Seventh Circuit Notes Important Difference Between Rejected Fed. R. Civ. P 68 Offer and Non-Rule 68 Settlement Offer in Determining Reasonable Attorney’s Fee

In Cooper v.  Retrieval Masters Creditors, No. 18-2358 (7th Cir. July 29, 2022), the Seventh Circuit vacates and remands an attorney’s fee award that was improperly reduced in a Fair Debt Collection Practices Act (FDCPA) case in reliance on a rejected, non-Rule 68 settlement offer in a mediation.

“In February 2016, defendant Retrieval‐Masters Creditors Bureau (RMCB) sent plaintiff Jack Cooper a letter seeking to collect a consumer debt of a little over $300. The letter directed Cooper to include certain information with his payment so that RMCB could update the credit bureau. Cooper responded the next month by suing RMCB for violating 15 U.S.C. § 1692e(5) & (10). Cooper alleged that RMCB’s letter falsely threatened to report his debt to credit bureaus even though RMCB had no actual intention to do so.”

During a settlement conference before a magistrate judge, the defendant RMCB “made an oral offer to pay Cooper $500 in damages, plus reasonable attorney fees and costs incurred to date. Cooper rejected the oral offer.” The plaintiff prevailed at trial but won only $500. His counsel petitioned for $65,357.90 as an attorney fee. “The district court awarded all of the requested costs but only about one-tenth of the fees sought [$6,845.76]. The court . . . found that all the hours Cooper’s attorneys spent working on the case after he rejected RMCB’s oral offer of five hundred dollars plus fees and costs were unreasonable.”

The Seventh Circuit vacates and remands. “The controversy here focuses on the dramatic reduction in the requested fee by applying these factors to Cooper’s rejection of the oral settlement offer in the early settlement conference. The district court held that all the hours spent by Cooper’s counsel after rejecting that settlement offer were unreasonable.” The panel holds that the district court gave excessive weight to the unaccepted oral settlement offer, i.e., not made under Rule 68.

“Since Marek v. Chesny, 473 U.S. 1 (1985), Rule 68 has provided a clear path for a defendant who wants to reduce the risk of a high fee award, at least under some fee‐shifting statutes. Rule 68 limits the costs that a prevailing party may recover if the party rejected the defendant’s pre‐trial offer of judgment and ultimately received a less favorable award at trial.” Under Rule 68, “a defendant’s offer must be made in writing and presented to the plaintiff at least 14 days before the date set for trial,” and may not be revoked or amended for 14 days. Once those requirements are met, Rule 68 applies to bar the prevailing party from recovering any costs incurred after the party rejected the defendant’s offer.”  

Because the oral offer met none of these formalities, it was error for the district court to “impose what amounts to the harshest consequences of a rejected Rule 68 offer”—total forfeiture of post-offer costs—”when the offering party has not also complied with the procedural protections that Rule 68 itself provides.”

The district court relied improperly on Moriarty v. Svec, 233 F.3d 955 (7th Cir. 2000), a Rule 68 case, to evaluate the fee award here. “District courts applying Moriarty’s mandate should consider the important differences between Rule 68 offers of judgment and non‐Rule 68 settlement offers. As noted, Rule 68 offers of judgment must be in writing and be served on the opposing party at least 14 days before trial . . . . If accepted, the terms of the offer will be binding on both parties . . . . In contrast, a non‐Rule 68 offer need not be in writing, need not be left open for any particular time, and may be amended at will.”

Outside of Rule 68, then, rejection of a settlement offer “should not be the sole fact that determines the fee award. Rather, courts should consider the totality of the circumstances and focus on whether the lodestar reflects the unique facts of the case or whether it should be adjusted up or down to better account for those facts . . . . [I]t is important for district courts to maintain and respect the distinction between Rule 68 offers of judgment and other settlement offers. Rule 68’s potentially powerful consequences are justified by several protections that are not available for plaintiffs considering non‐Rule 68 offers like the one here.”

In closing the panel also notes for future consideration whether settlement offers made in mediation, which are intended to be kept confidential, may be used to reduce a fee or cost award. Local Rule 83.5 of the Northern District of Illinois expressly forbids the disclosure of settlement demands and offers. Yet the defendant waived the point by not raising it below, thus leaving the issue to another day. “If there is a debate to be had about whether courts may consider such evidence from settlement conferences and the scope of Local Rule 83.5, it ought to begin in the district court that established the rule.”

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