Seventh Circuit vacates fee award which denied all fees incurred after the rejection of an oral settlement offer as unfair

In Cooper v. Retrieval-Masters Creditors Bureau, Inc., No. 18-2358 (7th Cir. July 29, 2022) the Seventh Circuit addressed attorney fee awards to prevailing plaintiffs under the FDCPA where the damage award was modest and the plaintiff had rejected what hindsight shows to have been a substantial early settlement offer.

The plaintiff sued the debt collector under the FDCPA. Early in the proceedings, the plaintiff rejected an oral settlement offer of $500 in damages plus reasonable attorney fees and costs incurred to that point. The next day, the debt collector made a written offer of judgment under Fed. R. Civ. Pro. 68 for $4,600, including attorney fees and costs, which the plaintiff also rejected. The court ultimately granted summary judgment to the plaintiff on liability and the case was tried to a jury which awarded only $500 in statutory damages.

Plaintiff sought an award of attorney fees and costs totaling more than $66,000. The district court awarded fees and costs of less than $8,000, finding that all the hours spent on the case after the oral offer of $500 plus fees and costs was rejected were unreasonable. The court reasoned that the attorneys should have known the plaintiff was unlikely to win any actual damages or even the maximum $1,000 in statutory damages under the FDCPA, so they should have recognized that there would have been no benefit in proceeding to trial.

The fee award was reversed on appeal and remanded for further proceedings. The appellate court examined the difference between an oral settlement offer and a Rule 68 offer of judgment. “Rule 68 has provided a clear path for a defendant who wants to reduce the risk of a high fee award, at least under some fee-shifting statutes.” To obtain the benefit of Rule 68, a defendant’s offer must be made in writing and presented to the plaintiff at least 14 days before the date set for trial. Once those requirements are met, Rule 68 applies to bar the prevailing party from recovering any costs incurred after the party rejected the defendant’s offer. In contrast, a non-Rule 68 offer need not be in writing, need not be left open for any particular time, and may be amended at will. “The finality of the agreement that exists when a Rule 68 offer is accepted is simply absent for many non-Rule 68 offers.”

Even though the fee award was not based on the debt collector’s Rule 68 offer of judgment, the rule’s procedures and protections provide guidance for courts to consider whether and how a rejected settlement offer should affect an attorney fee award to a prevailing plaintiff. The Court clarified that a court must consider several factors when setting a reasonable attorney fee, including the rejection of a substantial settlement offer. But the rejection of that offer, especially if it is not a Rule 68 offer of judgment, should not be the sole fact that determines the fee award.

Rather, courts should consider the totality of the circumstances and focus on whether the lodestar reflects the unique facts of the case or whether it should be adjusted up or down to better account for those facts. Permitting courts to deny fees for all post-offer work solely because a party rejected a non-Rule 68 offer without considering such circumstances of the case, would give defendants the benefit of Rule 68 without providing any of the key safeguards that protect a plaintiff considering a Rule 68 offer. Courts should consider the proportionality between the amount of damages the plaintiff recovered and the fee award as a factor when deciding to adjust the lodestar amount. However, the fee awards should not be linked mechanically to a plaintiff’s damages award. “Congress’s goal of using attorney fee awards as an incentive for plaintiffs to bring actions enforcing the rights of the public, like those under the FDCPA, is greatly undermined if courts apply a strict proportionality analysis that fails to account for the remedial policies that such fee awards to private attorneys general are designed to promote.”

The Court observed there was a way for defendant to obtain the benefits of Rule 68 as to the $500 offer: make a firm offer in writing, leaving it open for 14 days. If defendant had done that, if plaintiff had rejected that firm offer, and if the district court had given decisive weight to that rejection, the denial of all post-offer fees would have been an appropriate exercise of discretion for fee awards under the FDCPA. But giving such decisive weight to an oral offer of settlement was not fair. The fee award was therefore vacated and remanded.


  • James Noonan

    Jim is a founding partner of Noonan & Lieberman. Jim has more than 25 years of experience in civil litigation on behalf of creditors, servicers, business and real estate owners.

Download Related Document