Some more guidance from the 2d Circuit on Rule 68 offers

Under Rule 68, if defendant offers a judgment to the plaintiff for a certain amount, and the plaintiff rejects that offer but goes to trial and wins less money then the Rule 68 offer, then the plaintiff forfeits the attorneys' fees expended after the Rule 68 offer was served. This result is particularly painful for the plaintiff if he is suing under the civil rights laws, which allows him to recover "prevailing party" attorneys fees from the defendant.

Since Rule 68 can be an effective way to settle cases, many judges think defense lawyers do not use them enough. One district court judge in White Plains used to have a notice as you entered the courtroom that urged defendants to serve Rule 68 offers on counsel. This case is one of the few in recent years that looks at how Rule 68 offers should be worded.

The case is Steiner v. Lewmar, Inc., decided on March 7. This is not a civil rights case but an action under the Lanham Act, breach of contract and unfair trade practices. The holding would apply to civil rights cases, though. Defendant served a Rule 68 offer on plaintiff that offered $175,000 provided the case was dismissed, "including all claims that have been made or could have been made concerning the LiteTouch trademark." The offer also covered all claims that could have been made under the parties' Agreement (or contract) that gave one party the exclusive right to make and sell Steiner's products.

Normally, Rule 68 offers say the offer includes the plaintiff's attorneys' fees. This one did not expressly mention fees. So plaintiff moved for attorneys' fees in the amount of $383,000. The district court said the Rule 68 offer included fees, and the Court of Appeals (Katzman, Chin and Castel [D.J.]) agrees, in part. Plaintiff may still get fees if the district court decides to award them on remand.

If Rule 68 offers are ambiguous on the issue of attorneys' fees, then the language is construed against the defendant, and plaintiff can move for fees. With respect to the claims the parties litigated under the Agreement, this offer was not ambiguous because it covered "all claims that have been made or could have been made concerning ... the Agreement." Attorneys' fees would be such a claim. "Any contractual claim for reasonable attorneys' fees brought pursuant to the Agreement necessarily 'concerns' the Agreement." The context supports this holding. The parties intended to include contractual claims for attorneys' fees, as they made reference to them in pre-trial filings.

But the case also involved claims under the Connecticut Unfair Trade Practices Act, which allows for fee-shifting. While Rule 68 offer would cover claims under the Agreement, "the claim for attorneys' fees under CUTPA arguably does not fall within the language of the Offer. The claim for attorneys' fees under CUTPA arguably is not encompassed by the language 'all claims ... concerning the LiteTouch trademark." The Second Circuit reminds us that "courts have held that statutory attorneys' fees claims are not unambiguously encompassed in a Rule 68 offer when the offer refers to substantive claims but does not explicitly refer to attorneys' fees." The Court of Appeals cites case from other circuits for this proposition. It is now the standard in the Second Circuit.

The case is remanded to the district court to take up the fee petition once again.