Erie Similarities: Alaska Civil Rule 68, "direct Collisions," and the Problem of Non-aligning Background Assumptions

• Citation: Vol. 23
• Publication year: 2006

§ 23 Alaska L. Rev. 81. ERIE SIMILARITIES: ALASKA CIVIL RULE 68, "DIRECT COLLISIONS," AND THE PROBLEM OF NON-ALIGNING BACKGROUND ASSUMPTIONS

Alaska Law Review
Volume 23
Cited: 23 Alaska L. Rev. 81

ERIE SIMILARITIES: ALASKA CIVIL RULE 68, "DIRECT COLLISIONS," AND THE PROBLEM OF NON-ALIGNING BACKGROUND ASSUMPTIONS

BENJAMIN J. ROESCH ^[*]

I. INTRODUCTION

II. THE RIGHT TO ATTORNEYS' FEES UNDER ALASKA CIVIL RULE 68 IS A SUBSTANTIVE RIGHT INCORPORATED BY THE LEGISLATURE INTO ALASKA CIVIL RULE 82(A)

III. ALASKA CIVIL RULE 68 WITHIN THE ERIE FRAMEWORK

A. A Short Summary of the Erie Doctrine

B. The Purpose and Intent of Federal Rule of Civil Procedure 68

C. An Erie-Hanna Analysis of Alaska Civil Rule 68 and Federal Rule 68

D. Implications for the Proper Scope of the Inquiry into Whether the Federal Rule Is Broad Enough to Govern

IV. THE USE AND ABUSE OF "DIRECT COLLISIONS": VARIOUS STATE OFFER OF JUDGMENT STATUTES IN THE FEDERAL COURTS

A. The Three Approaches to Potential Collisions Between Federal Rule 68 and State Offer of Judgment Statutes

B. Implications for the Erie-Hanna Analysis

V. CONCLUSION

FOOTNOTES

Alaska is unique among the United States in adopting the English Rule, which shifts a portion of the prevailing party's legal fees to the losing party. This Comment analyzes one consequence of that doctrine, namely the applicability of Alaska Civil Rule 68, Alaska's fee-shifting offer of judgment statute, in federal diversity actions under the Supreme Court's Erie-Hanna jurisprudence. It concludes that despite sharing nearly identical text with the federal offer of judgment rule, Federal Rule 68, the substantially different purposes of the two Rules indicate that no "direct conflict" exists and that the substance of Alaska Civil Rule 68 applies in federal diversity actions. The Comment then uses the principles derived from this analysis to evaluate the Erie-Hanna analysis employed by several courts in determining whether to apply state offer of judgment statutes in diversity actions. Finally, it concludes that these courts have fallen short of the ideal analysis as articulated in the Supreme Court's recent Gasperini decision in three distinct ways.

I. INTRODUCTION

Few of the Supreme Court's lines of decision have evoked as much anguish among law students, criticism from scholars, uncer-[*pg 82] tainty among practitioners, and refinements from jurists as has Erie Railroad Co. v. Tompkins ^[1] and its progeny. Essentially, Erie held that all state substantive law must apply in federal diversity actions. ^[2] Some of the choice of law determinations required by this principle are more difficult than others. Theoretically, determining whether to apply state law or an apparently applicable Federal Rule of Civil Procedure should be easy for federal courts hearing diversity cases. Stated generally, the test is: if the federal rule is broad enough to govern -- that there is a "direct collision" between the federal rule and the competing state law -- then the federal rule controls. ^[3]

The Federal Rules of Civil Procedure are intended to provide a singular, uniform method for adjudicating substantive rights in federal court. Determining whether such a federal rule applies should be a matter of "plain meaning." ^[4] However, when focusing on the intended scope and purpose of the federal rule vis-a-vis the competing state rule and when unique or unusual state substantive rights are implicated, the inquiry presents special challenges. After the Supreme Court's refinement of the Erie doctrine in Gasperini v. Center for Humanities, Inc., ^[5] an especially careful analysis of the purposes of both the relevant federal rule and the state statute is required to avoid the unnecessary and undesirable federal abrogation of state substantive law. The Alaska Rules of Civil Procedure include one such unique system, requiring a heightened level of care in evaluating which set of rules to apply.

Unlike the rest of the nation, Alaska does not follow the "American Rule," under which each party bears its own litigation costs. ^[6] Instead, since its territorial days in the early twentieth century, Alaska law has provided for the shifting of at least part of the prevailing party's attorneys' fees to the losing side. ^[7] This fee-shifting system has undergone several rounds of discussion and revision, ^[8] and debate over its merits has consumed many pages in this [*pg 83] Law Review and other Alaska legal publications. ^[9] Most of this scholarship has focused on the theoretical merits and empirically measurable effects of Alaska's fee-shifting regime. ^[10]

Today, Alaska Civil Rule 82 expresses a comprehensive right of the prevailing party in litigation to recover attorneys' fees. ^[11] The scope of this right is defined in Alaska Civil Rule 82 and several other statutes, including Alaska Civil Rule 68, which allows either party to recover additional attorneys' fees if they made an offer of judgment ^[12] that was rejected by the other party but then not matched or bettered after the trial. ^[13] Rule 68 is therefore a device to encourage settlement. It also confers "prevailing party" status on, and requires an enhanced award of attorneys' fees to, a party making an unaccepted offer that proves to be more favorable to the offeree than the litigation's outcome. ^[14]

In diversity cases governed by Alaska law, Alaska Civil Rule 68 encounters apparent conflict with its federal counterpart, Federal Rule of Civil Procedure 68. Federal Rule 68 provides that defendants who make unaccepted offers of judgment that prove to be [*pg 84] more favorable than the plaintiff's ultimate recovery are entitled to costs incurred after the offer of judgment was extended. ^[15] At issue, then, are the consequences of these "fee-inducing" offers. Courts across the country have split on when and whether various state rules awarding attorneys' fees to litigants who make "fee-inducing" offers of judgment may be applied by a federal court sitting in diversity jurisdiction. ^[16]

As noted above, the critical question for a federal court sitting in diversity jurisdiction is whether there is a "direct collision" between the rules. ^[17] This turns on the intended scope and purpose of each rule. ^[18] An examination of the objectives underlying Alaska Civil Rule 68 and Federal Rule 68 reveals important differences. Federal Rule 68 was intended to promote settlement of lawsuits by shifting costs onto plaintiffs who recover less at trial than they were offered pursuant to the Rule and to maintain the status quo American Rule with respect to attorneys' fee awards. ^[19] Alaska Civil Rule 68 serves the same settlement-encouraging purpose but also operates to identify the prevailing party for all attorneys' fees purposes under Alaska's system of fee-shifting.

Thus, the core difference stems from the divergent assumptions underlying the Alaska and federal legal systems with respect to attorneys' fees. When background assumptions upon which federal procedural and state substantive rules are based diverge, the two rules will be in direct conflict only rarely. Precisely because Alaska's fee-shifting scheme does not share the American Rule assumption of other states, this insight into Federal Rule 68 may have limited application in federal diversity cases of state offer of judgment rules outside Alaska.

However, like the lessons learned from Alaska's experience with fee-shifting, the lessons learned from the inquiry into the intended scope and purposes of Alaska Rule 68 and Federal Rule 68 are relevant to practitioners and courts around the nation. ^[20] The inquiry reveals a number of pitfalls that federal courts confronted with potentially conflicting federal and state rules of civil procedure must avoid in determining when there is a "direct collision" between those rules. ^[21] Pre- and post-Gasperini cases deal with con-[*pg 85] flicts between state laws and Federal Rule 68 in several problematic ways: 1) by deciding the case on a "piecemeal" basis, limiting the holding to the facts and consequently avoiding the hardest questions about the potential conflict between state and federal rules; 2) by reading the federal rule broadly without conducting a meaningful inquiry into the purposes and intended scope of the federal and state rules; and 3) by creating a hybrid substantive law. None of these approaches fulfills the command of Gasperini to ascertain the scope and purpose of the federal and state laws. ^[22]

In Part II, this Comment examines the Alaska fee-shifting system and concludes that Alaska Civil Rule 68 is an integral part of Alaska's substantive right to attorneys' fees. Part III places Rule 68 within the framework of case law generated from the Erie decision. Part III.A consists of a short exposition of Erie and attempts to distill the core rules and policies that determine when state law is to be applied in federal diversity cases. Part III.B investigates the intent of Federal Rule 68 and the decisions interpreting it. Part III.C compares the purposes and functions of Alaska Rule 68 and Federal Rule 68 and finds that because Federal Rule 68 was never intended to serve the same purpose as the Alaska rule, the Alaska rule may be applied in federal diversity actions. Part IV explores the implications of this understanding for other states' offer of judgment rules and for Erie analysis involving anomalous state laws.

II. THE...