Opinion ID: 197828
Heading Depth: 3
Heading Rank: 1

Heading: Attorney's Fees Incurred After the Offer of Judgment

Text: 37 The trial court declined the defendants' request that they be awarded attorney's fees that were incurred after their offer of judgment. The defendants assert that it was error to do so. Resolution of this issue requires that we carefully analyze the relationship between two rules of civil procedure, Federal Rule 68 and Puerto Rico Rule 35.1, both of which ostensibly govern the situation at hand. 38 In Erie Railroad Co. v. Tompkins, the United States Supreme Court set forth the general doctrine by which federal courts in diversity cases determine whether state or federal law will apply to a controversy. See 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). In Hanna v. Plumer, the Supreme Court set forth the test for determining how a court should choose between a federal procedural rule and a conflicting state substantive rule. See 380 U.S. 460, 471, 85 S.Ct. 1136, 1143-44, 14 L.Ed.2d 8 (1965). Where a Federal Rule is sufficiently broad to control the issue but conflicts with a state law, the court applies the Federal Rule unless it transgresses the limits of the Rules Enabling Act, 28 U.S.C. § 2072, or the Constitution. Id. at 471-72, 85 S.Ct. at 1143-45; see also Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-31, 108 S.Ct. 2239, 2243-45, 101 L.Ed.2d 22 (1988). 5 In most cases where a conflict exists, the Federal Rule will be applied because the Federal Rules are presumptively valid. See Burlington N. R.R. v. Woods, 480 U.S. 1, 5, 107 S.Ct. 967, 969-70, 94 L.Ed.2d 1 (1987); 17 James Wm. Moore et al., Moore's Federal Practice p 124.03 (3d ed.1997). 39 Rule 35.1 of the Puerto Rico Rules of Civil Procedure (Rule 35.1) addresses offers of judgment. It provides, in pertinent part, as follows: 40 At least ten (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 him for the money or property or to the effect specified in his offer, with costs then accrued.... If [the offer is rejected and] the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs, expenses and attorney's fees incurred after the making of the offer. 41 P.R. Laws Ann. tit. 32, App. III, Rule 35.1 (1983). The Supreme Court of Puerto Rico has held that this rule applies not only when the plaintiff/offeree prevails at trial and attains a verdict that is less than the offer of judgment but also when the plaintiff/offeree loses the suit in its entirety. See Ganapolsky v. Keltron Corp., 823 F.2d 700, 701 (1st Cir.1987) (citing Hermandad Unida De Carpinteros Y Ebanistas De America v. V. & E. Eng'g Constr. Co., 115 D.P.R. 711, 1984 WL 270891 (1984)). 42 Rule 68 provides, in pertinent part, as follows: 43 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 [the offer is rejected and] 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. 44 Fed.R.Civ.P. 68. Rule 68 does not itself supply a definition of costs. Instead, it incorporates the definition of costs found in the relevant substantive statute of the jurisdiction whose substantive law applies to the case. Therefore, when the definition of costs in the relevant substantive statute includes attorney's fees, attorney's fees incurred after the offer of judgment must be paid by the offeree. See Marek v. Chesny, 473 U.S. 1, 9, 105 S.Ct. 3012, 3016-17, 87 L.Ed.2d 1 (1985). In addition, Rule 68 applies only when a plaintiff/offeree obtains an award that is less than the offer of judgment, and not when the plaintiff/offeree loses the suit in its entirety. See Delta Air Lines, Inc. v. August, 450 U.S. 346, 352, 101 S.Ct. 1146, 1150, 67 L.Ed.2d 287 (1981); Ganapolsky, 823 F.2d at 701-02. 45 Rule 68 would not allow the defendants to recover attorney's fees in this case unless the underlying substantive law defines attorney's fees as a part of costs. See Marek, 473 U.S. at 9, 105 S.Ct. at 3016-17. The substantive law underlying this action is Puerto Rico's law of negligence. See P.R. Laws Ann. tit. 31, § 5141 (A person who by an act or omission causes damage to another through fault or negligence shall be obliged to repair the damage so done.). Puerto Rico law makes no provision for the award of attorney's fees as any part of costs in such cases. Compare Rule 44.1(a) (Costs shall be allowed to the prevailing party, except when otherwise directed by law or by these rules. The costs which may be allowed by the court are those expenses necessarily incurred in prosecuting an action or proceeding which, according to law or to the discretion of the court, one of the parties should reimburse to the other.), with Rule 44.1(d) (In the event any party or its lawyer has acted obstinately or frivolously, the court shall, in its judgment, impose on such person the payment of a sum for attorney's fees which the court decides corresponds to such conduct.). 46 The only other source of Puerto Rico law that might supply a definition of costs that includes attorney's fees is Rule 35.1 itself. 6 However, Rule 35.1 allows for the award of costs, expenses and attorney's fees. P.R. Laws Ann. tit. 32, App. III, Rule 35.1 (1983). On its face, the rule treats costs and attorney's fees as separate items; it does not define attorney's fees as part of costs. See id.; see also, e.g., Knight v. Snap-On Tools Corp., 3 F.3d 1398, 1405 (10th Cir.1993) ([T]he fee-shifting provision clearly identifies attorney's fees separately from costs.); Oates v. Oates, 866 F.2d 203, 206-07 (6th Cir.1989). Therefore, the costs to which the defendants would be entitled under Rule 68 are those detailed in 28 U.S.C. § 1920, which do not include attorney's fees. 47 Rule 35.1 and Rule 68 both ostensibly apply to this case and would result in a different award. 7 The two rules are in direct collision despite the fact that they are not perfectly coextensive because Rule 68 is sufficiently broad to cover the point in dispute. See Stewart, 487 U.S. at 26-27 n. 4, 108 S.Ct. at 2242 n. 4; Burlington, 480 U.S. at 4-5, 107 S.Ct. at 969-70. Compare Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1167-68 (9th Cir.1995) (Rule 68 and federal law on expert witness fee compensation controlled despite similar California offer of judgment law and conflicting California expert witness law), with S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist., 60 F.3d 305, 310 (7th Cir.1995) ( Rule 68 not in direct conflict with Wisconsin statute governing rejected settlement offers by plaintiffs), and Tanker Mgm't, Inc. v. Brunson, 918 F.2d 1524, 1528 (11th Cir.1990) (Rule 68 not in direct collision with Florida statute governing attorney's fees, offers of judgment, and settlement offers). The parties have not suggested and the court cannot discern any infirmity in Rule 68 sufficient to defeat the presumption of validity and constitutionality mandated by Burlington Northern Railroad, 480 U.S. at 5, 107 S.Ct. at 969-70. See S.A. Healy Co., 60 F.3d at 312 ([T]here cannot be any doubt that Rule 68 is within the scope of the Rules Enabling Act.). Therefore, Rule 68, rather than Rule 35.1, applies in this case and the defendants are entitled only to costs. The district court did not err in refusing to award the defendants their attorney's fees as part of costs.