Delta Air Lines, Inc. v. August
1981 U.S. LEXIS 79, 101 S. Ct. 1146, 67 L. Ed. 2d 287 (1981)
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Rule of Law:
Federal Rule of Civil Procedure 68, which mandates an offeree to pay costs if the "judgment finally obtained by the offeree is not more favorable than the offer," applies only when the plaintiff-offeree obtains a judgment in their favor, but for an amount less favorable than the offer, and does not apply when the defendant-offeror obtains a judgment entirely against the plaintiff-offeree.
Facts:
- Rosemary August (plaintiff) was discharged from her position as a flight attendant.
- August alleged her discharge was solely due to her race, in violation of Title VII of the Civil Rights Act of 1964.
- August sought reinstatement, approximately $20,000 in backpay, attorney's fees, and costs from Delta Air Lines, Inc. (defendant).
- Delta Air Lines made a formal offer of judgment to August in the amount of $450, which explicitly included attorney's fees and costs accrued to date.
- August refused Delta Air Lines' settlement offer.
- The case proceeded to trial, and August lost her claim.
Procedural Posture:
- Rosemary August sued Delta Air Lines, Inc. in District Court for racial discrimination under Title VII.
- The District Court entered judgment in favor of Delta Air Lines, Inc. (meaning August lost) and directed that each party bear its own costs.
- Delta Air Lines, Inc. moved the District Court for modification of the judgment, contending that August should be required to pay costs incurred after the settlement offer under Rule 68.
- The District Court denied Delta's motion, ruling that the $450 offer was not made in a good-faith attempt to settle and therefore did not trigger Rule 68.
- Delta Air Lines, Inc. appealed the District Court's denial of costs to the U.S. Court of Appeals for the Seventh Circuit (Delta as appellant, August as appellee).
- The Court of Appeals affirmed the District Court's decision, holding that Rule 68 applied only if the defendant's settlement offer was sufficient "to justify serious consideration by the plaintiff."
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Issue:
Does Federal Rule of Civil Procedure 68, which mandates an offeree to pay costs if the "judgment finally obtained by the offeree is not more favorable than the offer," apply to a situation where the defendant-offeror obtains a judgment against the plaintiff-offeree?
Opinions:
Majority - Justice Stevens
No, Federal Rule of Civil Procedure 68's cost-shifting provision does not apply to a case where the defendant-offeror obtains a judgment against the plaintiff-offeree. The Court's interpretation is based on the plain language, purpose, and history of Rule 68. The phrase "judgment finally obtained by the offeree" in Rule 68 refers only to a judgment in favor of the offeree (the plaintiff). A judgment against the offeree, where the defendant prevails, is not a judgment "obtained by the offeree" in this sense. The purpose of Rule 68 is to encourage settlement by placing a special burden on plaintiffs who reject reasonable offers but then recover less than the offer. This incentive is relevant when a plaintiff is likely to prevail but the amount of recovery is uncertain. If a plaintiff loses entirely, liability for costs is a normal incident of defeat under Rule 54(d), and Rule 68 would not provide additional incentive. Applying Rule 68 in cases where the defendant prevails would allow defendants to make "sham" or nominal offers (e.g., one penny) to divest the trial judge of the discretion granted under Rule 54(d) to deny costs to a prevailing party, an outcome the drafters of the Federal Rules could not have intended. Historical antecedents in state statutes and Advisory Committee Notes further support this interpretation, showing the rule was designed to penalize prevailing plaintiffs who refused reasonable offers and ultimately recovered less than the amount offered, not to shift costs when a plaintiff loses entirely.
Dissenting - Justice Rehnquist
Yes, Federal Rule of Civil Procedure 68's cost-shifting provision should apply when a plaintiff-offeree obtains no judgment (i.e., loses entirely) because such an outcome is certainly "not more favorable than the offer." Justice Rehnquist argues that the majority's interpretation twists the plain meaning of the Rule. He contends that the term "judgment" in Rule 68, as defined in Rule 54(a), encompasses any appealable order, including a "take nothing" judgment against the plaintiff. The original language of Rule 68, which referred to a plaintiff "fail[ing] to obtain a judgment more favorable than that offered," clearly included cases where the plaintiff lost. The 1948 amendment's wording change did not intend to alter this fundamental application. Furthermore, Rule 54(d) itself defers to "express provision" elsewhere in the rules, and Rule 68's mandatory "must pay" language is precisely such an express provision. From a policy perspective, it is anomalous and illogical that a plaintiff who loses entirely would be in a better position regarding cost liability (subject to judicial discretion under Rule 54(d)) than a plaintiff who wins a small amount but less than the settlement offer (mandatory cost-shifting under Rule 68). Such a reading undermines the Rule's purpose of encouraging settlement. Justice Rehnquist also argued that the term "costs" in Rule 68 does not automatically include attorney's fees, even in Title VII cases, based on the historical understanding of "costs" and the decision in Roadway Express, Inc. v. Piper. Therefore, Delta's offer, which included attorney's fees within the $450, was a valid Rule 68 offer.
Concurring - Justice Powell
While agreeing with the dissent that it is anomalous for Rule 68 not to apply when a defendant prevails entirely, Justice Powell concurs in the judgment of the Court (affirming the Court of Appeals) because Delta Air Lines' specific offer of judgment in this Title VII case was not a proper offer under Rule 68. In Title VII cases, the term "costs" in Rule 68 must include a "reasonable attorney's fee as part of the costs," as mandated by 42 U.S.C. § 2000e-5(k). Delta's offer of "$450, which shall include attorney's fees," was defective because it set a fixed amount for attorney's fees rather than allowing for a determination of "reasonable" attorney's fees by the court, as is the standard practice. An offer that fails to properly account for reasonable attorney's fees would undermine the purposes of Title VII's fee-shifting provision and discourage settlements, as plaintiffs might be unable to accept such offers, and their attorneys might face conflicts of interest. A valid Rule 68 offer in a Title VII case must specify the substantive relief and provide for "costs and attorney's fees to be awarded by the trial court" for the offer to be considered proper.
Analysis:
This case significantly clarifies the reach of Federal Rule of Civil Procedure 68, establishing a critical limitation that prevents its application when a defendant entirely prevails on the merits. By preserving judicial discretion over costs under Rule 54(d) in such scenarios, the ruling guards against the potential for defendants to use nominal settlement offers as a tactic to automatically recover post-offer costs, even in frivolous lawsuits. The concurring opinion, while not forming part of the majority's binding reasoning on the primary issue, introduces a crucial practical requirement for Rule 68 offers in cases involving fee-shifting statutes like Title VII. It highlights that such offers must adequately provide for reasonable attorney's fees, preventing defendants from circumventing statutory intent by capping these fees, which can substantially impact settlement dynamics in civil rights litigation.
