By James Juo.

Under Federal Rules of Civil Procedure 68, a defendant may serve “an offer to allow judgment on specified terms, with the costs then accrued.” If rejected, and the plaintiff recovers less than the amount of the rejected offer of judgment, then Rule 68 shifts the post-offer costs onto the insufficiently-successful prevailing plaintiff.[i] The purpose of Rule 68 is to encourage settlement by providing a disincentive to a plaintiff from continuing to litigate after being presented with a reasonable offer.[ii]

Under certain statutes such as the Copyright Act, the court may award a reasonable attorneys' fee to the prevailing party as part of the costs at the conclusion of a copyright action.[iii] Rule 68 potentially impacts an award of attorneys' fees in copyright cases by cutting off post-offer attorneys' fees to a prevailing plaintiff.

In the U.S. Supreme Court's decision in Marek v. Chesny, the plaintiff Alfred Chesny filed suit for wrongful death and violation of civil rights under 42 U.S.C. § 1983 for the killing of his son by the defendant police officers.[iv] The defendants made a Rule 68 offer of judgment “for a sum, including costs now accrued and attorney's fees, of ONE HUNDRED THOUSAND ($100,000) DOLLARS,” but Chesny did not accept the offer.[v] Chesny later prevailed at trial and was awarded $5,000 on the state law wrongful death claim, $52,000 for the § 1983 civil rights violation and $3,000 in punitive damages.[vi] The civil rights statute includes a provision which awards attorneys' fees as part of costs, and the parties agreed that $32,000 represented the allowable pre-offer costs including attorneys' fees—with $139,692 representing the post-offer costs including fees.[vii] Thus, adding the award and pre-offer costs amounted to a total recovery of $92,000 which was $8,000 less than the rejected $100,000 offer of judgment under Rule 68.[viii] Because the recovery amount did not exceed the rejected offer of judgment, the district court did not award the post-offer costs to Chesny.[ix]

The U.S. Supreme Court agreed, and held that a defendant may not be taxed with costs including attorneys' fees incurred subsequent to an unaccepted Rule 68 offer of settlement when the plaintiff receives a monetary judgment which is less than the unaccepted offer.[x]

Rule 68 did not define the term “costs,” and the Court held that:

[T]the most reasonable inference is that the term “costs” in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority. In other words, all costs properly awardable in an action are to be considered within the scope of Rule 68 “costs.” Thus, . . . where the underlying statute defines “costs” to include attorney's fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.[xi]

The Court noted that Rule 68 will require plaintiffs to “think very hard” about whether continued litigation is worthwhile because after receiving a Rule 68 offer, plaintiffs “who reject an offer more favorable than what is thereafter recovered at trial will not recover attorney's fees for services performed after the offer is rejected.”[xii]

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[i] E.g., Le v. Univ. of Penn., 321 F.3d 403, 409 (3rd Cir. 2003) (noting that the “District Court properly compared the final judgment of $35,000 plus costs to the offer of $50,000 plus costs in determining that the offer exceeded the judgment”).

[ii] Advisory Committee's Notes on Fed. R. Civ. P. 68; Payne v. Milwaukee Cty., 288 F.3d 1021, 1024 (7th Cir. 2002) (“Rule 68 is designed to provide a disincentive for plaintiffs from continuing to litigate a case after being presented with a reasonable offer.”).

[iii] But see 17 U.S.C. § 412 (a copyright owner cannot recover attorneys' fees for infringement that commenced before the effective date of the copyright registration).

[iv] Marek v. Chesny, 473 U.S. 1, 3, 105 S. Ct. 3012, 3013, 87 L. Ed. 2d 1 (1985).

[v] Id. at 3–4.

[vi] Id. at 4.

[vii] Id.

[viii] Id. at 11.

[ix] Id. at 4.

[x] Id. at 9; see also Interfaith Cmty. Org. v. Honeywell Int'l, Inc., 726 F.3d 403, 409 (3d. Cir. 2013) (“fees incurred after a party rejects an offer of judgment and recovers less than the offer are properly viewed as being unreasonable”).

[xi] Marek, 473 U.S. at 9 (emphasis added).

[xii] Id. at 10–11.