The Third Circuit Court of Appeals recently held that an offer of judgment in response to a claim for attorneys’ fees in a citizen suit under the Resource Conservation and Recovery Act (RCRA) is valid. Interfaith Community Organization, et al. v. Honeywell International, inc., et al., Nos. 11-3813 and 11-3814, June 4, 2013.The ruling came in the ongoing litigation between public interest plaintiffs and Honeywell over hexavalent chromium contamination in New Jersey. As part of consent decrees to remove the contamination, Honeywell agreed to pay the plaintiffs’ attorneys’ fees to monitor the remediation efforts. In 2009, Honeywell challenged the reasonableness of certain fee applications, and it served a Rule 68 offer of judgment for the fees. Rule 68 provides that if a judgment is not more favorable to the offeree than the unaccepted offer, the offeree must pay costs incurred after the offer is made. The plaintiffs argued that an offer of judgment in a RCRA citizen suit violated the Rules Enabling Act, 28 U.S.C. §2072, and was null and void because it discouraged the very citizen suits that Congress intended to promote. The district court agreed, and Honeywell appealed.
The Rules Enabling Act empowers the Supreme Court to prescribe practice and procedure rules, so long as such rules do not “abridge, enlarge or modify any substantive right.” In Honeywell, the Third Circuit noted that a rule of procedure is valid if it regulates the “manner and means” of enforcing litigants’ rights, but not if it alters “the rules of decision by which the court will adjudicate those rights.” Using that criterion, it found that the “rule of decision” governing the adjudication of a fee dispute is not affected, whether there is an offer of judgment. The court also rejected as irrelevant the district court’s concern about the potential “chilling” effect of Rule 68 on RCRA citizen suits. “It may very well be that a Rule 68 offer of judgment … will require a [RCRA] plaintiff to make a hard choice,” or to take less than it believes it deserves, but that does not abridge or modify plaintiff’s substantive rights to attorneys’ fees. The court added that the RCRA fee-shifting provision encourages meritorious claims, Rule 68 encourages settlements, and the two objectives are not incompatible. Therefore, enforcing Rule 68 in the context of a RCRA suit does not violate the Rules Enabling Act.
Rule 68(c) authorizes an offer of judgment where liability has been established but “the extent of liability remains to be determined by further proceedings.” The plaintiffs argued that the term “liability” in the rule does not include a dispute over attorneys’ fees. The court rejected the argument and construed the term broadly to encompass “all legal responsibilities,” including the extent of Honeywell’s liability for attorneys’ fees.
This ruling by the Third Circuit endorses what may be a powerful strategy in a fee-shifting case where a party’s demand for attorneys’ fees is unreasonable.