Does Rule 68 apply when defendant takes up the appeal?

If you litigate in federal court, then you are familiar with Rule 68. This rule says that if defendant serves the plaintiff with an Offer of Judgment and the plaintiff prevails at trial but recovers less money than set out in the Offer of Judgment, then plaintiff has to pay the defendant's costs incurred after the Offer was served. Costs include attorneys fees under Rule 68, which means the plaintiff's lawyer does not recover any fees for work that transpired after the Rule 68 offer was served. Rule 68, then, forces plaintiff to think hard about whether to proceed with the litigation or whether to take the money and run. Rule 68 is not always so simple, however.

The case is Luo v. L & S Acupuncture, a case out of the Eastern District of New York. This unpublished attorney's fees ruling was issued on July 8. This FLSA case went to trial, and plaintiff recovered about $4,000. Plaintiff's counsel was John Troy, Esq. FLSA cases often do not yield large damages awards, so the district court had no problem awarding the Troy firm over $60,000 in attorneys fees. The problem was that defendant had previously served a Rule 68 offer on plaintiff in the amount of $18,000. Since plaintiff's damages award and attorneys fees accrued through the time of the Rule 68 offer fell below $18,000, in theory, the attorneys fees should have been cut off from the time the offer was served. Except that, in opposing the attorneys' fees motion in the district court, defendant neglected to tell the court about the Rule 68 offer.

After the district court issued the fees ruling, defendant took up an appeal. I handled the appeal. The Court of Appeals upheld the attorneys' fees ruling. I then moved for attorneys fees for the time I spent handling the appeal. Defendant opposed that motion, arguing that the Rule 68 offer was still in effect and that plaintiff should not recover any attorneys fees for the successful appellate work. Interesting argument for which there is no case law that addresses this issue one way or the other. On one hand, Rule 68 punishes the plaintiff for continuing the litigation even after defendant makes a fair offer to settle. Appeals arguable qualify as continued litigation. But defendant did not present the Rule 68 offer to the district court during the first round of fee litigation. And it was defendant and not plaintiff who took up the appeal, which means defendant prolonged the litigation at that point, not plaintiff.

While no case law addresses the issue of whether a Rule 68 offer prevents the prevailing plaintiff from recovering any fees in fighting off an appeal initiated by the defendant, the Judge Cogan saw this as a simple issue. The court wrote, "the Rule 68 offer, made prior to this Court’s award of attorneys’ fees, has nothing to do with the right to recover attorneys’ fees incurred on appeal. Rather, the Rule 68 offer was the issue (or at least the major issue) on appeal. It was defendants that chose to take that appeal. Obviously, plaintiff had to oppose the appeal, and she won. I reject defendants’ effort to convert the Second Circuit’s affirmance into a pyrrhic victory."