Federal Rule of Civil Procedure 68 governs offers of judgments. The rule provides that if a timely pretrial offer of settlement is not accepted and “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.” Marek v. Chesny, 473 U.S. 1, 5 (1985); see also Fed. R. Civ. P. 68(d).

A key question is what qualifies as “costs,” and, more specifically, whether attorney’s fees qualify as costs. The United States Supreme Court addressed this in Marek and held that the term “costs” … is to be read as including all amounts awardable as “costs” under the applicable statute. In other words, when a claim arises under a statute that defines “costs” to include attorneys’ fees, those fees are treated as costs under Rule 68. However, if the underlying statute defines “costs” to exclude attorney’s fees, those fees are not considered costs under the rule.

For example, attorney’s fees are included as costs in a federal civil rights action under 42 U.S.C §1988. A prevailing plaintiff bringing a claim under §1988 is entitled to an award of its attorney fees under the statute’s fee-shifting provision. However, if a defendant makes a Rule 68 offer, and the plaintiff rejects, and obtains a judgment less favorable than the offer, the plaintiff will only recover the attorney’s fees accrued prior to the Rule 68 offer.

On this point, the Ninth Circuit has noted a circuit split over “whether Rule 68 and Marek require a plaintiff to pay a defendant’s post-offer attorneys’ fees, when the underlying statute permits a “prevailing” party to recover attorneys’ fees “as costs,” but … the defendant is not a prevailing party under that statute.” Champion Produce, Inc. v. Ruby Robinson Co., Inc., 342 F.3d 1016, 1029 (9th Cir. 2003). A majority of appellate courts hold that a plaintiff who obtains a less favorable judgment remains the prevailing party, and the defendant cannot recover attorney’s fees. Id.; See also Crossman v. Maroccio, 806 F.2d 329 (1st Cir. 1986); Le v. Univ. of Pa., 321 F.3d 403, 411 (3d Cir.2003); EEOC v. Bailey Ford, Inc., 26 F.3d 570, 571 (5th Cir.1994); Hescott v. City of Saginaw, 757 F.3d 518, 528 (6th Cir. 2014); Harbor Motor Co., Inc. v. Arnell Chevrolet–Geo, Inc., 265 F.3d 638 (7th Cir. 2001); O’Brien v. City of Greers Ferry, 873 F.2d 1115, 1120 (8th Cir. 1989). By contrast, the Eleventh Circuit has held that when the plaintiff obtains a less favorable judgment, it is responsible for the defendant’s attorneys’ fees and costs, despite the fact that the defendant did not prevail. See Jordan v. Time, Inc., 111 F.3d 102 (11th Cir.1997).

Ultimately, when evaluating whether to make a Rule 68 offer of judgment, defendants should determine whether a plaintiff’s claim is based on a statute that defines “costs” to include attorney’s fees. If so, they must also examine whether the statute awards fees to a “prevailing plaintiff” or a “prevailing party.” After making these determinations, defendants should consider extending a Rule 68 offer of judgment early in the litigation to minimize potential post-offer costs and fees.

If you have any questions or would like to discuss this topic further, please contact Justyna Kucharczyk at jkucharzyk@tresslerllp.com.

About the Author

Justyna Kucharczyk is an associate attorney in Tressler’s Litigation Practice Group in our Chicago office. Justyna concentrates her practice in the areas of tort, personal injury, and premises liability. Click here to read Justyna’s full attorney bio.