Enforcing Proposals for Settlement and Offers of Judgment in Federal Court: Mission Impossible?
P roposals for settlement and offers of judgment can shift liability for the cost of litigation. Depending on the difference between the amount of the proposal and the amount of the judgment, a party who rejected the proposal for settlement may be liable for court costs and reasonable attorneys’ fees incurred by the opposing party. What is the effect of a proposal for settlement or offer of judgment served in an action pending in federal court based on diversity jurisdiction? What is the effect when the offer or proposal is served in an action pending in federal court based on a federal question? This article will explore the enforceability of an offer of judgment or proposal for settlement filed in federal court in Florida. The article also provides helpful practice pointers for making and enforcing offers and proposals.
Enforcing Offer in Federal Court
Here is a case hypothetical that illustrates the problems that could arise when trying to enforce a proposal for settlement or offer of judgment in federal court. Bob Smith serves as chair of a technology company, Software Developments, Inc. He resides in Arkansas. Software Developments, Inc., maintains its principal place of business in Arkansas and is incorporated in Delaware. Richard Pearl, a software developer, sued Software and Smith in the U. S. District Court for the Middle District of Florida.1 He sued Software for royalty payments in excess of $75,000 he alleges it owes him, and he sued Smith for fraud. Pearl resides in Florida.
Plaintiff asserted both federal and Florida state claims in the complaint. Among other claims, Pearl sued Software for breach of contract and violation of the federal Copyright Act, 17 U.S.C. §501. Both diversity and federal question jurisdiction exists.2 For the purposes of this article, we presume that personal jurisdiction over defendants exists.
After some negotiations, Software and Smith jointly served Pearl with a proposal for settlement under F.S. §768.79 (2009), and Fla. R. Civ. P. 1.442. Defendants offered to settle the parties’ dispute for $2.5 million. Software and Smith apportioned the $2.5 million, offering $2 million from Software and $500,000 from Smith. Pearl did not accept the offer within 30 days and instead opted to pursue his case. After a protracted trial, the jury ruled in Pearl’s favor. The jury awarded Pearl $100,000 — less than 25 percent of the amounts offered by either Software or Smith. The court entered a judgment in the amount of the verdict. Software and Smith sought to enforce their proposal for settlement in federal court.
The Offer of Judgment Statute and Proposal for Settlement Rule
Under Florida law, a valid proposal for settlement must comply with the requirements of both F.S. §768.79 (2009) and Fla. R. Civ. P. 1.442.3 Essentially, the statute provides that the defendant may obtain an award of costs and attorneys’ fees if the plaintiff does not timely accept the defendant’s offer to settle the case and the defendant receives a judgment of no liability or the plaintiff receives a judgment that is 25 percent less than the defendant’s offer. Conversely, if a plaintiff offers to settle a case under the statute, and the defendant fails to timely accept the offer, the plaintiff is entitled to recover attorneys’ fees and costs if the plaintiff recovers a judgment in an amount at least 25 percent greater than the offer.
The offer must be made in good faith. It is the offeree’s burden to prove that the offeror did not make the proposal in good faith.4 “For an offer or proposal of settlement to be made in good faith the offeror must have had a reasonable foundation for making the offer and an intent to settle the case.”5
Fla. R. Civ. P. 1.442 sets forth the procedural requirements provided in F.S. §768.79.6 As a rule of procedure, Rule 1.442 does not independently apply to determinations concerning attorneys’ fees in matters pending in federal court.7 However, parties must still comply with both the applicable rule and statute to ensure enforcement because the requirements of Rule 1.442 embody the procedural requirements of §768.79.8
Proposals for Settlement/Offers of Judgment in Federal Court When Diversity Jurisdiction Exists
• The Erie Doctrine’s Application — Federal courts look to state law when exercising diversity jurisdiction. The Supreme Court ruled in Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), “federal courts sitting in diversity apply state substantive law and federal procedural law.”9 In Erie, the Supreme Court issued its landmark holding:
Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state. And whether the law of the state shall be declared by its legislature in a statute or by its highest court in a decision is not a matter of federal concern. There is no federal general common law. Congress has no power to declare substantive rules of common law applicable in a state whether they be local in their nature or “general,” be they commercial law or a part of the law of torts. And no clause in the Constitution purports to confer such a power upon the federal courts.10
“Classification of a law as ‘substantive’ or ‘procedural’ for Erie purposes is sometimes a challenging endeavor.”11 “Substantive in this context means that the state law applicable to the issue or issues of the suit would significantly affect the outcome of the suit. If so, the federal court must apply the applicable state law on these issues and will follow its own rules of procedure.”12
• Section 768.79 is Substantive Law — Section 768.79 is substantive for Erie purposes.13 In McMahan v. Toto, 256 F.3d 1120 (11th Cir. 2001)(McMahan I), the 11th Circuit considered whether §768.79 applied to a case pending in federal court based on diversity jurisdiction where Virginia substantive law governed the underlying claim.14 In the absence of state decisional law on the issue, the 11th Circuit concluded that §768.79 would not apply because Virginia law applied to the substantive issues of the case.15
On the same day the 11th Circuit denied a rehearing of McMahan I, the Florida Fourth District Court of Appeal issued its opinion in BDO Seidman, LLP v. British Car Auctions, Inc., 802 So. 2d 266 (Fla. 4th DCA 2001).16 There, the court examined whether §768.79 applied in an action litigated in Florida state court where Tennessee substantive law applied. The court explained, “because the statute is clear, it should be applied without engaging in a conflict of laws analysis.” Further, the court relied on the Restatement (Second) of Conflict of Laws §6, cmt.b. (1971) analysis stating: “Provided that it is constitutional to do so, the court will apply a local statute in the manner intended by the legislature even when the local law of another state would be applicable under usual choice-of-law principles.”17 The Florida appellate court then concluded that §768.79 applies to all civil actions for damages brought in Florida courts.18
In light of BDO Seidman, the 11th Circuit rescinded the section of its decision in McMahan I that discussed §768.79 in McMahan v. Toto, 311 F.3d 1077 (11th Cir. 2002) (McMahan II). The court explained that because McMahan I had not yet become final, it was within its “authority, power, and duty” to correct its “missed guess about Florida law.”19 Thus, considering the ruling in BDO Seidman, in McMahan II, the 11th Circuit held “Section 768.79 is applicable to cases, like this one, that are tried in the State of Florida even though the substantive law that governs the case is that of another state.”20 Courts in Florida, therefore, agree that §768.79 “creates substantive rights” to attorneys’ fees in Florida.21
• Section 768.79 is Applicable to All Courts in Florida — Section 768.79 also expressly states that the statute is applicable “[i]n any civil action for damages filed in the courts of this state.” Federal courts in Florida have construed that language to mean that the statute applies in both federal and state courts in Florida.22 Courts have rejected arguments that the statute refers only to Florida state court actions explaining, “the plain language of the statute indicates that it applies to actions filed in the courts of this state.”23 “The [federal] district and bankruptcy courts of [the 11th] Circuit that are located in Florida are courts of Florida because they adjudicate claims under Florida law and are a part of the judicial system in that state.”24
The 11th Circuit has explained: “Florida cannot discriminate against a federal forum. Under the Supremacy Clause of the Constitution, a state can discriminate neither against a federal cause of action. . . nor against a party’s resort to a federal forum.”25 Accordingly, courts have concluded that §768.79 is applicable to the determination of whether attorneys’ fees are available in a case pending in federal court in Florida based on diversity jurisdiction.26
Applying the aforementioned to the hypothetical, Software and Smith can try to enforce the proposal for settlement by relying on the substantive nature of §768.79. In a diversity action, the federal court sitting in Florida must follow the substantive law of the forum state — i.e., Florida. Additionally, under BDO Seidman, even if the substantive law of another state applied to Pearl’s case, §768.79 would nonetheless remain applicable. Moreover, because the express language of the statute provides for attorneys’ fees in “any civil action for damages filed in the courts of this state,” the statute applies to all courts located in Florida.
Thus, Software and Smith can use §768.79 because 1) it is a substantive statute, which applies in a diversity action like the one at hand; and 2) because Pearl filed the action in Florida, the case is within the purview of the statute, and the offer can be enforced in a federal action pending in Florida.
Proposals for Settlement/Offers of Judgment in Federal Court When Federal Question Jurisdiction Exists
In determining the applicability of proposals for settlement and offers of judgment in cases in federal court based on federal question jurisdiction, one must carefully review the underlying federal statute establishing the cause of action at issue. In our hypothetical, because Pearl alleged violations of both federal and state law and both federal question and diversity jurisdiction exist, Software and Smith can likely make a claim for attorneys’ fees under §768.79 and Rule 1.442.27
Additionally, because the action is pending in federal court, Software and Smith can assert a claim for costs under the federal offer of judgment rule — Rule 68. Rule 68 provides for an award of only costs.28 However, in some circumstances attorneys’ fees may be included as costs.29 Thus, both attorneys’ fees and costs may be available under Rule 68.
In Marek v. Chesny, 473 U.S. 1 (1985), the Supreme Court explained that the drafters of Rule 68 purposely left the term “costs” undefined.30 The court concluded that the drafters did not define the term “costs” so that the courts could apply the underlying statute to define the term.31 The court explained:
[T]he most reasonable inference is that the term “costs” in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority. . . . [W]here the underlying statute defines “costs” to include attorney’s fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.32
The Copyright Act includes attorneys’ fees in its definition of costs as follows:
In any civil action under [the Copyright Act], the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.33
Accordingly, attorneys’ fees are available as costs under Rule 68 in Copyright Act actions like plaintiff’s in the instant hypothetical.34 To determine whether attorneys’ fees are available in a case in federal court based on federal question jurisdiction, you must review the underlying federal statute applicable to your case.
• Federal Preemption of §768.79 — If Software and Smith attempt to recover attorneys’ fees under §768.79, Pearl may contend that the statute is preempted by Rule 68. Under the circumstances in our hypothetical, the effect of preemption is immaterial because the Copyright Act makes attorneys’ fees available as costs. But, in cases involving underlying statutes that do not provide for attorneys’ fees, one should be aware of the preemption argument.
Federal law preempts state statutes and applies exclusively when the two laws conflict.35 Fed. R. Civ. P. 68 is the federal offer of judgment rule. Rule 68 provides only for an award of costs. In comparison, §768.79 provides for the recovery of both attorneys’ fees and other costs. Section 768.79 discusses and provides for offers of judgment, demands for judgment, and offers of settlement, and does not require the entry of a judgment prior to any award under the provisions of the statute.36 On the other hand, Rule 68 is only applicable to offers of judgment.37
The 11th Circuit considered whether §768.79 conflicts with Rule 68.38 The court concluded that because of the differences in the two provisions, no conflict exists.39 Accordingly, federal courts sitting in Florida will follow the 11th Circuit’s precedent and conclude that Rule 68 does not preempt §768.79.40 Therefore, while there is no holding from a court directly on point, it is probably worthwhile to attempt to employ §768.79 to seek attorneys’ fees in a case pending in a Florida federal court based on federal question jurisdiction, when there is no underlying federal statute providing for attorneys’ fees.
The rule and statute are strictly construed because they are in derogation of the common law American rule that each party must pay its own attorneys’ fees and because forcing another party to pay fees is deemed a penalty.41 Virtually any offer of judgment that is ambiguous is not enforceable.42 To ensure that your offer or proposal complies with §768.79 and Rule 1.442, consider expressly tracking the language of the law. This would also help reduce the possibility that a court could find your proposal or offer ambiguous. Courts dictate that all “t’s” must be crossed and “i’s” dotted to ensure enforceability of the statute and rule.43
The chart on page 34 illustrates some practical guidelines from the rule and statute that must be followed when making a proposal to settle or offer of judgment.
The nonmonetary conditions contained in offers or proposals for settlement must be carefully considered. For instance, requiring the execution of a release is a nonmonetary term that must be described with particularity.57 To describe it with particularity, the proposed release must be either attached to the proposal or summarized therein.58
Additionally, non-nonmonetary conditions proposed in the offer or proposal cannot be designed to force a party to give up some other claim it would have had.59 For example, in a release, a plaintiff cannot be asked to release a defendant from any and all claims “ever” against that defendant, arguably encompassing claims covered in other pending litigation. The appropriate claims are limited to those that were brought or could have been brought as a result of the underlying facts that gave rise to the claims. Stated differently, the release must be limited to the damages arising out of the litigation.60 Failure to limit the release in this manner renders the nonmonetary condition ambiguous and, therefore, unenforceable.
Joint proposals should also be carefully reviewed. Joint proposals, such as the one involved in the hypothetical, are often wrought with pitfalls. Joint proposals are permitted, but if two plaintiffs are making an offer to one or multiple defendants, or vice versa, the total amount of the proposal must apportion how much of the total amount is offered by each plaintiff (or defendant) to each defendant (or plaintiff).61 This apportionment rule applies even in cases involving vicarious liability.62 In our hypothetical, Software and Smith should have specified how much each plaintiff offered to settle Pearl’s case against them. If they failed to do so, Pearl could argue that the offer or proposal was ambiguous.
Finally, there is a certified conflict between Florida district courts of appeal regarding whether a proposal directed to multiple offerees with a condition requiring all offerees to accept is enforceable. The First District Court of Appeal concluded that a proposal to multiple parties conditioning acceptance on all offerees accepting does not make the offer ambiguous and unenforceable.63 On the other hand, the Second District Court of Appeal held that acceptance cannot be conditioned on acceptance by all offerees because under such a condition, no offeree can independently settle and evaluate his or her claim.64
Attorneys’ fees are available under §768.79 and Rule 1.422 in federal courts sitting in Florida pursuant to the court’s diversity jurisdiction. Attorneys’ fees are likewise available in cases pending in federal courts in Florida pursuant to §768.79. Additionally, attorneys’ fees are available in federal court pursuant to the federal offer of judgment rule, Rule 68, depending upon the circumstances and the cause of action at issue. But, careful adherence to the offer of judgment statute and rule is essential to enforcing these laws and obtaining an attorneys’ fee award.
1 See 28 U.S.C. §1391 (discussing venue requirements).
2 See 28 U.S.C. §§1331, 1332 (discussing federal jurisdictional requirements).
3 Campbell v. Goldman, 959 So. 2d 223 (Fla. 2007).
4 Fla. Stat. §768.79(7) (2009); Hall v. Lexington Ins. Co., 895 So. 2d 1161, 1166 (Fla. 4th D.C.A. 2005).
5 Official Cargo Transp. Co. v. Certain Interested Underwriters, 368 F. Supp. 2d 1314, 1317 (S.D. Fla. 2005) (citing Wagner v. Brandeberry, 761 So. 2d 443 (Fla. 2d D.C.A. 2000)).
6 See TGI Fridays, Inc. v. Dvorak, 663 So. 2d 606, 611 n. 1 (Fla. 1995) (stating, “In 1992, [the Florida Supreme Court] changed Rule 1.442 to simply reference the procedure set forth in section 768.79, Florida Statutes (1991).”).
7 See Tai-Pan, Inc. v. Keith Marine, Inc., 1997 WL 714898 *8, n.15 (M.D. Fla. 1997).
8 Campbell, 959 So. 2d at 226.
9 Erie, 304 U.S. 78; Alyeska Pipeline Co. v. Wilderness Soc., 421 U.S. 240, 259 n. 31 (1975); Esfeld v. Costa Crociere, S.P.A., 289 F.3d 1300, 1306 (11th Cir. 2002) (quoting Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996)).
10 Erie, 304 U.S. at 78 (emphasis added).
11 Gasperini, 518 U.S. at 416.
12 Maryland Cas. Co. v. Williams, 377 F.2d 389, 393 n.1 (5th Cir. 1967). In Bonner v. Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc) the 11th Circuit adopted all decisions of the former Fifth Circuit that were entered prior to the close of business on September 30, 1981. The 11th Circuit has adopted a multi-step test to determine whether the state or federal law should apply to a particular issue raised in a diversity case. Esfeld, 289 F.3d at 1306-07; Alexander Proudfoot Co. World Headquarters L.P. v. Thayer, 877 F.2d 912, 917-19 (11th Cir. 1989). First, federal courts examine whether the matter at issue is governed by federal or state law. Erie, 304 U.S. at 78-79; Esfeld, 289 F.3d at 1306-07. If no conflict exists, then the analysis need proceed no further and the state law is applied harmoniously with any applicable federal law. Esfeld, 289 F.3d at 1307 (citing Hanna v. Plumer, 380 U.S. 460, 469-70 (1965)) (“However, if the applicable state and federal law conflict, the district court must ask whether a congressional statute or Federal Rule of Civil Procedure covers the disputed issue. If a federal statute or rule of procedure is on point, the district court is to apply federal rather than state law.”).
13 Jones v. United Space Alliance, LLC, 494 F.3d 1306, 1309 (11th Cir. 2007); McMahan v. Toto, 256 F.3d 1120, 1132 (11th Cir. 2001), modified in part by McMahan v. Toto, 311 F.3d 1077 (11th Cir. 2002) (holding that §768.79 is substantive for Erie purposes); Kinch v. Big Lots Stores, Inc., 2008 WL 660289 (M.D. Fla. Mar. 6, 2008); Essex Builders Group, Inc. v. Amerisure Ins. Co., 2007 WL 2376036 (M.D. Fla. Aug. 16, 2007); Strait v. Busch Entm’t Corp., 2007 WL 496605 (M.D. Fla. Feb. 12, 2007); Morris v. Arizona Beverage Co., LLC, 2005 WL 5544961 (S.D. Fla. Feb. 9, 2005); Walker v. Bozeman, 243 F. Supp. 2d 1298 (N.D. Fla. Feb. 11, 2003); USAA Cas. Ins. Co. v. Auffant, 274 B.R. 554 (M.D. Fla. Mar. 11, 2002).
14 McMahan v. Toto, 256 F.3d 1120, 1132 (11th Cir. 2001).
15 Id. at 1132-33.
16 See McMahan v. Toto, 311 F.3d 1077, 1079 (11th Cir. 2002) (discussing the timing of the BDO Seidman decision).
17 BDO Seidman, 802 So. 2d 366 (Fla. 4th D.C.A. 2001).
18 BDO Seidman, Id. at 369.
19 McMahan, 311 F.3d at 1081.
21 TGI Friday’s, Inc., 663 So. 2d at 611.
22 Menchise v. Akerman Senterfitt, 532 F.3d 1146, 1150-51 (11th Cir. 2008); Strait, 2007 WL 496605 at *2.
23 Strait, 2007 WL 496605 at *2.
24 Menchise, 532 F.3d at 1150.
25 Id. at 1151.
26 See, e.g., Evans v. Georgia Pacific, Inc., 2006 WL 858523 (11th Cir. 2006); Pinchinat v. Graco Children’s Prod., Inc., 2005 WL 1459409 (M.D. Fla. 2005).
27 See Columbia Data Prod., Inc. v. Symantec Corp., 2008 WL 4365925 (M.D. Fla. Sept. 23, 2008) (plaintiff asserted claim for attorneys’ fees relying on multiple bases including Fla. Stat. §768.79 (2008)).
29 Marek v. Chesny, 473 U.S. 1, 7 (1985).
30 Id. at 8-9.
31 Id.; Broadcast Music, Inc. v. Dano’s Rest. Sys., 902 F. Supp. 224, 226-27 (M.D. Fla. 1995).
32 Marek, 473 U.S. at 9.
33 17 U.S.C. §505.
34 Jordan v. Time Inc., 111 F.3d 102, 104-05 (11th Cir. 1997); Broadcast Music, Inc., 902 F. Supp. at 226-227.
35 Menchise, 532 F.3d at 1152.
38 Id.; Tanker Mgmt., Inc. v. Brunson, 918 F.2d 1524, 1528-29 (11th Cir. 1990).
39 Menchise, 532 F.3d at 1152; Tanker Mgmt., Inc., 918 F.2d at 1528-29.
41 Campbell, 959 So. 2d at 226-227 (discussing Lamb v. Matetzschk, 906 So. 2d 1037 (Fla. 2005); Willis Shaw Express, Inc. v. Hilyer Sod, Inc., 849 So. 2d 276, 278 (Fla. 2003)); Hess v. Walton, 898 So. 2d 1046, 1048 (Fla. 2d D.C.A. 2005); RLS Bus. Ventures, Inc. v. Second Chance Wholesale, Inc., 784 So. 2d 1194, 1195 (Fla. 2d D.C.A. 2001).
42 Hibbard v. McGraw, 918 So. 2d 967, 971 (Fla. 5th D.C.A. 2005).
43 Campbell, 959 So. 2d at 227 (Pariente, J., specially concurring).
44 Fla. Stat. §768.79(2)(a); Fla. R. Civ. P. 1.442(c)(1).
45 Fla. R. Civ. P. 1.442(c)(2)(D).
46 Fla. Stat. §768.79(2)(a); Campbell, 959 So. 2d at 227; Fla. R. Civ. P. 1.442(c)(1).
47 Fla. Stat. §768.79(2)(c); Fla. R. Civ. P. 1.442(c)(2)(E).
48 Fla. Stat. §768.79(2)(b); Fla. R. Civ. P. 1.442(a)(2)(A).
49 Fla. R. Civ. P. 1.442(c)(2)(F).
50 Fla. R. Civ. P. 1.442(c)(2)(B).
51 Fla. R. Civ. P. 1.442(c)(2)(G).
52 Fla. Stat. §768.79(2)(d); Fla. R. Civ. P. 1.442(c)(2)(D).
53 Fla. Stat. §768.79(3); Fla. R. Civ. P. 1.442(b).
54 Fla. R. Civ. P. 1.442(c)(2)(C).
55 Downs v. Coastal Sys. Intern., Inc., 972 So. 2d 258, 262 (Fla. 3d D.C.A. 2008).
56 Frosti v. Creel, 979 So. 2d 912, 915 (Fla. 2008).
57 State Farm Mut. Auto. Ins. Co. v. Nichols, 932 So. 2d 1067, 1079 (Fla. 2006).
58 Id. at 1079.
59 Nichols v. State Farm Mut., 851 So. 2d 742, 746 n.3 (Fla. 5th D.C.A. 2003).
60 Palm Beach Polo Holdings, Inc. v. Village of Wellington, 904 So. 2d 652, 653-54 (Fla. 4th D.C.A. 2005).
61 Willis Shaw, 849 So. 2d at 279; Graham v. Peter K. Yeskel 1996 Irrevocable Trust, 928 So. 2d 371, 372 (Fla. 4th D.C.A. 2006).
62 Lamb, 906 So. 2d at 1040.
63 Clements v. Rose, 982 So. 2d 731, 732 (Fla. 1st D.C.A. 2008).
64 Attorneys’ Title Ins. Fund v. Gorka, 989 So. 2d 1210, 1214 (Fla. 2d D.C.A. 2008).
Julie Simone Sneed is a shareholder at Fowler White Boggs, P.A., practicing business litigation and class action litigation in state and federal courts.
Ceci Culpepper Berman is a shareholder at Fowler White Boggs, P.A., practicing appellate litigation in state and federal courts.
This column is submitted on behalf of the Business Law Section, Louis T. M. Conti, chair, and Melanie E. Damian and Peter F. Valori, editors.