Rule 68 of the Federal Rules of Civil Procedure contains an interesting and nuanced option for civil defendants to settle a case. Rule 68 states in part, “At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.” Fed.R.Civ.P. 68(a). Essentially, the defendant may offer the plaintiff a settlement amount to try and end the case.
Here’s the catch for the defendant: if the plaintiff accepts the offer, judgment is entered against the defendant. Similar to a plea bargain in a criminal case, the defendant is admitting liability to avoid going to trial.
Now, here’s the catch for the plaintiff: if the plaintiff does not accept the offer and takes the case to trial and the jury awards the plaintiff an amount in damages less than the defendant’s offer or no damages at all, the plaintiff must pay for all of the defendant’s costs that were incurred after the offer.
In other words, Fed.R.Civ.P. 68(d). Rule 68 seems to be a double-edged sword when not used strategically.
A. Another Interpretation of Rule 68
Since a large aspect of this rule deals with attorneys’ fees, Rule 68 are litigated feverishly and can present some complicated scenarios. Imagine this hypothetical:
A plaintiff brings an Eighth Amendment cruel and unusual punishment claim and a Fourteenth Amendment equal protection claim. The plaintiff claims he was treated disparately based on his race (14th Amendment claim) and claims he suffered severe physical injury from excessively harsh detention methods (8th Amendment claim). The parties litigate for a year and half, during which time the defendant refuses to engage in any settlement negotiations with the plaintiff. Then, a few months before the jury trial, the defendant makes a Rule 68 offer to the plaintiff in the amount of $10,000 that includes, “all costs and fees now accrued.” The plaintiff declines the offer and takes the case to trial, asking the jury for $90,000 in a combination of various types of damages. The jury finds the defendant liable on the equal protection claim only, and awards the plaintiff $1,500 in damages.
At this point, Rule 68 would seem to say that the plaintiff failed to receive a more favorable judgment than Defendant’s Rule 68 Offer and, therefore: (1) the plaintiff is on the hook for the defendant’s costs incurred after the offer was made; and (2) the plaintiff cannot recover any of his attorneys’ fees pursuant to the relevant statutes that were incurred after the Rule 68 offer was made.
Indeed, the plaintiff would have to pay the defendant’s post-offer costs if the award he “finally obtains is not more favorable than the unaccepted offer.” Fed.R.Civ.P. 68(d). But, was the plaintiff’s jury award actually more favorable than the defendant’s offer?
Civil rights claims brought pursuant to 42 U.S.C. § 1983 have a damages hook if the plaintiff is the prevailing party (a plaintiff “prevails” when he achieves success on any significant issue in the litigation, even if he only recovers nominal damages).
Section 1988 allows the prevailing civil rights plaintiff to recover reasonable attorney’s fees from the defendant. Federal lawmakers enacted § 1988 because of the importance of civil rights claims. Contingency fee civil rights lawyers might not see prospective civil rights clients as attractive cases because of the low damages the plaintiffs usually sustain, so § 1988 ensures the lawyers will be adequately compensated for helping a civil rights plaintiff bring his or her Constitutional claim. Hensley v. Eckert, 461 U.S. 424, 429 (1983). This question of attorney’s fees creates a ripe subject for Rule 68 litigation.
B. The Sixth Circuit’s Reasoning
In Hescott, plaintiff property owners brought a § 1983 action against the defendant city alleging unconstitutional seizure and destruction of personal effects after the defendant city demolished the plaintiff’s rental property. Hescott v. City of Saginaw, 2014 WL 2959289 at *2 (6th Cir. 2014). Prior to trial, the defendant city provided a Rule 68 offer of settlement for $15,000 that the plaintiffs rejected. The plaintiff property owners requested $42,000 in actual damages and $250,000 in punitive damages against the city for unlawful seizure and inverse condemnation claims at trial, but the jury returned a verdict for the plaintiffs only for unlawful seizure and awarded $5,000 in damages. Id. The district court denied the plaintiff’s motion for attorney’s fees and both parties appealed for an award of attorney’s fees. Id. at *3.
The Sixth Circuit reversed the district court’s denial of awarding the plaintiffs attorney’s fees pursuant to 42 U.S.C. § 1988(b) because the district court improperly compared the plaintiff’s jury award without attorney’s fees and costs to the defendant’s Rule 68 offer that included attorney’s fees and costs. The court stated, “ . . . the ‘[final] judgment’ used to make this apples-to-apples comparison includes not just the damages award, but also the claimant’s pre-offer costs and fees actually awarded.” Id. at *8.
The Sixth Circuit reasoned the defendant city’s Rule 68 offer clearly included the plaintiff’s pre-offer fees and costs, so the only way to properly compare the plaintiff’s final judgment and the defendant’s Rule 68 offer was to include the plaintiff’s pre-offer fees and costs in both calculations.
The appellate court remanded the case to the district court to calculate the plaintiff’s pre-offer attorney’s fees and costs and then to add that amount to the jury award to determine whether the plaintiffs’ final judgment was actually greater than the defendant’s offer of settlement.
The court explained, “if the district court determines on remand that the [plaintiffs’] pre-offer costs and fees exceeded $10,000— then the [plaintiffs] will have obtained a “judgment” (including their $5,000 jury verdict) more favorable than the City’s settlement offer of $15,000.” Id. at *9.
C. The Eighth Circuit
In Scheeler, the Eighth Circuit affirmed a district court’s findings that the plaintiff obtained a judgment more favorable than the defendant’s Rule 68 offer even though the damages award was less than the offer of settlement. Scheeler v. Crane Company, 21 F.3d 791, 792 (8th Cir. 1994).
In that case, the plaintiff brought a civil rights claim under the Iowa Civil Rights Act and prevailed against the defendant after a bench trial. The district court awarded the plaintiff $12,500 in damages “together with interest . . . and for costs of this action,” and the Iowa Civil Rights Act provides for reasonable attorney’s fees and costs to be a component of damages similar to 42 U.S.C. § 1988(b). Id.
Before trial, the defendant provided the plaintiff an offer of settlement pursuant to Rule 68 for $15,000. At the time the offer was made, the plaintiff had already incurred approximately $3,500 in reasonable attorney’s fees and costs and the plaintiff rejected the offer. Id. at 793.
The Eighth Circuit court agreed with the district court that the plaintiff’s final judgment was greater than the defendant’s settlement offer even though the plaintiff received $2,500 less in actual damages compared to the defendant’s Rule 68 offer. Id. The court reasoned that the defendant’s offer of settlement plainly stated the $15,000 offer included all costs and attorney’s fees then accrued and, therefore, the final judgment award should also include pre-offer attorney’s fees and costs to determine which amount is greater.
The court opined, “If the plaintiff’s payment of her own attorney fees was part of the Rule 68 offer, it is surely equitable that attorney fees be included as part of the recovery. This is the only way in which the offer can be fairly matched against the recovery.” Id. As a result, plaintiff was entitled to recover post-offer attorney’s fees because in fair comparison, the plaintiff’s final judgment award was greater than the defendant’s offer of settlement.
D. How This Comparison Applies
Imagine, again, our hypothetical plaintiff. The plaintiff had already incurred substantial attorneys’ fees over the year and a half of litigation prior to the defendant’s Rule 68 offer of $10,000. Since the plaintiff prevailed on a § 1983 claim at trial and is entitled to reasonable attorneys’ fees under § 1988, the court will calculate the amount of reasonable attorneys’ fees incurred before the defendant’s Rule 68 offer to determine if the plaintiff will actually receive more than the defendant’s $10,000 offer.
In other words, if the court were to decide that the plaintiff incurred more than $8,500 in reasonable attorneys’ fees before the defendant’s Rule 68 offer, then the plaintiff’s jury award was actually more favorable than the defendant’s offer and the defendant would be required to pay all of the plaintiff’s attorneys’ fees for the entirety of the litigation.
If the court awards less than $8,500 in attorneys’ fees, then the plaintiff’s final award would be less favorable than the defendant’s offer and the plaintiff would not be entitled to his attorneys’ fees after the Rule 68 offer and would further have to pay the defendant’s hard costs incurred after the offer.
E. Public Policy Requires This Approach
This issue relating to Rule 68 — whether a civil rights plaintiff received a “more favorable final judgment” in scenarios like our hypothetical — has serious public policy implications. Thus, other courts have also found that making an even comparison between the settlement offer including attorney’s fees and the damages award including attorney’s fees is the logical way to analyze the issue. See also Marryshow v. Flynn, 986 F.2d 689, 692 (4th Cir. 1993).
Not only have courts found this comparison as more logical, but also more equitable for civil rights claims. Plaintiffs’ lawyers would be far less eager to help a civil rights plaintiff bring a lawsuit vindicating their rights if there is no hope for attorneys’ fees to compensate the lawyers for their time. Civil rights claims, like equal protection, may not lead to a high amount of damages.
Imagine this scenario: a police department denies employment to an officer applicant because of her race. The department knew that the applicant received an offer from another department and they just really weren’t comfortable having an officer of that race on their own department. The officer applicant immediately accepts the offer from the neighboring department and earns a salary equal to what she would have made had she been hired by our hypothetical offending department. How much money has that applicant lost? Probably none.
But, public policy should encourage citizens, like that officer applicant, to bring an equal protection claim despite her low damages to ensure that public employers do not violate the Fourteenth Amendment by treating their employees, applicants, and others adversely on account of their race. These lawsuits put the departments and other public entities on notice that rights exist for a reason and even though it seems like a “no harm, no foul” outcome, constitutional rights must be protected and not usurped by the government or its agents.
When that officer applicant brings an equal protection claim against the department, the applicant will have a good chance at winning the suit but likely did not incur much in the form of hard damages. Let’s assume the police department refuses to settle early, despite very incriminating evidence against it, and later provides a lowball Rule 68 offer two weeks before trial after the plaintiff had already incurred tens of thousands of attorneys’ fees. If the plaintiff receives a jury verdict for one dollar less than the defendant’s settlement offer, should the plaintiff be required to absorb her own attorneys’ fees as well as the defendant’s costs incurred between the Rule 68 offer and end of trial? The fees-included comparison method is clearly more equitable and would encourage plaintiffs and attorneys to bring civil rights claims.
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Joshua Newville is an attorney and mediator based in Minnesota. He litigates employment and civil rights cases, serves as a mediator for civil disputes, and provides employment law advice.