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Delta Air Lines, Inc. v. August
Citations: 67 L. Ed. 2d 287; 101 S. Ct. 1146; 450 U.S. 346; 1981 U.S. LEXIS 79; 31 Fed. R. Serv. 2d 7; 49 U.S.L.W. 4241; 25 Empl. Prac. Dec. (CCH) 31,591; 25 Fair Empl. Prac. Cas. (BNA) 233Docket: 79-814
Court: Supreme Court of the United States; March 9, 1981; Federal Supreme Court; Federal Appellate Court
Federal Rule of Civil Procedure 68 stipulates that if a plaintiff rejects a defendant's formal settlement offer and the judgment the plaintiff ultimately obtains is not more favorable than the offer, the plaintiff must pay the costs incurred after the offer. The Supreme Court ruled that this Rule does not apply when judgment is entered against the plaintiff and in favor of the defendant. The interpretation hinges on the Rule's language, which specifies "judgment finally obtained by the offeree," suggesting it applies only when the plaintiff secures a judgment less favorable than the defendant's offer. The decision emphasizes that the Rule encourages settlement by allowing discretion to trial judges regarding cost awards to prevailing parties, irrespective of whether the judgment is for the defendant or the plaintiff. The Court also noted that a literal interpretation of Rule 68 avoids issues related to sham offers and promotes realistic settlement proposals by defendants. The case involved a discrimination claim by Rosemary August against Delta Air Lines, where she rejected a $450 settlement offer and subsequently lost the case, leading the District Court to rule that each party would bear its own costs. Defendant sought modification of the judgment, arguing under Rule 68 that plaintiff should bear costs incurred after rejecting the defendant's settlement offer of $450. The District Court denied this motion, stating the offer was not made in good faith, thus not activating Rule 68's cost-shifting provisions. The Court of Appeals upheld this decision, asserting that Rule 68 applies only if a defendant's settlement offer is sufficiently serious for the plaintiff to consider. The Court did not address whether Rule 68 applies when a judgment is rendered against the plaintiff and in favor of the defendant. Rule 68 specifies consequences for settlement offers made by a defending party, excluding offers from the plaintiff. It applies to offers made by the defendant pre-trial or after liability is determined in bifurcated proceedings. If a plaintiff accepts the offer, judgment is entered; if rejected, the offer is withdrawn and not admissible except for cost determination. Under Rule 54(d), the prevailing party recovers costs unless directed otherwise by the court. The interpretation of Rule 68 focuses on three judgment scenarios: (1) for the defendant; (2) for the plaintiff but less than the defendant's offer; (3) for the plaintiff exceeding the offer. The phrase "judgment finally obtained by the offeree, not more favorable than the offer" pertains only to the second scenario, as it does not encompass the third. The language indicates that Rule 68 applies solely to judgments for the plaintiff that are less favorable than the defendant's offer. This understanding aligns with Rule 68's intent to promote settlements, as it incentivizes both parties to resolve disputes before trial. Hence, Rule 68 is inapplicable in this case where the judgment favored the defendant. Rule 68 incentivizes settlement in cases where a plaintiff is likely to win but faces uncertainty regarding the recovery amount. If a plaintiff rejects a formal settlement offer under Rule 68 and subsequently receives a judgment less than the offer, the plaintiff loses certain benefits, including the presumption of recovering costs under Rule 54(d). This creates a burden on the plaintiff, as costs typically fall on the losing party. The defendant asserts that Rule 68 mandates the assessment of costs against a plaintiff who rejects a settlement offer and fails to achieve a better outcome, thereby limiting judicial discretion under Rule 54(d). However, this interpretation would contradict the intent of Rule 54(d) and suggest that the drafters intended for defendants to undermine judicial discretion through minimal settlement offers. The language of Rule 68 indicates that it does not apply to judgments favoring defendants or to judgments exceeding the settlement offer, preserving judicial discretion in these situations. The Court of Appeals addressed the issue of defendants potentially making insincere offers to manipulate judicial discretion by ruling that only reasonable offers activate Rule 68. Nonetheless, a literal reading of Rule 68 negates the need for a reasonableness requirement, as unrealistic offers would be ineffective, thereby encouraging genuine settlement proposals. The Federal Rules aim for a just, prompt, and cost-effective resolution of disputes. A plaintiff who rejects a reasonable settlement offer cannot later shift the costs of litigation to the defendant if the eventual award is less than or equal to the offer. However, it is unjust to penalize a plaintiff for rejecting a frivolous settlement by granting the defendant an absolute right to recover costs incurred post-offer. Rule 68, originating from equitable practices aimed at preventing vexatious lawsuits, penalizes plaintiffs who refuse reasonable offers and fail to obtain more favorable judgments. Historical context and advisory notes indicate that the Rule was intended to protect defendants from reimbursing plaintiffs for costs incurred after an offer is made, rather than to mandate cost recovery against plaintiffs at the court's discretion when the defendant prevails. Case law and commentary support this interpretation, reflecting a common understanding among legal practitioners. The Court of Appeals' judgment is affirmed, though Justice Powell concurs with the outcome while critiquing the Court's interpretation of Rule 68, noting that a defendant can recover costs against a partially prevailing plaintiff but not against one who loses entirely. The definition of "costs" in Title VII cases is specified by statute. Title VII mandates that a prevailing plaintiff is entitled to a reasonable attorney's fee as part of the costs, except in unusual circumstances. A settlement does not diminish a plaintiff's claim to attorney's fees, as established in previous case law. A Rule 68 offer of judgment, which includes a provision that the plaintiff is considered the prevailing party, must encompass reasonable attorney's fees accrued up to the date of the offer. Offers excluding these fees are deemed inadequate and may hinder settlement, as many plaintiffs cannot afford to accept such offers. The interests of the parties and public are better served by interpreting Title VII and Rule 68 to require inclusion of attorney's fees in settlement offers. When a plaintiff prevails in a Title VII case, the court determines a reasonable attorney's fee based on time spent and a reasonable hourly rate, independent of the attorney's proposed rate. This standard applies equally to cases resolved by a Rule 68 offer of judgment, which should consist of specific substantive relief and clear costs, including attorney's fees. Delta's offer of judgment, which lacked specific substantive relief and incorrectly framed the fee inclusion, did not comply with Rule 68. Therefore, it is concluded that Delta's offer was insufficient, and it would not be entitled to the costs it sought. Justice Rehnquist, joined by the Chief Justice and Justice Stewart, dissents from the Court's opinion, highlighting significant disparities between the Court's judgment and that of the Seventh Circuit Court of Appeals, which was the subject of the certiorari. The central question of the appeal was whether the Court of Appeals erred in nullifying the mandatory imposition of costs under Rule 68. The Supreme Court reframes the issue to whether "judgment obtained by the offeree" should include judgments against the offeree. It criticizes the Court of Appeals for not addressing whether Rule 68 applies in cases where judgment is against the plaintiff-offeree and in favor of the defendant-offeror. The dissent notes that while both courts reached the same ultimate conclusion, their reasoning diverged significantly. The Court of Appeals framed the issue around the mandatory versus discretionary nature of awarding costs under Rule 68 in Title VII actions and concluded that the language of Rule 68 should be interpreted liberally to avoid hindering civil rights claims. It determined that costs should be discretionary if the defendant's offer was made in good faith and was reasonable relative to the litigation context. In contrast, the Supreme Court's view dismisses the applicability of Rule 68 in cases resulting in judgments against the plaintiff-offeree, rejecting the Court of Appeals' rationale that allowed for discretion based on the offer's reasonableness and good faith. The dissent asserts that the Court's interpretation ignores the principle that a broader category includes narrower instances, and it disputes the selective applicability of the Rule based on the context of Title VII cases. Additionally, it acknowledges the process established by Title VII for plaintiffs to initiate lawsuits following an EEOC determination. The Federal Rules of Civil Procedure and Title VII do not indicate that lawsuits under Title VII will deviate from the standard procedures outlined in the Federal Rules. Specifically, Rule 1 establishes that these rules govern all civil lawsuits in U.S. district courts, with exceptions noted in Rule 81; Title VII lawsuits are not among these exceptions. Consequently, the interpretation of Rule 68 suggests that there is no basis for imposing additional requirements—such as "reasonableness" or "good faith"—on offers made under this rule. Rule 68 mandates that if the judgment obtained by the offeree is less favorable than the offer, the offeree must pay the costs incurred after the offer was made, using the imperative term "must," which has been consistently interpreted as mandatory by courts, including the Sixth Circuit. The excerpt critiques the Court of Appeals' suggestion that offers under Rule 68 must meet a standard of reasonableness, asserting that this would misinterpret the rule and impose an impractical burden on district courts. The text emphasizes that Rule 68, which allows a party to make an offer of judgment, is clear in its language and does not apply when the defendant prevails, as in this case. If Rule 68 is not applicable, then costs are determined under Rule 54(d), which gives the district court discretion to award costs to the prevailing party without a requirement to do so. The author disagrees with the Court’s interpretation of both the language and history of Rule 68. A plaintiff, referred to as the "offeree" under Rule 68, must secure a judgment in their favor to benefit from the rule's provisions. The definition of "judgment" in Rule 54(a) encompasses any order subject to appeal, which supports the notion that the respondent obtained such an order when the District Court issued its judgment. The respondent's immediate appeal also indicates disagreement with the court's ruling. Rule 68 is designed to include various types of judgments, including "take nothing" judgments and those favoring the plaintiff but below the offer amount. Limiting Rule 68 contradicts its integration with other Federal Rules of Civil Procedure and requires strong historical justification, which is lacking. The historical context of Rule 68, established in 1938 and amended in 1948, reflects that the rule's intent was to impose costs on plaintiffs who reject offers and fail to achieve a more favorable judgment. This intent aligns with similar state statutes that mandated cost imposition under comparable circumstances. Therefore, it is argued that Congress could not have intended to exempt plaintiffs from costs simply for losing their cases on the merits. Lower court rulings have consistently permitted a prevailing defendant to recover costs under Rule 68, as seen in cases such as Dual v. Cleland, Mr. Hanger, Inc. v. Cut Rate Hangers, and Gay v. Waiters. There is a belief that Rule 68 and Rule 54(d) are compatible when interpreted according to their language, asserting that dismissing Rule 68's applicability simply because the petitioner prevailed requires a strained interpretation of the rules. Rule 54(d) limits the discretion of the trial judge regarding cost awards, except in cases where explicit provisions are made in the rules, with Rule 68 providing such explicit language. The argument presented suggests that a plaintiff who rejects a Rule 68 offer yet receives a "take nothing" judgment should not be in a more favorable position than a plaintiff who declines the same offer but wins a lesser judgment. The construction of Rule 68 proposed by the Court would result in a defendant who offers $10,000 being in a better position if the plaintiff receives $5,000 than if the plaintiff receives nothing. Regarding the interpretation of costs under Rule 68, the rule mandates that a defendant must provide an offer that includes costs accrued up to the time of the offer. The term "costs" is not defined in the Federal Rules of Civil Procedure, leading to the necessity of external references. While Title VII does not define "costs," it allows the prevailing party to recover reasonable attorney's fees as part of costs. Courts have ruled that a prevailing plaintiff is entitled to costs even if the victory comes through settlement. Consequently, a Rule 68 offer must treat the plaintiff as the prevailing party and include reasonable attorney's fees accrued by the offer date. The petitioner's offer in this case failed to comply with Rule 68 as it limited the recovery of attorney's fees, thus not encompassing all accrued costs, although this argument appears initially compelling, it does not withstand thorough examination. The analysis focuses on the interpretation of "costs" in Rule 68, referencing the Supreme Court's decision in Roadway Express, Inc. v. Piper, which examined whether "costs" under 28 U.S.C. § 1927 included attorney's fees in civil rights lawsuits. The Court determined that the term "costs" was not defined in § 1927 and concluded that it aligned with the historical understanding that attorney's fees are not included within "costs." This interpretation was based on the assumption that Congress intended to adhere to the "American rule," which traditionally excludes attorney's fees from costs unless explicitly stated. In applying this reasoning to Rule 68, it is asserted that the contemporaneous understanding of "costs" at the time the Federal Rules of Civil Procedure were established in 1938 also did not encompass attorney's fees. Legislative history indicates no intention to redefine "costs" to include fees, as such fees are specifically mentioned in rules that allow recovery for certain abuses. There is no evidence suggesting that the enactment of civil rights fee-shifting statutes intended to alter the meaning of "costs" in Rule 68. Allowing attorney's fees as recoverable costs under Rule 68 would lead to inconsistencies with other statutes that address the award of attorney's fees, potentially creating a two-tier system of cost-shifting. Plaintiffs under statutes awarding attorney's fees face significant disadvantages when confronted with Rule 68 offers compared to those under statutes without such provisions. There is no valid rationale for imposing different penalties for rejecting these offers, and interpreting Rule 68 to include attorney's fees undermines the goals of the Civil Rights Act by potentially forcing Title VII plaintiffs to bear defendants' attorney's fees if they do not achieve a judgment as favorable as the defendant's offer. This could distort the intent of the attorney's fees provisions and lead to inconsistent application of Rule 68. The author argues that Rule 68 should not include attorney's fees as "costs," making them subject to settlement like other damages. The interpretation that favors defendants who make Rule 68 offers over those who lose in court contradicts the Rule's purpose of encouraging settlement and could discourage plaintiffs from pursuing claims. Ultimately, the interpretation of Rule 68 must balance the interests of both parties, enabling defendants to limit litigation costs while allowing plaintiffs to assess offers without undue pressure. A plaintiff can secure a judgment greater than a defendant's Rule 68 offer without losing anything, while a plaintiff receiving a "take nothing" judgment risks only the discretion of the court regarding costs for the prevailing defendant. The text emphasizes that an increase in litigation volume does not justify altering rules to reduce it, and that encouraging settlement over trial is a beneficial outcome of adhering to the plain meaning of the rules. Rule 68, amended in 1966, allows a defendant to serve an offer for judgment at any time more than 10 days before trial, which the plaintiff may accept within 10 days, leading to a judgment entry. If the plaintiff’s eventual judgment is less favorable than the offer, they must bear the costs incurred after the offer. The defendant’s offer of judgment in this case was for $450, inclusive of attorney's fees and costs, explicitly stating it was not an admission of liability or damage. Senior District Judge Hoffman opined that a Rule 68 offer must be made in good faith and be at least reasonably arguable to promote settlement. He noted that a $450 offer could only be effective if the plaintiff's claim lacked merit or if there were mitigating factors. The judge remarked that an offer under $500, like the one presented, was not significant enough to warrant serious consideration and cautioned that minimal offers made in bad faith could undermine the rule's purpose, preventing it from effectively encouraging settlements and alleviating litigation burdens on the courts. In multiclaim litigation, the discussion primarily centers on single claims involving one plaintiff and one defendant, allowing for simpler reference to the parties. No issues arise regarding the costs the defendant seeks to recover. Rule 54(d) stipulates that costs are generally awarded to the prevailing party unless the court specifies otherwise. The Advisory Committee's Notes indicate that the incentive provided by Rule 68, particularly when a defendant's liability is established, is crucial for encouraging realistic settlement offers. This is further emphasized by the observation that more district judges are exercising discretion under Rule 54(d) to deny costs to prevailing defendants. The defendant argued during oral arguments that even a minimal settlement offer, such as one cent, should trigger cost-shifting provisions if the defendant wins. However, this viewpoint is seen as limited, relevant only in rare cases where special circumstances justify denying costs. The argument holds only when a settlement offer is below recoverable costs; otherwise, the defendant's net liability could exceed the burden of costs after winning. Consequently, a literal interpretation of Rule 68 discourages sham offers, ensuring that such offers do not alter the parties' positions. Finally, Rule 68 does not apply to offers from the plaintiff, meaning a plaintiff cannot undermine the court's discretion under Rule 54(d) through insincere offers. Defendant argues for the use of Rule 68 to recover costs, claiming that district judges have been overly discretionary in denying costs to prevailing defendants. However, it is suggested that Rule 68 was not intended to address issues that arose after its promulgation and that district judges likely deny costs to avoid injustice rather than abusing their discretion. The argument implies that allowing defendants broad access to Rule 68 could undermine the administration of justice by granting them unwarranted privileges. The excerpt further critiques the effectiveness of minimal settlement offers, such as ten dollars, in promoting early case settlements, asserting that such offers could lead to defendants receiving excessive cost awards even in cases where they should not be entitled to them. The interpretation of Rule 68 should require plaintiffs to receive some relief to prevent token offers from being made. Typically, a prevailing defendant is entitled to costs under Rule 54(d), but if they are not, they should not use Rule 68 to bypass the court's discretion. Additionally, a defendant's settlement offer could influence a judge's decision on costs, further complicating the application of Rule 54(d). Historical references are made to similar statutes and rules from state laws that informed the development of Rule 68. If the plaintiff accepts a defendant's written offer to settle and provides notice within five days, they may file the offer with proof of acceptance, leading to a judgment being entered by the clerk. Failure to give notice results in the offer being deemed withdrawn and not admissible in trial. If the plaintiff does not achieve a more favorable judgment, they cannot recover costs and are responsible for the defendant's costs from the time of the offer. The defendant may serve such an offer before trial, and in cases with multiple defendants, offers can be made by individual defendants against whom separate judgments may be taken. In jurisdictions with statutes similar to N.Y. Civ. Prac. Law, prevailing defendants are entitled to recover costs without discretion from trial judges, emphasizing that sham settlement offers do not affect the parties' positions. These statutes support the interpretation that rules like Rule 68 primarily benefit prevailing plaintiffs. Various case precedents from different states illustrate the application and implications of these rules and statutes. Some commentators believe that Rule 68 primarily denies costs to a prevailing plaintiff rather than imposing defendants' costs on that plaintiff. Rule 68 aims to encourage settlements and minimize prolonged litigation by allowing defendants to make offers of judgment. If a plaintiff does not accept this offer and later receives a judgment that is not more favorable than the offer, the defendant is not responsible for costs incurred after the date of the offer. This rule, introduced with the Federal Rules in 1938, parallels state practices and is rooted in the principle that a party can be denied costs when they continue to litigate after rejecting a settlement offer and achieve no more than the offered amount. The rule is equitable for all parties involved; it protects the claimant by ensuring that a defendant's settlement offer must be reasonable, and it allows defendants to avoid future costs by making offers. Additionally, it benefits the court system by promoting settlements and reducing frivolous lawsuits. The Advisory Committee's Notes clarify that if a defendant does not make additional offers during the litigation, the initial offer shields them from costs if the plaintiff's judgment is less than the offer. It was only in 1974 that federal courts began to suggest an interpretation of Rule 68 that could apply when the defendant wins the case. In Mr. Hanger, Inc. v. Cut Rate Plastic Hangers, Inc., the court noted that apart from this case, only two other instances have been recorded where a defendant sought to recover costs under Rule 68 after winning a judgment. In Dual v. Cleland, the court granted costs to the defendant following Mr. Hanger's precedent, despite expressing reluctance. In Gay v. Waiters' and Dairy Lunchmen's Union, the court acknowledged Rule 68's applicability to prevailing defendants but refrained from imposing costs on plaintiffs in a Title VII class action, citing concerns about deterring class representatives from pursuing claims. Most cases related to Rule 68 involved either prevailing plaintiffs or cases where courts presumed the rule was limited to them. Various other cases illustrated that a defendant can limit costs through an offer of judgment, but specifics like the timely serving of offers or the nature of offers (certain amounts) could impact cost recovery. The excerpt also highlights the broader issue of escalating litigation costs, exacerbated by potentially abusive discovery processes, which hinder access to justice for many. Justice Powell dissents from the denial of certiorari, referencing a 1979 article by Janofsky on litigation delays and costs. He discusses the interpretation of "costs" in 28 U.S.C. § 1927, clarifying that it does not include attorney's fees as defined under Title VII, contrasting it with Rule 68 of the Federal Rules of Civil Procedure, which does allow for such fees. Powell cites the Third Circuit's Lindy Bros. Builders case, which establishes the "lodestar" method for calculating attorney's fees, emphasizing that this should be based on reasonable time spent and applicable hourly rates, with adjustments possible based on work quality and outcomes. He notes that parties may settle costs and fees post-offer acceptance without trial court involvement, provided the offer permits a reasonable fee request. Powell refutes Justice Rehnquist's view that defendants automatically receive fees under Rule 68 if a plaintiff rejects an offer and loses, asserting that only prevailing plaintiffs generally receive fees, barring unusual circumstances. In contrast, defendants may recover fees only in cases deemed "frivolous, unreasonable, or without foundation." He cites the 1948 amendment to Rule 68, which clarifies cost responsibilities if a judgment is less favorable than an offer. Lastly, he refers to Advisory Committee Notes explaining the amendment’s intent to allow subsequent offers in specific situations. At least ten days prior to the trial date, a defendant in a civil action can serve an offer to allow judgment against them for a specified sum or property, including accrued costs. If the opposing party accepts the offer within ten days and provides notice, they may file the acceptance along with proof, and the clerk will enter judgment accordingly. If the offer is not accepted within the specified time, it is considered withdrawn, and no evidence of the offer can be presented at trial. Should the opposing party fail to secure a more favorable judgment than the offer, they will not recover costs, but will be liable for the defendant's costs from the date of the offer. Montana's statute allows a defendant to make a similar offer before trial with a five-day acceptance period for the plaintiff. If the plaintiff does not accept, the offer is withdrawn, and the same cost implications apply. New York's statute also permits defendants to make a written offer before trial, with a ten-day period for acceptance by the plaintiff, and similar consequences for failure to accept. The commentary referenced indicates that Rule 68 allows for costs to be shifted to the plaintiff if they do not receive a more favorable judgment than the offer. Specifically, Wright and Miller's treatise suggests that the offeror is not responsible for costs accruing after the offer if the ultimate judgment is not more favorable. In the case at hand, the defendant offered to allow judgment for $450, inclusive of attorney's fees and accrued costs. Rule 68 of the Federal Rules of Civil Procedure aims to encourage settlement and reduce the number of trials in federal cases. A ruling that attorney's fees cannot be included in a Rule 68 settlement offer would undermine this purpose. If defendants cannot predict their potential attorney's fees when making an offer, they may hesitate to propose settlements, fearing unknown liabilities. Unlike traditional costs, which can be estimated, attorney's fees are unpredictable and can vary significantly based on court discretion. Consequently, if defendants believe they must account for potentially recoverable attorney's fees beyond the Rule 68 offer, they may advise against making such offers, leading to fewer settlements and more trials. This interpretation would ultimately contradict the objectives of Rule 68.