MRO Communications v. Am. Tel. & Tel.

• Decision Date: 13 December 1999
• Docket Number: No. 98-16715,98-16715
• Parties: (9th Cir. 1999) MRO COMMUNICATIONS, INC., Plaintiff-Appellant, v. AMERICAN TELEPHONE & TELEGRAPH COMPANY, now AT&T Corp., Defendant-Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1276

197 F.3d 1276 (9th Cir. 1999)

MRO COMMUNICATIONS, INC., Plaintiff-Appellant, v. AMERICAN TELEPHONE & TELEGRAPH COMPANY, now AT&T Corp., Defendant-Appellee.

No. 98-16715

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted November 2, 1999

Filed December 13, 1999

[Copyrighted Material Omitted]

COUNSEL: Richard J. Archer, Archer & Hanson, San Francisco, California, for the plaintiff-appellant.

Steven M. Bierman, Sidley & Austin, New York, New York; Laura A. Kaster, AT&T Corporation, Liberty Corner, New Jersey, for the defendant-appellee.

Appeal from the United States District Court for the District of Nevada; Philip M. Pro, District Judge, Presiding. D.C. No. CV-95-00503-PMP

Before: Herbert Y. C. Choy, Mary M. Schroeder, and Arthur L. Alarcon, Circuit Judges.

OPINION

ALARCON, Circuit Judge:

MRO Communications, Inc. ("MRO") appeals from the award of $2,009,844.89 to AT&T as the prevailing party for the attorneys' fees it incurred in defending this action against MRO's state law claims following the rejection of AT&T's offer of judgment. MRO contends that the district court erred in awarding attorneys' fees based on an offer of judgment filed pursuant to Rule 68 of the Federal Rules of Civil Procedure because the judgment was in favor of AT&T. We affirm because we conclude that the district court did not abuse its discretion in awarding attorneys' fees.

I

AT&T offers 900 telephone number services. AT&T's customers are information providers ("IPs") who operate payper-call information services. The two kinds of services offered to IPs by AT&T are transport services and billing services. Transport services provide the telephone lines over which the information or voice data is actually transmitted. Billing services include sending invoices to callers, collecting the amounts owed, and forwarding those amounts on to the IP.

MRO was an IP. In 1989, MRO became an AT&T customer. MRO subscribed to AT&T's transport and billing services. A tariff governed the provision of transport services. Section 203(a) of the Federal Communications Act ("FCA") requires every common carrier to file schedules, or tariffs, with the FCC showing the rates, classifications, practices, and regulations affecting their services. 47 U.S.C.S 203(a). AT&T provided billing services pursuant to a private contract between MRO and AT&T.

A number of disputes clouded the business relationship between MRO and AT&T. As a result, MRO filed a complaint on April 26, 1993, alleging claims arising under federal law and state law claims within the district court's supplemental jurisdiction. On February 8, 1995, MRO filed an amended complaint. The amended complaint contained a total of twenty-eight claims, including state law claims for breach of contract and tort, as well as causes of action arising under federal law.

On June 3, 1996, AT&T filed the following offer of judgment:

Pursuant to Rule 68 of the Federal Rules of Civil Procedure, defendant AT&T Corp. ("AT&T") hereby offers to allow judgment to be taken against it in this action, in the amount of one hundred thou sand dollars ($100,000), together with costs accrued to date in accordance with Fed. R. Civ. P. 68. This offer of judgment is made for the purposes specified in Rule 68, and is not to be construed either as an admission that the defendant is liable in this action or that the plaintiff has suffered any damage.

The offer was sent to Richard Archer, counsel for MRO, on the same date. MRO did not accept the offer.

On May 18, 1998, after an eight-day jury trial, the district court granted AT&T's motion for judgment as a matter of law. On June 1, 1998, AT&T filed a motion pursuant to Federal Rule of Civil Procedure 54(d)(2) and local Rule 54-16 to recover "attorneys' fees incurred in defending itself against MRO's state law claims after June 3, 1996, the date on which AT&T made an offer of judgment that MRO rejected. " On July 30, 1998, the district court entered a final judgment for AT&T on all of MRO's claims.

On August 3, 1998, the district court ordered MRO to pay AT&T $2,009,844.89 in attorneys' fees and costs. The order reads in pertinent part:

By its Motion, AT&T seeks recovery of $2,009,844.89 it incurred as legal fees and costs in defense of MRO's state law claims on which AT&T prevailed in full between the date its offer of Judgment to MRO was rejected in July 1996, to and including May 18, 1998, when Judgment was entered in favor of AT&T and against MRO.

The attorney's fees sought by Defendant AT&T do not include work relating to MRO's federal statutory claims on which AT&T also prevailed. Although the fees requested are substantial, so was the litigation which spawned them. Having considered the Affidavits and Exhibits submitted in support of and in opposition of AT&T's Motion, the Court finds the attorney's fees are reasonable, and that under the applicable law, Defendant AT&T is entitled to recover them.

AT&T did not file separate offers of judgment regarding MRO's state law claims pursuant to Nevada and New Jersey law. In its motion for costs and attorneys' fees, AT&T did not request an award for its defense of the federal law claims.

II

MRO contends that the district court abused its discretion in awarding attorneys' fees because AT&T did not file separate offers of judgment under Nevada and New Jersey law. Before this court, MRO maintains that "an award of attorneys' fees to AT&T would run counter to [Federal ] Rule 68 pursuant to Delta Airlines v. August, [450 U.S. 346 (1981)] because judgment was not obtained by the offeree, MRO Communications, Inc." We review the district court's award of attorneys' fees made pursuant to state law for an abuse of discretion. See 389 Orange St. Partners v. Arnold, 179 F.3d 656, 661 (9th Cir. 1999).

Federal Rule 68 sets forth the procedure that must be followed in a federal district court to make an offer of judgment. See Fed. R. Civ. P. 1 ("These rules govern the procedure in the United States district courts in all suits of a civil nature . . . .") MRO has not cited any decision that requires a defendant to make an offer of judgment under state law as well as federal law in order to recover attorneys' fees, where the plaintiff has filed in a district court state law claims and causes of action arising under federal law.

AT&T's offer of judgment did not refer to attorneys' fees. Instead, AT&T stated that its offer was made "for the purposes set forth in Rule 68, and is not to be construed either as an admission that the defendant is liable in this action or that the plaintiff has suffered any damage." Federal Rule 68 provides notice that if the judgment awarded to the plaintiff is less than the offer made by the defendant, the plaintiff "must pay the costs incurred after the making of the offer." The term "costs" is not defined in Federal Rule 68.

The Supreme Court interpreted the word "costs" as used in Federal Rule 68 in Marek v. Chesny, 473 U.S. 1 (1985). 14494 The Court first explained that "under the `American Rule,' each party had been required to bear its own attorney's fees." Id. at 8. The Court noted, however, that there are exceptions to the "American Rule." "[M]ost of the exceptions were found in federal statutes that directed courts to award attorney's fees as part of costs in particular cases." Id. (citing Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 260-211 (1975)). The Court concluded in Marek that "the most reasonable inference is that the term `costs' in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority." Id. at 9. The Court held in Marek that attorneys' fees are included in the word "costs" in Federal Rule 68 in actions filed pursuant to 42 U.S.C. S 1983 because S 1988 expressly provides that a prevailing party may be awarded attorneys' fees as part of the costs. Id. In United States v. Trident Seafoods Corp., 92 F.3d 855 (9th Cir. 1996), we held that "[t]he term `costs' in Rule 68 is intended to refer to all costs properly awardable under the relevant substantive statute." Id. at 860 (citing Marek v. Chesny, 473 U.S. 1, 9 (1985).)

In this matter, however, no underlying substantive federal statute is applicable in determining whether AT&T is entitled to attorneys' fees incurred in defending against MRO's state law claims. Furthermore, Federal Rule 68 is inapplicable in a case in which the defendant obtains judgment. Delta Air Lines, Inc. v. August, 450 U.S. 346, 352 (1981). Where a defendant prevails after making an offer of judgment, "the trial judge retains his Rule 54(d) discretion." Id. at 354. Because AT&T obtained judgment, Federal Rule 68 is inapplicable in determining whether the district court properly awarded attorneys' fees to AT&T.

AT&T's motion for costs and attorneys' fees was filed pursuant to Rule 54(d)(2)¹ and Local Rule 54-16.² Rule 54(d)(2) creates a procedure but not a right to recover attorneys' fees. See Advisory Committee Notes to Fed. R. Civ. P. 54(d)(2) (noting that Rule 54(d)(2) "establishes a procedure for presenting claims for attorneys' fees"). In Abrams v. Lightolier Inc., 50 F.3d 1204, (9th Cir. 1995) the Third Circuit interpreted Rule 54(d)(2) as follows:

Rule 54(d)(2) recognizes the possibility of awards of `attorney's fees and related non-taxable expenses' and establishes a procedure for asserting a right to such an award. This rule does not provide a rule of decision, however. Rather, it and the accompanying advisory committee comment recognize that there must be another source of authority for such an award.

Id. at 1224. The requirement under Rule 54(d)(2) of an independent source of authority for an award of attorneys' fees gives effect to the "American Rule" that each party must bear its own attorneys' fees in the absence of a rule, statute or contract authorizing such an award. See Sheet Metal Workers' Int'l Ass'n Local Union No. 359 v. Madison...