Held: Federal Rule of Civil Procedure 68 -- which provides that,
if a plaintiff rejects a defendant's formal settlement offer "to
allow judgment to be taken against him," and if "the judgment
finally obtained by the offeree is not more favorable than the
offer," the plaintiff "must pay the costs incurred after the making
of the offer" -- does not apply to a case in which judgment is
entered against the plaintiff-offeree and in favor of the
defendant-offeror. Pp.
450 U. S.
350-361.
(a) This interpretation is dictated by Rule 68's plain language
-- "judgment finally obtained by the offeree . . . not more
favorable than the offer" -- which confines the Rule's effect to a
case in which the plaintiff has obtained a judgment for an amount
less favorable than the defendant's settlement offer. Moreover,
because the Rule contemplates that a "judgment taken" against a
defendant is one favorable to the plaintiff, it follows that a
judgment "obtained" by the plaintiff is also a favorable one. Pp.
450 U. S.
350-352.
(b) Such interpretation of Rule 68 is also consistent with the
Rule's purpose to encourage the settlement of litigation, since the
Rule provides an inducement to settle those cases in which there is
a strong probability that the plaintiff will obtain a judgment but
the amount of recovery is uncertain. It could not have been
reasonably intended, on the one hand, affirmatively to grant the
district judge discretion to deny costs to the prevailing party
under Rule 54 (d) -- which provides that costs shall be allowed to
the prevailing party unless the trial court otherwise directs --
and then, on the other hand, to give defendants -- and only
defendants -- the power to take away that discretion by performing
a token act of making a nominal settlement offer. In both of the
situations in which Rule 68 does not apply -- judgments in the
defendant's favor or in the plaintiff's favor for an amount greater
than the settlement offer -- the trial judge retains his Rule 54(d)
discretion. Rule 68's plain language makes it unnecessary to read a
requirement into the Rule that only a reasonable settlement offer
triggers the rule. A literal interpretation avoids the problem of
sham offers, because such an offer will serve no purpose, and a
defendant will be encouraged to make only realistic settlement
offers. Pp.
450 U. S.
352-356.
(c) The above interpretation of Rule 68 is further compelled by
its
Page 450 U. S. 347
history -- the state rules upon which the Rule was modeled, the
cases interpreting those rules, and the view of the commentators,
including the members of the Advisory Committee. Pp.
450 U. S.
356-361.
600 F.2d 699, affirmed.
STEVENS, J., delivered the opinion of the Court, in which
BRENNAN, WHITE, MARSHALL, and BLACKMUN, JJ., joined. POWELL, J.,
filed an opinion concurring in the result,
post, p.
450 U. S. 362.
REHNQUIST, J., filed a dissenting opinion, in which BURGER, C.J.,
and STEWART, J., joined,
post, p.
450 U. S.
366.
JUSTICE STEVENS delivered the opinion of the Court.
Pursuant to Rule 68 of the Federal Rules of Civil Procedure, if
a plaintiff rejects a defendant's formal settlement offer, and if
"the judgment finally obtained by the offeree is
Page 450 U. S. 348
not more favorable than the offer," the plaintiff "must pay the
costs incurred after the making of the offer." [
Footnote 1] The narrow question presented by this
case is whether the words "judgment finally obtained by the
offeree" as used in that Rule should be construed to encompass a
judgment against the offeree as well as a judgment in favor of the
offeree.
Respondent Rosemary August (plaintiff) filed a complaint against
petitioner Delta Air Lines, Inc. (defendant), alleging that she had
been discharged from her position as a flight attendant solely
because of her race in violation of Title VII of the Civil Rights
Act of 1964, 42 U.S.C. § 2000e
et seq. She sought
reinstatement, approximately $20,000 in backpay, attorney's fees,
and costs. A few months after the complaint was filed, defendant
made a formal offer of judgment to plaintiff in the amount of $450.
[
Footnote 2] The offer was
refused, the
Page 450 U. S. 349
case was tried; and plaintiff lost. The District Court entered
judgment in favor of defendant and directed that each party bear
its own costs. Defendant then moved for modification of the
judgment, contending that, under Rule 68, the plaintiff should be
required to pay the costs incurred by defendant after the offer of
judgment had been refused. The District Court denied the motion on
the ground that the $450 offer had not been made in a good faith
attempt to settle the case, and therefore did not trigger the
cost-shifting provisions of Rule 68. [
Footnote 3] The Court of Appeals affirmed on the same
ground, 600 F.2d 699 (CA7 1979), holding that Rule 68 applied only
if the defendant's settlement offer was sufficient "to justify
serious consideration by the plaintiff." [
Footnote 4]
Page 450 U. S. 350
In finding a reasonableness requirement in the Rule, the Court
of Appeals did not confront the threshold question whether Rule 68
has any application to a case in which judgment is entered against
the plaintiff-offeree and in favor of the defendant-offeror. Our
resolution of the case, however, turns on that threshold question.
The answer is dictated by the plain language, the purpose, and the
history of Rule 68.
I
Rule 68 prescribes certain consequences for formal settlement
offers made by "a party defending against a claim." [
Footnote 5] The Rule has no application to
offers made by the plaintiff. The Rule applies to settlement offers
made by the defendant in two situations: (a) before trial, and (b)
in a bifurcated proceeding, after the liability of the defendant
has been determined "by verdict or order or judgment." In either
situation, if the plaintiff accepts the defendant's offer, "either
party may then file the offer . . . and thereupon the clerk shall
enter judgment." If, however, the offer is not accepted, it is
deemed withdrawn "and evidence thereof is not admissible except in
a proceeding to determine costs." The plaintiff's rejection of the
defendant's offer becomes significant in such a proceeding to
determine costs. [
Footnote
6]
Page 450 U. S. 351
Under Rule 54(d) of the Federal Rules of Civil Procedure, the
party prevailing after judgment recovers costs unless the trial
court otherwise directs. [
Footnote
7] Rule 68 could conceivably alter the Rule 54(d) presumption
in favor of the prevailing party after three different kinds of
judgments are entered: (1) a judgment in favor of the defendant;
(2) a judgment in favor of the plaintiff but for an amount less
than the defendant's settlement offer; or (3) a judgment for the
plaintiff for an amount greater than the settlement offer. The
question presented by this case is which of these three situations
is described by the words "judgment finally obtained by the offeree
. . . not more favorable than the offer."
Obviously, those words do not encompass the third situation -- a
judgment in favor of the offeree that is
more favorable
than the offer. Those words just as clearly do encompass the
second, for there can be no doubt that a judgment in favor of the
plaintiff has been "obtained by the offeree." But inasmuch as the
words "judgment . . . obtained by the offeree" -- rather than words
like "any judgment" -- would not normally be read by a lawyer to
describe a judgment in favor of the other party, the plain language
of Rule 68 confines its effect to the second type of case -- one in
which the plaintiff has obtained a judgment for an amount less
favorable than the defendant's settlement offer.
This reading of the plain language of the Rule is supported by
other language contained in the Rule. The Rule applies when the
defendant offers to have "judgment . . . taken against him."
Because the Rule obviously contemplates that a "judgment taken"
against a defendant is one favorable to the plaintiff, it follows
that a judgment "obtained" by the plaintiff is also a favorable
one
Page 450 U. S. 352
In sum, if we limit our analysis to the text of the Rule itself,
it is clear that it applies only to offers made by the defendant
and only to judgments obtained by the plaintiff. It therefore is
simply inapplicable to this case, because it was the defendant that
obtained the judgment.
II
Our interpretation of the Rule is consistent with its purpose.
The purpose of Rule 68 is to encourage the settlement of
litigation. [
Footnote 8] In all
litigation, the adverse consequences of potential defeat provide
both parties with an incentive to settle in advance of trial. Rule
68 provides an additional inducement to settle in those cases in
which there is a strong probability that the plaintiff will obtain
a judgment but the amount of recovery is uncertain. Because
prevailing plaintiffs presumptively will obtain costs under Rule
54(d), Rule 68 imposes a special burden on the plaintiff to whom a
formal settlement offer is made. If a plaintiff rejects a Rule 68
settlement offer, he will lose some of the benefits of victory if
his recovery is less than the offer. [
Footnote 9] Because costs are usually assessed against the
losing party, liability for costs is a normal incident of defeat.
Therefore, a nonsettling plaintiff does not run the risk of
suffering additional burdens that do not ordinarily attend a
defeat, and Rule 68 would provide little, if any, additional
incentive if it were applied when the plaintiff loses.
Page 450 U. S. 353
Defendant argues that Rule 68 does provide such an incentive,
because it operates to deprive the district judge of the discretion
vested in him by Rule 54(d). According to this reasoning, Rule 68
is mandatory, and a district judge must assess costs against a
plaintiff who rejects a settlement offer and then either fails to
obtain a judgment or recovers less than the offer. Therefore,
nonsettling plaintiffs could not reject settlement offers in the
expectation that the judge might exercise his discretion to deny
the defendant costs if the defendant wins. [
Footnote 10]
If we were to accept this reasoning, it would require us to
disregard the specific intent expressed in Rule 54(d), and thereby
to attribute a schizophrenic intent to the drafters. If, as
defendant argues, Rule 68 applies to defeated plaintiffs, any
settlement offer, no matter how small, would apparently trigger the
operation of the Rule. [
Footnote
11] Thus, any defendant, by performing the meaningless act of
making a nominal settlement offer, could eliminate the trial
judge's discretion under Rule 54(d). We cannot reasonably conclude
that the drafters of the Federal Rules intended, on the one hand,
affirmatively to grant the district judge discretion to deny costs
to the prevailing party under Rule 54(d), and then, on the other
hand, to give defendants -- and only defendants -- the power to
take away that discretion by performing a token act. [
Footnote 12]
Page 450 U. S. 354
Moreover, if the Rule operated as defendant argues, we cannot
conceive of a reason why the drafters would have given only
defendants, and not plaintiffs, the power to divest the judge of
his Rule 54(d) discretion.
See Simonds v. Guaranty Bank &
Trust Co., 480 F.
Supp. 1257, 1261 (Mass.1979). When Rule 68 is read literally,
however, it is evenhanded in its operation. As we have already
noted, it does not apply to judgments in favor of the defendant or
to judgments in favor of the plaintiff for an amount greater than
the settlement offer. In both of those extreme situations, the
trial judge retains his Rule 54(d) discretion. In the former, his
discretion survives because the Rule applies only to judgments
"obtained by the offeree"; in the latter, it survives because the
Rule does not apply to a judgment "more favorable than the offer."
[
Footnote 13] Thus unless we
assume that the Federal Rules were intended to be biased in favor
of defendants, we can conceive of no reason why defendants -- and
not plaintiffs --
Page 450 U. S. 355
should be given an entirely risk-free method of denying trial
judges the discretion that Rule 54(d) confers regardless of the
outcome of the litigation. [
Footnote 14]
The Court of Appeals, perceiving the anomaly of allowing
defendants to control the discretion of district judges by making
sham offers, resolved the problem by holding that only reasonable
offers trigger the operation of Rule 68. But the plain language of
the Rule makes it unnecessary to read a reasonableness requirement
into the Rule. A literal interpretation totally avoids the problem
of sham offers, because such an offer will serve no purpose, and a
defendant will be encouraged to make only realistic settlement
offers. [
Footnote 15]
The
Page 450 U. S. 356
Federal Rules are to be construed to "secure the just, speedy,
and inexpensive determination of every action." Fed.Rule Civ.Proc.
l. If a plaintiff chooses to reject a reasonable offer, then it is
fair that he not be allowed to shift the cost of continuing the
litigation to the defendant in the event that his gamble produces
an award that is less than or equal to the amount offered. But it
is hardly fair or evenhanded to make the plaintiff's rejection of
an utterly frivolous settlement offer a watershed event that
transforms a prevailing defendant's right to costs in the
discretion of the trial judge into an absolute right to recover the
costs incurred after the offer was made. [
Footnote 16]
III
This interpretation of the language of the Rule and its clear
purpose is further compelled by the history of Rule 68. Rule 68 is
an outgrowth of the equitable practice of denying costs to a
plaintiff "when he sues vexatiously after refusing an offer of
settlement." [
Footnote 17]
The 1938 Advisory Committee Notes to the original version of the
Rule merely cited three state statutes as illustrations of the
operation of the Rule. [
Footnote
18] These three statutes, from Minnesota, Montana, and New
York,
Page 450 U. S. 357
mandated the imposition of costs on a plaintiff who rejected
settlement offers and failed to obtain a judgment more favorable
than the offer. [
Footnote
19] All three States had other provisions, similar to Rule
54(d), providing for the recovery of costs by
Page 450 U. S. 358
a prevailing party. [
Footnote
20] Therefore, the only purpose served by these state
offer-of-judgment rules was to penalize prevailing plaintiffs who
had rejected reasonable settlement offers without good cause.
[
Footnote 21] As defendant
notes, other States have or had similar rules. [
Footnote 22] But, with one exception, all
of the cases cited by plaintiff, defendant, and the EEOC as
amicus involving state cost-shifting rules were cases in
which the plaintiff prevailed. [
Footnote 23]
Page 450 U. S. 359
The commentators, including the members of the Advisory
Committee, have agreed with our interpretation of the Rule.
[
Footnote 24] At a symposium
held shortly after the Rules were issued in
Page 450 U. S. 360
1938, one of the members of the Advisory Committee presented the
Rule as
"a means for stopping the running of costs where the defendant
admits that part of the claim is good, but proposes to contest the
balance. [
Footnote 25]"
The Advisory Committee Notes to the 1946 Amendment to the Rule
indicate that the Rule was designed to "save" a defendant from
having to reimburse the plaintiff for costs incurred after the
offer was made, and not to make mandatory the court's discretionary
power to tax costs against the plaintiff in the event the defendant
prevails. [
Footnote 26] The
fact that the defense bar did not develop a practice of seeking
costs under Rule 68 by making nominal settlement offers is
persuasive evidence that trial lawyers have interpreted the Rule in
accordance with its plain language. [
Footnote 27] Thus, the state rules upon which Rule 68
Page 450 U. S. 361
was modeled, the cases interpreting those rules, and the
commentators' view of the Rule are all consistent with, and in fact
compel, our reading of its plain language.
Page 450 U. S. 362
Although defendant's petition for certiorari presented the
question of the District Judge's abuse of discretion in denying
defendants costs under Rule 54(d), that question was not raised in
the Court of Appeals, and is not properly before us. We therefore
affirm the judgment of the Court of Appeals.
It is so ordered.
[
Footnote 1]
Rule 68, as amended in 1966, provides:
"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 him for the money or property
or to the effect specified in his 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 offeree is not more favorable than
the offer, the offeree 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. When the liability of one party to
another has been determined by verdict or order or judgment, but
the amount or extent of the liability remains to be determined by
further proceedings, the party adjudged liable may make an offer of
judgment, which shall have the same effect as an offer made before
trial if it is served within a reasonable time not less than 10
days prior to the commencement of hearings to determine the amount
or extent of liability."
[
Footnote 2]
The formal offer of judgment submitted by the defendant to the
attorney for the plaintiff read as follows:
"Pursuant to Rule 68 of the Federal Rules of Civil Procedure,
defendant hereby offers to allow judgment to be taken against it in
this action, in the amount of $450 which shall include attorney's
fees, together with costs accrued to date. This offer of judgment
is made for the purposes specified in Rule 68, and is not to be
construed either as an admission that the defendant is liable in
this action, or that the plaintiff has suffered any damage."
App. 34.
[
Footnote 3]
Senior District Judge Hoffman stated:
"While there is little authority on the point, this Court is
satisfied that, in order to be effective, a Rule 68 offer must be
made in a good faith attempt to settle the parties' litigation and,
thus, must be at least arguably reasonable."
"
* * * *"
"If the purpose of the rule is to encourage settlement, it is
impossible for this Court to concede that this purpose can be
furthered or aided by an offer that is not at least arguably
reasonable."
"
* * * *"
"Finally, while the Court did ultimately find itself constrained
to enter its judgment for the defendant, the Court certainly did
not find the plaintiff's claim to be wholly specious. In the
opinion of this Court and in the particular facts and circumstances
of this case, an offer of only the sum of $450 could only have been
effective were the plaintiff's claim totally lacking in merit or
were there present additional factors which would mitigate in favor
of the defendant."
Id. at 11-12.
[
Footnote 4]
"Against that general background, the Rule 68 offer of judgment
of less than $500 before trial is not of such significance in the
context of this case to justify serious consideration by the
plaintiff. At oral argument, the defendant urged that even an offer
of $10 would have met the requirements of Rule 68 and served the
purpose of shifting cost liability. If that were so, a minimal Rule
68 offer made in bad faith could become a routine practice by
defendants seeking cheap insurance against costs. The useful
vitality of Rule 68 would be damaged. Unrealistic use of the rule
would not encourage settlements, avoid protracted litigation or
relieve courts of vexatious litigation."
600 F.2d at 701. (Footnote omitted.)
[
Footnote 5]
In multi-claim litigation, such a party may, of course, be
defending against a counterclaim or a cross-claim, but the effect
of the Rule can most readily be explained by reference to cases
involving a single claim by one plaintiff against one defendant.
For that reason, as well as the fact that this case involves such a
claim, we simply refer to the parties as "plaintiff" and
"defendant."
[
Footnote 6]
No issue is presented in this case concerning the amount or the
items of costs that defendant seeks to recover.
[
Footnote 7]
Rule 54(d) provides, in relevant part:
"(d) Costs"
"Except when express provision therefor is made either in a
statute of the United States or in these rules, costs shall be
allowed as of course to the prevailing party unless the court
otherwise directs. . . ."
[
Footnote 8]
Advisory Committee's Notes on Fed.Rule Civ.Proc. 68, 28
U.S.C.App. p. 499; 12 C. Wright & A. Miller, Federal Practice
and Procedure § 3001, p. 56 (1973); 7 J. Moore & J. Lucas,
Moore's Federal Practice � 68.02, p. 68-4 (1979).
[
Footnote 9]
This incentive is most clearly demonstrated by the situation in
which the defendant's liability has been established "by verdict or
offer of judgment" -- or or perhaps by an admission -- and the only
substantial issue to be tried concerns the amount of the judgment.
In that context, the opportunity to avoid the otherwise almost
certain liability for costs should motivate realistic settlement
offers by the defendant, and the risk of losing the right to
recover costs provides the plaintiff with an additional reason for
preferring settlement to further litigation.
[
Footnote 10]
Delta argues that this additional incentive provided by Rule 68
is taking on increased importance as more district judges, like the
District Judge here, are exercising the discretion granted by Rule
54(d) to deny costs to prevailing defendants.
[
Footnote 11]
Defendant contended at oral argument that a settlement offer of
one penny should trigger the cost-shifting provision of the Rule if
the defendant prevails. Tr. of Oral Arg. 5.
[
Footnote 12]
Defendant argues that our construction of the Rule is anomalous,
because, under Rule 68, a defendant who prevails is in a less
favorable position than if he had lost the case, but for an amount
less than the offer. Reply Brief for Petitioner 10. The argument is
applicable, however, only in a narrowly limited category of cases.
First, because the prevailing defendant normally recovers costs,
the argument is relevant only in the relatively few cases in which
special circumstances may persuade the district judge to exercise
his discretion to deny costs to the prevailing party. And second,
even within that small category, the argument is only valid if the
settlement offer is for an amount less than the recoverable costs.
For if the plaintiff obtains a judgment for an amount less than the
offer but greater than the cost bill, the net liability of the
defendant will be greater than the burden of paying his own costs
after a victory on the merits. The fact that a defendant may obtain
no benefit from a settlement offer for an amount less than his
probable taxable costs is surely not a sufficient reason to
disregard the plain language of the Rule, or to question its
efficacy in motivating realistic settlement proposals in cases in
which the defendant recognizes a significant risk that the
plaintiff will obtain a judgment.
In sum, the effect of a literal interpretation of Rule 68 is to
attach no practical consequences to a sham or token offer by the
defendant. Since there is no reason to encourage such token offers,
the Rule quite sensibly leaves the parties in the same position
after such an offer as they would have been in if no such offer had
been made.
See n
21,
infra.
[
Footnote 13]
Moreover, because Rule 68 has no application at all to offers
made by the plaintiff, the plaintiff may not divest the district
judge of his Rule 54(d) discretion by making a sham offer.
[
Footnote 14]
Defendant also argues that it should be permitted to use Rule 68
to recover costs in this manner because district judges have
recently been exercising their discretion to deny prevailing
defendants costs in too many cases. Reply Brief for Petitioner 8;
Tr. of Oral Arg. 14. Since Rule 68 was promulgated prior to this
alleged misapplication of Rule 54(d), it surely was not intended to
remedy a problem that had not yet surfaced.
Of course, there really is no reason to assume that district
judges are repeatedly abusing their Rule 54(d) discretion. If we
make the more probable assumption that they are denying costs to
the prevailing party only when there would be an element of
injustice in a cost award, the burden of defendant's argument is
not only that a special privilege should be granted to defendants,
but also that its primary effect will be to thwart the
administration of justice.
[
Footnote 15]
See Note, Rule 68: A "New" Tool for Litigation, 1978
Duke L.J. 889, 895:
"An offer by a defendant of ten dollars at the beginning of a
difficult and complex case, or of a case based on a novel legal
theory, is not likely to produce an early settlement of the case,
which is the purpose of the rule. Yet, if the rule is not limited
to cases in which the plaintiff prevails, the ten dollar offer will
have the effect of assuring that the defendant is awarded
practically all of his costs if he prevails, even if there are good
reasons why the defendant should not be awarded his costs. This is
clearly not the result that the rulemakers envisioned. If
interpreted to require that the plaintiff secure at least some
relief, the rule would insure that token offers will not be made,
because nothing would be gained by them. In most cases, the
defendant, as the prevailing party, will be entitled to costs under
rule 54(d). When the defendant is not so entitled, he ought not be
able to employ rule 68 to override the discretion that the court
would otherwise have, in order to compel the awarding of
costs."
[
Footnote 16]
Moreover, because the defendant's settlement offer is admissible
at a proceeding to determine costs, a defendant could use a
reasonable settlement offer as a means of influencing the judge's
discretion to award costs under Rule 54(d).
[
Footnote 17]
12 C. Wright & A. Miller, Federal Practice and Procedure §
3001, p. 56 (1973).
[
Footnote 18]
One of the members of the Advisory Committee, Robert G. Dodge,
indicated at a symposium on the new Rules that the Rule was based
on "statutes which are widely prevalent in the states. . . ."
American Bar Association, Rules of Civil Procedure for the District
Court of the United States with Notes as prepared under the
direction of the Advisory Committee and Proceedings of the
Institute on Federal Rules, Cleveland, Ohio 337 (1938) (hereinafter
Institute on Federal Rules).
[
Footnote 19]
2 Minn.Stat. § 9323 (Mason 1927) provided:
"At least ten days before the term at which any civil action
shall stand for trial the defendant may serve on the adverse party
an offer to allow judgment to be taken against him for the sum, or
property, or to the effect therein specified, with costs then
accrued. If within ten days thereafter such party shall give notice
that the offer is accepted, he may file the same, with proof of
such notice, and thereupon the clerk shall enter judgment
accordingly. Otherwise the offer shall be deemed withdrawn, and
evidence thereof shall not be given; and if a more favorable
judgment be not recovered no costs shall be allowed, but those of
the defendant shall be taxed in his favor."
4 Mont. Rev.Codes Ann. § 9770 (1935) provided:
"The defendant may, at any time before the trial or judgment,
serve upon the plaintiff an offer to allow judgment to be taken
against him for the sum or property, or to the effect therein
specified. If the plaintiff accept the offer, and give notice
thereof within five days, he may file the offer, with proof of
notice of acceptance, and the clerk must thereupon enter judgment
accordingly. If the notice of acceptance be not given, the offer is
to be deemed withdrawn, and cannot be given in evidence upon the
trial; and if the plaintiff fail to obtain a more favorable
judgment, he cannot recover costs, but he must pay the defendant's
costs from the time of the offer."
N.Y.Civ.Prac.Law § 177 (Cahill 1937) provided:
"Before the trial, the defendant may serve upon the plaintiff's
attorney a written offer to allow judgment to be taken against him
for a sum, or property, or to the effect, therein specified, with
costs. If there be two or more defendants, and the action can be
severed, a like offer may be made by one or more defendants against
whom a separate judgment may be taken. If the plaintiff, within ten
days thereafter, serve upon the defendant's attorney a written
notice that he accepts the offer, he may file the summons,
complaint, and offer, with proof of acceptance, and thereupon the
clerk must enter judgment accordingly. If notice of acceptance be
not thus given, the offer cannot be given in evidence upon the
trial; but, if the plaintiff fail to obtain a more favorable
judgment, he cannot recover costs from the time of the offer, but
must pay costs from that time."
[
Footnote 20]
See 2 Minn.Stat. §§ 9471-9473 (Mason 1927); 4 Mont.
Rev.Codes Ann. §§ 9787, 9788 (1935); N.Y.Civ.Prac.Law §§ 1470-1475
(Cahill 1937).
[
Footnote 21]
In each of these States, the general statute providing for
recovery of costs by prevailing defendants was, unlike Rule 54(d),
mandatory.
See, e.g., 4 Mont. Rev.Code Ann. §§ 9787-9788
(1935); 2 Minn.Stat. § 9471 (Mason 1927); N.Y.Civ.Prac.Law §§
1470-1475 (Cahill 1937). Inasmuch as those statutes did not give
trial judges discretion to deny costs to prevailing defendants, the
state antecedents of Rule 68 did not perform any cost-shifting
function in cases in which the defendant prevailed. In those States
-- as is true under Rule 68 -- a sham settlement offer had no
practical consequences; it left the parties in the same situation
as if no offer had been made.
See n 12,
supra. Therefore, the state offer
of judgment statutes provide support for the view that Rule 68
applies only to prevailing plaintiffs.
[
Footnote 22]
See, e.g., Cal.Civ.Proc.Code Ann. § 998 (West 1980);
Yeager v. Campion, 70 Colo. 183, 197 P. 898 (1921);
Wordin v. Bemis, 33 Conn.216 (1866);
Prather v.
Pritchard, 26 Ind. 65 (1866);
West v. Springfield Fire
& Marine Ins. Co., 105 Kan. 414, 185 P. 12 (1919);
Wachsmuth v. Orient Ins. Co., 49 Neb. 590, 68 N.W. 935
(1896);
Herrin-Hall-Marvin Safe Co. v. Balliet, 44 Nev.
94, 190 P. 76 (1920);
Hammond v. Northern Pacific R. Co.,
23 Ore. 157, 31 P. 299 (1892);
Sioux Falls Adjustment Co. v.
Penn. Soo Oil Co., 53 S.D. 77, 220 N.W. 146 (1928);
Newton
v. Allis, 16 Wis.197 (1862).
[
Footnote 23]
See cases cited in
n 22,
supra; see also Miklautsch v.
Dominick, 452 P.2d 438
(Alaska 1969);
Brown v. Nolan, 98 Cal. App. 3d
445, 159 Cal. Rptr. 469 (1979);
Schnute Holtman Co. v.
Sweeney, 136 Ky. 773, 125 S.W. 180 (1910);
Watkins v. W.
E. Neiler Co., 135 Minn. 343, 160 N.W. 864 (1917);
Petrosky v. Flanagan, 38 Minn. 26, 35 N.W. 665 (1887);
Woolsey v. O'Brien, 23 Minn. 71, 72 (1876);
Morris-Turner Live Stock Co. v. Director General of
Railroads, 266 F. 600 (Mont.1920);
Margulis v. Solomon
& Berck Co., 223 App.Div. 634, 229 N.Y.S. 157 (1928);
Smith v. New York, O. & W. R. Co., 119 Misc. 506, 196
N.Y.S. 521 (1922);
McNally v. Rowan, 101 App.Div. 342, 92
N.Y.S. 250,
aff'd, 181 N.Y. 556, 74 N.E. 1120 (1905);
Ranney v. Russell, 10 N.Y.Super. 689, 690 (1854);
Benda v. Fana, 10 Ohio St.2d 259, 227 N.E.2d 197 (1967);
but see Terry v. Burger, 6 Ohio App.2d 53, 216 N.E. 383
(1966).
[
Footnote 24]
Some commentators assume that the Rule, even when applicable,
operates to deny costs to a prevailing plaintiff, and not to impose
liability for defendants' costs on that plaintiff. Wright and
Miller's treatise indicates:
"Rule 68 is intended to encourage settlements and avoid
protracted litigation. It permits a party defending against a claim
to make an offer of judgment. If the offer is not accepted, and the
ultimate judgment is not more favorable than what was offered, the
party who made the offer is not liable for costs accruing after the
date of the offer."
"This device was entirely new to the federal courts when the
Federal Rules were adopted in 1938. But it was familiar in state
practice. And the general principle, that a party may be denied
costs when he sues vexatiously after refusing an offer of
settlement, and
recovers no more than he had been previously
offered, has been held to be within the powers of an equity
court regardless of the existence of a rule such as this one."
"Although the privilege of an offer of settlement is extended
only to the party defending against a claim, it furnishes a just
procedure to all parties concerned. It is fair to the claimant,
because
it does the defending party no good to make an offer of
judgment that is not what the claimant might reasonably be expected
to recover; he will not free himself of the costs if the
judgment recovered is more than the offer. It is certainly fair to
the defending party, because it allows him to free himself of the
court costs by offering to make a settlement. It is of great
benefit to the court, because it encourages settlements and
discourages vexatious suits, and thus diminishes the burden of
litigation."
(Footnotes omitted.) (Emphasis supplied.) 12 C. Wright & A.
Miller, Federal Practice and Procedure § 3001, p. 56 (1973). Moore
uses similar language in his treatise, stating that an offer of
judgment will "operate to save [the defendant] the costs from the
time of that offer
if the plaintiff ultimately obtains a
judgment less than the sum offered." 7 J. Moore & J.
Lucas, Moore's Federal Practice � 68.06, p. 68-13 (1979) (emphasis
supplied).
See also Dobie, The Federal Rules of Civil
Procedure, 25 Va.L.Rev. 261, 304, n.195 (1939) ("[I]f the offer is
not accepted, it, of course, relieves the offering defendant of the
burden of future costs, thereby constituting an inducement to the
making of such offers") .
[
Footnote 25]
Mr. Dodge stated:
"This rule is based upon statutes which are widely prevalent in
the states, and it affords a means for stopping the running of
costs
where the defendant admits that part of the claim is
good, but proposes to contest the balance. He may then make an
offer of judgment of the amount which he conceives is due, and,
unless the plaintiff recovers more than that, the plaintiff gets no
costs accruing after that offer of judgment."
Institute on Federal Rules 337 (emphasis supplied).
[
Footnote 26]
The Advisory Committee's Notes state:
"It is implicit, however, that, as long as the case continues --
whether there be a first, second or third trial -- and the
defendant makes no further offer, his first and only offer will
operate to save him the costs from the time of that offer if the
plaintiff ultimately obtains a judgment less than the sum offered.
In the case of successive offers not accepted, the offeror is saved
the costs incurred after the making of the offer which was equal to
or greater than the judgment ultimately obtained."
28 U.S.C.App. p. 499.
[
Footnote 27]
It was not until 1974 that any federal court even suggested that
Rule 68 could be interpreted to apply to a case in which the
defendant prevails.
See Mr. Hanger, Inc. v. Cut Rate Plastic
Hangers, Inc., 63 F.R.D. 607 (EDNY 1974).
Apart from the case at bar and
Mr. Hanger, Inc., there
are only two other reported cases in which a defendant attempted to
recover his own costs under Rule 68 after obtaining a judgment in
his favor. In
Dual v. Cleland, 79 F.R.D. 696 (DC 1978),
the court followed
Mr. Hanger and reluctantly granted
defendant an award of costs under Rule 68 after stating that it
would
not have allowed costs to defendant as the
prevailing party under Rule 54(d). In
Gay v. Waiters' and Dairy
Lunchmen's Union, Local No. 30, 86 F.R.D. 500, 503-504 (ND
Cal.1980), the court assumed that Rule 68 applied to prevailing
defendants, but refused to apply the Rule to impose costs on the
named plaintiffs in a Title VII class action. The court noted that,
if Rule 68 applied in class actions, the disproportionate risk
imposed on the class representatives would discourage the filing of
Title VII suits.
All the other reported cases involving Rule 68 were either cases
in which the plaintiff had prevailed or cases in which the court
implicitly assumed that the Rule was limited to such a situation.
See, e.g., Mason v. Belieu, 177 U.S.App.D.C. 68, 75, 543
F.2d 215, 222 (plaintiffs not awarded costs, because they failed to
file a bill of costs and defendant thus did not know which costs to
object to as being incurred after the offer was made),
cert.
denied, 429 U.S. 852 (1976);
Home Ins. Co. v.
Kirkevold, 160 F.2d 938, 941 (CA9 1947) (plaintiff still
entitled to recover costs where defendant did not prove that its
offer of judgment was served within 10 days of trial);
Truth
Seeker Co. v. Durning, 147 F.2d 54, 56 (CA2 1945)
("[D]efendant could have stopped the running of further costs by an
offer of judgment under F.R.C.P. 68");
Cover v. Chicago Eye
Shield Co., 136 F.2d 374 (CA7) (defendant not liable for fees
of master and court reporter where plaintiff recovered less than
offer),
cert. denied, 320 U.S. 749 (1943);
Staffend v.
Lake Central Airlines, Inc., 47 F.R.D. 218, 220 (ND Ohio 1969)
(a defendant may "escape the imposition of further costs where the
plaintiff does not eventually secure a judgment exceeding the
offer");
Tansey v. Transcontinental & Western Air,
Inc., 97 F. Supp.
458, 459 (DC 1949) (an offer that was not for a sum certain
will not prevent the court from considering plaintiff's costs
thereafter incurred);
Maguire v. Federal Crop Ins. Corp.,
9 F.R.D. 240, 242 (WD La.1949) (defendant cannot "escape" paying
the plaintiff's costs because offer was not properly formalized),
aff'd in part and rev'd in part, 181 F.2d 320 (CA5 1950);
FDIC v. Fruit Growers Service Co., 2 F.R.D. 131, 133 (ED
Wash.1941) (after taxing certain disputed costs against defendant,
court noted that the costs could have been avoided by taking
advantage of Rule 8);
Nabors v. Texas Co., 32 F. Supp.
91, 92 (WD La.1940) (a defendant may "save himself in the
matter of cost if the recovery does not exceed what was tendered"
if he proves that he made an offer of judgment).
See also
Scheriff v. Beck, 452 F.
Supp. 1254 (Colo.1978);
Waters v. Heublein,
Inc., 485 F.
Supp. 110 (ND Cal.1979).
JUSTICE POWELL, concurring in the result.
I agree with most of the views expressed in the dissenting
opinion of JUSTICE REHNQUIST, and do not agree with the Court's
reading of Rule 68. It is anomalous indeed that, under the Court's
view, a defendant may obtain costs under Rule 68 against a
plaintiff who prevails in part, but not against a plaintiff who
loses entirely.
I nevertheless concur in the result reached by the Court,
because I do not think that the terms of the offer made in this
case constituted a proper offer of judgment within the scope of
Rule 68.
I
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 him for the money or property
or to the effect specified in his offer,
with costs then
accrued."
(Emphasis added.)
Page 450 U. S. 363
In Title VII cases, the scope of "costs" is defined in the
statute itself. Except in unusual circumstances, Title VII requires
that a prevailing plaintiff receive "a reasonable attorney's fee as
part of the costs." 42 U.S.C. § 2000e-5 (k);
see Christiansburg
Garment Co. v. EEOC, 434 U. S. 412,
434 U. S.
416-417 (1978);
Newman v. Piggie Park Enterprises,
Inc., 390 U. S. 400,
390 U. S.
401-402 (1968). We held last Term in
Maher v.
Gagne, 448 U. S. 122,
448 U. S. 129
(1980), that a claim to an attorney's fee is not weakened if the
plaintiff prevails by "settlement, rather than through
litigation."
A Rule 68 offer of judgment is a proposal of settlement that, by
definition, stipulates that the plaintiff shall be treated as the
prevailing party. It follows, therefore, that the "costs" component
of a Rule 68 offer of judgment in a Title VII case must include
reasonable attorney's fees accrued to the date of the offer.
Scheriff v. Beck, 452 F.
Supp. 1254, 1260 (Colo.1978) (offer of $2,200 together with
costs, not including attorney's fees, was "fatally defective
because it excludes attorney's fees then accrued").
The purposes of Title VII and Rule 68 each would be served by
this plain language construction of the relationship between the
statute and the Rule. To be sure, Title VII's fee provision was
designed to enable plaintiffs to vindicate their rights through
litigation.
Piggie Park, supra at
390 U. S.
401-402. On the other hand, parties to litigation and
the public as a whole have an interest -- often an overriding one
-- in settlement, rather than exhaustion of protracted court
proceedings. Rule 68 makes available to defendants a mechanism to
encourage plaintiffs to settle burdensome lawsuits. The Rule
particularly facilitates the early resolution of marginal suits in
which the defendant perceives the claim to be without merit and the
plaintiff recognizes its speculative nature. [
Footnote 2/1]
Page 450 U. S. 364
An offer to allow judgment that does not cover accrued costs and
attorney's fees is unlikely to lead to settlement. Many plaintiffs
simply could not afford to accept such an offer. It may be, also,
that the plaintiff's lawyer instituted the suit with no hope of
compensation beyond recovery of a fee from the defendant. Such a
lawyer might have a conflict of interest that would inhibit
encouraging his client to accept an otherwise fair offer. It
therefore seems clear that the relevant interests -- of both
parties and the public -- will be served by construing Title VII
and Rule 68 in accordance with their plain language. [
Footnote 2/2]
II
Delta's offer in this case did not comply with the terms of Rule
68.
When a plaintiff prevails in a litigated Title VII suit, the
court awards a reasonable attorney's fee. The primary factors
relevant to setting the fee usually are the time expended and
Page 450 U. S. 365
a reasonable hourly rate for that time. [
Footnote 2/3] Thus, a court is not bound by the
prevailing attorney's proposed hourly rate or by the bill
submitted. The fee itself must be reasonable.
The same practice should be followed in Title VII cases in which
the prevailing party is established by a Rule 68 offer of judgment.
Cf. Maher v. Gagne, supra. In such a case, the offer of
judgment consists of two components: (i) the substantive relief
proposed, which may be a sum of money or specific relief such as
reinstatement or promotion, and (ii) costs, including a reasonable
attorney's fee. The offer should specify the first component with
exactitude. But the amount of the fee is within the discretion of
the court if the offer is accepted. [
Footnote 2/4]
Assessed by these standards, Delta's putative offer of judgment
simply did not comply with the terms of Rule 68. In pertinent part,
the offer provided:
"Pursuant to Rule 68 of the Federal Rules of Civil Procedure,
defendant hereby offers to allow judgment to be taken against it in
this action,
in the amount of $50, which shall include
attorney's fees, together with costs accrued to date."
(Emphasis added.)
Page 450 U. S. 366
Delta's offer would have complied with Rule 68 -- and the
company now would be entitled to the costs it seeks [
Footnote 2/5] -- if the offer had specified
some amount of substantive relief plus costs and attorney's fees to
be awarded by the trial court. But the offer did not so
specify.
Accordingly, I concur in the result.
[
Footnote 2/1]
Unfortunately, the cost of litigation in this country --
furthered by discovery procedures susceptible to gross abuse -- has
reached the point where many persons and entities simply cannot
afford to litigate even the most meritorious claim or defense.
See Amendments to the Federal Rules of Civil Procedure,
446 U.S. 995, 999-1001 (1980) (POWELL, J., with whom STEWART and
REHNQUIST, JJ., joined, dissenting);
ACF Industries, Inc. v.
EEOC, 439 U. S. 1081,
1086-1088 (1979) (POWELL, J., dissenting from denial of
certiorari); Janofsky, A.B.A. Attacks Delay and the High Cost of
Litigation, 65 A.B.A.J. 1323, 1323-1324 (1979).
Cf. Herbert v.
Lando, 441 U. S. 153,
441 U. S. 177
(1979).
[
Footnote 2/2]
In
Roadway Express, Inc. v. Piper, 447 U.
S. 752 (1980), we held that the term "costs," as it is
used in 28 U.S. C § 1927, does not incorporate by reference the
definition of costs used in Title VII. Nothing in that case is
inconsistent with my reasoning here. In
Roadway Express, a
party sought costs, including an attorney's fee, under § 1927 from
opposing counsel who had unreasonably and vexatiously delayed an
employment discrimination lawsuit. We concluded that the attorney's
fee could not be recovered under § 1927 because Congress intended
that section to include only those costs specified in a
corresponding section, 28 U.S.C. § 1920. In this case, by contrast,
the entitlement to "costs," including an attorney's fee, arises
under Rule 68 of the Federal Rules of Civil Procedure. In approving
the Federal Rules, Congress appears to have incorporated the
definition of costs found in the substantive statute at issue in
the litigation.
Cf. Fed.Rule Civ.Proc. 54(d).
[
Footnote 2/3]
In
Lindy Bros. Builders, Inc. v. American Radiator &
Standard Sanitary Corp., 540 F.2d 102 (1976) (en banc), the
Court of Appeals for the Third Circuit held that the primary
determinant of a court-awarded fee -- the "lodestar" -- should be
the amount of time reasonably expended on the matter multiplied by
a reasonable hourly rate. The "lodestar" is subject to adjustment
based on,
inter alia, the quality of the work and the
results obtained.
Id. at 117-118;
accord, Furtado v.
Bishop, 635 F.2d 915, 922-924 (CA1 1980);
Copeland v.
Marshall, 205 U.S.App.D.C. 390, 401-404, 641 F.2d 880, 891-894
(1980) (en banc).
Cf. Johnson v. Georgia Highway Express,
Inc., 488 F.2d 714 (CA5 1974).
[
Footnote 2/4]
It may be, of course, that the parties will settle the issue of
costs and attorney's fees after the acceptance of the offer,
without the need to involve the trial judge. Nothing in this
opinion should be read to discourage that practice. But the terms
of the offer of judgment must permit the prevailing plaintiff to
request the trial judge to award a reasonable fee.
[
Footnote 2/5]
Contrary to the suggestion in JUSTICE REHNQUIST's dissenting
opinion,
post at
450 U. S.
378-379, nothing herein requires prevailing
defendants to receive attorney's fees as part of their
costs under Rule 68 when a plaintiff rejects an offer of judgment
and then ultimately loses on the merits. As I have stated, it is
the province of the trial judge to determine the entitlement to,
and amount of, an attorney's fee.
See 450
U.S. 346fn2/3|>n. 3,
supra, and accompanying text.
Prevailing plaintiffs are entitled to attorney's fees except in
unusual circumstances.
Newman v. Piggie Park Enterprises,
Inc., 390 U. S. 400,
390 U. S.
401-402 (1968). A prevailing defendant, on the other
hand, is entitled to attorney's fees as part of the costs only when
the lawsuit is "frivolous, unreasonable, or without foundation."
Christiansburg Garment Co. v. EEOC, 434 U.
S. 412,
434 U. S. 421
(1978).
JUSTICE REHNQUIST, with whom THE CHIEF JUSTICE and JUSTICE
STEWART join, dissenting.
Of the several remarkable aspects of the Court's opinion in this
case, not the least is that, save for the docket number and the
name of the case, it bears virtually no resemblance to the judgment
and opinion of the Court of Appeals for the Seventh Circuit which
we granted certiorari to review. The question presented by the
petition for certiorari, albeit in somewhat laborious form, is best
captured in the first of the three questions:
"Whether the [C]ourt of [A]ppeals erred in nullifying the clear
and unambiguous mandatory imposition of costs under Rule 68?"
Pet. for Cert. 2. The Court states that
"[t]he narrow question presented by this case is whether the
words 'judgment obtained by the offeree,' as used in that Rule,
should be construed to encompass a judgment
against the
offeree as well as a judgment
in
Page 450 U. S. 367
favor of the offeree."
Ante at
450 U. S. 348.
After reciting the procedural history of the case in the lower
courts, the Court criticizes the Court of Appeals for its failure
to confront
"the threshold question whether Rule 68 has any application to a
case in which judgment is entered against the plaintiff-offeree and
in favor of the defendant-offeror."
Ante at
450 U. S. 350.
The Court's resolution of the case turns on that threshold
question, and it finds that the answer "is dictated by the plain
language, the purpose, and the history of Rule 68."
Ibid.
Though the ultimate result reached by the Court is the same as
that of the Court of Appeals, the difference in approach of the two
opinions could not be more striking. The Court of Appeals began its
opinion by stating that
"[t]he issue presented in this appeal is whether the awarding of
costs under Rule 68 of the Federal Rules of Civil Procedure is
mandatory or discretionary if the
final judgment obtained by
plaintiff is not more favorable than the defendant's
offer."
600 F.2d 699, 699-700 (1979) (emphasis supplied). The Court of
Appeals relied primarily on the ground that this was a private
action under Title VII of the Civil Rights Act of 1964, and it was
not willing "to permit a technical interpretation of a procedural
rule to chill the pursuit of that high objective."
Id. at
701. The court explained that a $450 offer in a case such as this
made the semantically mandatory language of Rule 68 discretionary,
and permitted, but did not require, the District Court to award
costs when,
"viewed as of the time of the offer along with consideration of
the final outcome of the case, the offer can be seen to have been
made in good faith and to have had some reasonable relationship in
amount to the issues, litigation risks, and expenses anticipated
and involved in the case."
Id. at 702. The Court of Appeals reasoned that this
"liberal," not "technical," reading of Rule 68 is justified, at
least in a Title VII case, and that it did not need to decide
whether the same approach should be taken in other types of cases.
Ibid.
Page 450 U. S. 368
To the Court of Appeals, the mandatory language of Rule 68, at
least in a Title VII case, is only discretionary where the offer is
not "reasonable" and in "good faith" (neither of which
qualifications are found in Rule 68). But to this Court, the Court
of Appeals was entirely in error in even reaching that question,
because Rule 68 has no applicability to a case in which a judgment
is entered
against the plaintiff-offeree and
in favor
of the defendent-offeror. Totally ignoring the common sense
maxim that the greater includes the lesser, the Court concludes
that its answer is "dictated by the plain language, the purpose,
and the history of Rule 68."
Two of the three reasons advanced by the Court of Appeals in
support of its opinion permitting the District Court not to impose
costs on respondent in this case are squarely negated by the
reasoning of the Court's opinion. The "plain language" of the Rule
refers neither to an exception for Title VII cases nor to a
requirement that an offer be "reasonable" or made "in good
faith."
Although Title VII provides for elaborate conciliation machinery
before suit, the plaintiff who receives a "right to sue" letter
from the EEOC is simply authorized to sue the employer in the
appropriate United States district court. There is no intimation in
the Federal Rules of Civil Procedure or Title VII that such lawsuit
will not be conducted in accordance with the Federal Rules of Civil
Procedure. In fact, Rule 1 of the Federal Rules specifically
provides that
"[t]hese rules govern the procedure in the United States
district courts in all suits of a civil nature whether cognizable
as cases at law or in equity, or in admiralty, with the exceptions
stated in Rule 81."
Rule 81 sets forth a list of exceptions, including bankruptcy
proceedings and proceedings in copyright brought under Title 17 of
the United States Code, but proceedings brought under Title VII are
not included. Presumably, the "plain language" of the Federal Rules
and in particular Rule 68, as well as the "plain language" of the
applicable provisions of Title VII, would bring the Court to
Page 450 U. S. 369
reject any special treatment with respect to costs for a Title
VII lawsuit.
In my view, there is also no basis for reading into Rule 68 any
additional conditions for bringing the Rule into play other than
those which are specifically contained in the provisions of the
Rule itself. I assume that the Court would agree with this approach
in view of its fondness for the "plain meaning" canon of statutory
construction. Therefore, the best and shortest response to the
Court of Appeals' suggestion that a Rule 68 offer must be
"reasonable" and made in "good faith" is that Rule 68 simply does
not incorporate any such requirement; it deprives a district court
of its traditional discretion under Rule 54 to disallow costs to
the prevailing party in the strongest verb of its type known to the
English language -- "must":
"If the judgment finally obtained by the offeree is not more
favorable than the offer, the offeree
must pay the costs
incurred after the making of the offer. . . ."
Fed.Rule Civ.Proc. 68. (Emphasis added.) Over a half century
ago, the Court of Appeals for the Sixth Circuit said "the word
must' is so imperative in its meaning that no case has been
called to our attention where that word has been read `may.'"
Berg v. Merchant, 15 F.2d 990 (1926), cert.
denied, 274 U. S. 738
(1927). To import into the mandatory language of Rule 68 a
requirement that the tender of judgment must be "reasonable" or
made in "good faith" not only rewrites Rule 68, but also puts a
district court in the impossible position of having to evaluate
such uncertain and nebulous concepts in the context of an "offer of
judgment" that, in many cases, may have been made years
past.
Since the Court relies on the "plain meaning" of Rule 68, it may
be well to set that Rule out verbatim before analyzing its
argument. Rule 68 provides in pertinent part:
"At any time more than 10 days before the trial begins,
Page 450 U. S. 370
a party defending against a claim may serve upon the adverse
party an offer to allow judgment to be taken against him for the
money or property or to the effect specified in his 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. . . . If the judgment finally obtained
by the offeree is not more favorable than the offer, the offeree
must pay the costs incurred after the making of the
offer."
(Emphasis added.)
The Court asserts that the result reached by, if not the
reasoning of, the Court of Appeals is correct because Rule 68, by
its "plain language," applies only in cases in which a "judgment
[is] finally obtained by the offeree." The Rule, therefore, does
not apply in a case such as this where the defendant prevailed --
i.e., because no judgment was "obtained by the offeree."
If Rule 68 does not apply, the determination regarding costs is
governed by Federal Rule of Civil Procedure 54(d), which grants a
district court the discretion to award the defendant costs as the
"prevailing party," but does not require it to do so. The Court
argues that the "plain language" of Rule 68, its "history," and
"policy" reasons support this interpretation of the Rule.
I read both the "plain language" of the Rule and its history
quite differently than does the Court. According to it, a plaintiff
-- "offeree" under the terms of Rule 68 -- must win in the trial
court in order to "obtain" a "judgment" within the meaning of that
Rule. But we may call upon the various canons of statutory
construction to pass before us in review as many times as we choose
without being reduced to this anomalous conclusion.
The term "judgment" is defined in Rule 54(a) of the Federal
Rules of Civil Procedure to mean a "decree and any
Page 450 U. S. 371
order from which an appeal lies." Unquestionably, respondent
"obtained" an "order from which an appeal lies" when the District
Court entered its judgment in this case. Certainly, respondent did
not subscribe to the Court's reasoning, because she immediately
sought review in the Court of Appeals of the "judgment" which had
been entered against her. Rule 68, when construed to include a
traditional "take nothing" judgment,
see Appendix to
Fed.Rules Civ.Proc., Forms 31 and 32, 28 U.S.C.App. p. 530, as well
as a judgment in favor of the plaintiff but less than the amount of
the offer, thus fits with the remaining parts of the Federal Rules
of Civil Procedure pertaining to judgments and orders in a manner
in which the drafters of the Rule surely must have intended. To
circumscribe Rule 68 in the manner in which the Court does is to
virtually cut it adrift from the remaining related portions of the
Federal Rules of Civil Procedure, a construction which could be
justified only by the strongest considerations of history and
policy. Our cases do not support the proposition that such a
construction will never be given to a rule or statute, but they do
indicate that only the strongest support in the legislative history
warrants such a result.
Chemehuevi Tribe of Indians v.
FPC, 420 U. S. 395
(1975).
I think my reading of this part of Rule 68 is entirely
consistent with the Rule's history. When the Federal Rules of Civil
Procedure were adopted in 1938, the pertinent part of Rule 68
read:
"If the offer is not so accepted it shall be deemed withdrawn
and evidence thereof is not admissible.
If the adverse part
fails to obtain a judgment more favorable than that offered,
he shall not recover costs in the district court from the time of
the offer but shall pay costs from that time."
(Emphasis supplied.)
Obviously, the event that "triggered" the operation of the
original Rule 68 was the failure of the plaintiff to obtain
Page 450 U. S. 372
a judgment more favorable than that offered. Just as obviously,
the plaintiff in this case did not meet her burden of obtaining a
judgment more favorable than the $450 she was offered. The
operation of Rule 68 was not intended to change when this part of
the Rule was amended in 1948 to its present form. The Advisory
Committee Notes to the 1948 amendment explain the reasons for the
amendment, none of which give any indication that Congress decided
to take away the benefits of the Rule to a defendant who made a
Rule 68 offer but later prevailed on the merits. [
Footnote 3/1]
As noted by the Court, the 1938 Advisory Committee Notes to the
original version of the Rule cite to three state statutes as
illustrations of the operation of the Rule. These three statutes,
like the text of the original Rule 68, all mandated imposition of
costs on a plaintiff who rejected an offer of judgment and then
later failed to recover a judgment more favorable than the offer.
[
Footnote 3/2] This is the
identical situation
Page 450 U. S. 373
which the plaintiff here finds herself in. Moreover, in each of
these three States, the general statutes providing for recovery of
costs by prevailing defendants was, unlike Rule 54(d), mandatory.
See, e.g., 4 Mont. Rev.Codes Ann. §§ 9787, 9788 (1935); 2
Minn.Stat. § 9471 (Mason 1927); and N.Y.Civ.Prac.Law §§ 1470-1475
(Thompson 1939). As a result, the state cases cited by the Court do
not address the situation in which a defendant has prevailed on the
merits,
Page 450 U. S. 374
because, in that situation, the shifting of costs was mandatory
under state law. It is, therefore, difficult for me to understand
how it can be argued that Congress, seeking to pattern Rule 68
after the procedure used in these three States, could have possibly
intended to immunize plaintiffs from the operation of the Rule and
the concomitant costs it imposes simply because they lost their
cases on the merits. It is also noteworthy that the lower court
cases that have confronted the situation of a prevailing defendant
seeking to recover its costs under Rule 68 have all concluded that
such recovery is permissible.
See Dual v. Cleland, 79
F.R.D. 696 (DC 1978);
Mr. Hanger, Inc. v. Cut Rate Hangers,
Inc., 63 F.R.D. 607 (EDNY 1974);
Gay v. Waiters' &
Dairy Lunchmen's Union, Local No. 30, 86 F.R.D. 500 (ND
Cal.1980). [
Footnote 3/3]
Contrary to the view of the Court, I think that Rule 68 and Rule
54(d) are entirely consistent with one another when read in a
manner faithful to their actual language; indeed, the language of
these Rules must be twisted virtually beyond recognition, and that
of Rule 68 parsed virtually out of existence, to say that the
latter Rule does not apply in a situation such as this simply
because the petitioner prevailed. Rule 54(d) itself contemplates
the removal from the trial judge of the discretion of awarding
costs when, by its express terms, it excepts situations where
"express provision therefor is made . . . in these rules." It
cannot be doubted that the
Page 450 U. S. 375
mandatory language of Rule 68 is as clear a case of "express
provision" as could be imagined.
While I do not think it necessary to address the "policy"
considerations relied upon by the Court when the intent of the
drafters of the Rule is as plain as it is here, I do think it
appropriate to note that no policy argument will convince me that a
plaintiff who has refused an offer under Rule 68 and then has a
"take nothing" judgment entered against her should be in a better
position than a similar plaintiff who has refused an offer under
Rule 68 but obtained a judgment in her favor, although in a lesser
amount than that which was offered pursuant to Rule 68. The
construction of Rule 68 urged by the Court would place in a better
position a defendant who tendered $10,000 to a plaintiff under Rule
68 in a case where the plaintiff was awarded $5,000 than where the
same tender was made and the plaintiff was awarded nothing.
One final argument that has been pressed as a reason for
affirmance of the Court of Appeals merits response. Rule 68
requires a party defending against a claim to serve upon the
adverse party "an offer to allow judgment to be taken against him
for the money or property or to the effect specified in his offer,
with costs then accrued." A literal reading of the Rule
appears to entitle a plaintiff to all costs accrued at the time of
the offer. If the offer is accepted, the defendant must pay
whatever costs the court determines were taxable at the time of the
offer. Thus, a valid Rule 68 offer cannot be made if it limits or
excludes any of the costs accrued on the date of the offer.
It is argued that, because "costs" are nowhere defined in the
Federal Rules of Civil Procedure, it is necessary to look elsewhere
to determine the types of costs which are assessable under Rule 68.
Title VII does not contain a general definition of the term
"costs," but it does specify that a court, in its discretion, shall
allow the "prevailing party" a "reasonable attorney's fee as part
of the costs. . . ." 42 U.S.C. § 2000e-5 (k). This Court has
interpreted this provision to
Page 450 U. S. 376
mean that a prevailing plaintiff shall receive her costs "except
in unusual circumstances," and we held last Term that a claim to an
attorney's fee is not defeated if the plaintiff prevails by
"settlement, rather than through litigation."
Maher v.
Gagne, 448 U. S. 122,
448 U. S. 129
(1980). Because a Rule 68 offer of judgment is a proposal which, by
definition, stipulates that the plaintiff shall be treated as the
prevailing party, as the argument runs, the cost component of Rule
68 in a Title VII case must include a component for plaintiff's
reasonable attorney's fees accrued as of the date of the offer.
Petitioner's offer in this case, under this theory, did not
technically comply with Rule 68, because it limited the amount of
attorney's fees to be recovered by the respondent, and thus did not
provide for the recovery of all costs accrued at the date of the
offer. [
Footnote 3/4]
This argument, although superficially appealing, does not
survive careful scrutiny. Our analysis must focus on the meaning of
the word "costs" contained in Rule 68, and we are aided in this
analysis by our decision only last Term in
Roadway Express,
Inc. v. Piper, 447 U. S. 752
(1980). There we were confronted with the question of whether the
word "costs" contained in 28 U.S. C. § 1927 included attorney's
fees in the context of a civil rights lawsuit. Section 1927
provides that lawyers who multiply court proceedings vexatiously
may be assessed the excess "costs" they create. However, § 1927,
like Rule 68, did not define the critical word -- "costs." A
District Court had concluded that, because the civil rights
statutes allow a prevailing party to recover attorney's fees as
part of the costs of litigation, it was authorized to award
attorney's fees as part of the sanction it imposed
Page 450 U. S. 377
under § 1927. We rejected this conclusion, and, in so doing, we
stated that, in construing the term "costs," it was appropriate to
look to the contemporaneous understanding of the term when the
statute was enacted. We then assumed that Congress followed the
recognized "American rule" that attorney's fees were not included
within the definition of "costs" when it enacted § 1927. 447 U.S.
at
447 U. S. 759.
Without any evidence that Congress wished to alter or amend the
definition of "costs" by the passage of the civil rights
fee-shifting statutes, 42 U.S.C. §§ 1988 and 2000e-5(k), we were
unwilling to expand its historical definition.
A conclusion similar to that reached in
Roadway Express
is equally sound here when determining whether "costs," as used in
Rule 68, include attorney's fees in the context of a civil rights
suit. Certainly, the "contemporaneous understanding" of "costs"
when the Federal Rules of Civil Procedure were promulgated in 1938
did not include attorney's fees any more than it did in 1813, when
the predecessor to § 1927 was enacted. The legislative history of
Rule 68 indicates no intent to deviate from the common meaning of
costs, and this conclusion is bolstered by the fact that, when the
authors of the Rules intended that attorney's fees be recovered,
such fees were specifically mentioned.
See, e.g., Fed.Rule
Civ.Proc. 37, which allows "reasonable expenses . . . including
attorney's fees" as a sanction for discovery abuses.
There is likewise no evidence of any congressional intent to
alter the meaning of the word "costs" in Rule 68 by the passage of
the civil rights statutes. Nothing in the fee-shifting provisions
of these statutes or their legislative history has come to my
attention which would suggest that Congress intended to amend Rule
68 by adding attorney's fees to otherwise taxable "costs" under
that Rule.
It is also worth noting that the logic that would include
attorney's fees as recoverable costs under Rule 68 would also allow
a similar recovery of attorney's fees in other litigation under
statutes which permit the award of attorney's fees.
Page 450 U. S. 378
In 1975, this Court noted in
Alyeska Pipeline Co. v.
Wilderness Society, 421 U. S. 240,
that 29 statutes allow federal courts to award attorney's fees in
certain suits.
Id. at
421 U. S.
260-261, n. 33. Some of these statutes define attorney's
fees as an element of costs, while others separate fees from other
taxable costs. To construe Rule 68 to allow attorney's fees to be
recoverable as costs would create a two-tier system of
cost-shifting under Rule 68. Plaintiffs in cases brought under
those statutes which award attorney's fees as costs and who are
later confronted with a Rule 68 offer would find themselves in a
much different and more difficult position than those plaintiffs
who bring actions under statutes which do not have attorney's fees
provisions. No persuasive justification exists for subjecting these
plaintiffs to differing penalties for failure to accept a Rule 68
offer, and no persuasive justification can be offered as to how
such a reading of Rule 68 would in any way further the intent of
the Rule, which is to encourage settlement.
Finally, if the term "costs" in Rule 68 includes attorney's
fees, then Title VII plaintiffs who reject Rule 68 offers may find
themselves in the unenviable position of having to absorb a
defendant's attorney's fees if they fail to recover a judgment as
favorable as the defendant's offer. This could seriously undermine
the purposes behind the attorney's fees provisions of the Civil
Rights Act, and yet there is no principled way to allow attorney's
fees to be recovered as costs under Rule 68 in
some Title
VII situations while
prohibiting such recovery in others.
As we noted in
Roadway Express in a similar context, to
select on an
ad hoc basis those features of § 1988 and
2000e-5(k) that should be read into Rule 68 would not only
fundamentally alter the nature of Rule 68, but would also
constitute standardless judicial lawmaking. Accordingly, in my
view, the offer made by the petitioner in this case fully complied
with the terms of Rule 68 even though it attempted to place a limit
on the ultimate amount of attorney's fees to be recovered. Because
the
Page 450 U. S. 379
"costs" provision in Rule 68 does not encompass attorney's fees,
those fees are just as susceptible to compromise and settlement as
are other inchoate consequences of liability, such as compensatory
damages or backpay. [
Footnote
3/5]
In sum, I would reject the "plain meaning" basis of the Court's
opinion interpreting Rule 68 because, in my view, the Rule must be
read not only contrary to its "plain meaning" but also woodenly and
perversely in order to reach the conclusion that a prevailing
defendant who had made an offer
Page 450 U. S. 380
pursuant to Rule 68 should be placed in a worse position than
one who has lost to the plaintiff and had a judgment entered
against him accordingly, but for an amount less than the amount
tendered under Rule 68. This is "plain meaning" with a vengeance --
a vengeance which neither the Rules Committee, this Court, nor
Congress in their various roles in the adoption of the Rules could
have contemplated.
It may be said that to read the Rule according to its plain
meaning as I see it will place barriers in the way of plaintiffs'
suing defendants. The short answer to this argument is that any
provisions, such as Rule 68, designed to promote settlement, rather
than litigation, of claims is bound to make a plaintiff take a look
at his "hole card." By the same token, the availability of such a
procedure is bound to make the defendant take a look at
his "hole card" in order to make certain that he is using
every means available to both avoid costly protracted litigation
and possible loss of the case if it goes to trial. The Rule
interpreted in accordance with its "plain meaning" offers a
defendant a method for preventing further accrual of taxable costs
in the case of inflated or "nuisance" lawsuits; if the plaintiff is
of the opinion that the offer is too low to be worth acceptance or
even serious consideration, he need not even respond to it, and the
case will, unless settled in some other manner, go to trial. By
following such a course, a plaintiff who obtains a judgment in
excess of the defendant's Rule 68 offer loses absolutely nothing; a
plaintiff against whom a "take nothing" judgment is entered loses
only the possibility that a district court might exercise its
discretion and not award costs to the prevailing defendant.
Although the vast increase in the amount of litigation in this
Nation today is not a valid reason for twisting rules or statutes
in order to reduce such volume, if the plain meaning of a rule may
have a tendency to encourage settlement, rather than trial, this is
surely not an unfortunate mishap in our system of administering
justice.
[
Footnote 3/1]
The 1948 amendment to Rule 68 added the following two
sentences:
"If the judgment finally obtained by the offeree is not more
favorable than the offer, the offeree 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."
The Advisory Committee Notes explain that the two new sentences
were added to assure
"a party the right to make a second offer where the situation
permits -- as, for example, where a prior offer was not accepted
but the plaintiff's judgment is nullified and a new trial ordered,
whereupon the defendant desires to make a second offer."
Advisory Committee Notes on Amendment to Rules of Civil
Procedure, 28 U.S.C.App. pp. 499-500, 5 F.R.D. 433, 483 (1946), 7
J. Moore & J. Lucas, Moore's Federal Practice � 68.01, p. 68-3
(1979). The change in the language of the Rule had nothing to do
with whether or not it was intended to operate in a situation where
the defendant prevailed.
[
Footnote 3/2]
The Minnesota statute referred to by the 1938 Advisory Notes, 2
Minn.Stat. § 9323 (Mason 1927), provided:
"At least ten days before the term at which any civil action
shall stand for trial the defendant may serve on the adverse party
an offer to allow judgment to be taken against him for the sum, or
property, or to the effect therein specified, with costs then
accrued. If within ten days thereafter such parties shall give
notice that the offer is accepted, he may file the same, with proof
of such notice, and thereupon the clerk shall enter judgment
accordingly. Otherwise the offer shall be deemed withdrawn, and
evidence thereof shall not be given;
and if a more favorable
judgment be not recovered no costs shall be allowed, but those of
the defendant shall be taxed in his favor."
(Emphasis supplied.)
The Montana statute, 4 Mont. Rev.Codes Ann. § 9770 (1935),
provided:
"The defendant may, at any time before the trial or judgment,
serve upon the plaintiff an offer to allow judgment to be taken
against him for the sum or property, or to the effect therein
specified. If the plaintiff accept the offer, and give notice
thereof within five days, he may file the offer, with proof of
notice of acceptance, and the clerk must thereupon enter judgment
accordingly. If the notice of acceptance be not given, the offer is
to be deemed withdrawn, and cannot be given in evidence upon the
trial;
and if the plaintiff fail to obtain a more favorable
judgment, he cannot recover costs, but he must pay the defendant's
costs from the time of the offer."
(Emphasis supplied.)
The New York statute, N.Y.Civ.Prac.Law § 177 (Thompson 1939),
provided:
"Before the trial, the defendant may serve upon the plaintiff's
attorney a written offer to allow judgment to be taken against him
for a sum, or property, or to the effect, therein specified, with
costs. If there be two or more defendants, and the action can be
severed, a like offer may be made by one or more defendants against
whom a separate judgment may be taken. If the plaintiff, within ten
days thereafter, serve upon the defendant's attorney a written
notice that he accepts the offer, he may file the summons,
complaint, and offer, with proof of acceptance, and thereupon the
clerk must enter judgment accordingly. If notice of acceptance be
not thus given, the offer cannot be given in evidence upon the
trial;
but, if the plaintiff fail to obtain a more favorable
judgment, he cannot recover costs from the time of the offer, but
must pay costs from that time."
(Emphasis supplied.)
[
Footnote 3/3]
It should be noted that the commentators on which the Court
relies so heavily either do not support its position or simply fail
to address it. Contrary to its suggestion, Wright and Miller's
treatise assumes that Rule 68 operates in a manner that would allow
a prevailing defendant the benefits of the Rule. Their treatise
provides:
"If the offer is not accepted,
and the ultimate judgment is
not more favorable than what was offered, the party who made
the offer is not liable for costs accruing after the date of the
offer."
12 C. Wright & A. Miller, Federal Practice and Procedure §
3001, p. 56 (1973) (emphasis supplied). Thus, Wright and Miller
envisioned that costs would be shifted unless the plaintiff
recovered a judgment more favorable than the offer -- a hurdle that
respondent here was unable to clear.
[
Footnote 3/4]
The actual text of the offer made by the petitioner to the
respondent in this case reads in pertinent part as follows:
"Pursuant to Rule 68 of the Federal Rules of Civil Procedure,
defendant hereby offers to allow judgment to be taken against it in
this action in the amount of $450, which shall include attorney's
fees, together with costs accrued to date."
[
Footnote 3/5]
The nearly 100 Rules of Federal Civil Procedure have numerous
and often differing purposes, but it bears repeating that the
purpose behind Rule 68, which this case involves, is to promote
settlement, and thereby diminish the number of trials
necessary to resolve the cases which are filed in the federal
courts. Were we to hold that attorney's fees were not subject to
settlement and compromise (in the same way as the issues of
liability, damages, and other remedies) as a part of a Rule 68
offer, we would frustrate the purpose of this Rule. The defendant
would be put in the unenviable position of having to make an offer
of judgment without knowing what his potential liability in terms
of attorney's fees would be over and above the amount of the Rule
68 offer. While traditional "costs" can never be known to a
certainty at the time of the making of a Rule 68 offer,
knowledgeable counsel for both defendant and plaintiff can assess
at least their order of magnitude. Attorney's fees, however, are a
different breed of cat, not only because they can be
extraordinarily extensive compared to traditional items of costs,
but also because neither the plaintiff nor the defendant can know
with any degree of certainty how much of the attorney's fees a
prevailing plaintiff seeks will be allowed by a trial court
exercising its discretion pursuant to Rule 54. Thus, to hold that
such fees were, by definition, open-ended and not subject to
compromise would mean that an attorney representing a defendant and
convinced that an offer pursuant to Rule 68 might well result in a
settlement of the case if attorney's fees were subject to
settlement and compromise could never confidently persuade his
client that it would be in the client's best interest to make such
an offer, because he would, of necessity, have to advise the
client, in cases where attorney's fees are recoverable, that such
recovery would be over and above the amount of the Rule 68 offer.
Such a caveat in the attorney's recommendation will most likely
prove to deter the client from making a Rule 68 offer in the first
place, with the result that fewer suits will br settled, and more
will be tried. Such a construction of Rule 68, therefore, hardly
furthers the purposes behind the Rule.