The Offer of Judgment: Recovering Fees and Costs in Federal Court

The rigors and pace of federal litigation can drive-up the costs of defense. A prudent litigator should seek ways to recover fees and costs, where possible, for the benefit of his or her client. One means of recovering fees and costs in your federal case is pursuant to a proposal for settlement, also referred to as an offer of judgment. Two mechanisms, Fla. Stat. § 768.79 and Federal Rule of Civil Procedure 68, are available for shifting fees pursuant to a proposal for settlement in federal courts that are located within the State of Florida. While similar in some ways, these two sources of law also differ in a number of key respects.

To ensure the validity and enforceability of proposals for settlement in federal court, one must carefully consider a number of factors. These factors include the nature of the jurisdiction being exercised by the court, whether the suit stems from a federal question or alleged violation of a Florida statute and whether the underlying statute specifically provides for recovery of attorneys’ fees. The terms “offer of judgment” and “proposal for settlement” are often used interchangeably.

in a number of key respects.

Proposals for settlement in Florida are a frequently used litigation tactic. Such proposals provide a means for recovering attorney’s fees in cases where recovery of fees would otherwise not be possible. Fla. Stat. § 768.79 permits a defendant to recover attorneys’ fees if he or she served an offer of judgment which was rejected by the plaintiff and the plaintiff is ultimately awarded an amount at least 25 percent less than the sum offered by the defendant. The spirit of § 768.79 is to encourage litigants to resolve cases early to avoid incurring substantial court costs and attorney›s fees. The statute serves as a penalty for parties who fail to act reasonably and in good faith in settling lawsuits.1

acAt the outset, it is critical to note that fees can only be recouped in federal court pursuant to § 768.79 in cases where the court is exercising diversity or supplemental jurisdiction and is applying Florida substantive law.2 In a diversity action, the court looks to the substantive law which creates the cause of action.

3 In Design Pallets v. Gray Robinson, P.A.4, the court noted that “a federal judge whose jurisdiction is founded solely on a federal question would not apply § 768.79 to the resolution of federal claims inasmuch as §768.79 is preempted by federal law.”5 The court further held that “§ 768.79 applies only to state law claims.”6 Where a federal court has “both a federal question and supplemental or diversity jurisdiction over Florida claims, § 768.79 applies only to the Florida claims.”7 Federal courts have further limited the enforcement of proposals made pursuant to § 768.79 to cases pending in federal courts that are physically located within the State of Florida.8 Determining the nature of the court’s jurisdiction and ensuring that the court is applying Florida law are not the only steps that one must take to ensure that their § 768.79 proposal is valid. If one wishes to enforce the fee-shifting provisions of § 768.79 in the future, it is critical to comply with all statutory precepts as well as the requirements of Rule 1.442 of the Florida Rules of Civil Procedure at the time of serving your proposal. Rule 1.442 outlines the procedural requirements for submitting and accepting offers of judgment, as well as moving for attorneys› fees after the case concludes. The Eleventh Circuit has held that Rule 1.442 is considered substantive law to be followed in cases where claims based upon Florida law are brought in federal court pursuant to diversity or supplemental jurisdiction.9 To illustrate the importance of complying with the procedural requirements of Rule 1.442, we turn to JES Properties, Inc. v. USA Equestrian, Inc.10 In JES Properties, the defendants sought fees under § 768.79 and an offer of judgment. The plaintiff argued that the defendants’ motions for fees should be denied, inter alia, because the offers of judgment were facially invalid, non-compliant with Rule 1.442 and made in bad faith. Unfortunately for the defendants, the JES Properties court agreed. In JES Properties, the plaintiff sought both damages and injunctive relief. The defendants’ offers of judgment were deemed ambiguous and invalid because they did not state whether the defendants agreed to the requested injunctive relief; rather the offers of judgment stated only that they were “intended to resolve all claims of relief.”11 The overly broad language of the proposal created a scenario where, if the plaintiff had accepted the offers, the plaintiff may still have been forced to continue to litigate the claims for injunctive relief.12 The court noted that the “purposes of section 768.79 include the early termination of litigation. An offer of judgment that would not allow immediate enforcement on acceptance is invalid.”13 Additionally, the JES Properties court found that the defendants’ proposals did not comply with Rule 1.442, thereby invalidating the proposals. Rule 1.442(c)(2)(D) states that the proposal shall “state the total amount of the proposal and state with particularity all non-monetary terms of the proposal.” In JES Properties, the defendants’ proposals did not address non-monetary terms.14 Furthermore, the offers of judgment failed to specify whether the claims would be resolved “by a release (full or partial), a dismissal, or any other means” so that the plaintiffs could “fully evaluate its terms and conditions.”15 Based on the foregoing, the court found that the offers of judgment were legally insufficient and could not support an award of attorneys’ pursuant to Fla. Stat. § 768.79.16 Interestingly, the JES Properties court found that even if the offers of judgment complied with Rule 1.442’s requirements, the court still would have refused to award attorney’s fees on the grounds that the offers of judgment were made in bad faith. Typically, once the statutory requisites have been met, an award of attorneys’ fees and costs pursuant to an offer of judgment is mandatory.17 However, § 768.79(7)(a) allows a court to refuse to award attorneys’ fees if an offer of judgment is not made in good faith. In determining if an offer was made in good faith, the courts consider whether the offer or proposal bears a reasonable relationship to the amount of damages suffered by the plaintiff and if it realistically assessed liability.18 Even a minimal offer can be made in good faith if the evidence demonstrates that, at the time of serving the offer, the offeror had a reasonable basis to conclude that its exposure was nominal.19 The court in Stouffer Hotel Co. v. Teachers Ins.20 succinctly described the “good faith” analysis as follows: An offer of judgment ought to fairly account for the risks of litigation, the costs and fees at stake, and the other components of uncertainty that sophisticated persons assay when deciding whether to settle…A bona fide offer of judgment should be sufficient to cause a temperate and knowledgeable attorney to pause and carefully evaluate his client’s stance…The range of potential recovery, the clarity of the law, the extent of invested effort, and other considerations necessarily affect the balance.21 In JES Properties, the court found that given the novelty and difficulty of the issues in the case and the timing and amount of the defendants’ offers of judgment, the offers of judgment were not in good faith.22 Accordingly, the court declined to award the defendants attorneys’ fees pursuant to § 768.79.23

Recovering Fees and Costs Under Federal Rule of Civil Procedure 68

Federal Rule of Civil Procedure 68 provides a federal mechanism for tendering an offer of judgment. This is the procedure that is to be utilized when one is defending an action in federal court which is based on a federal question. While Florida’s proposal for settlement law is modeled after Rule 68 of the Federal Rules of Civil Procedure, the two rules differ in significant respects. Generally, Rule 68 allows a defendant to serve an offer of judgment for a specified amount, which includes the costs accrued to date. If the plaintiff accepts the proposal in writing within 14 days of service, the clerk must then enter judgment against the defendant in the agreed upon amount. If the plaintiff rejects the offer and the result obtained is less than the amount of the rejected offer, the plaintiff must reimburse all costs incurred after the offer was made. Rule 68 typically only shifts the costs, not attorneys’ fees, incurred during the litigation to the plaintiff if he or she fails to accept a proper offer of judgment. Indeed, the sole constraint Rule 68 places on offers of judgment is its mandate that an offer include “costs then accrued.”24 Thus, as long as an offer does not explicitly exclude costs, it is proper under the Rule.25 When a Rule 68 offer is silent regarding the amount of costs, the court must award an appropriate amount for costs in addition to the specified sum. The authority to determine and award costs arises from the phrase “with costs then accrued” in Rule 68.26 That said, under certain circumstances, Rule 68 can shift attorneys’ fees, as well as costs, to the plaintiff. In Marek v. Chesny, the Supreme Court held that the term “costs” in Rule 68 “was intended to refer to all costs properly awardable under the relevant substantive statute or other authority.”27 When the underlying statute defines “costs” to include attorney’s fees, such fees can be recovered pursuant to a Rule 68 offer of judgment.28 Although attorneys’ fees are generally not recoverable as costs under what is known as the “American Rule,” the Supreme Court held that where the relevant authority defined attorneys’ fees as part of the “costs,” fees were subject to the cost-shifting provision of Rule 68.29 In order to recoup fees under Rule 68, it is critical that the underlying statute unequivocally provides for fees to be paid to the prevailing party. For example, Marek involved the recovery of attorneys’ fees under section 407 of the Communications Act of 1934, which stated that “if the petitioner shall finally prevail, he shall be allowed a reasonable attorney’s fee, to be taxed and collected as a part of the costs of the suit.” Conversely, attorneys’ fees are not categorized as costs where the underlying statute merely speaks of “costs” in the context of damages. The requirement of clear statutory language supporting an award of fees was succinctly set forth in Oates v. Oates30. There, the court stated that “in the absence of unambiguous statutory language defining attorney’s fees as an additional component of costs, and a clear expression by Congress of an intent to carve out an exception to the American Rule…attorney’s fees are not ‘costs’ for purposes of Rule 68.” 31 Lastly, a contractual provision entitling a defendant to fees can also serve as a basis for fee recovery pursuant to a Rule 68 offer of judgment. The Marek court noted that the Supreme Court determined that the term “costs” in Rule 68 “was intended to refer to all costs properly awardable under the relevant substantive statute or other authority.”32 The court in Utility Automation 2000 v. Choctawhatchee Elec.33 found that, for Rule 68 purposes, this reference to “other authority” encompassed contractual provisions awarding fees. Again, the relevant contractual provisions must unequivocally award fees to the prevailing party and not be subject to varying interpretations. 34 When litigating in federal court, a prudent defense strategy should, from the outset, consider fee-shifting mechanisms as a means of leveraging a prompt and favorable resolution. The above-referenced authorities are among the most valuable tools that can be employed by defense counsel for such purposes. Endnotes 1 Eagleman v. Eagleman, 673 So.2d 946, 947 (Fla. 4th DCA 1996) 2 Design Pallets v. Gray Robinson, P.A., 583 F. Supp. 2d 1282 (M.D. Fla. 2008) 3 James v. Wash Depot Holdings, Inc., 489 F.Supp.2d 1336 (S.D.Fla. 2007) 4 583 F. Supp. 2d 1282 (M.D. Fla. 2008) 5 Id. at 1285 6 Id. at 1287 7 Id. at 1287 8 Menchise v. Akerman Senterfitt, 532 F.3d 1146 (11th Cir. 2008) 9 Horowitch v. Diamond Aircraft Indus., Inc., 645 F.3d 1254, 1258 (11th Cir. 2011) 10 432 F.Supp.2d 1283 (M.D. Fla. 2006) 11 Id. 12 Id. 13 Id. 14 Id. 15 Id. 16 Id. 17 Vines v. Mathis, 867 So.2d 548, 549 (Fla. 1st DCA 2004) 18 Evans v. Piotraczk, 724 So.2d 1210 (Fla. 5th DCA 1998) 19 Id. 20 944 F.Supp. 874, 875 (M.D.Fla.1995) 21 Id. 22 Id. 23 Id. 24 Marek v. Chesny, 473 U.S. 1 (1985) 25 Id. 26 Arencibia v. Miami Shoes, 113 F. 3d 1212, 1214 (11th Cir. 1997) 27 Marek at 9 28 Id. 29 Id. 30 866 F.2d 203 (6th Cir.1989) 31 Id. 32 Marek at 9 (emphasis added). 33 298 F.3d 1238 (11th Cir. 2002) 34 Id.