Webb v. James

• Decision Date: 20 July 1998
• Docket Number: Nos. 97-2287,97-2574,s. 97-2287
• Citation: 147 F.3d 617
• Parties: Dennis WEBB, Sr., Plaintiff-Appellee, v. Dick JAMES and Dick James Ford, Inc., a corporation of Illinois, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 617

147 F.3d 617

Dennis WEBB, Sr., Plaintiff-Appellee, v. Dick JAMES and Dick James Ford, Inc., a corporation of Illinois, Defendants-Appellants.

Nos. 97-2287, 97-2574.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 20, 1998.

Decided June 22, 1998.

Rehearing Denied July 20, 1998.

John M. Collins, Jr., Miller, Tracy, Braun & Wilson, Chicago, IL, Henry C. Szesny, Presbrey & Szesny, Chicago, IL, James F. Wisniewski (argued), Wisniewski & McGann, Lemont, IL, for Plaintiff-Appellee in No. 97-2287.

Henry C. Szesny, Presbrey & Szesny, Chicago, IL, James F. Wisniewski (argued), Wisniewski & McGann, Lemont, IL, for Plaintiff-Appellee in No. 97-2574.

Steven C. Wolf (argued), Kathleen A. Sweitzer, Wolf & Associates, Chicago, IL, for Defendant-Appellant in No. 97-2287.

Patrick M. Ouimet, Sarles & Ouimet, Chicago, IL, Steven C. Wolf (argued), Wolf & Associates, Chicago, IL, for Defendant-Appellant in No. 97-2574.

Before BAUER, COFFEY and ROVNER, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

This case presents a cautionary tale for defendants and plaintiffs alike on the perils of Rule 68. In this case, a rule that was designed to encourage settlement and avoid protracted litigation has spawned more litigation. We will attempt to remove the perils (and the additional litigation) by making clear the operation of Rule 68 and the consequences that flow from Rule 68 offers of judgment, and acceptance of those offers.

I.

Dennis Webb, Sr. filed an Americans with Disabilities action against Dick James Ford, Inc., and the company's owner, Dick James (collectively "Dick James"). Settlement negotiations yielded no resolution to the suit, and the case was set for jury trial, to begin December 3, 1996. On November 22, 1996, Dick James filed a Rule 68 Offer of Judgment, which read, in full:

The Defendants, Dick James and Dick James Ford, Inc., by their attorneys, Steven C. Wolf and Victoria A. Barnes, hereby make an offer of judgment in the above-captioned matter in the amount of Fifty Thousand Dollars ($50,000.00) pursuant to Federal Rule of Civil Procedure 68.

The offer was signed for defendants by their attorney, Victoria A. Barnes. On its face, the offer did not address costs or fees.

Before ten days passed, on the day before trial was to begin, Webb filed with the court a Notice of Acceptance of Offer of Judgment. Upon learning of the acceptance, the defendants' attorneys faxed a letter to and telephoned plaintiff's counsel, to clarify that the offer was all-inclusive, and that defendants had no intention of paying any additional sums for attorney's fees. Plaintiff's counsel took exception to this interpretation of the offer, citing case law that allowed a plaintiff to recover additional amounts for attorney's fees when the Rule 68 offer failed to include fees. That afternoon, the parties took their new dispute into court, at a previously scheduled pretrial conference. After hearing argument, the court entered judgment and allowed plaintiff to submit a fee application. The defendants subsequently moved to vacate the judgment and to rescind the offer of judgment.

Dick James argued to the district court that rescission of the Rule 68 "contract" was proper because defendants' counsel made the offer under a mistake of law, and that the mistake should have been apparent to the plaintiff. Dick James also contended that general principles of contract law should apply to Rule 68 offers, and that the agreement should be rescinded because there was no mutual assent as to whether it included fees and costs. Finally, Dick James moved to vacate the judgment pursuant to Rule 60(b), citing subsections (1), (4) and (6), claiming respectively, mistake or inadvertence in the offer, that the judgment was void, and that other reasons justified relief from the operation of the judgment. The district court denied the motions to vacate and to rescind the offer of judgment, and awarded plaintiffs $98,773.65 in fees, costs and expenses. Dick James appealed, challenging every ruling of the district court, including the amount of fees awarded.

II.

We begin by examining Rule 68 because the offer and acceptance at issue here took place in the context of that Rule. Rule 68 provides, in relevant part:

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.

The purpose of the rule is to encourage settlement and avoid protracted litigation. Marek v. Chesny, 473 U.S. 1, 5, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985) ("[t]he plain purpose of Rule 68 is to encourage settlement and avoid litigation."); Grosvenor v. Brienen, 801 F.2d 944, 945 (7th Cir.1986) (intent of Rule 68 is to encourage settlement by removing plaintiff's incentive to pursue a claim whose final probable outcome is not more favorable than defendant's offer); Mallory v. Eyrich, 922 F.2d 1273, 1277 (6th Cir.1991) (primary purpose of Rule 68 is to encourage compromise and settlement of litigation; Rule 68 discourages protracted litigation and vexatious lawsuits).

The first question we must address is whether the doctrine of rescission is applicable to Rule 68 offers of judgment. Dick James contends that rescission is appropriate when a party makes a mistake of law and when (1) the mistake is of such consequence that enforcement of the offer would be unconscionable; (2) the mistake is material; (3) the mistake occurred regardless of the exercise of ordinary care; and (4) it is possible to return the other party to status quo ante. See Fisher v. Stolaruk Corp., 110 F.R.D. 74, 76 (E.D.Mich.1986). Dick James faults the district court for failing to analyze its claim for rescission according to those standards, and instead analyzing it under the doctrine of revocation. Revocation, the defendants claim, is applicable before an offer has been accepted, and rescission is applicable after acceptance. Because everyone agrees that Webb accepted the offer when he filed notice with the court, Dick James contends that the district court should have applied the doctrine of rescission.

The defendants are correct that, in general, courts use contract principles to interpret offers of judgment. See Erdman v. Cochise County, Arizona, 926 F.2d 877, 880 (9th Cir.1991) (typically, a settlement agreement is analyzed in the same manner as any other contract); Mallory, 922 F.2d at 1279-80 (in cases construing Rule 68 judgments where the parties disagree as to what was intended, courts apply contract principles); Radecki v. Amoco Oil Co., 858 F.2d 397, 400 (8th Cir.1988) ("[t]o decide whether there has been a valid offer and acceptance for purposes of Rule 68, courts apply the principles of contract law"); Johnson v. University College of University of Alabama, 706 F.2d 1205, 1209 (11th Cir.1983), cert. denied, 464 U.S. 994, 104 S.Ct. 489, 78 L.Ed.2d 684 (1983) (same). However, whether traditional contract defenses apply to Rule 68 offers of judgment is quite a different matter. In general, courts have held, for example, that Rule 68 offers of judgment may not be revoked during the 10 day period set by the Rule. See Richardson v. National R.R. Passenger Corp., 49 F.3d 760, 764 (D.C.Cir.1995) (all federal courts to consider the issue have treated Rule 68 offers as generally irrevocable during the 10 day period) (citing Colonial Penn Ins. Co. v. Coil, 887 F.2d 1236, 1240 (4th Cir., 1989); Fisher, 110 F.R.D. at 75; Radecki, 858 F.2d at 402 (in dicta)). See also Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure: Civil 2d, § 3004 (1997) (the courts have agreed with one of the drafters of the Rule that Rule 68 offers cannot be withdrawn once served).

The courts also agree on the reasons for not allowing revocation during the 10 day period. Unlike an ordinary contract offer, "a Rule 68 offer imposes certain consequences that can be costly for the plaintiff who declines the offer. The Rule is thus designed to put significant pressure on the plaintiff to think hard about the likely value of its claim as compared to the defendant's offer. In return, the plaintiff, as we understand the scheme, is guaranteed 10 days to ponder the matter (as though the plaintiff had paid for a 10-day option)." Richardson, 49 F.3d at 765. Similarly, because rejection of the offer can have serious consequences for the plaintiff, courts have rightly been reluctant to allow defendants to challenge the meaning of an offer of judgment, either before or after acceptance. Erdman, 926 F.2d at 880-81 (citing Rateree v. Rockett, 668 F.Supp. 1155, 1159 (N.D.Ill.1987) for the proposition that "it would be ludicrous and manifestly unjust to allow the Defendants to argue after the fact that their offer really means more than it says."). See also Shorter v. Valley Bank & Trust Co., 678 F.Supp. 714, 719-20 (N.D.Ill.1988). The district court in Shorter noted that a plaintiff who receives a Rule 68 offer is in a difficult position because the offer has a binding effect when refused as well as when accepted. Because of this, the court was reluctant to conclude that an offer of judgment was ambiguous. "Unless the defendant allows the plaintiff to resolve or eliminate ambiguities, the plaintiff will be forced to guess whether and how ...