Court Opinion

ID: 7013775
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:14:33.396842+00
Date Added: 2024-06-11T16:10:18.074027
License: Public Domain

SEDWICK, District Judge,
concurring in part and dissenting in part:
I concur in the majority’s opinion on all issues, save one. I respectfully dissent from the holding that the district court erred when it denied an award of costs to Berkla because Corel faded to make an offer of judgment pursuant to Federal Rule of Civil Procedure 68. The majority adopts an inflexible rule that it is always error to deny costs on the basis that a prevailing party ignored an offer to settle and thereby prolonged litigation, unless the defending party’s offer to settle was made pursuant to Rule 68.
The majority begins its analysis with the observation that Federal Rule of Civil Procedure 54(d) provides for an award of costs to a prevailing party unless the court otherwise directs. To be more precise, it is Rule 54(d)(1) addressing costs other than attorneys’ fees that is pertinent to the disputed issue.1 The majority then reasons that because Corel did not make an offer of judgment pursuant to Rule 68, the district court could not rely on the fact that Berkla ultimately recovered far less than Corel had informally offered in deciding to deny costs to Berkla.
There are several problems with the majority’s approach. First, by failing to take into account the differences between Rule 54(d)(1) and Rule 68, the majority conflates the two rules and substitutes the simple comparative analysis and mandatory outcome dictated by Rule 68 for the exercise of discretion authorized by Rule 54(d)(1). No wonder the majority opines that to hold otherwise than it does would “render rule 68 largely meaningless.” Second, the offer actually made by Corel could not reasonably have been made in the form of a Rule 68 offer. Third, Rule 54(d)(1) gives trial courts discretion to deny costs and logic compels the conclusion that needlessly prolonging litigation is one of the reasons that would support a decision to deny costs. Rule 54(d)(1). Fourth, there is no authority in this circuit to support the inflexible rule adopted by the majority, and the cases relied upon from other circuits do not provide well reasoned support for the rule adopted by the majority.
Rule 68 provides that a defending party may offer to allow the party prosecuting a claim to have judgment against the defending party “for the money or property or to the effect specified in the offer.” If the offer is not accepted, its costs shifting efficacy is then determined by a comparison of the judgment resulting from the trial with the offer. Rule 68 authorizes more relief than Rule 54(d)(1). It authorizes shifting costs, not merely the denial of costs to one party. There is another significant difference between the two rules. The costs shifting feature of Rule 68 is mandatory; when the judgment obtained is less favorable than the offer, the offeree “must” pay the costs. In contrast, Rule 54(d)(1) operates through the well informed discretion of the trial court. Clearly, the trial court was attempting to *926exercise the discretion afforded by Ride 54(d)(1), not attempting to apply Rule 68. Nevertheless, the majority reverses his decision, because no Rule 68 offer was made.
The offer of compromise actually made by Corel was made orally at a settlement conference and the memorialized in a July 7, 1999 letter from Corel’s lawyer to Berk-la’s lawyer which reads in pertinent part:
This letter is to confirm the settlement offer made by Corel at the conclusion of the settlement conference on Tuesday, July 6, 1999. As communicated to you by Judge Hollows, Corel is willing to settle this case for U.S. Four Hundred Thousand Dollars ($400,000) in exchange for a general release of any and all claims against Corel and any affiliated or subsidiary companies, relating to any graphical content contained within any version of CorelDRAW or Corel PHO-TOPAINT, as well as all future versions of these products. The terms of the settlement would also include dismissal with prejudice of the current lawsuit, a grant by Mr. Berkla to Corel of a perpetual paid-up license for any nozzle images Mr. Berkla’s [sic] contends or could have contended were infringed by Corel, and Mr. Berkla’s covenant not to sue Corel in the future for any claims of misappropriation or infringement of his Garden hose, Tubular text of Tubular neon nozzle images. The $400,000 payment would be in satisfaction of all claims, damages, costs, expenses, interest and attorneys fees sought in your action.2
The offer sets out terms that go beyond those that would be included in a judgment against Corel for $400,000. Most notably, the offer is contingent on a perpetual paid-up license for Berkla’s nozzle images. This would render it very difficult to perform the simple direct comparison of offer with result upon which the mandatory cost shifting feature of Rule 68 turns. In short, the offer made could not reasonably have been made pursuant to Rule 68. Thus, the rule adopted by the majority has the perverse effect of reducing the incentive to make offers of compromise that cannot be molded into a Rule 68 form by eliminating any role they might play in the application of Rule 54(d)(1).
In Association of Mexican-American Educators v. State of California, 231 F.3d 572 (9th Cir.2000), the en banc court made it clear that there are many reasons why costs might be denied to a prevailing party pursuant to Rule 54(d)(1) in addition to punishing the prevailing party for some from of misconduct. However, the en banc court left in place the notion that one reason for denying costs is to punish inappropriate behavior by the prevailing party. Surely, needlessly prolonging litigation after a reasonable offer of compromise has been placed on the table is conduct that could support a decision not to award costs. Yet, the majority’s rule forecloses consideration of such conduct in every case where the defending party’s offer of compromise did not take the form of a Rule 68 offer.
The majority concedes that no case from this circuit supports its rule. The three cases relied on from other circuits do not analyze the relationship between Rules 54(d) and 68. The first cases is Clark v. Sims, 28 F.3d 420 (4th Cir.1994), in which prevailing civil rights plaintiffs sought to recover attorneys’ fees pursuant to 42 U.S.C. § 1988. There the trial court treated an informal offer of compromise exactly as if it had been an offer of judgment under Rule 68, and limited the prevailing parties’ recovery of attorneys’ fees to those incurred prior to the date of the supposed offer. In reversing and remanding, the appellate tribunal explained that where a *927prevailing party in a civil rights action has recovered only nominal damages, it is necessary for the trial court to evaluate a considerable number of factors in deciding what costs to award. Clark contains no analysis of the interplay between Rule 54(d) and Rule 68.
In the second case, Ortiz v. Regan, 980 F.2d 138 (2d Cir.1992), plaintiff brought suit in March of 1990 against a state official claiming that she had been deprived of pension benefits without due process of law. In April of 1990, defendant offered to give plaintiff a de novo hearing pursuant to New York law. Eventually, the trial court issued a series of orders. The first denied defendant’s motion to dismiss on the grounds that offering a post-deprivation hearing did not eliminate a claim based on the failure to provide a pre-deprivation hearing. The second order granted Ortiz summary judgment, but awarded only nominal damages. The third order limited Ortiz’s recovery of attorneys’ fees under 42 U.S.C. § 1988 to those incurred prior to the April 1990 offer of a de novo hearing. Ortiz appealed the third order, and it was held that the trial court erred in two respects. First, the award of nominal damages was adequate to support a substantial award under § 1988. Second, it was inappropriate to consider the April offer to conduct a hearing as a cut-off point after which no fees could be awarded, because a court ought not to reply on prior negotiations and hindsight to determine whether to cut off the award of fees lest those with meritorious claims be dissuaded from pursuing them. Then in a passing remark, the appellate court also noted that defendant could, but did not, make an offer under Rule 68 as an additional reason for finding error in using the April cut-off. Once again, the case cited is a civil rights case which neither articulates nor compels the rule of general application adopted by the majority in this case. Ortiz is silent on the relationship between Rule 54(d) and Rule 68.
The third case relied upon by the majority is Cooper v. Utah, 894 F.2d 1169 (10th Cir.1990). That case, too, involved a request for attorneys’ fees under § 1988. The opinion focuses on a double counting error committed by the trial court. Specifically, the appellate court wrote at some length to make the point that reducing the number of hours for which attorneys’ fees may be awarded because the case was not difficult and then further reducing the award on the basis that the issues were simple was analytically flawed. The Cooper court’s discussion of Rule 68 is considerably more attenuated and fails to even mention Rule 54(d). It consists in its entirely of the following conclusory remarks.
Additionally, we note that the court’s downward adjustment of fees based on settlement negotiations is not well-founded. Rule 68 Fed. R. Civ. P. provides a practical tool by which parties may protect against costs. Nothing in the record indicates that the Defendants-Appellees availed themselves of an offer of judgment pursuant to Rule 68.
The Cooper court states a conclusion without giving any reason to support it. Regrettably, the majority’s analysis here, consisting as it does of a statement adopting the “reasoning of our sister circuits,” is equally bereft of rationale.
Had my understanding of Rule 54(d)(1) prevailed, the issue would then become whether the district court adequately considered the conditions attached to the $400,000 payment when it decided that Berkla needlessly prolonged the litigation. Chief among the conditions was a requirement that Berkla give Corel a perpetual paid-up license. The parties dispute the significance of that condition. Corel takes the position that such a condition is typical *928of settlements in cases of this sort and does not really represent a significant impediment to accepting the offer. Berkla maintains that the paid-up license condition was a significant concession which warranted his rejection of the settlement offer. Which of these competing views is supported by the facts should be evaluated in the first instance by the trial judge to whom discretion has been granted by Rule 54(d)(1). Accordingly, this issue would have to be remanded for further proceedings in the district court were my view of Rule 54(d)(1) also the majority’s view.

. Of course, Rule 54(d)(2) contemplates an award of "attorneys’ fee costs”, but that is not the rule with which we are concerned at the moment, for we have separately addressed the denial of "attorneys’ fee costs” and affirmed the district court's decision to deny them.

. Appellant's Excerpts of Record, Vol. 4 at p. 813.