In the
United States Court of Appeals
For the Seventh Circuit

No. 01-1818

Joseph Payne,

Plaintiff-Appellant,

v.

Milwaukee County, et al.,

Defendants-Appellees.

Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 93 C 1380--Patricia J. Gorence, Magistrate Judge.

Argued February 27, 2002--Decided May 3, 2002



  Before Bauer, Kanne, and Diane P. Wood,
Circuit Judges.

  Diane P. Wood, Circuit Judge. This is
the second time we have seen Joseph
Payne’s case, in which he asserted that
Milwaukee County, its Personnel Review
Board, and certain officers (collectively
Milwaukee County) had unlawfully
terminated him in violation of his First
Amendment rights, and thus in violation
of 42 U.S.C. sec. 1983. The factual
background of Payne’s claims is set forth
in our earlier opinion, see Payne v.
Milwaukee County, 146 F.3d 430 (7th Cir.
1998), and there is no need to repeat it
here in detail. The present appeal
concerns the application of Fed. R. Civ. P.
68 in a civil rights case, where a
prevailing plaintiff’s entitlement to
attorneys’ fees arises under 42 U.S.C.
sec. 1988. We conclude that the district
court erred in its decision to require
Payne to pay the defendants’ attorneys’
fees, and we remand for further
proceedings.

I

  Payne was discharged from his position
in the Medical Examiner’s Office for
Milwaukee County in 1991, in the wake of
correspondence he sent to various public
officials in which he accused the Medical
Examiner’s Office of discrimination.
After lodging appropriate charges with
the EEOC, Payne filed his complaint on
December 13, 1993; an amended complaint
followed on September 30, 1994.

  A first trial took place before a jury
on April 21, 1997, and ended with
judgment as a matter of law for the
defendants on April 24, 1997. That
judgment was appealed, and this court
reversed in part, ordering a new trial on
the First Amendment retaliation claim.
The new trial took place on November 1,
1999. The jury returned a special verdict
for Payne, finding that his protected
speech was indeed a factor in his
termination by Milwaukee County and its
Personnel Review Board. For that, the
jury awarded damages of $10,400; the
court later denied Payne’s motion for the
entry of certain remedial orders and a
new trial.

  Before the first trial took place,
Milwaukee County filed an Offer of
Judgment pursuant to Fed. R. Civ. P. 68 on
February 12, 1996, which read as follows:

I. Money Only Offer: The Defendants
agree to pay the Plaintiff a lump sum of
$37,500 in full and complete settlement
of any and all claims which arose out of
the plaintiff’s employment with Milwaukee
County. II. Alternative Offer: Job and
Money: The Defendants agree to employ the
Plaintiff as a Human Service Worker, pay
range $24,000-$39,000. . . . The
Defendants would also pay $18,000 in a
lump sum to the Plaintiff and his
attorney.

Thus, Payne had a choice: $37,500 on the
table, or the lesser amount of $18,000
plus a new job with Milwaukee County. He
elected to accept neither one. By making
this choice, he accepted the risk that if
he ended up winning at trial a damage
award lower than what was offered, his
entitlement to post-offer costs and
attorneys’ fees under 42 U.S.C. sec. 1988
would be lost. Not only that: he would
also be saddled with Milwaukee County’s
post-offer costs. This is precisely what
happened, as the jury’s verdict in
Payne’s favor after the second trial was
for only $10,400, a lower amount than
either judgment option in Milwaukee
County’s Rule 68 offer.

  After the verdict, the three lawyers who
had represented Payne filed motions for
their fees, all relying on sec. 1988.
John Uelman spent 104.5 hours working on
the case prior to the February 12, 1996,
Offer of Judgment, and the district court
awarded him the full amount he claimed up
to that date, plus certain costs. Robert
Sutton also asked for fees in the amount
of $75,550 for work done from January 25,
1997, through December 21, 1999. A third
attorney, Larraine McNamara-McGraw was
going to seek fees of $31,200 in
connection with the appeal after the
first trial, but she failed to file her
motion in time, and she is not involved
in this appeal. The appeal thus concerns
only Attorney Sutton’s right to fees, on
Payne’s side.

   Milwaukee County opposed these requests
insofar as they covered fees for work
done after February 12, 1996. (At one
point they mention the date February 9,
1996, but the Magistrate Judge ignored
this, and so shall we.) Not only that,
but Milwaukee County also sought to have
its own costs and attorneys’ fees taxed
against Payne, once again because the
final award Payne received was less than
the amount they had offered. The district
court (Magistrate Judge Gorence, sitting
by consent) decided that Milwaukee County
was entitled to both its costs pursuant
to Rule 68 and its attorneys’ fees, while
Sutton was not entitled to anything.
II

  Although a prevailing plaintiff in a
civil rights case is normally entitled to
costs pursuant to Fed. R. Civ. P. 54(d),
and to attorneys’ fees under 42 U.S.C.
sec. 1988, those rules are qualified by
the operation of Fed. R. Civ. P. 68. Rule
68 is designed to provide a disincentive
for plaintiffs from continuing to
litigate a case after being presented
with a reasonable offer. The part of Rule
68 critical to this appeal is a cost-
shifting provision affecting a plaintiff
who rejects a good-faith offer that turns
out to be equal to or more than the
actual 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.

See Marek v. Chesny, 473 U.S. 1 (1985);
Delta Air Lines, Inc. v. August, 450 U.S.
346, 351-56 (1981). Payne finds himself
precisely in the situation covered by
Rule 68: in hindsight, he would have been
better off accepting either one of
Milwaukee County’s offers, rather than
taking his chances at trial. He therefore
must bear whatever consequences the rule
prescribes for his failure accurately to
evaluate his claim (or perhaps for the
murkiness of his crystal ball). Rule 68
is designed to change the incentive
structure of a plaintiff faced with a
reasonable offer. The twin aims of the
rule, in its ex post application, are to
compensate the defense for costs it ought
not to have incurred, and to deter future
plaintiffs from lightly disregarding rea
sonable settlement offers made with the
formalities prescribed by the rule. See
Moriarty v. Svec, 233 F.3d 955, 967 (7th
Cir. 2000).

  These twin aims lead to two analytically
distinct questions in this case: as
compared to a legal landscape without a
Rule 68, the first question is what
entitlement Payne has lost because the
eventual verdict in his favor was less
than Milwaukee County’s offer of
judgment; the second is what entitlement
Milwaukee County has gained in the way of
rights to payments from Payne because its
offer was rejected.

  Before addressing those questions, we
must consider one preliminary argument
Payne has advanced: he claims that
Milwaukee County’s failure to renew its
Rule 68 offer after the result in the
original trial was partially set aside by
this court means that there was no
operative Rule 68 offer at all to bar his
right to full fees and costs. That is
simply wrong. The Advisory Committee
Notes to the 1946 amendment to the rule
state that "[i]t is implicit, however,
that as long as the case continues--
whether there be a first, second or third
trial--and the defendant makes no further
offer, his first and only offer will
operate to save him the costs from the
time of that offer if the plaintiff
ultimately obtains a judgment less than
the sum offered." See also 12 Charles A.
Wright, Arthur R. Miller & Edward H.
Cooper, Federal Practice & Procedure 2d
sec. 3003, at 102 (2d ed. 1997). This
position is fully consistent with the
language of the rule, which permits
subsequent offers, but says nothing about
depriving offers that have not been
superseded by a later offer of their
legal force. Ours is therefore a case in
which a valid Rule 68 offer was on the
table.


  1.   Payne’s Claims for Fees and Costs

  To establish that Milwaukee County must
pay for Attorney Sutton’s fees and the
costs of the litigation after February
12, 1996, Payne must show, as required by
42 U.S.C. sec. 1988(b), that he was a
prevailing party, and that Rule 68 does
not preclude Milwaukee County’s liability
as to his costs. Milwaukee County seemed
to suggest at oral argument that Payne
did not really "prevail," but that is
plainly not true. Payne did prevail, to
the tune of $10,400. Had he lost, he
would not have been entitled to any of
his own attorneys’ fees or costs anyway,
by the straightforward operation of Rule
54(d) and sec. 1988. The argument is also
misguided: Rule 68 can work the way
Milwaukee County argues for only if the
plaintiff is, indeed, the prevailing
party. Had he not prevailed in some
significant sense, Milwaukee County would
be confined to Rule 54(d), and Rule 68
would have simply no application. See
Delta Air Lines, 450 U.S. at 352;
Lentomyynti Oy v. Medivac, Inc., 997 F.2d
364, 375 (7th Cir. 1993).

  Payne’s first effort to show that
Milwaukee County should pay his costs is
an argument that the "real" amount he re
covered--or should have recovered--was
worth more than the offered $37,500. He
reasons that he should have been awarded
back pay along with the $10,400 the jury
gave him, and if the court had entered
such an order, then the amount would have
exceeded Milwaukee County’s offer. But
that approach introduces an impossible
level of speculation into the operation
of Rule 68. We cannot divine how much any
such award might have been. The fact is
that the final judgment of the district
court did not include a back pay element,
and Payne has not appealed from that
aspect of the judgment. We thus take as
final the actual verdict amount and
assess the consequences for Rule 68 from
that amount.

  The only other hope Payne might have had
to recover his costs was squelched a long
time ago when the Supreme Court decided
Marek. In that case, a civil rights
plaintiff who prevailed at trial but
received less than a Rule 68 offer argued
that attorneys’ fees were not subject to
the Rule 68 cost-shifting structure. The
Supreme Court disagreed. It held that
"[s]ince Congress expressly included
attorneys’ fees as ’costs’ available to a
plaintiff in a sec. 1983 suit, such fees
are subject to the cost-shifting
provision of Rule 68." 473 U.S. at 9. It
went on to make clear that "[c]ivil
rights plaintiffs--along with other
plaintiffs--who reject an offer more
favorable than what is thereafter
recovered at trial will not recover
attorneys’ fees for services performed
after the offer is rejected." Id. at 10.
We see no way, in the face of such clear
language from the Supreme Court, to hold
anything but that the district court
correctly found that Attorney Sutton was
not entitled to his fees (all of which
were incurred after the date of the Rule
68 offer).


  2. Milwaukee County’s Claims for Fees
and Costs

  The situation with respect to Milwaukee
County is slightly more complicated.
Under the language of Rule 68 quoted
above, not only must a prevailing
plaintiff like Payne bear the expense of
his own attorneys’ work, but he must also
pay the defendant’s post-offer "costs."
The question we must decide is what the
word "costs" means in this context--an
issue that Marek left open. The district
court opted for symmetry, reasoning that
since the word "costs" includes
attorneys’ fees from a plaintiff’s
position, accordingly "costs" ought to
include attorneys’ fees when the
defendant asserts a right to recover its
post-offer costs.

  There is a superficial appeal to this
reading, but upon closer examination we
conclude that it fails to take into
account the strict link the Supreme Court
has drawn between the concept of "costs"
in Rule 68 and the underlying statute
that gives rise to a right to attorneys’
fees. Briefly put, "costs" cannot
encompass more than the rules or other
relevant statutes authorize. Here, the
relevant statute is sec. 1988, which is
not a two-way fee-shifting statute. This
was no accident; the rationale behind the
asymmetry between prevailing plaintiffs
and prevailing defendants was addressed
by the Supreme Court in Christiansburg
Garment Co. v. EEOC, 434 U.S. 412 (1978).
As the Court later explained,
Christiansburg and Newman v. Piggie Park
Enterprises, Inc., 390 U.S. 400 (1968),
stand for the propositions that "a
prevailing plaintiff should ordinarily
recover an attorneys’ fee . . . based on
what we found to be the important policy
objectives of the Civil Rights statutes,
and the intent of Congress to achieve
such objectives through the use of
plaintiffs as private attorneys general.
In Christiansburg we determined that the
same policy considerations were not at
work in the case of a prevailing civil
rights defendant." Fogerty v. Fantasy,
Inc., 510 U.S. 517, 522-23 (1994).
Christiansburg identified three reasons
for distinguishing between defendants and
plaintiffs: the need to facilitate the
enforcement of the civil rights laws
through "private attorneys general," 434
U.S. at 416-18; the risk of creating a
disincentive for plaintiffs to bring
civil rights suits if prevailing
defendants could obtain their attorneys’
fees as a matter of course, id. at 421-
22; and lastly, "when a district court
awards counsel fees to a prevailing
plaintiff, it is awarding them against a
violator of federal law," id. at 418.

  In the specific context of Rule 68
offers, the First Circuit endorsed the
approach that is faithful to the
structure of sec. 1988 in Crossman v.
Marcoccio, 806 F.2d 329 (1st Cir. 1986),
and we find its analysis instructive.
There, a sec. 1983 plaintiff prevailed at
trial, though for an amount lower than
the Rule 68 offer the defendant had made,
and the defendant then moved for
attorneys’ fees. The Crossman court
recognized that, based on the language of
the civil rights attorneys’ fee statute,
a party must be the "prevailing party" in
order to have a right to fees. As the
defendant was not the "prevailing party,"
his attorneys’ fees were not recoverable
as costs under the terms of sec. 1988.

  This is the first time that this court
has been squarely presented with the
Crossman issue, but we endorsed the same
reasoning that the First Circuit adopted
while Crossman was still pending on
appeal. In Grosvenor v. Brienen, 801 F.2d
944 (7th Cir. 1986), we suggested,
without deciding the point, that Marek
implies that one must look to the
underlying statute authorizing fees in
the course of applying Rule 68. See
Grosvenor, 801 F.2d at 946 n. 4 ("[I]t is
doubtful that a prevailing plaintiff
should have the defendant’s post-offer
attorneys’ fees imposed upon him."). We
reasoned that sec. 1988 allows only a
prevailing party to recover fees, and
that Rule 68--requiring that the
plaintiff be the prevailing party--is
inconsistent with a recovery by the
losing defendant of attorneys’ fees.
Under sec. 1988, we noted, such fees may
be recovered from a plaintiff only if the
plaintiff’s claim is frivolous or
vexatious--hardly the case where the
plaintiff has prevailed. See Hensley v.
Eckerhart, 461 U.S. 424, 429 n. 2 (1983)
(prevailing defendant may recover
attorney’s fees only when suit vexatious,
frivolous, or brought to harass or
embarrass defendant).

  The official endorsement of the
Grosvenor/Crossman position came later in
Harbor Motor Co. v. Arnell Chevrolet-Geo,
Inc., 265 F.3d 638 (7th Cir. 2001). There
we considered whether a defendant could
receive attorneys’ fees after a spurned
Rule 68 offer in a copyright case. The
Copyright Act provides, as does sec.
1988, for the collection of attorneys’
fees by the prevailing party. 17 U.S.C.
sec. 505. The defendant in Harbor Motor
was not the prevailing party;
nevertheless, because of Rule 68 the
defendant was relieved of the obligation
to pay the plaintiff’s post-offer
attorneys’ fees. Following Crossman, we
concluded that the requirement under the
Copyright Act that a party must have
prevailed before it is entitled to fees
meant that the defendant could not
recover its own post-offer fees. See also
O’Brien v. City of Greers Ferry, 873 F.2d
1115, 1120 (8th Cir. 1989); 12 Wright &
Miller, sec. 3006.2, at 132 (defendants
may recover fees as part of the Rule 68
costs only if they can satisfy the
otherwise applicable statutory standard
for recovery).

  We are persuaded that Grosvenor, Harbor
Motor, and the cases from our sister
circuits are correct. They are consistent
with the Supreme Court’s general
admonition in Marek to assess the right
to attorneys’ fees in the light of the
underlying statute that creates the right
to such fees. If sec. 1988 did not rest
explicitly on a party’s status as a "pre
vailing" party before fees could be
recovered, we would have a different
case. But it does, and this court has
unequivocally held that defendants who
make more generous Rule 68 offers than
the winning plaintiff wins from a jury
are not "prevailing parties." See Poteete
v. Capital Engineering, Inc., 185 F.3d
804 (7th Cir. 1999). Indeed, as we noted
earlier, if a defendant prevails, the
entire question of fees and costs is
assessed differently.

  Milwaukee County’s right to costs, as
opposed to fees, does not depend upon
sec. 1988, and thus the costs question
must be analyzed separately. Rule 54(d)
of the Federal Rules of Civil Procedure
sets forth the general rule that costs
other than attorneys’ fees "shall be
allowed as of course to the prevailing
party," except as otherwise provided by
statute or in the rules. Rule 68 does
provide otherwise, by explicitly calling
for the plaintiff to bear the defendant’s
costs if the final judgment is less
favorable than the offer. The district
court’s final order in this case did not
distinguish between Milwaukee County’s
post-offer attorneys’ fees and its post-
offer costs. A remand will therefore be
necessary to sort out those two elements;
Milwaukee County is entitled only to the
post-offer costs.

III

  For the reasons stated, we Affirm the
district court’s judgment insofar as it
denies post-offer attorneys’ fees and
costs to Payne; we Reverse the judgment
insofar as it awards post-offer
attorneys’ fees to the defendants; and we
Remand for the purpose of determining the
post-offer costs to which defendants are
entitled.
