Monday, December 9, 2013

How not to settle a case

In this case, the defendant offered the plaintiff all the damages to which he was entitled under the Fair Debt Collections Act, totaling $1,000 in cash money. But defendant did not make an Offer of Judgment under Rule 68. After endless squabbling about the terms of the deal, the parties stipulated that plaintiff would get a judgment for the $1,000 and that the court would decide attorneys' fees. After the Court awarded over $30,000 in fees, defendant appealed, arguing that the offer was tantamount to an Offer of Judgment and the plaintiff got too much money in fees.

The case is Cabala v. Crowley, decided on November 19. I guess this case is for litigators and Federal Rules junkies only. But parties should be interested also, because the attorneys' fees far exceeded the damages. Defendant argued that the initial offer of settlement mooted out the case and thus killed off any attorneys' fees entitlement. He also argued that the offer was like a Rule 68 offer which would also limit the attorneys' fees.

No dice, says the Court of Appeals (Raggi, Lynch and Lohier). An unaccepted offer that gives the plaintiff all to which she is entitled does not moot out the case. The plaintiff can still continue with the case. But when that happens, the Court notes, the judge can direct judgment against the defendant for that amount and that would terminate its jurisdiction over the case. But here, defendant made the offer to avoid a judgment. And he did not move the district court to dismiss the case on the ground that he offered the plaintiff his full measure of damages. As the parties then squabbled about the nature of the settlement ("it takes two to stage a useless litigation" the Second Circuit says), the district court did not abuse its discretion in finding that the plaintiff reasonably moved ahead with the case after defendant made that initial offer, thereby entitling him to the fees.

Defendant also argues that the offer to pay out all the damages was the same a Rule 68 offer. Except that there was no Rule 68 offer. If you want to invoke the benefits of Rule 68 offer, then make a Rule 68 offer. Rule 68 can save the defendant a lot of money if the plaintiff's ultimate award is less than what the defendant offered under a formal Rule 68 offer. Had defendant done this, he could have avoided liability for further costs. He did not do this, so he has to write out a check in the amount of $32,489.29 in attorneys' fees. And that, my friends, is a lot of money for a case that was only worth $1,000.

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