ATTORNEYS’ FEES AND THE CONFLICT BETWEEN RULE 68 AND THE CLEAN WATER ACT’S CITIZEN SUIT PROVISION
Burgoyne, Daniel E
Environmental “citizen suit” statutes provide incentives for citizens to bring enforcement actions by awarding successful plaintiffs reasonable attorneys’ fees. Defendants have attempted to use Federal Rule of Civil Procedure 68 to block a successful plaintiffs recovery of attorneys’ fees. Under Rule 68, defendants may offer to allow a judgment to be issued against them for a fixed dollar amount. Plaintiffs may either accept this judgment offer or proceed to trial. If plaintiffs proceed to trial, however, they must receive a judgment more favorable than the offer or pay the defendants’ litigation costs. Defendants argue that the word “costs” as used in Rule 68 applies to attorneys’ fees in addition to other litigation costs. If so, the use of Rule 68 can have a great influence on the economics of citizen suit litigation. This Note explores whether or not Rule 68 should be read to apply to attorneys’ fees in citizen suits under the Clean Water Act and other environmental statutes.
In February 2002, two environmental organizations in North Carolina sued the owners of a tract of land-adjacent to wetlands-for alleged violations of various provisions of the Federal Water Pollution Control Act,1 commonly known as the Clean Water Act (CWA).2 The plaintiffs in North Carolina Shellfish Growers Ass’n v. Holly Ridge Associates3 were among the many citizens and environmental groups to have utilized section 505 of the CWA, which allows any person to file a “citizen suit” against persons or entities who violate the Act and awards successful plaintiffs reasonable attorneys’ fees for their efforts.4
Approximately nine months later, the defendants served upon the plaintiffs an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure in which the defendants offered to enter into a consent decree to settle the suit.5 If the plaintiffs had rejected the offer and received a judgment less favorable at trial, Rule 68 takes from plaintiffs the award of attorneys’ fees to which they would have otherwise been entitled.6
Because attorneys’ fees often represent a significant amount of money, the plaintiffs responded by filing a motion for a declaration that the Rule 68 offer was null and void.7 The plaintiffs argued that Rule 68 “would have a chilling effect upon the willingness of plaintiffs to maintain [citizen suits] and would therefore frustrate the purposes of Congress” in enacting the citizen suit provision.8 However, the U.S. Supreme Court’s decision in Marek v. Chesny appears to reject this argument.9 In this 1985 decision, the Court rejected a similar argument with regards to the Civil Rights Attorney’s Fees Awards Act (Civil Rights statute). When the result at trial is less favorable than the offer of judgment, the Court held that Rule 68 operates to deny plaintiffs any award for attorneys’ fees for work done after the offer is rejected.10 However, in Holly Ridge, the court virtually ignored Marek and found Rule 68 inapplicable to citizen suits under the CWA.11 As a result, the plaintiffs could reject the defendants’ offer to enter a consent decree and be confident that, even if the result at trial was less favorable, there would be no adverse effect on the award of post-offer attorneys’ fees.
This Note argues that the Holly Ridge court erred by failing to apply the Marek holding to the CWA. While many valid criticisms have been levied against the Marek decision, it is still good law. Furthermore, its reasoning, though flawed, applies to section 505 of the CWA.
Part I of this Note explores the history and policies underlying environmental citizen suit statutes and the treatment of attorneys’ fees under those statutes. Part II examines the workings of Rule 68, the limits imposed by the Rules Enabling Act under which Rule 68 was promulgated, and the key cases interpreting Rule 68. Part III describes three cases in which courts have examined how Rule 68 interacts with section 505 of the CWA with respect to attorneys’ fees. Finally, Part FV argues that section 505 of the CWA is indistinguishable from the U.S. Supreme Court’s analysis of the Civil Rights statute in Marek. This Note concludes by suggesting that a change in the law of Rule 68 is desirable, but the Marek holding controls the interaction of Rule 68 and the CWA until such a change is made. The Marek holding requires that when a plaintiff rejects a Rule 68 offer and obtains a judgment that is less favorable than the Rule 68 offer, he is not entitled to receive attorneys’ fees for post-offer work.12
I. CITIZEN SUITS UNDER THE CLEAN WATER ACT
Many federal statutes-especially environmental statutes-contain citizen enforcement provisions.13 These “citizen suit” provisions enable private citizens to supplement administrative enforcement of these statutes with a judicial remedy.14 Therefore, by “‘standing in the shoes of the government,'” plaintiffs who file citizen suits provide a public service by ensuring that the laws are enforced.15 An example of a citizen suit provision is section 505 of the CWA.16 This Part will explore the policies which led to the enactment of secdon 505 and the history and development of citizen suit provisions in general. It will then explore one of the fundamental elements of a citizen suit statute-the allocation of attorneys’ fees.
A. History and Development of Environmental Citizen Suit Statutes
Environmental enforcement prior to 1970 was “cumbersome and ineffective” because administrative agencies suffered from a combination of inadequate resources and lack of political will.17 Citizen enforcement of public rights was not a new concept at this time-in fact, the term “private attorney general” was used as early as 1943 to refer to citizens who sued to enforce public rights.18 For issues where an applicable cause of action existed, such as in the civil rights context, the citizen suit was a valuable tool.19 Unfortunately, interested citizens often lacked an appropriate cause of action to resolve many environmental issues, and therefore had to rely upon common law causes of action with varying degrees of success.20
This situation changed, however, in 1970 when a citizen suit provision was added to the Clean Air Act (CAA).21 This citizen suit provision, contained in section 304 of the CAA, served as a model for many of the citizen suit provisions subsequently enacted including section 505 of the CWA.22 Proponents of the CAA citizen suit provision thought it would promote greater enforcement not only by providing direct enforcement against polluters, but by causing administrative agencies, such as the Environmental Protection Agency (EPA), to act.23
B. Text and Underlying Polities of the Clean Water Act Citizen Suit Provision
section 505 of the CWA permits any citizen to commence a suit against any person who violates an effluent standard or limitation of the CWA, or against the Administrator of EPA (Administrator) for failing to perform any nondiscretionary duty.24 Prior to filing suit, the citizen is required to give notice to the Administrator and to the state in which the violation occurs.25 Then, the Administrator or state may file a separate enforcement action.26 This furthers the policy that the enforcement action should be initiated by the administrative agency, but that the citizen right of action serves as a check on that agency.27 If the agency action is inadequate or nonexistent, the citizen may then supplement that action with a citizen suit.28
In addition to their equitable powers, courts are permitted to impose civil penalties of up to twenty-five thousand dollars.29 However, these amounts are not paid to the citizen suit plaintiff, but are instead paid to the United States Treasury.30 Therefore, in order to encourage citizens to undertake the substantial financial burden of bringing an enforcement action, section 505, like most citizen suit statutes, permits the recovery of attorneys’ fees.31 The court may award costs-including reasonable attorney and expert witness fees-to any “prevailing or substantially prevailing party” whenever the court determines such award is appropriate.32 In response to concern that an award of attorneys’ fees to plaintiffs encourages abuse of the statute, the legislative history indicates that the “whenever appropriate” language allows fees to be awarded to prevailing defendants when the action is frivolous or harassing.33 Therefore, the attorneys’ fees provision in section 505 serves both to encourage citizens to bring meritorious suits as a public service, while penalizing those who bring harassing or frivolous suits.34
C. Treatment of Costs and Attorneys’ fees
Citizen suits are critical to the effective enforcement of environmental laws,35 just as the ability of plaintiffs to recover attorneys’ fees is critical to the effectiveness of citizen suits.36 The “American Rule” is that each side in litigation pays its attorneys’ fees.37 While there are some common law exceptions, most departures from the American Rule are statutory.38 This Part explores how Congress and the courts allocate the costs of litigadon in citizen suits in the absence of Rule 68.
1. The American Rule
The common law American Rule requires each party to bear its own attorneys’ fees.39 The rule has been justified on the grounds that: (1) a system in which the loser pays would deter individuals from bringing claims because of the risk of having to bear the opponent’s litigation costs;40 (2) the legal merits of a claim are difficult to judge prior to instituting an action;41 and (3) litigation is more efficient under the American Rule because it does not require a separate proceeding to determine a fee award.42
2. Judicial Exceptions to the American Rule
Despite these arguments in favor of the American Rule, the courts have recognized that, in some circumstances, shifting attorneys’ fees is desirable.43 Consequently, the courts have developed a “bad faith” exception to the American Rule that allows fees to be assessed against parties who act in bad faith.44 A second exception to the American Rule
is the “common benefit” exception, which spreads the cost of litigation to those persons benefiting from its success.45
Despite the existence of these judicial exceptions, the U.S. Supreme Court has stated that any further exceptions to the American Rule must derive from Congress, not the judiciary.46 However, prior to 1975, the courts recognized a “private attorney general” exception to the American Rule, under which fees could be awarded to litigants who act to vindicate important statutory rights of all citizens.47 The Court in Alyeska Pipeline Service Co. v. Wilderness Sodety, however, ruled that only Congress could fashion such a “far-reaching” exception to the American Rule beyond the narrow circumstances found at common law.48 The Court’s historical analysis of the American Rule found implicit congressional acceptance of the bad faith and common benefit exceptions, but ultimately led it to conclude that any further deviations should emanate from the legislature, not the judiciary.49
3. Statutory Exceptions to the American Rule
The Court’s ruling in Alyeska Pipeline left untouched the many federal statutes which provided for attorneys’ fees.50 Courts have looked to the language in these statutes and their legislative histories to determine whether to award attorneys’ fees in a given case.51 Further, because the U.S. Supreme Court has held that similar statutory phrases are to be interpreted consistently, courts also look to similarly worded statutes for interpretive guidance.52 Thus, while the law of attorneys’ fees may not be entirely uniform, there is consistency among statutes. Most attorneys’ fees statutes use one or both of two formulations:53 the “prevailing or substantially prevailing party” formulation54 or the “whenever appropriate” formulation.55
A plaintiff is a “prevailing or substantially prevailing party” if the plaintiff is successful on “‘any significant issue in litigation which achieves some of the benefit the part[y] sought in bringing suit.'”56 Plaintiff awards must be reduced if the plaintiff achieves only limited success in relation to the relief sought or fails on certain claims that are distinct from the successful claims.57 It is not entirely clear from the statutes whether forms of success other than a court judgment will constitute “prevailing” under statutes with this formulation.58 One court decision suggests that only plaintiffs who obtain judicial relief are “prevailing parties.”59 However, the question over what constitutes “prevailing” should not be relevant in the context of Rule 68, since a judgment must be reached in order for the rule to operate.60
The “whenever appropriate” formulation on its face appears to grant a greater level of discretion to the court in determining fee awards than does the “prevailing party” formulation.61 However, this discretion has been bounded by several decisions and has different ramifications for parties depending on whether they are plaintiffs or defendants.62 Even though the statute in question may not explicitly require a party to prevail, the U.S. Supreme Court has ruled that it is never appropriate to award attorneys’ fees to plaintiffs whose claims are wholly unsuccessful.63 Rather, this language differs from the “prevailing party” language by allowing courts discretion to grant attorneys’ fees to a party who partially prevailed.64 As long as plaintiffs prevail, however, courts will find it “appropriate” to award fees to these plaintiffs, unless “special circumstances” exist.65 Therefore, the “whenever appropriate” language permits a court to award fees to a partially prevailing plaintiff and, under special circumstances, to divest a prevailing plaintiff of an attorneys’ fees award, but never to confer an attorneys’ fees award upon a nonprevailing plaintiff.
Prevailing defendants may only recover attorneys’ fees from unsuccessful plaintiffs when a suit is frivolous, unreasonable, or without foundation, even though it may not have been brought in subjective bad faith.66 The Supreme Court in Christiansburg Garment Co. v. Equal Employment Opportunity Commission found that the attorneys’ fees provision in the Civil Rights Act of 1964, which allowed a court to use its discretion in awarding attorneys’ fees, only allowed an award to defendants in these limited circumstances.67 In making this ruling, the Court explicitly noted that the provision in question was similar to section 505 of the CWA in that it allowed courts discretion in implementing the statutory policy.68 Therefore, by implication, section 505 also restricts fee awards to defendants only in situations where a suit is frivolous, unreasonable, or without foundation.69
section 505 contains both statutory formulations, allowing costs including reasonable attorneys’ fees to be awarded to “any prevailing or substantially prevailing party, whenever the court determines such an award is appropriate.”70 Therefore, prevailing or partially prevailing plaintiffs are presumptively entitled to attorneys’ fees absent special circumstances.71 However, attorneys’ fees may only be awarded to prevailing defendants when a suit is frivolous, unreasonable, or without foundation.72
4. Calculation of Reasonable Attorneys’ Fees
Most attorneys’ fees statutes, including section 505, refer to “reasonable” attorneys’ fees.73 A reasonable fee is determined first by multiplying the number of hours reasonably expended by a reasonable hourly rate.74 The party seeking the award submits evidence of the hours worked.75 The court then makes adjustments by excluding hours not reasonably expended because they were excessive.76 This starting point is commonly referred to as the “lodestar” amount.77
After establishing this starting point, the court can make further adjustments-upward or downward-based upon the result of the case.78 Where a plaintiff has achieved excellent results, an attorney should recover a full compensatory fee.79 Conversely, if a plaintiff has achieved only partial or limited success-succeeding on only some of his claims, or receiving only part of the requested relief-then the lodestar amount may be excessive, and the court should reduce it.80
The reasonableness inquiry does not lend itself to any precise mathematical rule or formula, but rather relies on a court’s discretion to apply the various factors relevant to a particular case, subject to the bounds of the “prevailing party” and “whenever appropriate” language.81
5. Treatment of Costs Other than Attorneys’ Fees
Rule 54 of the Federal Rules of Civil Procedure allows the prevailing party to recover its costs, “unless the court otherwise directs.”82 These costs are taxable by the clerk of the court upon one day’s notice, though no definition of costs appears in the rules.83 However, costs are statutorily defined and includes fees for the court clerk, marshal, court reporter, printing and witnesses, copies, docket fees, and court appointed experts and interpreters.84
Prior to 1993, the federal rules were silent with regard to attorneys’ fees as well.85 The 1993 amendments to Rule 54(d) were designed “to provide for a frequently recurring form of litigation not initially contemplated by the rules-disputes over the amount of attorneys’ fees to be awarded.”86 Rule 54(d)(2) now contains the procedural method used to determine any award of attorneys’ fees;87 but the grounds for such an award are determined by the appropriate substantive statute.88 The former language of Rule 54 was revised to explicitly exclude attorneys’ fees from the enumeration of taxable costs routinely awardable to the prevailing party on one day’s notice.89
II. OFFERS OFJUDGMENT UNDER FEDERAL RULE OF CIVIL PROCEDURE 68
Rule 68 is a mechanism intended to encourage settlement of claims and avoid litigation.90 It was designed to accomplish these goals by encouraging litigants to “evaluate the risks and costs of litigation, and to balance them against the likelihood of success upon trial on the merits.”91 Specifically, Rule 68 provides a disincentive to plaintiffs who reject reasonable offers of settlement by requiring them to pay any costs incurred by defendants after the offer is made.92
Rule 68 states, in pertinent part:[a]t any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued. If within 10 days after the service of the offer the adverse party [accepts the offer], thereupon the clerk shall enter judgment. … If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.93
Evidence of a rejected offer is admissible only in a proceeding to determine costs.94
Therefore, the terms of Rule 68 indicate that an offer is usually irrelevant to the judicial proceeding until a final judgment is entered.95 A court must then determine whether a judgment is more favorable than the rejected offer.96 However, when cases involve injunctive relief, the effect of Rule 68 is less predictable,97 causing “inherent difficulty” both for courts and plaintiffs who must quantify the relief obtained.98
This Part will look at the history and policies behind Rule 68, U.S. Supreme Court decisions interpreting the rule, and the limits on rulemaking power imposed by the Rules Enabling Act in order to determine if Rule 68 “costs” include attorneys’ fees in a given situation.
A. History and Poliaes Behind Rule 68
The central purpose behind Rule 68 is to encourage settlement.” Since plaintiffs are presumptively entitled to costs under Rule 54(d),100 the Rule 68 penalizes plaintiffs who choose to continue litigating after refusing a settlement offer which was greater than the final judgment.101 These plaintiffs must bear their own post-offer costs and must pay any post-offer costs incurred by the defendant.102
While the Federal Rules of Civil Procedure were enacted in 1938, as recently as 1983 the Advisory Committee acknowledged that the rule “ha[d] rarely been invoked and has been considered largely ineffective in achieving its goals.”103 One possible reason for this ineffectiveness-suggested by the Advisory Committee-is that plaintiffs’ costs were ordinarily too small to provide an effective incentive for litigants.104 Other reasons may include that only defendants make Rule 68 offers, and that defendants have a greater incentive to defer judgment and earn interest on their money rather than to avoid costs.105 Subsequent decisions by the U.S. Supreme Court clarified the interpretation of Rule 68. In particular, Marek v. Chesny increased the incentive for defendants to use Rule 68 when their case involves a statute that define “costs” to include attorneys’ fees.106 After Marek, Rule 68 applies to attorneys’ fees when such statutes are involved.107 In these cases, the economics of litigation can be profoundly altered by this “little known rule of court.”108
B. Significant U.S. Supreme Court Precedent for Rule 68
In Roadway Express, Inc. v. Piper, the U.S. Supreme Court held that the word “costs” did not include attorneys’ fees for purposes of a procedural statute which imposed costs upon attorneys who unreasonably and vexatiously multiplied the proceedings in any case.109 While the underlying dispute involved a civil rights statute that allowed for the award of attorneys’ fees “as part of the costs” of litigation,110 the Court held that-based upon the history of the provision-the word “costs” should be read to mean the definition contained in 28 U.S.C. § 1920, rather than the substantive statute.111 The Court favored the “uniform” approach to awardable costs contained in § 1920.112 Furthermore, the Court did not find any evidence of legislative intent to impose attorneys’ fees upon individual attorneys in the substantive statute-it merely referred to the ability to impose attorneys’ fees upon other parties.113
In Delta Air Lines, Inc. v. August, the Court held that the plain language of Rule 68 limited its application to only those cases where a plaintiff prevails.114 Rule 68 does not apply to cases where judgment was entered in favor of the defendant who made the offer; in that case, the defendant is presumptively entitled to costs under Rule 54, subject to the covirt’s discretion.115 Therefore, the only possible effect of Rule 68 would be to divest judges of their discretion in awarding costs when the defendant prevails, but there was no indication that the legislature intended this result.116 This ruling was intended to avoid situations in which a defendant makes a small Rule 68 offer-which was unlikely to be accepted-for the purpose of obtaining “cheap insurance” against costs should the defendant prevail.117
While August did not involve the question of whether attorneys’ fees were recoverable as costs, Justice Rehnquist examined this question in his dissent.118 He argued that the Court should look to the contemporaneous meaning of the word as it was understood when the statute was enacted.119 Justice Rehnquist further argued that the legislative history of Rule 68 did not indicate that Congress meant to refer to attorneys’ fees as part of the taxable costs of litigation.120
However, in Marek, Justice Rehnquist changed his position on this issue,121 and agreed with the Court that when the underlying statute defines attorneys’ fees as costs, they should be included for purposes of Rule 68.122 The Court reasoned that the drafters of Rule 68 were well aware that there were statutes that allowed recovery of attorneys’ fees “as part of costs,” and that it was unlikely that the lack of a definition of costs was mere oversight.123 The Court distinguished Piper by stating that the § 1927 provision included its own definition of costs in § 1920, while Rule 68 contained no definition of costs.124
After discussing its “plain language” interpretation of Rule 68, the Court proceeded to analyze the policy ramifications of their conclusion.125 Contrary to the appeals court, the majority did not think that its result would frustrate Congress’ objective of “ensuring that civil rights plaintiffs obtain effective access to the judicial process” because Rule 68 was neutral and “favor[ed] neither plaintiffs nor defendants.”126 Therefore, the policy of Rule 68 favoring the settlement of litigation did not conflict with the policy of the Civil Rights statute authorizing attorneys’ fees in order to encourage meritorious suits.127
In his dissenting opinion, Justice Brennan sharply criticized the majority for its apparent inconsistency with Piper and its creation of a shifting definition of Rule 68 “costs” that would change depending on the relevant statute.128 He argued that the limited history of Rule 68 suggested that § 1920 contained the proper definition of “costs.”129 Justice Brennan further argued that if Rule 68 costs were defined by the substantive statute to include attorneys’ fees, then Rule 68 would conflict with the rule that defendants only received attorneys’ fees when the suit was vexatious, frivolous, or harassing, fundamentally altering the Civil Rights statute.130
Justice Brennan chastised the majority for carrying the “plain language” approach of statutory construction to absurdity, observing that many fee-shifting statutes contained slightly different wording that would have pronounced effects with no rational justification.131 He criticized the majority for abandoning the “reasonableness” analysis of attorneys’ fees awards in favor of an automatic, per se rule,132 and for its assertion that its interpretation of the rule was “neutral.”133 Instead, he argued that its application will have a deterrent effect on civil rights plaintiffs in contravention of Congress’ goals,134 and therefore, Rule 68 would violate the judiciary’s rulemaking authority under the Rules Enabling Act (REA).135
C. The Rules Enabling Act and the Sibbach-Hanna Doctrine
When the Marek Court held that the word “costs” in Rule 68 included attorneys’ fees for purposes of the Civil Rights statute, it called attention to the debate between substance and procedure.136 The Federal Rules of Civil Procedure are promulgated by the U.S. Supreme Court pursuant to a legislative grant of authority.137 This authority is limited by the REA, under which these rules are promulgated.138 The REA limits the judiciary’s rulemaking ability to only procedure and not substance.139
Two important U.S. Supreme Court decisions illustrate the difficulty in articulating a test of whether a rule affects a substantive right and violates REA. The first was Sibbach v. Wilson & Co., which determined that the rule authorizing medical examinations during pretrial discovery was procedural, rather than substantive.140 The Court attempted unsuccessfully to define a substantive right; instead, the Court implied that if the rule was procedural, then it did not abridge a substantive right.141 The Court said that the test “must be whether a rule really regulates procedure,-the judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them.”142 However, this decision was guided by the policy of achieving uniform federal procedure, rather than concerns for modifying congressional statutes.143
This test proves insufficient because the line between substance and procedure is unclear.144 In Hanna v. Plumer, the Court further explained the limits imposed by the REA.145 In Hannah, the Court considered whether a Massachusetts rule for service of process governed the case at bar or whether Federal Rule of Civil Procedure 4(d)(l) should govern.146 Therefore, the Court had to determine whether Rule 4(d)(l) was within the scope of the rulemaking authority conferred by the REA.147
The Court in Hanna reaffirmed that the analysis in Sibbach was the proper method for evaluating the validity of a federal rule of civil procedure.148 The Court resolved the controversy by creating a presumption that the federal rules were procedural-and therefore valid-because of the Congressional approval process required to enact a new rule.149 This presumption could be overcome only if the Advisory Committee, the Court, and Congress “erred in their prima facie judgment that the Rule in question transgresses neither the terms of the [REA] nor constitutional restrictions.”150
For the purposes of this Note, it is not necessary to define the full scope of a substantive right. It must only be determined whether Rule 68’s cost-shifting provision modifies or abridges a substantive right when it is interpreted to include attorneys’ fees.151 However, it is difficult to determine whether attorneys’ fees are a substantive right for the purpose of REA, since “[statutory fee shifting provisions reflect congressional intent ‘to encourage private enforcement of statutory substantive rights, be they economic or non-economic, through the judicial process.'”152
The Marek Court sidestepped the RElA question, asserting that there was no conflict between the Civil Rights statute and Rule 68.153 The Court reasoned that the Civil Rights statute only awarded “reasonable” fees, and that because the plaintiffs post-offer legal services resulted in a judgment eight thousand dollars less than the offer, fees for these post-offer services were per se unreasonable.154 Therefore, Rule 68 did not conflict with the Civil Rights statute because it only divested plaintiffs of fees for services which were unreasonably incurred-fees to which they were not entitled regardless of whether Rule 68 “costs” included attorneys’ fees.155 Thus, claiming to follow the rule of Hensley v. Eckerhart, the Court looked only to the end result of the litigation to determine what fees were reasonable.156
However, Justice Brennan argued that the Civil Rights statute gave the courts discretion to determine reasonable fees.157 He reasoned that there were some circumstances under which a plaintiff could reject a Rule 68 offer, prevail at trial for an amount less than the offer, and still be entitled to attorneys’ fees.158 In effect, the majority’s per se rule divested these plaintiffs of fees to which they would be entitled in the absence of Rule 68.159 This modified the structure of incentives inherent in the citizen suit provision of the Civil Rights statute.160 Therefore, Justice Brennan argued that Rule 68 modified a substantive right of the Civil Rights statute in violation of the REA.161
Accordingly, divesting a prevailing plaintiff of reasonable attorneys’ fees appears to conflict with REA.162 Therefore, how one defines “reasonable” attorneys’ fees becomes the key question. Should “reasonable” attorneys’ fees be defined by whether a plaintiffs rejection of a Rule 68 offer was reasonable at the time of rejection, or should “reasonable” attorneys’ fees be defined by whether, in hindsight, the end result was more or less favorable than the Rule 68 offer? The U.S. Supreme Court decided in Marek that the latter approach should be taken for the Civil Rights statute and found no conflict with the REA.163 This Note examines whether this approach should also apply to section 505 of the CWA.
III. caseS INVOLVING secTION 505 AND OFFER OFJUDGMENT RULES
Three federal court decisions have examined the interaction of section 505 of the CWA and offers of judgment. First, in Public Interest Research Group of Neiu Jersey, Inc. v. Struthers-Dunn, Inc., the court held that Rule 68 was inapplicable to citizen suits under section 505 of the CWA.164 Similarly, in Friends of the Earth, Inc. v. Chevron Chemical Co., a local offer of judgment rule-similar to Rule 68, though enacted under the Civil Justice Reform Act (CJRA)-was held inapplicable to the CWA.165 More recent is the decision in North Carolina Shellfish Growers Ass’n v. Holly Ridge Associates,166 which is similar to the Struthers-uunn case.167 The plaintiffs in each case sued for violations of the CWA, and in each case the offer of judgment rule was held not to apply.168
A. The Struthers-Dunn Decision
In Struthers-Dunn, the parties settled their claims for prospective injunctive relief; the litigation focused upon monetary penalties for past violations of the CWA.169 The defendant tendered a Rule 68 offer while motions by both sides were pending.170 Plaintiffs responded by moving for a declaratory judgment that the defendant’s offer was null and void.171
In granting the plaintiffs’ motion, the court noted that the textual approach of Marek v. Chesnym-examining the statute to determine if “costs” were defined to include attorneys’ fees-would result in a denial of attorneys’ fees for plaintiffs if they obtained a verdict less favorable than the Rule 68 offer.173 The court distinguished Marek on the grounds that CWA citizen suit plaintiffs were on a different footing than civil rights plaintiffs because the former would not keep any money ultimately paid by the defendant.174 Therefore, the incentives for plaintiffs to hold out for greater penalties to the defendant were offset by the greater risk of bearing costs.175 Thus, for CWA plaintiffs, “there is no ‘upside’ benefit … if they reject defendant’s offer, while there is a substantial ‘downside.'”176
This application of Rule 68 was inconsistent with the legislative intent of the CWA because “[sjuch an impingement on a Congressional statute through the application of a federal rule of civil procedure is barred by the [REA].”177
B. The Chevron Decision
The decision in Chevron involved the interaction of section 505 of the CWA and an offer of judgment rule enacted by the district court under the authority granted by the CJRA.178 Unlike the court in Struthers-Dunn, the Chevron court did not have to decide whether the district court’s rule included attorneys’ fees as costs, because the rule specifically included reasonable attorneys’ fees.179
As a result, the court only had to consider whether the offer of judgment provision “would directly conflict with and frustrate the purpose of citizen suits under the [CWA].”180 The court noted that in a section 505 action, the “fp]laintiff is acting as a private attorney general performing a public service. … In performing this public service, a citizen has no profit interest; rather, a citizen may only be reimbursed for her costs and attorney’s fees.”181 Therefore, the hazard of paying a defendant’s attorneys’ fees and costs would have an undesirable “chilling effect” on the effectiveness of section 505.182
The analysis of the rule’s effect on CWA citizen suits was similar to that of Justice Brennan183 and Struthers-Dunn,184 although unlike Rule 68, this rule did confer discretion on courts to reduce the award of litigation costs to avoid undue hardship to a party.185
C. The Holly Ridge case
The most recent case analyzing the conflict between Rule 68 and section 505 of the CWA is Holly Ridge.186 The defendants served plaintiffs with their offer, causing the plaintiffs to subsequently file a motion to declare the offer null and void.187 The court agreed with the analyses of Struthers-Dunn and Chevron, and granted plaintiffs’ motion.188 The court concluded that because plaintiffs, acting as “private attorneys general,” could not be awarded damages for successful claims, they were in a different position than other civil litigants.189 The benefit of the CWA suit would inure to the public instead of the plaintiffs.190 Therefore, application of Rule 68 would conflict with Congress’ intent “‘that enforcement of [CWA] provisions be immediate, that citizens should be unconstrained to bring these actions, and that the courts should not hesitate to consider them.'”191 This conflict was a violation of the Rules Enabling Act.192
The court noted that their characterization of the plaintiffs as “private attorneys general” may appear inconsistent with the standing requirement.193 While plaintiffs need to have a personal stake in the outcome for standing purposes, the citizen suit serves a broader public purpose.194 The broader public purpose-clearly contemplated by the legislature-conflicts with Rule 68.195
IV. THE EFFECT OF RULE 68 UPON ATTORNEYS’ FEES AWARDS UNDER SECTION 505 OF THE CWA
This Part explores the effect of a rejected Rule 68 offers upon the allocation of attorneys’ fees in citizen suits under section 505 of the CWA.196 First, this Part examines whether the holding in Marek v. Chesny applies to section 505.197 Second, this Part explores the two principal rationales behind the Court’s decision in Marek and applies them to section 505. Through this comparison, this Part explains that the reasoning in Marek is equally applicable to section 505 of the CWA. The distinction between the Civil Rights statute in Marek and section 505 at best illustrates that the case was wrongly decided, but fails to remove section 505 from the scope of the Marek holding.198 Finally, this Part concludes by suggesting an alternative approach based upon Justice Brennan’s focus on the reasonableness of a rejection of a Rule 68 offer. This alternative framework would retain the positive aspects of the Marek decision-encouraging plaintiffs to accept reasonable offers-while reducing the “chilling effect” on environmental citizen suits and providing uniformity to the law of Rule 68.199
A. Critique of Rule 68 and the Marek Decision
There has been significant academic inquiry into Rule 68 following the Marek decision.200 The rule has been criticized because: (1) it does not permit plaintiffs to make a counteroffer; (2) offers must be accepted within ten days; (3) an offer can be made before discovery is complete, forcing plaintiffs to make a critical decision with incomplete information; and (4) the rule’s mandatory nature leaves no room for judicial discretion.201 One article notes that “Rule 68 is a sleeping giant because its enormous potential to bring civil disputes to an early resolution is presently overshadowed by its undefined terms, confusing time frames, and many troublesome intricacies.”202
The Marek decision added new complexity to Rule 68 by holding that when the underlying statute defines the word “costs” to include attorneys’ fees, those fees are considered costs for purposes of Rule 68.203 Both an argument based upon the “plain meaning” of the statutory text,204 and a policy argument support the Court’s holding.205 Peter Margulies writes that the Marek problem involves the interaction of three related policies: (1) vindicating important statutory and constitutional rights; (2) promoting settlement through alternative dispute resolution; and (3) reducing uncertainty.206 He argues that every possible approach to the Marek problem involves sacrificing one of these values.207 This Part will evaluate the Marek approach based upon these values.
1. The Textual Argument
The textual argument in Marek can be characterized as follows: (1) Rule 68 refers to “costs”; (2) the drafters of the federal rules knew that there were many statutes that referred to attorneys’ fees as “costs” when Rule 68 was enacted; and (3) for these statutes, the Rule 68 drafters intended that attorneys’ fees be included in Rule 68 costs.208 Because the drafters chose not to define the word “costs,” the Court found that “the 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 . . . .”209
Justice Brennan criticized the majority for failing to explain why the definition of “costs” in 28 U.S.C. § 1920 was not applicable, since it is a statute that was designed to “‘standardize the treatment of costs in federal courts.'”210 He asserted that the majority’s “plain meaning” argument, while “‘in a sense logical,'”211 would “produce absurd variations in Rule 68’s operation based on nothing more than picayune differences in statutory phraseology. Neither Congress nor the drafters of the Rules could possibly have intended such inexplicable variations in settlement incentives.”212 The Advisory Committee’s notes to the 1993 amendment to Rule 54 also supports the conclusion that Congress did not consider attorneys’ fees to be included in costs.213
The “plain meaning” approach in Marek may produce inexplicable differences between statutes.214 However, it reduces uncertainty by simplifying interpretation of other statutes-one need only focus on whether the statutory language is similar to the language at issue in Marek.215 Furthermore, adherence to the “plain meaning” approach comports with Rule 68’s central goal of promoting settlement and promotes the interests of defendants who wish to settle.216 However, achieving these goals results in less effective enforcement of the laws.217
2. The Policy Argument
The U.S. Supreme Court’s conclusion in Marek would have been particularly questionable had it merely relied upon the textual argument outlined above. As Justice Brennan pointed out, “plain meaning” can only be carried so far.218 Thus, while the textual argument explains why Congress intended the result the Court reached, the policy argument attempts to explain why such a result makes sense.
The Marek Court identified the degree of success obtained as “‘the most critical factor'” of reasonableness of attorneys’ fees.219 The Court implied that the rejection of an offer that is more favorable than the judgment is per se unreasonable,220 despite the caution in Hensley v. Eckerhart against “mathematical approaches.”221 However, Justice Brennan and others reject a per se approach, contemplating that a plaintiff who obtains a judgment that is less than the Rule 68 offer may still have acted reasonably in rejecting the offer.222
Many commentators have argued that the per se approach will have a “negative distributional effect” or “chilling effect” on plaintiffs.223 Judge Richard Posner has developed an economic analysis to argue that Rule 68 will not increase settlements, but rather transfer wealth from plaintiffs to defendants.224 While plaintiffs who have more to lose from litigation may demand smaller settlements, defendants will offer less in settlements, having less to lose from going to trial.225 The per se approach ignores the greater risk aversion of plaintiffs faced with the possibility of paying costs, especially when those costs include attorneys’ fees that they would not otherwise have to bear in the absence of Rule 68.226
If plaintiffs can act reasonably and still lose under the Rule 68 calculation, then it is plausible that they may be willing to accept reduced settlement offers to avoid losing awards of attorneys’ fees. Thus, the basic difference between the majority approach and Justice Brennan’s approach may lie in whether or not plaintiffs can act reasonably and still lose in the Rule 68 calculation.227 The majority in Marek said that a plaintiff who fails to obtain a judgment that is greater than the settlement offer receives no benefits from the post-offer services of an attorney and, therefore, is not entitled to attorneys’ fees for this work.228 By accepting a per se approach the Court ignores instances in which a plaintiff acts reasonably and still loses under Rule 68, promoting settlement over the goal of rights vindication.229 This Note will now examine how Marek affects the interaction of Rule 68 and section 505 of the CWA-whether CWA citizen suit plaintiffs are bound by the Marek Rule 68 post-offer attorneys’ fees decision.
B. Is There a Difference Between the Clean Water Act and the Civil Rights Attorneys’ Fees Awards Act with Respect to Rule 68?
Based upon the “plain meaning” argument of Marek, there may be no difference between section 505 and the Civil Rights statute, since both statutes define the word “costs” to include attorneys’ fees.230 Accordingly, one may expect an uphill battle for citizen suit plaintiffs seeking to avoid the operation of the Marek. However, in every reported case dealing with this issue, courts have not found Rule 68 applicable.231
Of the three major cases discussed above, only the decision in Public Interest Research Group of New Jersey, Inc. v. Strulhers-Dunn, Inc. devoted any significant discussion to distinguishing Marek.’232 The court first invoked the argument that plaintiffs must face the choice of either accepting a judgment they deem inadequate or risking loss of attorneys’ fees later.233 Rule 68 would, therefore, have a “chilling effect” on citizen suits in violation of the policy underlying section 505.234 However, this argument was squarely rejected in Marek.235
The court attempted to distinguish the Civil Rights statute on grounds that, while a civil rights plaintiff would personally benefit from rejecting a settlement offer if the judgment was higher, this would not be true for CWA plaintiffs because any penalties imposed upon the defendant would be paid to the U.S. Treasury.236 Thus, there is no monetary upside benefit to plaintiffs, while there is a substantial downside.237 The defendant in Struthers-Dunn urged that this reality makes a CWA plaintiff no different than a civil rights plaintiff who seeks injunctive relief.238 However, the court responded that even in a civil rights case, the “value” of injunctive relief still inures to the plaintiff-not to a CWA plaintiff-and is, therefore, considered in the Rule 68 calculus for civil rights plaintiffs.239 Nevertheless, it is unlikely that the court meant that CWA citizen suit plaintiffs derived no benefit from these suits. Otherwise, as the North Carolina Shellfish Growers Ass’n v. Holly Ridge Assodates court pointed out, these plaintiffs may not have had standing to sue in the first place.240
Courts may try to vacillate and dodge criticism with this “personal benefit” argument, but ultimately it resembles the “chilling effect” argument-Rule 68 makes it harder for plaintiffs to bring citizen suits when it includes attorneys’ fees as costs and, therefore, contradicts the policy underlying citizen suits. The U.S. Supreme Court rejected this argument,241 though it was likely in error.242 Furthermore, even if the “chilling effect” argument counsels against mechanically applying the “plain meaning” approach from Marek, it does not address the other rationale in Marek-that attorneys’ fees incurred in obtaining a judgment less favorable than the Rule 68 offer are not “reasonable” attorneys’ fees, regardless of whether the plaintiff benefits personally from the judgment of the underlying dispute.243 While judging reasonableness in this way may be erroneous,244 courts must follow Marek so long as it is still good law.
C. A “Reasonable”Proposal to Reconcile Rule 68 with Section 505 of the CWA
The courts in Struthers-Dunn245 and Holly Ridge246 strained to distinguish the cases from Marek; given the shortcomings of Marek, this may be desirable.247 However, when the lower courts held that Marek and Rule 68 did not apply to Struthers-Dunn and Holly Ridge, they may have done injustice to the defendants who made at least a nominal effort to settle their dispute.248
This section describes an alternative framework for assessing the impact of Rule 68 upon fee-shifting statutes that use the “reasonable” language, regardless of whether these statutes define “costs” as attorneys’ fees. This framework evaluates Rule 68 as one element in the reasonableness calculation-not because the word “costs” in Rule 68 includes attorneys’ fees, but rather because an offer of judgment represents an opportunity to avoid the costs of litigation so plaintiffs should be encouraged to act reasonably.249
Regardless of Marek, much would remain unchanged from the current U.S. Supreme Court jurisprudence on attorneys’ fees, even if this framework were adopted. If the defendant prevailed in a suit, the plaintiff would not be entitled to fees.250 But, the defendant could still recover fees from the plaintiff when the plaintiff continued to litigate a frivolous, unreasonable, or groundless suit.251 Plaintiffs would be entitled to reasonable attorneys’ fees where the judgment was more favorable than the Rule 68 offer, absent special circumstances.252
Therefore, the only change would occur where a plaintiff receives less at trial than offered by the defendant. Accordingly, the court should examine the facts of the case to determine whether the plaintiffs decision to reject the offer of judgment was reasonable at the time the deasion was made.255 The court could establish a rebuttable presumption that fees for post-offer services are not reasonably incurred, but allow the plaintiff to demonstrate that circumstances made it reasonable to reject the offer. The court could consider factors including: (1) the difference between the offer and the actual judgment, where a small difference points towards reasonableness and a large difference points towards unreasonableness; (2) whether discovery was complete when the decision was made;254 and (3) whether there was a change in circumstances after the offer was rejected, such as the death of a key witness or a detrimental judicial opinion.255 Furthermore, a court may consider awarding post-offer fees to a defendant when a plaintiff s decision to prolong litigation after a Rule 68 offer could be characterized as unreasonable or frivolous.256 This structure would provide plaintiffs with more security; as long as a plaintiff can show that rejecting an offer was reasonable, there should be some recovery of post-offer fees, subject to the Hensley criteria.257
Peter Margulies suggests valid criticisms of the reasonableness approach, such as tensions with the work-product rule and attorneyclient privilege that would occur when an attorney must prove what information was known at different times.258 The problems he identifies with the reasonableness approach are decisional uncertainty and lack of predictability in the outcomes a court will reach.259 While problematic, these issues are small in comparison with the problems associated with the Marek framework. Although the reasonableness approach may cause a drain in judicial resources, this slight drain will result in greater protection of the statutory rights served by citizen suits. Margulies suggests a percentage-based approach that would key a reduction of plaintiff fee awards to the judgment as a percentage of the offer.260
One need only look to decisions under statutes that do not define costs to include attorneys’ fees to find examples of the reasonableness approach. For example, in Haworth v. Nevada, the court had to decide how Rule 68 interacted with the Fair Labor Standards Act, a statute that does not define costs as attorneys’ fees.261 The court found that Marek did not apply because of the difference in statutory language, but held that the rejected offer must be considered on remand in determining the reasonableness of awarding post-offer fees.262 The court followed the textual approach of Marek.263 However, if the Haiuorth court had followed the policy reasoning of Marek, it would have found-without need for remand-that because the offer of judgment was more favorable than the judgment at trial, any post-offer fees incurred were per se unreasonable.264
The reasonableness method is a preferable analysis for the interaction of Rule 68 with citizen suits because it harmonizes the disparate treatment between statutes that define attorneys’ fees as costs and statutes that do not. The approach also reduces the “chilling effect” on citizen suit plaintiffs, while being fair to defendants, because it retains incentives for plaintiffs to accept reasonable offers. Moreover, this approach avoids any conflict with the Rules Enabling Act (REA) by focusing on the reasonableness of the fee award instead of the text of Rule 68.
Citizen suits are important to the enforcement of the CWA and many other environmental statutes. Congress has granted the courts discretion to use the attorneys’ fee awards contained in these statutes to encourage meritorious citizen suits, while discouraging frivolous ones.265 The rigid, mechanical application of Rule 68 in Marek v. Chesny eliminates the courts’ discretion and divests plaintiffs of attorneys’ fees even in cases where the plaintiff has acted reasonably in rejecting the offer of judgment. As a result, Marek causes a “chilling effect” on the effectiveness of citizen suits. Furthermore, because of this “chilling effect,” CWA plaintiffs faced with Rule 68 offers attempt to avoid Marek’?, holding by seeking declarations that Rule 68 does not apply to the CWA. These plaintiffs have been successful. Three district courts have agreed that the CWA is distinguishable from the Marek analysis; no appellate court has ever considered the issue in any reported decision.266 However, in spite of these decisions, the reasoning in Marek applies with equal force to the CWA as it does to the Civil Rights statute. The district court decisions to the contrary appear to be made in order to avoid the “chilling effect” that Marek would have on CWA citizen suits, not because of a meaningful distinction between the CWA and the Civil Rights statute.
Courts should not have to choose between precedent and the policies underlying citizen suit statutes. A change is desirable. One bill, which progressed very little in the legislature, would have exempted the CWA from Rule 68’s operation.267 Such an approach would only add to the “schizophrenic” interpretation of Rule 68,268 and detract from the goal of having uniform rules of civil procedure.269 It also would fail to address the interaction of Rule 68 with citizen suit provisions other than section 505 of the CWA. A better legislative solution would be to amend Rule 68 and define costs so as not to include attorneys’ fees. This would render Marek moot, but still allow courts the discretion to apply the reasonableness approach as contemplated by the drafters of section 505. In the absence of legislative change, the U.S. Supreme Court would have to overrule its own precedent. For such an issue to reach the U.S. Supreme Court, a trial court will likely have to find against plaintiffs-often national groups that repeatedly bring citizen suits270-in order to give a party sufficient incentive to carry a suit that far.
Until change is made, district courts may continue to exercise the judicial gymnastics that distinguish section 505 of the CWA from the Civil Rights statute. However, fairness to defendants requires that these courts still evaluate the reasonableness of rejecting a Rule 68 offer when calculating reasonable attorneys’ fees, even if Rule 68 is found inapplicable to CWA citizen suits.
DANIEL E. BURGOYNE*
* Symposium Editor, BOSTON COLLEGE ENVIRONMENTAL AFFAIRS LAW REVIEW, 2005-06.
Copyright Boston College, School of Law 2006
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