|September 11, 2012|
In Florida’s state courts, proposals for settlement have been used successfully by litigants wishing to create leverage on the opposing party, as they provide a means for recovering attorneys’ fees in cases where such fees would not otherwise be available. In many cases, attorneys’ fees can account for a substantial part—if not the most substantial part—of the damages claimed. A well-timed proposal for settlement in the right amount can significantly increase a plaintiff’s counsel’s litigation risk. This article addresses the availability of proposals for settlement and other procedural mechanisms for recovering fees and costs in federal court, when the claim does not otherwise provide for fees and costs.
Enforcing Florida’s Proposal for Settlement Statute, §768.79, in Federal Court
Recent Middle District of Florida case law has limited the use of proposals for settlement under §768.79, Fla. Stat., in federal court to cases where the court is exercising diversity1 or supplemental2 jurisdiction and applying Florida substantive law. Design Pallets v. Gray Robinson, P.A., 583 F. Supp. 2d 1282 (M.D. Fla. 2008). The Eleventh Circuit further limited the enforcement of proposals for settlement under § 768.79, Fla. Stat., to cases pending in federal courts physically located within the state of Florida. Menchise v. Akerman Senterfitt, 532 F.3d 1146 (11th Cir. 2008).
In Design Pallets, Judge Presnell of the Middle District of Florida echoed the Eleventh Circuit’s prior holding that Florida’s offer of judgement statute, § 768.79, is substantive law as opposed to procedural law. 583 F. Supp. 2d at 1285-88. Therefore, as recognized by Judge Presnell, a federal court exercising only diversity jurisdiction over state law claims should enforce proposals for settlement pursuant to § 768.79. See id. However, the analysis becomes more complicated in cases where the court is exercising anything but diversity jurisdiction and federal, not Florida, substantive law is being applied.
In Design Pallets, the plaintiffs brought an action against the law firm of Gray Robinson in federal court alleging violations of the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO") and a variety of state law claims. Id. Plaintiffs alleged federal question jurisdiction based on the RICO claim. Id. at 1284. The Court exercised jurisdiction over the remaining state law claims under supplemental jurisdiction. Id. at 1284. After filing a proposal for settlement, defendant, Gray Robinson, moved for and was granted summary judgment on plaintiff’s RICO claims. Id. Notably, once the RICO claims were resolved and the basis for federal question jurisdiction was extinguished, the District Court dismissed all pending state law claims without prejudice to be re-filed in state court, as there was no longer a basis for federal jurisdiction. Id. (Both parties were Florida citizens and thus, diversity jurisdiction was inapplicable).
Gray Robinson nevertheless moved for its attorneys’ fees and costs pursuant to §768.79, Fla. Stat., and Rule 68 of the Federal Rules of Civil Procedure based on plaintiff failure to accept defendant’s proposal for settlement.3 However, in analyzing the applicability of §768.79, Fla. Stat., Judge Presnell found that "a federal judge whose jurisdiction is founded solely on federal question would not apply §768.79 to the resolution of federal claims inasmuch as §768.79 is preempted by federal law." Id. at 1285. Judge Presnell reasoned that the federal "Costs Statute," 28 U.S.C. §1920 et seq., which controls taxable costs and fees, was intended by congress to preempt state law statutes regarding the taxation of fees and costs under a "field preemption" theory. Id. at 1287. Accordingly, Judge Presnell denied Gray Robinson’s motion for taxation of fees and costs, finding that § 768.79 was preempted by the Federal Costs Statute, which did not provide for fees and costs under the facts of the case. Id. at 1287. The Court further held "that §768.79 applies only to state law claims." Id. Thus, because the Court did not rule on the state law claim, Gray Robinson had no basis for fees and costs under §768.79. Accordingly, "[w]here a federal court has both a federal question and supplemental or diversity jurisdiction over Florida claims, §768.79 applies only to the Florida claims." Id. at 1287.
The Eleventh Circuit has furthered limited the enforceability of §768.79 in federal courts to federal cases located within the State of Florida pursuant to a strict reading of the statute. Menchise, 532 F.3d at 1146. In Menchise, the appellant argued that §768.79 should not be enforceable in federal courts and limited to state courts pursuant to the text of the statute that reads, "In any civil action for damages filed in the courts of this state . . . ." Id. at 1150 (emphasis added). This argument was supported by two prior Middle District of Florida decisions. Id. Nevertheless, the Eleventh Circuit specifically abrogated the prior Middle District decisions and found that §768.79 applies to actions filed in federal courts located in Florida. Id. Accordingly, while Florida substantive law may be applicable in courts outside the state of Florida, the Eleventh Circuit suggests in Menchise that §768.79 would not be enforceable in courts or cases not physically located within the state of Florida.
Abiding by Rule 1.442 of the Florida Rules of Civil Procedure in Federal Court
The Eleventh Circuit has further held that Rule 1.442(c)(2)(F) of the Florida Rules of Civil Procedure, which prescribes the specific procedures and terms that a proposal for settlement must include, is considered substantive law as well for purposes enforcing proposals for settlement. Horowitch v. Diamond Aircraft Indus., Inc., 645 F.3d 1254, 1258 (11th Cir. 2011). Incidently, the Eleventh Circuit concurrently found that the portion of the Florida rule requiring proposals for settlement to have a certificate of service, Rule 1.442(c)(2)(G), is merely a technical procedural requirement that is in conflict with the Federal Rules of Civil Procedure. Id. As such, a proposal for settlement filed in federal court pursuant to §768.79, Fla. Stat., and Rule 1.442 may still be enforceable despite the omission of a certificate of service as required in state court. Nevertheless, the best practice would be to follow all the requirements of both §768.79, and Rule 1.442 as you would in state court when filing in federal court.
Obtaining Defense Fees and Costs Pursuant to Rule 68 of Federal Rule of Civil Procedure
While Florida’s proposal for settlement law is modeled after Rule 68 of the Federal Rules of Civil Procedure, Florida’s version arguably goes further than Rule 68 to leverage settlement. Specifically, Rule 68 diverges from the Florida counterpart in that (1) only a defendant can make an offer of judgment pursuant to Rule 68; (2) if the offer of judgment is accepted, a judgment will be entered against the defendant in the amount offered as opposed to settlement and dismissal of the action; (3) an unaccepted Rule 68 offer of judgement will not be enforced if the defendant prevails, as the rule specifically requires that the plaintiff obtain a judgment less than the amount offered; and (4) Rule 68 typically only shifts the costs of litigation (and not attorneys’ fees) to the plaintiff if he fails to timely accept a properly served offer of judgment.
However, under certain causes of actions, the Supreme Court of the United States has found that Rule 68 can serve to shift attorneys’ fees and costs to the plaintiff. Marek v. Chesny, 473 U.S. 1 (1985). In Marek, the Supreme Court held 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. Thus, when the underlying statute defines "costs" to include attorney’s fees, fees and costs can be included in costs for purposes of a Rule 68 offer of judgment. Id.
Since Marek, the Eleventh Circuit has been the only circuit to use the reasoning of Marek to award the defense their fees and costs pursuant to a properly executed Rule 68 offer of judgment. See Jordan v. Time, Inc., 111 F.3d 102 (11th Cir. 1997). In Jordan, the plaintiff’s action was premised upon the federal Copyright Act, 17 U.S.C. §505, which specifically includes attorneys’ fees in the calculation of costs. Id. at 105. After an unaccepted offer of judgment, judgment was entered in favor of plaintiff for less than previously offered by the defense. Id. The Eleventh Circuit found the district court had no discretion regarding entitlement to fees, as the language of Rule 68 is mandatory. Id. Accordingly, pursuant to the holding in Jordan, upon an unaccepted and properly served Rule 68 offer of judgment, the defense may be entitled to their fees and costs should the plaintiff obtain a verdict less than that of the prior offer of judgment.
In evaluating the possibility of recovering defense fees and costs in federal court, the attorney should first look to the type of jurisdiction being exercised by the court. If the court is located in Florida and exercising diversity or supplemental jurisdiction over state law claims and applying Florida law, a proposal for settlement pursuant to §768.79, Fla. Stat., and Florida Rule of Civil Procedure 1.442 may be an enforceable means of recovering fees. Otherwise, if the claim involved is based on a federal statute, and the underlying statute provides for fees when calculating costs, an alternative means for recovering fees may be an offer of judgment pursuant to Federal Rules of Civil Procedure 68. Of course, whether or not the fees are ultimately recovered, the leveraging effect of the possible exposure to attorneys’ fees can be an invaluable tool to encourage settlement.
1 Diversity Jurisdiction - A federal court’s exercise of authority over a case involving parties who are citizens of different states and an amount in controversy greater than $75,000.00 exclusive of fees and costs. 28 U.S.C.A. §1332.
2 Supplemental Jurisdiction - A federal court’s exercise of authority over a claim that is part of the same controversy as another claim over which the court has original jurisdiction. 28 U.S.C.A. §1367.
3 The Court found Rule 68 inapplicable, as the defendant-offeror had received judgment in its favor. Id. at 1285 (citing Delta Air Lines, Inc. v. August, 450 U.S. 346, 351 -52 (1981)).