Henderson v. Sterling Inc ( 1998 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
PHILLIP G. HENDERSON,
Plaintiff-Appellant,
v. No. 97-1910
STERLING, INCORPORATED,
Defendant-Appellee.
PHILLIP G. HENDERSON,
Plaintiff-Appellant,
v. No. 97-2009
STERLING, INCORPORATED,
Defendant-Appellee.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-96-1812-A)
Argued: January 27, 1998
Decided: April 14, 1998
Before HAMILTON and WILLIAMS, Circuit Judges, and
PHILLIPS, Senior Circuit Judge.
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Vacated and remanded by unpublished per curiam opinion.
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COUNSEL
ARGUED: Alan Mark Grayson, ALAN M. GRAYSON & ASSO-
CIATES, McLean, Virginia, for Appellant. John Joseph Michels, Jr.,
MCGUIRE, WOODS, BATTLE & BOOTHE, McLean, Virginia, for
Appellee. ON BRIEF: Victor A. Kubli, ALAN M. GRAYSON &
ASSOCIATES, McLean, Virginia, for Appellant.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
The dispositive issue in this appeal is whether appellant Phillip G.
Henderson (Henderson) validly accepted an offer made pursuant to
Federal Rule of Civil Procedure 68 to allow judgment to be entered
against appellee Sterling, Inc. (Sterling). Because we conclude that
Henderson did not validly accept Sterling's offer of judgment, we
vacate the district court's judgment and remand for further proceed-
ings.
I
Henderson worked for Sterling as a jeweler from February 1995 to
September 1996. Henderson alleges that, during this time, Sterling
frequently required him to work more than thirty hours of overtime
per week. Moreover, when Henderson asked for overtime pay, Ster-
ling allegedly threatened to fire him. Ultimately, Henderson found
another job and, on December 23, 1996, he filed the present action
against Sterling to recover overtime pay, statutory liquidated damages
and mandatory attorneys' fees pursuant to the Fair Labor Standards
Act (FLSA), 29 U.S.C. §§ 201-209.
On March 28, 1997, Sterling made Henderson an offer to settle the
case, to which Henderson made a counteroffer on April 2, 1997. Hen-
2
derson's counteroffer asked for damages in the amount of $20,000
and attorneys' fees estimated through April 2 to be approximately
$15,000. Two days later, Sterling made an offer of judgment pursuant
to Federal Rule of Civil Procedure 68(b) for $10,000"with costs now
accrued." (J.A. 8). By letter dated April 7, 1997, Henderson inquired
whether the term "costs" included attorneys' fees. Sterling responded
that "costs includes attorneys fees." (J.A. 12). At Henderson's request,
on April 9, 1997, Sterling restated its offer as"Ten Thousand Dollars
($10,000), with costs, including attorneys' fees, accrued as of April
4, 1997" (the Offer of Judgment). (J.A. 14).
On April 14, 1997, Henderson filed a notice with the district court
stating that he accepted Sterling's Offer of Judgment (the Notice of
Acceptance). The Notice of Acceptance requested that the district
court enter judgment in the amount of $28,865.88, comprising
$10,000 plus $18,865.88 for attorneys' fees and costs accrued to April
4, 1997. Sterling immediately filed a memorandum in opposition to
Henderson's Notice of Acceptance, asserting that by requesting entry
of judgment for an amount that included a specific sum for attorney
fees rather than leaving that for judicial determination, the acceptance
varied from the offer and was therefore "improper."
After reviewing the parties' memoranda, the district court entered
judgment against Sterling in the amount of $10,000"with costs and
attorney's fees, accrued as of April 4, 1997, the latter figures to be
submitted to the Court for review." (J.A. 20). The district court
ordered Henderson to submit an itemized list of costs and attorneys'
fees related to the action, to which order Henderson complied. Ster-
ling then submitted objections to Henderson's proposed fees and
costs, arguing that it should only pay Henderson's"reasonable" attor-
neys' fees through April 4, 1997, not the full amount that had alleg-
edly accrued. Henderson, on the other hand, complained that Sterling
was reneging on its agreement and attacking the attorneys' fees it had
already agreed to pay.
On June 9, 1997, the district court awarded Henderson attorneys'
fees and costs in the amount of $9,613.88. The district court indicated
there was "no question that [Henderson] is entitled to reasonable
attorneys' fees and costs accrued, as of April 4, 1997, under the Rule
68 Offer of Judgment." (J.A. 20). The district court emphasized that
3
the Offer of Judgment and the correspondence between counsel made
clear that the Offer of Judgment included Henderson's attorneys' fees
and costs in addition to the $10,000 judgment amount. The only issue
was the reasonableness of the attorneys' fees and costs that Hender-
son was requesting.
In determining the attorneys' fees to be awarded, the district court
applied the "lodestar" method of calculating fees, where the number
of hours reasonably expended on the litigation is multiplied by a rea-
sonable hourly rate. (See J.A. 21) (citing Hensley v. Eckerhart, 461
U.S. 424, 433 (1983)). The district court examined both the reason-
ableness of the hourly rate Henderson's attorneys were charging and
the number of hours they spent on the case. First, the district court
found that the hourly rates being charged by Henderson's attorneys--
$325 for Alan Grayson and $175 for Victor Kubli--were excessive,
and reduced them to a rate the district court found to be in line with
those prevailing in the community for similar services by attorneys of
comparable skill, experience and reputation. Second, the district court
found that many of the ninety-four hours billed for this litigation were
either duplicative, unnecessary or inadequately documented, and
reduced the number of billable hours accordingly. The district court
awarded attorneys' fees in the amount of $8,428.00, calculated by
multiplying an hourly rate of $225 for Mr. Grayson by 70% of the
hours he expended, plus an hourly rate of $125 for Mr. Kubli multi-
plied by 70% of his billed hours. The district court found that the
costs Henderson claimed were reasonable and made no adjustment to
the $1,185.88 amount. Therefore, the total amount of fees and costs
awarded to Henderson by the district court was $9,613.88. Henderson
filed a timely notice of appeal from that order.
On June 20, 1997, Henderson filed a motion in the district court to
recover attorneys' fees and costs which accrued after April 4, 1997,
the cut-off date specified in Sterling's Offer of Judgment. Henderson
argued that he was entitled to attorneys' fees pursuant to the FLSA,
29 U.S.C. § 216(b), in addition to the award he received by accepting
the Rule 68 Offer of Judgment. In so arguing, Henderson relied on the
language of § 216(b) that the court "shall" award reasonable attor-
neys' fees "in addition to any judgment awarded to the plaintiff." See
29 U.S.C. § 216(b). To avoid a double recovery, Henderson only
4
requested "reasonable" attorneys' fees which had accrued after April
4, 1997.
Sterling opposed Henderson's motion for additional fees on the
grounds that Henderson's acceptance of the Offer of Judgment consti-
tuted a binding agreement and precluded compensation for attorneys'
fees and costs after April 4, 1997. The district court agreed, and held
that Henderson was bound by his acceptance of the Rule 68 Offer of
Judgment and was, therefore, not entitled to an award of additional
fees and costs. The district court emphasized that the express terms
of the Offer of Judgment limited the judgment amount to $10,000, but
allowed for costs and attorneys' fees accrued as of April 4, 1997.
Henderson filed a timely appeal of that order on July 21, 1997. Hen-
derson's appeals were consolidated on July 31, 1997.
II
On appeal, Henderson first argues that the district court erred in
awarding him only $9,613.88 in costs and "reasonable" attorneys'
fees, instead of the full $18,865.88 in fees and costs that had accrued
as of April 4, 1997. According to Henderson, because Sterling knew
from the settlement negotiations that Henderson's attorneys' fees had
accrued to more than $15,000 as of April 4, 1997, Sterling's Offer of
Judgment was an offer to pay all of Henderson's then-accrued costs
and fees. Henderson therefore maintains that the district court's award
of $9,613.88 in costs and "reasonable" attorneys' fees was an inappro-
priate modification of the parties' agreement. Sterling, on the other
hand, argues that in light of the FLSA's provision of "reasonable"
attorneys' fees to prevailing plaintiffs, the Offer of Judgment only
proposed to pay Henderson's reasonable attorneys' fees. Sterling
therefore contends that the district court correctly refused to award
Henderson attorneys' fees the district court found to be unreasonable.
Notwithstanding the parties' arguments, we determine the disposi-
tive issue in this case to be whether Henderson validly accepted Ster-
ling's Offer of Judgment. Because we conclude below that Henderson
did not unequivocally and unqualifiedly accept Sterling's Offer of
Judgment, we hold that the district court lacked the authority at this
stage of the litigation to enter judgment against Sterling, or to award
Henderson costs and attorneys' fees in any amount.
5
Federal Rule of Civil Procedure 68 provides, in pertinent part:
At 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 serves
written notice that the offer is accepted, either party may
then file the offer and notice of acceptance together with
proof of service thereof and thereupon the clerk shall enter
judgment.
The rule also provides that if the offeree does not accept the offer of
judgment and the judgment finally obtained is less favorable than the
offer, the offeree must pay all costs incurred after the making of the
offer. Id.Rule 68 does not mention attorneys' fees; nevertheless, the
Supreme Court held in Marek v. Chesny, 473 U.S. 1 (1985), that
where the statute underlying the cause of action defines "costs" to
include attorneys' fees, such fees are to be included as costs for pur-
poses of Rule 68. See id. at 9. The FLSA, under which Henderson
brought the present action, states that the district court "shall, in addi-
tion to any judgment awarded to the plaintiff or plaintiffs, allow a rea-
sonable attorney's fee to be paid by the defendant, and costs of the
action." 29 U.S.C. § 216(b).
The obvious goal of Rule 68 is to encourage settlement. See Marek,
473 U.S. at 5. The rule accomplishes this goal by offering incentives
to the parties to agree to a settlement. When there is a strong possibil-
ity that the plaintiff will prevail, but the amount of recovery is uncer-
tain, then the rule encourages the defendant to offer to allow judgment
to be entered against it for a certain amount, plus costs. See Delta Air
Lines, Inc. v. August, 450 U.S. 346, 352 (1981). The plaintiff, on the
other hand, has the incentive to accept the offer because he will pay
all costs incurred after the offer if he does not ultimately recover an
award more favorable than the offer. See id.It is generally agreed that, since Rule 68 offers of judgment are
basically offers of settlement, they should be interpreted according to
6
basic principles of contract law. See, e.g., Goodheart Clothing Co.,
Inc. v. Laura Goodman Enters., Inc., 962 F.2d 268, 272 (2d Cir.
1992); Erdman v. Cochise County, Ariz., 926 F.2d 877, 880 (9th Cir.
1991); Mallory v. Eyrich, 922 F.2d 1273, 1279 (6th Cir. 1991). The
question, then, of whether the parties here reached an enforceable
agreement is governed by the intent of the parties as objectively mani-
fested. See Byrum v. Bear Inv. Co., 936 F.2d 173, 175 (4th Cir. 1991).
More specifically, the issue of whether Henderson's Notice of Accep-
tance amounted to a valid acceptance of Sterling's Offer of Judgment
is controlled by the principle that an acceptance must be unequivocal
and unqualified in order to bind the offerer: "A material variance
between the acceptance and the offer results in a rejection of the origi-
nal offer and transforms the putative acceptance into a counteroffer."
Id. Thus, we must determine (1) the terms of the Offer of Judgment,
and (2) whether Henderson accepted the Offer of Judgment unequivo-
cally and unqualifiedly, with no material variance in the terms.
Sterling's Offer of Judgment offered to allow judgment to be
entered against Sterling for $10,000.00, "with costs, including attor-
neys' fees, accrued as of April 4, 1997." (J.A. 14). Plainly, the Offer
of Judgment did not specify a particular amount of attorneys' fees.
Furthermore, there is no evidence in the record establishing that the
parties ever expressly agreed to a particular amount of attorneys' fees.
In the absence of either an express agreement by the parties or a spec-
ified sum in the Offer of Judgment, the amount of costs and attorneys'
fees are to be determined by the district court. See Marek, 473 U.S.
at 6 (stating that if an offer of judgment does not specify the amount
of costs, then the district court "will be obliged by the terms of [Rule
68] to include in its judgment an additional amount which in its dis-
cretion . . . it determines to be sufficient to cover the costs"). Thus,
the terms of Sterling's Offer of Judgment intended that costs and
attorneys' fees were to be determined by the district court.
Henderson's Notice of Acceptance, on the other hand, asked the
district court to enter judgment for $28,865.88, of which Henderson
attributed $18,865.88 to costs and attorneys' fees. The Notice of
Acceptance does not purport to accept costs and attorneys' fees in an
amount to be determined by the district court, but rather fixes the
amount at a sum Henderson wishes to collect. On its face, therefore,
Henderson's Notice of Acceptance does not unequivocally and
7
unqualifiedly accept the terms of the Offer of Judgment, see Byrum,
936 F.2d at 175, because it alters how costs and attorneys' fees are
to be determined. This variance from the Offer of Judgment is mate-
rial, and has the effect of rejecting the Offer of Judgment and trans-
forming the Notice of Acceptance into a counteroffer. See id.Moreover, Sterling's prompt filing of its memorandum in opposition
to Henderson's Notice of Acceptance was obviously not an accep-
tance of Henderson's counteroffer.
In light of these facts, we hold that Henderson never validly
accepted Sterling's Offer of Judgment. The district court therefore
erred in entering judgment upon an agreement the parties never con-
summated. Consequently, we vacate the judgment of the district court
and remand the case for further proceedings.*
VACATED AND REMANDED
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*Given this disposition, we will not address Henderson's second
assignment of error, namely that the district court erred in refusing to
award him attorneys' fees which accrued after April 4, 1997.
8