450 U.S. 346 (1981), 79-814, Delta Air Lines, Inc. v. August

Docket Nº:No. 79-814
Citation:450 U.S. 346, 101 S.Ct. 1146, 67 L.Ed.2d 287
Party Name:Delta Air Lines, Inc. v. August
Case Date:March 09, 1981
Court:United States Supreme Court
 
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Page 346

450 U.S. 346 (1981)

101 S.Ct. 1146, 67 L.Ed.2d 287

Delta Air Lines, Inc.

v.

August

No. 79-814

United States Supreme Court

March 9, 1981

Argued November 12, 1980

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

Held: Federal Rule of Civil Procedure 68 -- which provides that, if a plaintiff rejects a defendant's formal settlement offer "to allow judgment to be taken against him," 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" -- does not apply to a case in which judgment is entered against the plaintiff-offeree and in favor of the defendant-offeror. Pp. 350-361.

(a) This interpretation is dictated by Rule 68's plain language -- "judgment finally obtained by the offeree . . . not more favorable than the offer" -- which confines the Rule's effect to a case in which the plaintiff has obtained a judgment for an amount less favorable than the defendant's settlement offer. Moreover, because the Rule 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. Pp. 350-352.

(b) Such interpretation of Rule 68 is also consistent with the Rule's purpose to encourage the settlement of litigation, since the Rule provides an inducement to settle those cases in which there is a strong probability that the plaintiff will obtain a judgment but the amount of recovery is uncertain. It could not have been reasonably intended, on the one hand, affirmatively to grant the district judge discretion to deny costs to the prevailing party under Rule 54 (d) -- which provides that costs shall be allowed to the prevailing party unless the trial court otherwise directs -- and then, on the other hand, to give defendants -- and only defendants -- the power to take away that discretion by performing a token act of making a nominal settlement offer. In both of the situations in which Rule 68 does not apply -- judgments in the defendant's favor or in the plaintiff's favor for an amount greater than the settlement offer -- the trial judge retains his Rule 54(d) discretion. Rule 68's plain language makes it unnecessary to read a requirement into the Rule that only a reasonable settlement offer triggers the rule. A literal interpretation avoids the problem of sham offers, because such an offer will serve no purpose, and a defendant will be encouraged to make only realistic settlement offers. Pp. 352-356.

(c) The above interpretation of Rule 68 is further compelled by its

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history -- the state rules upon which the Rule was modeled, the cases interpreting those rules, and the view of the commentators, including the members of the Advisory Committee. Pp. 356-361.

600 F.2d 699, affirmed.

STEVENS, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, and BLACKMUN, JJ., joined. POWELL, J., filed an opinion concurring in the result, post, p. 362. REHNQUIST, J., filed a dissenting opinion, in which BURGER, C.J., and STEWART, J., joined, post, p. 366.

STEVENS, J., lead opinion

JUSTICE STEVENS delivered the opinion of the Court.

Pursuant to Rule 68 of the Federal Rules of Civil Procedure, if a plaintiff rejects a defendant's formal settlement offer, and if "the judgment finally obtained by the offeree is

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not more favorable than the offer," the plaintiff "must pay the costs incurred after the making of the offer."1 The narrow question presented by this case is whether the words "judgment finally obtained by the offeree" as used in that Rule should be construed to encompass a judgment against the offeree as well as a judgment in favor of the offeree.

Respondent Rosemary August (plaintiff) filed a complaint against petitioner Delta Air Lines, Inc. (defendant), alleging that she had been discharged from her position as a flight attendant solely because of her race in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. She sought reinstatement, approximately $20,000 in backpay, attorney's fees, and costs. A few months after the complaint was filed, defendant made a formal offer of judgment to plaintiff in the amount of $450.2 The offer was refused, the

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case was tried; and plaintiff lost. The District Court entered judgment in favor of defendant and directed that each party bear its own costs. Defendant then moved for modification of the judgment, contending that, under Rule 68, the plaintiff should be required to pay the costs incurred by defendant 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 68.3 The Court of Appeals affirmed on the same [101 S.Ct. 1149] ground, 600 F.2d 699 (CA7 1979), holding that Rule 68 applied only if the defendant's settlement offer was sufficient "to justify serious consideration by the plaintiff."4

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In finding a reasonableness requirement in the Rule, the Court of Appeals did not confront the threshold question whether Rule 68 has any application to a case in which judgment is entered against the plaintiff-offeree and in favor of the defendant-offeror. Our resolution of the case, however, turns on that threshold question. The answer is dictated by the plain language, the purpose, and the history of Rule 68.

I

Rule 68 prescribes certain consequences for formal settlement offers made by "a party defending against a claim."5 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.6

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Under Rule 54(d) of the Federal Rules of Civil Procedure, the party prevailing after judgment recovers costs unless the trial court otherwise directs.7 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 [101 S.Ct. 1150] 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

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In sum, if we limit our 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 that obtained the judgment.

II

Our interpretation of the Rule is consistent with its purpose. The purpose of Rule 68 is to encourage the settlement of litigation.8 In all litigation, the adverse consequences of potential defeat provide both parties with an incentive to settle in advance of trial. Rule 68 provides an additional inducement to settle in those cases in which there is a strong probability that the plaintiff will obtain a judgment but the amount of recovery is uncertain. Because prevailing plaintiffs presumptively will obtain costs under Rule 54(d), Rule 68 imposes a special burden on the plaintiff to whom a formal settlement offer is made. If a plaintiff rejects a Rule 68 settlement offer, he will lose some of the benefits of victory if his recovery is less than the offer.9 Because costs are usually assessed against the losing party, liability for costs is a normal incident of defeat. Therefore, a nonsettling plaintiff does not run the risk of suffering additional burdens that do not ordinarily attend a defeat, and Rule 68 would provide little, if any, additional incentive if it were applied when the plaintiff loses.

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Defendant argues that Rule 68 does provide such an incentive, because it operates to deprive the district judge of the discretion vested in him by Rule...

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