Of Offers Not (frequently) Made and (rarely) Accepted: the Mystery of Federal Rule 68 - Harold S. Lewis, Jr. and Thomas A. Eaton

• Publication year: 2006

Foreword

Of Offers Not (Frequently) Made and (Rarely) Accepted: The Mystery of Federal Rule 68by Harold S. Lewis, Jr.^* and Thomas A. Eaton^**

This Symposium brings together, from around the nation, eight civil rights and employment discrimination lawyers, four legal academics, and an eminent federal judge, all with deep experience and interest in the promise and pitfalls of Federal Rule of Civil Procedure 68.¹ We gather to unravel a mystery. In an oversimplified nutshell, Rule 68, as construed, enables the defendants to say to the plaintiffs in employment discrimination and civil rights cases: "If you don't beat my offer at trial, you forfeit your right to any future statutory attorney fees." Rule 68 would, therefore, appear to give the defendants a significant incentive to make offers and to give the plaintiffs a significant incentive to accept them. Yet, the rule is seldom used. The mystery is why? Before turning to that question, some background information may be in order.

I. Rule 68 Before Marek v. Chesny: Offers That Could Be Refused

Rule 68 allows the defendants to offer the plaintiffs a judgment in a particular form; affords the plaintiffs ten days to accept or reject; and provides that if a judgment finally obtained (months or years later after a trial) fails to exceed a rejected offer, the insufficiently prevailing offeree has to pay the "costs incurred after the making of the offer."² As stated, Rule 68 creates two categorical exceptions to Federal Rule of Civil Procedure 54(d),³ which usually allows "costs other than attorneys' fees . . . as of course to the prevailing party unless the court otherwise directs. . . ."⁴ First, Rule 68 requires the insufficiently prevailing plaintiff to bear his own post-offer costs, which any other prevailing party would ordinarily recover under Rule 54(d). Second, such a plaintiff also has to pay the defendant's post-offer costs, which Rule 54(d) would usually not assign to a prevailing party.⁵

Critical for present purposes is that in most instances the post-offer "costs" that a "Rule 68-ed" plaintiff would forfeit, and those she would have to pay the defendant, are relatively modest. Prior to 1985, it was assumed that the costs at stake in Rule 68 were identical to the costs taxable under Rule 54(d); and the latter refer mainly to the fees charged for the clerk, marshal, court reporter, printing, witness, copying, docketing, and court-appointed expert listed in 28 U.S.C. Sec. 1920.⁶ As the language of Rule 54(d) states, those costs did not, and standing alone still do not, include the big-ticket item of attorney fees.⁷ Consequently, a federal civil defendant who anticipated some risk of liability, whether in diversity litigation or actions under various federal statutes that authorize fees to a prevailing plaintiff, had little incentive to make a

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2. Id.

3. Fed. R. Civ. P. 54(d).

4. Id. at (d)(1).

5. Marek v. Chesny, 473 U.S. 1, 21 n.14 (1985). See also Pouillon v. Little, 326 F.3d 713, 718 (6th Cir. 2003); Tunison v. Cont'l Airlines Corp., 162 F.3d 1187, 1193-94 (D.C. Cir. 1988); O'Brien v. City of Greers Ferry, 873 F.2d 1115, 1120 (8th Cir. 1989); Crossman v. Marcoccio, 806 F.2d 329, 333 (1st Cir. 1986); Liberty Mutual Ins. Co. v. EEOC, 691 F.2d 438, 442 (9th Cir. 1982).

6. 28 U.S.C. Sec. 1920 (2005).

7. Fed. R. Civ. P. 54(d)(1) is entitled "Costs Other than Attorneys' Fees." See generally Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240 (1975). Rule 68 offer. Even when an offer triggered the Rule's consequences—because the plaintiff's ultimate judgment failed to exceed the defendant's rejected offer—the defendant would not be relieved of paying the plaintiffs' attorney fees but only the relatively modest section 1920 costs that the plaintiff incurred after making the offer.⁸

Moreover, a federal civil defendant who was highly confident of defeating liability was given even less incentive to make a Rule 68 offer. The Rule allows offers to be made only by "a party defending against a claim," and is triggered when there is a "judgment finally obtained by the offeree [that] is not more favorable than the offer. . . ."⁹ In 1981 the Supreme Court held, in Delta Air Lines, Inc. v. August,¹⁰ that when the above two quoted phrases are read together, Rule 68's "cost" consequences can be triggered only when the plaintiff obtains a judgment on liability, albeit one that is less favorable than, or equally favorable as, the offer she had rejected.¹¹ Under this reading of the Rule, only an extremely humble or shrewd defendant would have an incentive to make a Rule 68 offer in a case where it is extremely confident of a no-liability judgment. If it viewed the making of a Rule 68 offer as cost-free, a humble defendant might make the offer on the long-shot guess that its own estimate of liability might be wrong. The less humble, but shrewd, defendant who is confident of victory might nevertheless make an almost nominal offer in the hope that the plaintiff (erroneously in the defendant's view) counts on victory, but at a level even lower than the defendant's offer. The defendant's hope would be that the plaintiff would fear that by rejecting the defendant's offer she would suffer the consequences of the Rule. But, of course, the consequences to a plaintiff of forfeiting and having to pay post-offer Rule 68 costs were de minimis so long as those costs were viewed as merely the section 1920 costs taxed by Rule 54(d).

II. UPPING THE ANTE: MAREK V. CHESNY

In 1985 the Supreme Court put teeth in Rule 68 with its decision in Marek v. Chesny.¹² In that case, the defendants made a $100,000 Rule 68 offer of judgment in the plaintiff's action under 42 U.S.C. Sec. 1983.¹³ The sum of the plaintiff's judgment on the merits, plus his pre-offer costs and pre-offer attorney fees, totaled only $92,000. In the Court's view, therefore, the final judgment the plaintiff obtained failed to exceed the defendants' offer. In deciding what adverse consequences the plaintiff should accordingly bear, the Court melded the Rule 68 term "costs" with the phrase "fees as part of the costs" that appears in 42 U.S.C. Sec. 1988,¹⁴ which authorizes fees to the plaintiffs who prevail under, among other statutes, section 1983. A variation of that same phrase is commonly (but not invariably)¹⁵ used in other statutes that authorize courts to award attorney fees to parties who prevail on a host of other federal question claims. Chief Justice Burger reasoned for the majority that even as early as 1938, when Rule 68 was adopted as part of the original Federal Rules of Civil Procedure, "the term 'costs' in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute. . . ."¹⁶ As a result,

[A]ll costs properly awardable in an action are to be considered within the scope of Rule 68 "costs." Thus, absent congressional expressions to the contrary, where the underlying ["fee-shifting"] statute defines "costs" to include attorney's fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.¹⁷

The Civil Rights Attorney's Fees Act of 1976, codified in section 1988,¹⁸ authorized fees to prevailing plaintiffs "as part of" the costs in actions under a number of federal civil rights statutes, including section 1983.¹⁹ Accordingly, the plaintiff, having failed to obtain a judgment exceeding the defendants' offer, forfeited $139,692 in claimed post-offer costs, including the post-offer attorney fees the defendants likely would have been ordered to pay on his behalf.

The potential practical significance of this expansive interpretation of Rule 68 "costs" is enormous. A plaintiff who prevails in an action based on a federal statute that authorizes attorney fees as part of costs, but who obtains a judgment that is less than or equal to the Rule 68 offer he rejected, not only forfeits Rule 54(d) post-offer costs and must pay the defendant's post-offer costs, but he also forfeits post-offer attorney fees— usually a far more substantial component of recovery. In brief, Rule 68 "costs" still include only section 1920 costs in diversity litigation and in federal question cases where fees are not authorized or are authorized separately from costs; but after Marek, the costs potentially forfeitable under Rule 68 also include attorney fees in those more numerous federal question cases where a statute authorizes the recovery of attorney fees "as part of" costs.

While a significant number of federal fee-shifting statutes authorize attorney fees to prevailing parties without employing the "fees as part of costs" language to which Marek accorded magical Rule 68 signifi-cance,²⁰ the great bulk of contemporary federal question litigation is founded on statutes that do award fees as part of costs. Notably, this latter group includes litigation under most civil rights legislation,²¹ Title VII of the Civil Rights Act of 1964,²² and a significant number of environmental statutes.²³ Civil Rights and employment discrimination cases are the largest discrete categories of privately initiated lawsuits in the United States District Courts.²⁴

The competing policies that form the grist for post-Marek debate were succinctly foreshadowed in the majority's opinion. "Rule 68's policy of encouraging settlements is neutral, favoring neither plaintiffs nor defendants; it expresses a clear policy of favoring settlement of all lawsuits."²⁵ The majority specifically rejected the dissent's argument that the Marek view of the interplay between the civil rights fee-shifting statute and Rule 68 "will frustrate Congress' objective in Sec. 1988 of ensuring that civil rights plaintiffs obtain 'effective access to the judicial process.'"²⁶

Civil rights plaintiffs-along with [certain] other plaintiffs-who reject an offer more favorable than what is thereafter recovered at trial will not recover attorney's fees for services performed after the offer is rejected. But, since the Rule is neutral...