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Fed. R. Civ. P. 68 prescribes certain consequences for formal settlement offers made by a party defending against a claim. 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 If, however, the offer is not accepted, it is deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs.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.
Alleging that she had been discharged solely because of her race in violation of Title VII of the Civil Rights Act of 1964, Rosemary August, an airline flight attendant, sued her former employer Delta Air Lines Inc. in the United States District Court for the Northern District of Illinois, seeking reinstatement, backpay, and attorney's fees and costs. A few months after the complaint was filed, the airline made a formal offer of judgment in the amount of $ 450. The offer was refused, the case was tried, and August lost. The District Court entered judgment in favor of the airline, and directed that each party bear its own costs. The airline then moved for modification of the judgment, contending that under Rule 68 of the Federal Rules of Civil Procedure--which provides that if a plaintiff rejects a defendant's formal settlement offer, 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"--the plaintiff should be required to pay the airline's costs incurred 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. The Court of Appeals for the Seventh Circuit affirmed, holding that Rule 68 applied only if the defendant's settlement offer was sufficient to justify serious consideration by the plaintiff.
Do the cost-shifting provisions of Rule 68 apply in the case at bar?
Under Rule 54 (d) of the Federal Rules of Civil Procedure, the party prevailing after judgment recovers costs unless the trial court otherwise directs. 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. In sum, if the court limits its 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 (Delta Air) that obtained the judgment.