Rethinking the Rule 68 'Offer of Judgment'

Limiting Attorneys' Fees

One possible way to limit the amount of attorneys' fees a prevailing plaintiff may receive is to utilize an 'offer of judgment' as set forth in Rule 68 of the Federal Rules of Civil Procedure. Rule 68 provides, in pertinent part:

At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued. If within 10 days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and thereupon the clerk shall enter judgment. An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs. If the judgment finally obtained by the offered is not more favorable than the offer, the offered must pay the costs incurred after the making of the offer. The fact that an offer is made but not accepted does not preclude a subsequent offer '

Thus, under Rule 68, if a defendant makes an 'offer of judgment' and the plaintiff ultimately prevails on the merits but recovers less than what was originally offered, then the plaintiff may not recover any post-offer 'costs' and must in fact pay any post-offer costs to the defendant. (The 'offer of judgment' must consider the reasonable value of the attorneys' fees prior to the date of the offer.) The rule is inapplicable if the defendant wins the case.

'Costs'

Do 'costs' always include attorneys' fees? The short answer is no. Under the Supreme Court's decision in Marek v. Chesny (473 U.S. 1, 105 S.Ct. 3012 (1985)), whether costs include attorneys' fees depends on the wording of the particular statute. If the statute in question allows 'costs including reasonable attorneys' fees' or 'attorneys' fees as part of costs,' then the costs associated with an 'offer of judgment' includes attorneys' fees. If, however, the statute allows recovery of 'reasonable attorneys' fees and costs,' then costs are considered separate items, and an 'offer of judgment with costs' will not cover attorneys' fees.

Title VII of the Civil Rights Act states that a prevailing plaintiff may recover 'reasonable attorneys' fees as part of the costs' while the Age Discrimination in Employment Act (ADEA) provides for 'reasonable fees ' and costs.' The ADEA incorporates the fee award provisions of the Fair Labor Standards Act (FLSA). See 29 U.S.C. ' 626(a); 626(b). Under section 16(b) of the FLSA, 29 U.S.C.
' 216(b), '[t]he court ' shall allow a reasonable attorney's fee to be paid by the defendant, and costs of the action [to a prevailing plaintiff].' Thus, a successful 'offer of judgment' will cut off attorneys' fess and costs in a Title VII case but will only cut off costs but not attorneys' fees in an ADEA case. Most courts that have addressed the issue, have held that a plaintiff who recovers less than what was offered in an 'offer of judgment' is not obligated to pay the defendant's post-offer attorneys' fees. Courts have reasoned that although fees are generally awarded to a prevailing plaintiff under ' 1988, a prevailing defendant may only recover such fees if the action was 'frivolous, unreasonable, or groundless, or ' the plaintiff continued to litigate after it clearly became so.' LeBlanc-Sternberg v. Fletcher, 143 F.3d 765, 769 (2d Cir. 1998) (quoting Christiansburg Garment Co. v. Equal Employment Opportunity Comm'n, 434 U.S. 412, 422 (1978)).

'Offer of Judgment'

The following example may clarify how the 'offer of judgment' works. Assume that on Jan. 1, the defendant in a Title VII case makes an 'offer of judgment' of $15,000 plus all attorneys' fees and costs incurred up to that date and the plaintiff rejects the offer. If the case goes to trial and the plaintiff prevails but is awarded only $10,000 in damages, the defendants would not have to pay any of the costs or attorneys' fees incurred by the plaintiff after the date of the offer ' Jan. 1. That is, even though plaintiff technically prevailed in her claim and would normally be entitled to full attorneys' fees and costs, she would not have to pay any of the costs or fees incurred after the date of the offer because she had turned down a better offer. In fact, the plaintiff would have to pay the costs (but not the fees) incurred by the defendant after the date of the 'offer of judgment.' This would include such items as deposition transcripts, copying, etc. However, if a claim is brought pursuant to the ADEA, because attorneys' fees are not part of costs, the plaintiff's costs but not attorney's fees would be cut off.

Reiter v. MTA New York City Transit Authority

In a recent 2006 case, the United States Court of Appeals for the Second Circuit held that offers of judgment may have little or no effect when equitable relief is requested. In Reiter v. MTA New York City Transit Authority (2006 WL 2068354, 98 Fair Empl.Prac.Cas. (BNA) 968 (2d Cir. 2006)), the plaintiff claimed that he was retaliated against after he filed charges of discrimination against the MTA. Plaintiff claimed that he was demoted from his position, transferred, and removed from his large corner office. He sought damages and a return to his original position and office. The MTA served an 'offer of judgment' to Plaintiff in the amount of $20,001, which was rejected. No equitable relief was presented in the offer.

At trial, Reiter obtained a verdict in his favor and the jury awarded him $140,000 in damages, which was subsequently reduced to $10,000 by the court. He did obtain equitable relief in the form of an order requiring the MTA to return him to his position and a comparable office. His motion for post-offer attorneys' fees, however, was denied because the Magistrate Judge determined that Reiter had obtained less than what he had been offered in the 'offer of judgment'. On appeal, the Second Circuit reversed, finding that the $10,000 obtained plus the equitable relief was far more favorable than the $20,001 offer by the MTA in its 'offer of judgment.' Thus, the court was 'forced' to quantify the value of the equitable relief offered.

The court noted that 'equitable relief lies at the core of Title VII ' ' The value of obtaining one's own job back could not be understated, and therefore the Magistrate had 'significantly under-valued what Reiter lost and what he was able to recover in litigation.' Indeed, in this case, the difference in monetary relief offered and obtained was $10,000. Reiter's reinstatement to his position was certainly worth that.

Commentary

We have no difficulty concluding that any senior executive worthy of the title (who is rational and who is still anxious for responsibilities) would, at a moment's notice, exchange a job with no staff, no budget, no direct reports, and a work force of ten for a job with 900 employees and eight senior direct reports in a department with a billion-dollar budget. Further, we have no difficulty opining that any such rational executive would more likely than not jump at the chance if it were priced at just $10,000 ' an amount totaling less than 10% of a single year's salary. In sum, while monetizing equitable relief will, in many instances, pose vexing problems (ones we leave for another time) we have little difficulty concluding that Reiter ultimately recovered more than the Offer and that, consequently, it did not cut off his entitlement to post-Offer attorneys' fees.

Thus, the failure to include equitable relief in the 'offer of judgment' made it all but worthless. Recognizing that this was a significant issue, the court directed the Clerk of the Court to send a copy of its decision to the Advisory Committee on Civil Rules and the Standard Committee on Practice and Procedure of the Judicial Conference of the United States in order for them to address the difficult issue of comparing equitable and non-equitable relief.

Pursuant to Reiter, defendants making Rule 68 'Offers of Judgment' in civil rights cases where plaintiffs seek equitable relief will have to consider the value of such equitable relief prior to making the offer. Failure to include the equitable remedy sought by the Plaintiff may make the 'offer of judgment' less valuable than what the Plaintiff ultimately obtains at trial. This will result in the 'offer of judgment' failing to cut off post offer attorneys' fees. Including an offer of equitable relief such as reinstatement, however, may a difficult pill for many employers to swallow thereby limiting the effectiveness of such offers. Offering greater monetary amounts in lieu of equitable relief may be one way to avoid this pitfall but figuring out just how to quantify equitable relief is hardly a simple process.

Mark N. Reinharz, a member of this newsletter's Board of Editors, is a member of Bond, Schoeneck & King, PLLC. He represents management in all areas of labor and employment law, and practices out of the firm's Garden City, NY office. His e-mail address is [email protected].

With the ever-increasing costs of litigation, litigants often take steps to try and control these expenditures. Settling cases early, while not always an attractive option, is nonetheless one way to control these costs. Limiting recovery of attorneys' fees is obviously an approach that may lead to a settlement. Along these lines, defendants, particularly in civil rights cases, have turned to the 'offer of judgment' provision set forth in Rule 68 of the Federal Rules of Civil Procedure. This rule allows defendants to make offers any time after a complaint is served to cut off 'costs' associated with the litigation. However, a recent case decided by the Untied States Court of Appeals for the Second Circuit may have limited the usefulness of 'offers of judgment' and may cause defendants and their counsel to think twice about how and when to use them.

Fees and Costs

Under many federal civil rights statutes, such as Title VII of the Civil Rights Act, a prevailing plaintiff is entitled not only to damages (compensatory and punitive) but also to attorneys' fees and costs. In many cases the attorneys' fees can be greater than the damages ultimately obtained. It is certainly not unheard of for a plaintiff to receive a relatively small amount of damages but nevertheless be able to collect large attorneys' fees amounts as a prevailing party. See, eg, Bridges v. Eastman Kodak Co ., 102 F.3d 56 (2d Cir. 1996) (upholding $753,000 fee award in Title VII case recovering $117,000 damages), cert. denied , 117 S. Ct. 2453 (1997); Saulpaugh v. Monroe Community Hospital ., 4 F.3d 134 (2d Cir. 1993) (affirming $85,000 fee award on damage award of $38,000), cert. denied , 510 U.S. 1164 (1994). 'The fees awarded may exceed the amount recovered by the suit.' Theatre Confections, Inc. v. Sunstar Theatres Coral Springs, LLC, 2003 WL 21730694, *1 (W.D.N.Y., 2003) citing Orchano v. Advanced Recovery, Inc ., 107 F.3d 94, 98 (2d Cir. 1997).

Limiting Attorneys' Fees

One possible way to limit the amount of attorneys' fees a prevailing plaintiff may receive is to utilize an 'offer of judgment' as set forth in Rule 68 of the Federal Rules of Civil Procedure. Rule 68 provides, in pertinent part:

At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued. If within 10 days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and thereupon the clerk shall enter judgment. An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs. If the judgment finally obtained by the offered is not more favorable than the offer, the offered must pay the costs incurred after the making of the offer. The fact that an offer is made but not accepted does not preclude a subsequent offer '

Thus, under Rule 68, if a defendant makes an 'offer of judgment' and the plaintiff ultimately prevails on the merits but recovers less than what was originally offered, then the plaintiff may not recover any post-offer 'costs' and must in fact pay any post-offer costs to the defendant. (The 'offer of judgment' must consider the reasonable value of the attorneys' fees prior to the date of the offer.) The rule is inapplicable if the defendant wins the case.

'Costs'

Do 'costs' always include attorneys' fees? The short answer is no. Under the Supreme Court's decision in Marek v. Chesny (473 U.S. 1, 105 S.Ct. 3012 (1985)), whether costs include attorneys' fees depends on the wording of the particular statute. If the statute in question allows 'costs including reasonable attorneys' fees' or 'attorneys' fees as part of costs,' then the costs associated with an 'offer of judgment' includes attorneys' fees. If, however, the statute allows recovery of 'reasonable attorneys' fees and costs,' then costs are considered separate items, and an 'offer of judgment with costs' will not cover attorneys' fees.

Title VII of the Civil Rights Act states that a prevailing plaintiff may recover 'reasonable attorneys' fees as part of the costs' while the Age Discrimination in Employment Act (ADEA) provides for 'reasonable fees ' and costs.' The ADEA incorporates the fee award provisions of the Fair Labor Standards Act (FLSA). See 29 U.S.C. ' 626(a); 626(b). Under section 16(b) of the FLSA, 29 U.S.C.
' 216(b), '[t]he court ' shall allow a reasonable attorney's fee to be paid by the defendant, and costs of the action [to a prevailing plaintiff].' Thus, a successful 'offer of judgment' will cut off attorneys' fess and costs in a Title VII case but will only cut off costs but not attorneys' fees in an ADEA case. Most courts that have addressed the issue, have held that a plaintiff who recovers less than what was offered in an 'offer of judgment' is not obligated to pay the defendant's post-offer attorneys' fees. Courts have reasoned that although fees are generally awarded to a prevailing plaintiff under ' 1988, a prevailing defendant may only recover such fees if the action was 'frivolous, unreasonable, or groundless, or ' the plaintiff continued to litigate after it clearly became so.' LeBlanc-Sternberg v. Fletcher, 143 F.3d 765, 769 (2d Cir. 1998) ( quoting Christiansburg Garment Co. v. Equal Employment Opportunity Comm'n , 434 U.S. 412, 422 (1978)).

'Offer of Judgment'

The following example may clarify how the 'offer of judgment' works. Assume that on Jan. 1, the defendant in a Title VII case makes an 'offer of judgment' of $15,000 plus all attorneys' fees and costs incurred up to that date and the plaintiff rejects the offer. If the case goes to trial and the plaintiff prevails but is awarded only $10,000 in damages, the defendants would not have to pay any of the costs or attorneys' fees incurred by the plaintiff after the date of the offer ' Jan. 1. That is, even though plaintiff technically prevailed in her claim and would normally be entitled to full attorneys' fees and costs, she would not have to pay any of the costs or fees incurred after the date of the offer because she had turned down a better offer. In fact, the plaintiff would have to pay the costs (but not the fees) incurred by the defendant after the date of the 'offer of judgment.' This would include such items as deposition transcripts, copying, etc. However, if a claim is brought pursuant to the ADEA, because attorneys' fees are not part of costs, the plaintiff's costs but not attorney's fees would be cut off.

Reiter v. MTA New York City Transit Authority

In a recent 2006 case, the United States Court of Appeals for the Second Circuit held that offers of judgment may have little or no effect when equitable relief is requested. In Reiter v. MTA New York City Transit Authority (2006 WL 2068354, 98 Fair Empl.Prac.Cas. (BNA) 968 (2d Cir. 2006)), the plaintiff claimed that he was retaliated against after he filed charges of discrimination against the MTA. Plaintiff claimed that he was demoted from his position, transferred, and removed from his large corner office. He sought damages and a return to his original position and office. The MTA served an 'offer of judgment' to Plaintiff in the amount of $20,001, which was rejected. No equitable relief was presented in the offer.

At trial, Reiter obtained a verdict in his favor and the jury awarded him $140,000 in damages, which was subsequently reduced to $10,000 by the court. He did obtain equitable relief in the form of an order requiring the MTA to return him to his position and a comparable office. His motion for post-offer attorneys' fees, however, was denied because the Magistrate Judge determined that Reiter had obtained less than what he had been offered in the 'offer of judgment'. On appeal, the Second Circuit reversed, finding that the $10,000 obtained plus the equitable relief was far more favorable than the $20,001 offer by the MTA in its 'offer of judgment.' Thus, the court was 'forced' to quantify the value of the equitable relief offered.

The court noted that 'equitable relief lies at the core of Title VII ' ' The value of obtaining one's own job back could not be understated, and therefore the Magistrate had 'significantly under-valued what Reiter lost and what he was able to recover in litigation.' Indeed, in this case, the difference in monetary relief offered and obtained was $10,000. Reiter's reinstatement to his position was certainly worth that.

Commentary

We have no difficulty concluding that any senior executive worthy of the title (who is rational and who is still anxious for responsibilities) would, at a moment's notice, exchange a job with no staff, no budget, no direct reports, and a work force of ten for a job with 900 employees and eight senior direct reports in a department with a billion-dollar budget. Further, we have no difficulty opining that any such rational executive would more likely than not jump at the chance if it were priced at just $10,000 ' an amount totaling less than 10% of a single year's salary. In sum, while monetizing equitable relief will, in many instances, pose vexing problems (ones we leave for another time) we have little difficulty concluding that Reiter ultimately recovered more than the Offer and that, consequently, it did not cut off his entitlement to post-Offer attorneys' fees.

Thus, the failure to include equitable relief in the 'offer of judgment' made it all but worthless. Recognizing that this was a significant issue, the court directed the Clerk of the Court to send a copy of its decision to the Advisory Committee on Civil Rules and the Standard Committee on Practice and Procedure of the Judicial Conference of the United States in order for them to address the difficult issue of comparing equitable and non-equitable relief.

Pursuant to Reiter, defendants making Rule 68 'Offers of Judgment' in civil rights cases where plaintiffs seek equitable relief will have to consider the value of such equitable relief prior to making the offer. Failure to include the equitable remedy sought by the Plaintiff may make the 'offer of judgment' less valuable than what the Plaintiff ultimately obtains at trial. This will result in the 'offer of judgment' failing to cut off post offer attorneys' fees. Including an offer of equitable relief such as reinstatement, however, may a difficult pill for many employers to swallow thereby limiting the effectiveness of such offers. Offering greater monetary amounts in lieu of equitable relief may be one way to avoid this pitfall but figuring out just how to quantify equitable relief is hardly a simple process.

Mark N. Reinharz, a member of this newsletter's Board of Editors, is a member of Bond, Schoeneck & King, PLLC. He represents management in all areas of labor and employment law, and practices out of the firm's Garden City, NY office. His e-mail address is [email protected].