Utility Automation 2000 v. Choctawhatchee Elec.

• Decision Date: 24 July 2002
• Docket Number: No. 01-16265.,01-16265.
• Citation: 298 F.3d 1238
• Parties: UTILITY AUTOMATION 2000, INC., Plaintiff-Counter-Defendant-Appellant, v. CHOCTAWHATCHEE ELECTRIC COOPERATIVE, INC., a corporation, Chelco Services, Inc., a corporation, Defendants-Counter-Claimants-Appellees, Geographic Information Services, Inc., an Alabama corporation, Movant-Appellee, Tom Gipson, Defendant-Appellee, Patterson & Dewar Engineers, Inc., a corporation, Defendant.
• Court: U.S. Court of Appeals — Eleventh Circuit

298 F.3d 1238

UTILITY AUTOMATION 2000, INC., Plaintiff-Counter-Defendant-Appellant, v. CHOCTAWHATCHEE ELECTRIC COOPERATIVE, INC., a corporation, Chelco Services, Inc., a corporation, Defendants-Counter-Claimants-Appellees Geographic Information Services, Inc., an Alabama corporation, Movant-Appellee Tom Gipson, Defendant-Appellee Patterson & Dewar Engineers, Inc., a corporation, Defendant.

No. 01-16265.

United States Court of Appeals, Eleventh Circuit.

July 24, 2002.

J. Jeffery Rich, Sirote and Permutt, PC, Huntsville, AL, for Plaintiff-Counter-Defendant-Appellant.

Scott B. Smith, Bradley, Arant, Rose & White, Birmingham, AL, John David Watson, III, Huntsville, AL, for Defendants-Counter-Claimants-Appellees.

Appeal from the United States District Court for the Northern District of Alabama.

Before BARKETT and MARCUS, Circuit Judges, and SCHLESINGER^*, District Judge.

BARKETT, Circuit Judge:

Utility Automation 2000, Inc. ("UA 2000") appeals the district court's denial of its motion for attorneys' fees following the court's entry of a Rule 68 judgment against Choctawhatchee Electric Cooperative, Inc., Chelco Services, Inc., and Tommie Gipson (collectively, "Defendants"). UA 2000 originally sued Defendants¹ for the misappropriation of UA 2000's trade secrets in violation of the Alabama Trade Secrets Act, Ala.Code § 8-27-1 et seq. (1975), breach of contract, and intentional interference with a business or contractual relationship. In its complaint, UA 2000 also sought recovery of its attorneys' fees under the Trade Secrets Act and the contract between UA 2000 and Chelco.

Prior to trial, Defendants served upon UA 2000 an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure, which authorizes a defendant to make an offer of judgment "for the money... specified in the offer, with costs then accrued." Fed.R.Civ.P. 68. Defendants' offer provided:

Defendants ... hereby make the following Offer of Judgment pursuant to Federal Rule of Civil Procedure 68; that Defendants shall pay to Plaintiff [UA 2000] the sum of Forty-five thousand and 00/100 Dollars ($45,000) with costs accrued, and that Defendant, Chelco Services, Inc., shall refrain from competing with Plaintiff for a period of thirty (30) days from the date of acceptance of this Offer.

UA 2000 accepted the offer of judgment, and the district court entered a Final Judgment ordering that

Plaintiff Utility Automation 2000, Inc. have and recover of Defendants Choctawhatchee Electric Cooperative, Inc., Chelco Services, Inc. and Tommie Gipson the sum of $45,000, with costs accrued, and that Defendant Chelco Services, Inc. shall refrain from competing with Utility Automation 2000, Inc. for a period of 30 days from August 25, 2000.

It is further ORDERED, ADJUDGED and DECREED that Defendants Choctawhatchee Electric Cooperative, Inc. and Chelco Services, Inc. take nothing in regard to their counterclaims asserted against Plaintiff Utility Automation 2000, Inc. and that said claims are hereby dismissed with prejudice.

Following the court's entry of the Final Judgment, UA 2000 submitted a motion for the attorneys' fees, costs, and expenses incurred prior to the service of the Rule 68 offer of judgment. The district court granted UA 2000's request for the recovery of costs in the amount of $5,220.50, but denied its motion for attorneys' fees, holding:

Because the underlying statute does not define "costs" to include attorneys' fees, Plaintiff's motion for an award of attorneys' fees is hereby DENIED. See Marek v. Chesny, 473 U.S. 1, 9, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985); Arencibia v. Miami Shoes, Inc., 113 F.3d 1212, 1214 (11th Cir.1997).

UA 2000 appeals. The interpretation of Rule 68 is a legal question that we decide de novo. See Jordan v. Time, Inc., 111 F.3d 102, 105 (11th Cir.1997).

DISCUSSION

The question presented in this appeal is simply whether, having accepted Defendants' Rule 68 offer, UA 2000 may recover its attorneys' fees in addition to the $45,000 judgment award. Rule 68 provides:

At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued. If within 10 days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and thereupon the clerk shall enter judgment. An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs. If 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.

Fed.R.Civ.P. 68.

As the Supreme Court has explained, "The plain purpose of Rule 68 is to encourage settlement and avoid litigation." Marek v. Estate of Chesny, 473 U.S. 1, 5, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985). The rule accomplishes this objective with a two-part approach. First, Rule 68 allows a defendant to make a firm, non-negotiable offer of judgment. Unlike traditional settlement negotiations, in which a plaintiff may seek clarification or make a counteroffer, a plaintiff faced with a Rule 68 offer may only accept or refuse. If he accepts, the court automatically enters judgment in his favor; if he refuses, the case proceeds. Second, the Rule encourages plaintiffs to accept reasonable offers through what is referred to as its "cost-shifting" provision, which forces a plaintiff who refuses an offer and then ultimately recovers less at trial than the offer amount to pay the costs incurred from the time of the offer. Thereby, "[t]he Rule prompts both parties to a suit to evaluate the risks and costs of litigation, and to balance them against the likelihood of success upon trial on the merits." Id.

The sole constraint Rule 68 places on offers of judgment is its mandate that an offer include "costs then accrued." This does not mean that every offer must explicitly state that it includes costs: "If an offer recites that costs are included or specifies an amount for costs, and the plaintiff accepts the offer, the judgment will necessarily include costs; if the offer does not state that costs are included and an amount for costs is not specified, the court will be obliged by the terms of the Rule to include in its judgment an additional amount which is in its discretion." Marek at 5, 105 S.Ct. 3012. Thus, as long as an offer does not explicitly exclude costs, it is proper under the Rule.

Rule 68 does not define the meaning of the term "costs," however, and consequently parties frequently dispute whether attorneys' fees are included. In Marek, the Supreme Court considered one such dispute, addressing when attorneys' fees might be included as costs for the purposes of Rule 68's cost-shifting provision. Marek held that the term "costs"

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, absent congressional expressions to the contrary, 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.

Marek at 9, 105 S.Ct. 3012. The Marek plaintiff prevailed in a suit under 42 U.S.C. § 1983, but recovered an amount less than the defendant's prior Rule 68 offer. Although attorneys' fees are generally not recoverable as costs under what is known as the "American Rule,"² the Supreme Court held that, because the relevant authority included attorneys' fees as part of the "costs" available to a prevailing plaintiff, those fees were subject to the cost-shifting provision of Rule 68, and the defendant was therefore not responsible for them.³

In Arencibia v. Miami Shoes, Inc., 113 F.3d 1212 (11th Cir.1997), this Court was asked whether the Marek rationale also applies when a plaintiff has accepted a Rule 68 offer for a judgment sum, but where the offer does not mention costs or attorneys' fees.⁴ In deciding that question, this Court first explained that under Marek, when a Rule 68 offer is silent regarding the amount of costs, the district court must award an appropriate amount for costs in addition to the specified sum. "This authority to award costs," we explained, "arises from the phrase `with costs then accrued' in Rule 68." Arencibia at 1214 (citing Marek at 5-6, 105 S.Ct. 3012). We then held that the Marek rationale (interpreting the cost-shifting provision of the Rule) applies equally to the phrase "costs then accrued" applicable to an accepted Rule 68 offer. We explained that although the district court had properly retained jurisdiction to award costs, it could not include an award of attorneys' fees, because "`costs' awarded by virtue of Rule 68 ... only include attorney's fees if the underlying statute defines `costs' to include attorney's fees." Id. (emphasis added).⁵

The only issue before this Court in Arencibia was whether the district court could grant attorneys' fees as costs "by virtue of Rule 68." As did Arencibia, the present case deals with an accepted offer, and thus does not involve the cost-shifting provision of Rule 68 that was at issue in Marek. But this case presents another variation on the Rule 68 theme. The question here is not only whether attorneys' fees may be included as Rule 68 "costs then accrued," but also whether a plaintiff may recover fees authorized by statute or contract when the offer of judgment is silent or ambiguous as to whether such fees have been included in the offer of judgment or whether the plaintiff has otherwise waived the right to seek them. This issue has been addressed by the Seventh and the Ninth circuits.

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