Opinion ID: 2996477
Heading Depth: 2
Heading Rank: 2

Heading: Rush’s Settlement Offer

Text: Rush next argues that we should further reduce the attorney’s fee award based on a settlement offer made very early in this litigation, which Shott rejected. In Moriarty v. Svec, we held that in determining the appropriate attorney’s fee award the district court should consider whether substantial settlement offers were rejected by the party claiming attorney’s fees. 233 F.3d 955, 967 (7th Cir. 2000). We reasoned that “[a]ttorney’s fees accumulated after a party rejects a substantial offer provide minimal benefit to the prevailing party” and thus may not warrant being included in the fee award as a “reasonable attorney’s fee.” Id. We held that an offer was substantial, and therefore must be considered, if “the offered amount appears to be roughly equal to or more than the total damages recovered by the prevailing party.” Id. We must then determine if Rush’s settlement offer was substantial; that is, whether the total damages Shott received by going to trial exceed the offered amount. Rush’s offer came in March 1995, roughly five months after this litigation began. Under the terms of the offer, Rush would move Shott from her position at the Cancer Institute to a new position in the Department of Neurosurgery at no loss in rank. Rush also agreed that for the remainder of that academic year, which ended June 30, 1995, Shott would continue to receive the same salary, $62,400, in the Department of Neurosurgery that she did at the Cancer Institute. Rush’s offer did not include any payment for damages, attorney’s fees, or costs. And Rush conditioned the offer on Shott’s signing a statement that read: “As part of a settlement in this case, I retract the statements made in the complaint and accept a position as Associate Professor of Neurosurgery.” (R. 212, Ex. 1 at ¶ 7.) By rejecting this offer, Shott proceeded to trial and ultimately won a judge- ment of $60,000. No. 02-3839 13 We find that this settlement offer was not substantial because the actual value of Rush’s offer to transfer Shott to the Department of Neurosurgery at no cut in pay for the remainder of the academic year was somewhat illusory. On July 11, 1995, roughly three months after Shott rejected the settlement offer, Rush removed her from her position at the Cancer Institute, placed her in the previously offered position in the Department of Neurosurgery, and cut her salary to $48,548. According to the Chair of Rush’s Department of Medicine, Dr. Stuart Levin, Shott’s salary was cut because, in this new position, her responsibilities, workload, and administrative duties were reduced. If she had accepted Rush’s settlement, she would have been transferred to the same position in Neurosurgery as early as March 1995, but would have received her former salary only until the end of academic year, which concluded on June 30, 1995. After the academic year ended, Rush would have been under no further obligation to continue paying Shott at her former salary, and given Dr. Levin’s testimony, Rush would have likely cut her salary to $48,548 to reflect her new position’s diminished responsibility, workload, and administrative duties. Therefore, by rejecting the offer, Shott was certainly no worse off than she would have been had she accepted the offer; in fact, she received 11 days more pay at her former salary by not accepting the offer and received a $60,000 damage award at trial. Rush argues, however, that when the tax consequences of the attorney’s fee award are considered, Shott actually would have been better off accepting its offer of basically nothing rather than going to trial and winning a $60,000 judgment but incurring a huge tax bill. According to Rush, Shott’s attorney’s fee award will likely be subject to the Alternative Minimum Tax (“AMT”). 26 U.S.C. § 55 (2003). The AMT applies if the total tax calculated under the AMT’s guidelines exceeds the regular tax liability. Rush contends that Shott will likely be subject to the AMT 14 No. 02-3839 because while the fee award must be included in taxable income under both the AMT and the regular tax, it is deductible only for regular tax purposes because “it is one of a long list of expenses (‘miscellaneous expenses’) that are not deductible from gross income in computing the alternative minimum tax.” Kenseth v. Comm’r, 259 F.3d 881, 882 (7th Cir. 2001). Using Shott’s 2002 salary of $48,548, Rush calculates that under the AMT Shott’s federal income tax liability on the fee award would be $125,644—more than enough to swallow her $60,000 damage award. Therefore, according to Rush, we should find that Shott would have been better off accepting its meager settlement award than winning and incurring a large bill from the IRS. An overriding problem with Rush’s argument is that none of the information upon which it relies in purporting to calculate Shott’s tax liability is in the record. Even if we accepted Rush’s premise that tax consequences should be considered, because Shott’s tax information is not a matter of record in the case, we could not accurately calculate Shott’s tax liability to determine whether it will leave her worse off. Therefore, we cannot say with any assurance that Shott’s tax liability will exceed the damage award. Furthermore, though we need not decide this issue now, we doubt that it would be appropriate for this court to establish a precedent wherein attorneys would be required to know the tax status of their clients before accepting or rejecting a settlement offer or wherein courts would routinely have to delve into the tax records of the parties to determine an appropriate fee award. As we noted in Ustrak v. Fairman, 851 F.2d 983, 987 (7th Cir. 1988), fee litigation already places a “heavy burden” on the federal courts; adding a requirement to calculate the tax status of the parties would only increase that burden. Finally, even if it were possible to determine that Rush’s settlement offer was substantial under the Moriarty No. 02-3839 15 framework, we still would find no abuse of discretion here. In Moriarty, we cautioned that settlement offers are only one of many considerations to be made in awarding fees and thus district courts were only required to consider whether an attorney’s fee award should be reduced based on the plaintiff’s rejection of a substantial settlement offer; they are not necessarily required to reduce the fee award in every case. Moriarty, 233 F.2d at 967. Our review of the record satisfies us that the district court in this case adequately considered whether the fee award should be reduced based on the settlement offer and reasonably decided that it should not because the offer required Shott to recant all of the accusations in her complaint as part of the settlement. We, therefore, find no abuse of discretion in the district court’s decision not to reduce the fee award on the basis of the settlement offer.