Offer of Judgment — Rule 68 Reverses Rule 54(d) and Requires a Prevailing Plaintiff to Pay a Defendant’s Post-Offer Cost If the Judgment Is Less Than the Unaccepted Offer, Even in Civil Rights Cases

Stanczyk v. City of N.Y., 752 F.3d 273 (2d Cir. June 3, 2014):

On March 21, 2013, a jury in the United States District Court for the Eastern District of New York found City of New York police officers Richard DeMartino ("DeMartino") and Shaun Grossweiler ("Grossweiler") (the "Officers") liable under 42 U.S.C. § 1983 for employing excessive force while arresting Plaintiff-Appellant Anna Stanczyk ("Stanczyk") in November 2010.1 The jury awarded Stanczyk $55,000 in compensatory damages and $2,000 in punitive damages against each Officer. Judgment was subsequently entered on April 2, 2013. In a June 24, 2013 order, the district court (Block, J.) awarded to Stanczyk attorney's fees and costs incurred prior to the date of Defendants'  [*3] Rule 68 Offer (the "Offer"), and awarded to Defendants post-Offer costs, excluding attorney's fees. On appeal, Stanczyk primarily seeks a new trial on damages. She also challenges portions of the district court's June 24, 2013 order.

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On December 11, 2011, defense counsel served Stanczyk with Defendants' Rule 68 Offer of Judgment (the "Offer"), which stated in pertinent part:

   Pursuant to Rule 68 of the Federal Rules of Civil Procedure, defendant City of New York hereby offers to allow plaintiff Anna Stancyzk [sic] to take a judgment against it in this action for the total sum of One Hundred Fifty Thousand and One ($150,001.00) Dollars, plus reasonable attorneys' fees, expenses and costs to the date of this offer for plaintiff's federal claims.

This judgment shall be in full satisfaction of all federal and state law claims or rights that plaintiff may have to damages, or any other form of relief, arising out of the alleged acts or omissions of defendants City of New York, Richard DeMartino, Shaun Grossweil[]er, or any official, employee, or agent, either past or present, of the City of New York, or any agency thereof, in connection with the facts and circumstances that are the  [*5] subject of this action. . . .

This offer of judgment is made for the purposes specified in Rule 68 of the Federal Rules of Civil Procedure and is not to be construed as an admission of liability by any defendants, or any official, employee or agent of the City of New York, or any agency thereof; nor is it an admission that plaintiff has suffered any damages.

Acceptance of this offer of judgment will act to release and discharge defendants the City of New York, Richard DeMartino and Shaun Grossweil[]er; their successors or assigns; and all past and present officials, employees, representatives and agents of the City of New York, or any agency thereof, from any and all claims that were or could have been alleged by plaintiff in the above-referenced action.

Stanczyk rejected the Offer and proceeded to trial.

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2. The Rule 68 Offer

a. Cost-Shifting

Federal Rule of Civil Procedure 68 provides in relevant part:

   [A] party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. . . . If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.

Fed. R. Civ. P. 68 (a), (d).

"Rule 68 is a cost-shifting rule designed to encourage settlements without the burdens of additional litigation." Reiter v. MTA N.Y. City Transit Auth.., 457 F.3d 224, 229 (2d Cir. 2006); accord Marek v. Chesny, 473 U.S. 1, 5, 105 S. Ct. 3012, 87 L. Ed. 2d 1 (1985). Under normal circumstances, a plaintiff who prevails on a 42 U.S.C. § 1983 claim is entitled to recover costs, including reasonable attorney's fees. See Fed. R. Civ. P. 54(d)(1); 42 U.S.C. § 1988(b); Orchano v. Advanced Recovery, Inc., 107 F.3d 94, 97 (2d Cir. 1997). Rule 68, however, precludes a plaintiff from recovering post-offer costs if (a) the defendant  [*19] timely serves plaintiff with an offer of judgment, (b) plaintiff rejects the offer, and (c) plaintiff prevails but obtains a judgment less than the rejected offer. Fed. R. Civ. P. 68(d); see also Townsend v. Benjamin Enters., Inc., 679 F.3d 41, 58 (2d Cir. 2012).

The City's unaccepted offer provided for a judgment in an amount greater than that which Stanczyk obtained at trial. In light of Rule 68, it is undisputed that the district court properly limited Stanczyk's costs and attorney's fees to those incurred prior to December 11, 2011. The district court also determined that Rule 68 entitled Defendants to costs — excluding attorney's fees — that they incurred after making the Offer. See Stanczyk, 2013 U.S. Dist. LEXIS 88143, 2013 WL 3208073, at *1 (citing Fed. R. Civ. P. 68(d); Lyons v. Cunningham, 583 F. Supp. 1147, 1156 (S.D.N.Y. 2009); Hedru v. Metro-N. Commuter R.R., 433 F. Supp. 2d 358, 359-60 (S.D.N.Y. 2006); Boisson v. Banian Ltd., 221 F.R.D. 378, 382 (E.D.N.Y. 2004)). Stanczyk challenges this latter portion of the district court's decision and argues that Rule 68 cuts off a prevailing plaintiff's right to costs but does not compel a prevailing plaintiff to bear the defendant's post-offer costs.

In other  [*20] words, Stanczyk's challenge requires us to determine whether Rule 68 not only cancels the operation of Rule 54(d) -- which entitles a prevailing party to costs -- but also reverses it. Although this is an issue of first impression in this Circuit, every Circuit to have confronted this question appears to have reached the same conclusion: Rule 68 reverses Rule 54(d) and requires a prevailing plaintiff to pay a defendant's post-offer costs if the plaintiff's judgment is less favorable than the unaccepted offer. See, e.g., Champion Produce, Inc. v. Ruby Robinson Co., Inc., 342 F.3d 1016, 1028 (9th Cir. 2003); Harbor Motor Co. v. Arnell Chevrolet-Geo, Inc., 265 F.3d 638, 645 (7th Cir. 2001); Lawrence v. Hinton, 937 F.2d 603 (4th Cir. 1991) (per curiam), abrogated on other grounds by Farrar v. Hobby, 506 U.S. 103, 113 S. Ct. 566, 121 L. Ed. 2d 494 (1992); Crossman v. Marcoccio, 806 F.2d 329, 331-33 (1st Cir. 1986). Other than Crossman v. Marcoccio, none of the above-cited decisions engage this issue in much detail; some simply rely on earlier Circuit precedent that did no more than cite Rule 68(d)'s mandate that a prevailing plaintiff must "pay the costs incurred after the offer was made" when the ultimate judgment is less  [*21] than the unaccepted offer. See, e.g., Champion Produce, 342 F.3d at 1028 (citing United States v. Trident Seafoods Corp., 92 F.3d 855, 859 (9th Cir. 1996)); Harbor Motor Co., 265 F.3d at 645 (citing Gavoni v. Dobbs House, Inc., 164 F.3d 1071, 1075 (7th Cir. 1999)). Crossman, in contrast, thoroughly examined Rule 68's plain language, purpose, and historical roots, all of which weigh against Stanczyk's position. See Crossman, 806 F.2d at 331-33. Given Crossman's detailed analysis, which we view as persuasive on this point, and the apparent unanimity among each Circuit to have confronted this issue, we similarly conclude that Rule 68, when applicable, requires a prevailing plaintiff to pay defendant's post-offer costs, excluding attorney's fees.

In arguing to the contrary, Stanczyk fails to challenge Crossman's detailed analysis or to even explain how Rule 68's plain language supports her position. Instead, she points to Marek v. Chesny, 473 U.S. 1, 105 S. Ct. 3012, 87 L. Ed. 2d 1 (1985), for the proposition that "the only effect of Rule 68 is to cut off plaintiff's right to recover 'costs' -- including attorneys [sic] fees -- that are incurred by plaintiff after the offer is rejected . . . [but] does not mean that plaintiff must also bear defendants [sic] costs." ... Marek does not support this proposition; the case concerned whether Rule 68 precluded a prevailing Section 1983 plaintiff from recovering post-offer attorney's fees, not whether Rule 68 shifts a defendant's post-offer costs to the plaintiff. See Marek, 473 U.S. at 9; see also Harbor Motor Co., 265 F.3d at 645 n.9;  [*23] Crossman, 806 F.2d at 332-33. In fact, Marek could not have concerned the issue now before us; the Marek defendants did not appeal the portion of the district court's order that denied their request for costs.8

8   Stanczyk's claim that the Marek "Court noted with approval that the 'District Court refused to shift to [plaintiff] any costs accrued by [defendants]'" is baseless. Stanczyk Br. 71 (quoting Marek, 473 U.S. at 4 n.1). The cited language does no more than identify a portion of the district court's ruling that went unchallenged on appeal. See Marek, 473 U.S. at 4 n.1. Stanczyk's reference to a single footnote from Delta Air Lines, Inc. v. August, 450 U.S. 346, 359 n.24, 101 S. Ct. 1146, 67 L. Ed. 2d 287 (1981), is equally unpersuasive. First, Delta Air Lines did not concern the issue now before us, but rather whether Rule 68 applies when a defendant prevails. See id. at 350. Second, the Delta Air Lines footnote and surrounding commentary are at best ambiguous, and arguably support our reading that Rule 68 requires a prevailing plaintiff to pay defendant's post-offer costs. See id. at 359 & n.24; see also Crossman, 806 F.2d at 331.

Finally, our reading of Rule 68 does not, as Stanczyk suggests, "violate the express  [*24] terms of Section 1988," Stanczyk Br. 70, which permit awarding attorney's fees to a prevailing defendant only when "the suit was vexatious, frivolous, or brought to harass or embarrass the defendant," Hensley v. Eckerhart, 461 U.S. 424, 429 n. 2, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983); accord Hughes v. Rowe, 449 U.S. 5, 14, 101 S. Ct. 173, 66 L. Ed. 2d 163 (1980) (per curiam); Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421, 98 S. Ct. 694, 54 L. Ed. 2d 648 (1978). Although we appreciate this concern, cf. Marek, 473 U.S. at 22 (Brennan, J., dissenting) (perceiving possible tension between majority's interpretation of Rule 68 and 42 U.S.C. § 1988), our conclusion in no way dictates that a prevailing plaintiff such as Stanczyk would be liable for a defendant's post-offer attorney's fees -- a result that would be at odds with Section 1988. In Marek, the Supreme Court made clear that "the term 'costs' in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority." 473 U.S. at 9 (majority opinion) (emphasis added). Because a civil rights defendant can recover attorney's fees only when the plaintiff's claims are "vexatious, frivolous, or brought to harass or embarrass," and a prevailing plaintiff by virtue of her victory  [*25] exceeds this standard, we cannot conceive of a situation in which attorney's fees could be properly awardable to a non-prevailing defendant under Rule 68 in a civil rights action. See generally Interfaith Cmty. Org. v. Honeywell Int'l, Inc., 726 F.3d 403, 411 (3d Cir. 2013), as amended (July 22, 2013); King v. Rivas, 555 F.3d 14, 20 n.7 (1st Cir. 2009).

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