeal the deficiency of the award. Part I examines the discrepancies currently existing in the acceptance of benefits doctrine as applied by the federal courts. Part II analogizes this issue to the law of implied-in-fact contracts and argues that accepting the benefits of a judgment should not prevent an appeal unless circumstances clearly indicate a mutual intent to settle all claims and thereby terminate litigation. Part III contends that, under the doctrine expressed in Erie Railroad v. Tompkins,(13) federal courts should apply this proposed rule in diversity actions. This Note concludes that federal courts should apply a uniform, intent-based rule both in cases arising under federal law and in diversity actions.

1. THE ACCEPTANCE OF BENEFITS DOCTRINE IN THE FEDERAL COURTS

   In 1960, for the first time since 1883, the Supreme Court addressed the issue whether a party who accepts payment of a substantial portion of a judgment still may appeal the amount of the award. Although the opinion in United States v. Hougham stated that a plaintiff does not relinquish her right to appeal solely by accepting the benefits of a judgment,(14) the vague decision gave little guidance to lower courts regarding what facts would preclude an appeal. The federal courts consequently developed a variety of approaches to address this question. This Part analyzes the federal decisions in the aftermath of United States v. Hougham. Section I.A discusses the variety of rules on the acceptance of the benefits of a judgment that have evolved in the circuit courts since Hougham. Section I.B examines the conflicting cases in which courts have addressed the corresponding choice of law issue in the specific context of diversity actions.

   1. The Circuit Courts

      The first line of cases to address the acceptance of benefits doctrine after Hougham began with a decision by the Fourth Circuit that made no reference to the Supreme Court's holding. In Gadsden v. Fripp,(15) the court created a new rule that allowed a plaintiff who accepts payment of a judgment to appeal unless the circumstances indicate a mutual intent to terminate litigation. The plaintiff in Gadsden had brought a diversity action to recover damages for an abandoned attempt by county officials to condemn the plaintiff's real estate. At a hearing on a motion for summary judgment, the district court awarded the plaintiff some $1700 in damages, which was less than the amount the plaintiff claimed. After entry of the judgment, the defendant offered a check for the amount of the judgment, and the plaintiff accepted it. The plaintiff then appealed in an effort to reverse the summary judgment, and the defendants sought to dismiss the appeal under the traditional acceptance of benefits doctrine. The court rejected the defendant's argument and stated:

      When a payment of a judgment is made and accepted under such circumstances

      as to indicate an intention to finally compromise and settle a

      disputed claim, an appeal may be foreclosed, but, under such circumstances,

      it is the mutual manifestation of an intention to bring the litigation

      to a definite conclusion upon a basis acceptable to all parties which

      bars a subsequent appeal, not the bare fact of payment of the

      judgment.(16) Gadsden did not rely on Hougham but instead analogized to the common law rule that payment of a judgment does not prevent a defendant from appealing,(17) even though traditionally federal courts had treated paying defendants and accepting plaintiffs differently.(18) Since the Fourth Circuit's decision, three other circuits have adopted the Gadsden rule.(19)

      The Second Circuit, in comparison, has ostensibly followed the letter of Hougham and has declared only that acceptance of benefits does not, in and of itself, prevent appeal. In DiLeo v. Greenfield,(20) the board of education of a local school district fired DiLeo, a tenured teacher, for "improper conduct."(21) DiLeo challenged his termination in federal court. In his suit, DiLeo claimed that the termination hearing admitted...