S.A. Healy Co. v. Milwaukee Metropolitan Sewerage Dist.

• Decision Date: 13 July 1995
• Docket Number: No. 95-1072,95-1072
• Parties: , 32 Fed.R.Serv.3d 358 S.A. HEALY COMPANY, Plaintiff-Appellant, v. MILWAUKEE METROPOLITAN SEWERAGE DISTRICT, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 305

60 F.3d 305

64 USLW 2051, 32 Fed.R.Serv.3d 358

S.A. HEALY COMPANY, Plaintiff-Appellant, v. MILWAUKEE METROPOLITAN SEWERAGE DISTRICT, Defendant-Appellee.

No. 95-1072.

United States Court of Appeals,

Seventh Circuit.

Argued May 31, 1995.

Decided July 13, 1995.

Jane C. Schlicht, Godfrey & Kahn, Milwaukee, WI, Vivian Katsantonis, Mark Sgarlata, Timothy F. Brown (argued), Watt, Tieder & Hoffar, McLean, VA, for plaintiff-appellant.

Robert Crawford (argued), Milwaukee Metropolitan Sewerage Dist., Milwaukee, WI, for defendant-appellee.

Before POSNER, Chief Judge, RIPPLE, Circuit Judge, and NORGLE, District Judge. ^*

POSNER, Chief Judge.

This is a sequel to S.A. Healy Co. v. Milwaukee Metropolitan Sewerage District, 50 F.3d 476 (7th Cir.1995), where we affirmed a judgment of $1,574,021 for Healy in its diversity suit for breach of contract. During the litigation, Healy had made a settlement demand upon the sewage district of $1,125,000, which the district had rejected. Thirty-four days after the entry of judgment, Healy had moved the district court to award it double its taxable costs plus interest on the judgment at the rate of 12 percent from the date of the demand to the date on which the judgment is paid. At the time the motion was made, the sum of the costs and interest demanded was almost $200,000.

The legal basis for the demand was Wis.Stat. Secs. 807.01(3), (4). These sections provide that if a plaintiff's settlement demand is rejected and the plaintiff goes on to win a judgment larger than the demand, he is entitled to twice his taxable costs plus interest at the rate of 12 percent from the date of the demand to the date when the judgment is paid. The district court denied Healy's motion on the ground that Rule 68 of the Federal Rules of Civil Procedure occupies the field of settlement offers in federal litigation and precludes the application of state rules dealing with the subject even when, because the basis of federal jurisdiction is diversity of citizenship, the substantive rules of decision are state rather than federal. Rule 68 provides that if a defendant makes a settlement offer which is rejected and the plaintiff wins a smaller amount at trial, the plaintiff shall be liable for the costs that were incurred after the making of the offer. The Wisconsin statute contains a nearly identical provision. Wis.Stat. Sec. 807.01(1). But unlike the Wisconsin statute, Rule 68 makes no provision for settlement demands (that is, plaintiffs' offers as distinct from defendants').

The sewage district argues that Healy's motion, filed as we have said 34 days after the entry of judgment, was untimely, and therefore was rightly denied irrespective of its merits. A local rule of the U.S. District Court for the Eastern District of Wisconsin requires that the bill of costs be filed within 15 days of the judgment, E.D.Wis.R. 9.01; and a request for prejudgment interest must, the sewage district argues, be filed within 10 days of the judgment because it is a request to alter or amend the judgment and is therefore governed by Fed.R.Civ.P. 59(e), which has a 10-day deadline.

Because Fed.R.Civ.P. 54(d) specifies no deadline for filing a bill of costs, the time for filing such a bill is normally governed by local rules such as that of the Eastern District of Wisconsin. See, e.g., Matei v. Cessna Aircraft Co., 35 F.3d 1142, 1147 (7th Cir.1994); Congregation of the Passion v. Touche, Ross & Co., 854 F.2d 219, 220-21 (7th Cir.1988); Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820, 827 (7th Cir.1984). And prejudgment interest, unlike postjudgment interest, normally is considered an element of the judgment itself, that is, of the relief on the merits, and hence governed by Rule 59(e). Osterneck v. Ernst & Whinney, 489 U.S. 169, 176, 109 S.Ct. 987, 991, 103 L.Ed.2d 146 (1989). But the Wisconsin rule on the consequences of turning down a plaintiff's settlement demand is not a rule about the taxing of costs, or the awarding of prejudgment interest, in the usual senses of "costs" and of "prejudgment interest." The rule imposes a sanction on defendants for turning down reasonable settlement demands. "Costs" and "prejudgment interest" (actually partly prejudgment and partly postjudgment, for the interest is computed from the date of the demand to the date of the payment of the judgment, but we shall ignore this refinement) are merely the measuring rods for determining the amount of the sanction. Wisconsin could have said to defendants that if they reject a modest settlement demand--modest because the plaintiff won a larger judgment at trial--they must pay the plaintiff $200,000 above his judgment. Then it would be plain that this additional relief was entirely separate from the judgment--that it was like an award of attorney's fees to a defendant as a sanction for filing a frivolous suit. The logic of the measuring rods actually used is transparent. Since as a prevailing party the plaintiff would be entitled to an award of costs anyway, doubling them provides a sanction equivalent to that imposed on a plaintiff who turns down a settlement offer by the defendant and then does worse at trial. But there is an additional asymmetry between plaintiffs and defendants: delay in accepting the plaintiff's demand allows the defendant to earn interest on money that (it is subsequently determined) should really be the plaintiff's. The award of interest from the date of the settlement demand deprives the defendant of this incentive to reject rightful demands.

Healy sought "regular" Rule 54(d) costs, the kind awarded to the prevailing party more or less as a matter of course--and was turned down for missing the 15-day deadline--before it asked for double costs and prejudgment interest under the Wisconsin settlement rule. And it made a timely motion for "regular" prejudgment interest, which the district judge denied on the ground that the contract claim was not sufficiently definite to support such an award under the Wisconsin law of contracts. The issues underlying the motion for prejudgment interest that Healy filed under the Wisconsin rule had nothing to do with Healy's contractual rights and hence with the judgment it obtained in the suit, just as the double costs it sought were unrelated to the costs taxable under Rule 54(d) because imposed for a completely different reason, as a sanction for turning down a settlement demand.

The proper analogy is to the awarding of attorney's fees, a proceeding deemed collateral to (which is to say separate from) the case on the merits because the amount of fees cannot be determined until the trial is over and because there is limited overlap between the issues in the trial and the issues bearing on the amount of and entitlement to fees. Being collateral, a motion for attorney's fees is not subject to the 10-day limit of Fed.R.Civ.P. 59(e). Budinich v. Becton Dickinson & Co., 486 U.S. 196, 108 S.Ct. 1717, 100 L.Ed.2d 178 (1988). So what limit is such a motion subject to? When the attorney's fees are taxed as costs, which is the usual way in which a prevailing party obtains such fees, see, e.g., 42 U.S.C. Sec. 1988, the deadline for seeking them is 14 days, Fed.R.Civ.P. 54(d)(2)(B), unless this time is extended by an order (including, we have held, a standing order, or rule, Johnson v. Lafayette Fire Fighters Ass'n, 51 F.3d 726 (7th Cir.1995)) of the district court. There was no order here as such, and the parties have not told us whether the Eastern District of Wisconsin has a rule extending (or contracting) the 14-day limit--but in fact it does, to 90 days. E.D.Wis.R. 9.04. This does not get Healy home free, for while the motion here is analogous to a motion for attorney's fees, it was not in fact such a motion, so neither Fed.R.Civ.P. 54(d)(2)(B) nor E.D.Wis.R. 9.04 applies. No matter. Whatever the time limits are for such a motion--and maybe there are none, other than the implied default rule of reasonableness, Max M. v. New Trier High School District No. 203, 859 F.2d 1297, 1300 (7th Cir.1988)--they are not jurisdictional. The deadline in Rule 54(d)(1) for objecting to the calculation of costs is not jurisdictional, we held in Lorenz v. Valley Forge Ins. Co., 23 F.3d 1259 (7th Cir.1994), and the analogy to the motion filed here is compelling.

The clincher is Lentomyynti Oy v. Medivac, Inc., 997 F.2d 364, 366-68 (7th Cir.1993), where we held that a motion for costs under Fed.R.Civ.P. 68, the federal counterpart to the Wisconsin rule under which Healy was proceeding, was not a Rule 59(e) motion. We cannot think of any sound basis for distinguishing between the two types of motion. It is true that Rule 68 contains no provision regarding interest, but we cannot see what difference that should make. We also hinted in Lentomyynti Oy that the costs sought in a motion under Rule 68 are not identical to Rule 54(d) costs, 997 F.2d at 368, and we make that explicit today. This means that a local rule prescribing a deadline for Rule 54(d) motions is not automatically applicable to a motion for costs under Rule 68 or a motion for double costs under the Wisconsin statute. Apparently Judge Gordon did not consider the local rule applicable, because he did not reject Healy's motion as time-barred, though urged to do so by the sewage district. We add that since the federal rules do not provide deadlines for Rule 68 motions, let alone for motions under counterpart state statutes, district courts are free to fix deadlines for these motions in their local rules.

But all that is important today is that we have jurisdiction and so can proceed, as did the district judge, to the merits.

The applicability of state procedural rules in federal diversity litigation is a knotty issue. A bit of history may help untie the knot. Before the revolution in federalism of 1938, federal district courts in diversity cases conformed their procedures (with immaterial exceptions) to those of the state in which the court...