We will not get into the details of why, but we have been thinking recently about the issue of mechanisms for shifting costs and fees.  The European “loser pays” rules—into which we will not delve, either—are often cited as one of the reasons why there is so much less product liability and other personal injury in Europe compared to the United States.  The incentives are obvious:  a plaintiff is far less likely to sue with low damages, weak causation, and/or dubious liability if she might get stuck with a big bill from the defendant at the end of the case.  Contingency fee arrangements, lawyer advertising, and litigation financing all play a role in furthering the sort of serial product liability cases against drug and device manufacturers we defend and about which we write, but we doubt cost and fee shifting play a big role in the decision on creating/expanding a particular litigation.

Of course, there are some mechanisms in the United States for cost and fee shifting.  The most widely used is probably Fed. R. Civ. P. 54(d)(1), where the prevailing party can seek costs other than attorney’s fees after a judgment has been entered.  The types of costs that can be recovered under this provision are somewhat limited for most cases.  Plus, after a win on summary judgment or at trial against an individual, the “wealthy corporate defendant” may not want the potential press than comes from seeking costs, regardless of whether those costs would ever really be payable by the plaintiff as opposed to her contingency fee lawyers who fronted all the costs on her behalf.  These costs may also get wrapped into a post-judgment deal, like one where the plaintiff foregoes her longshot appeal in exchange for not paying the defendant’s costs.  Rule 54(d)(2) has some more teeth, because it allows for a prevailing party to get “attorney’s fees and other non-taxable costs” (i.e., beyond what would be covered under 54(d)(1)) when there is a “statute, rule, or other grounds entitling the movant to the award.”  Our experience, though, is that many courts are hesitant to impose significant fees on losing plaintiffs no matter the fact pattern or authority.  We recall one egregious case where the plaintiff failed to designate any experts, refused an offered dismissal without costs, forced the defendant to move for summary judgment, and then did not oppose summary judgment on the merits.  (There was also a fraudulent affidavit recanted by the affiant in deposition, but that is beside the point.)  Again, not a ton of deterrent effect against filing a weak case in the first place.

Costs and even some fees can also be imposed in connection with an involuntary dismissal under Fed. R. Civ. P. 41(b) or a dismissal of a re-filed case under Fed. R. Civ. P. 41(d).  Discovery sanctions under Fed. R. Civ. P. 37 could include both costs/fees and dismissal, but rarely both.  Federal courts can also use their inherent authority as a basis for awarding costs or fees to prevailing party based on some misconduct by the losing party, but that is pretty rare.  None of these special circumstances applies broadly enough to deter weak or low value cases from being filed in the first place.

There is also the relatively infrequently used Fed. R. Civ. P. 68, which allows a defendant to get costs (not attorney’s fees) after rejection/expiration of a formal offer of judgment.  This is not discretionary:  “If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.”  Id. (emphasis added).  This is a pretty good tool for a defendant willing to make such an offer and pay it if accepted.  The downside is that it covers only costs, specifically those incurred after the offer was rejected (or expired without being accepted or withdrawn).

We started off talking about litigation in the United States and we have discussed only federal rules so far.  Thanks to the wonders of federalism, we also have state laws that may apply in state and federal courts.  What if there was some mechanism that applied in both state and federal courts where a device manufacturer could offer to pay $20,000 and, if the plaintiff rejected it and lost summary judgment, the plaintiff would be on the hook for over $1,000,000 in costs and fees incurred in defending the case?  Even the remote risk of something like that would make even the most aggressive plaintiff lawyers think twice before bringing a weak case.  This may be exactly what happens in Cates v. Zeltiq Aesthetics, Inc., No. 6:19-cv-1670-PGB-LRH, 2021 U.S. Dist. LEXIS 246621 (M.D. Fla. Dec. 27, 2021), which is among few fee-shifting decisions we have discussed.  Cates is a product liability case under Florida law where the plaintiff sued a medical device manufacturer over alleged injury from the use of a device to remove fat in certain areas of his body for cosmetic purposes.  The underlying facts are not terribly important to the issue at hand; the procedural history is.

In early March 2020, while a motion to dismiss the original complaint had been pending for several months, the defendant made a $20,000 offer to resolve the case according to terms based on a Florida statute and rule.  Plaintiff did not accept the deal, plaintiff was allowed to file an amended complaint for certain of his original claims, the case proceeded to discovery (and apparently lots of motions practice), and the defendant ultimately won summary judgment in April 2021.  It then filed a motion under Rule 54(d)(2) to recover about $1,100,000 of costs and fees pursuant to the Florida statute.  (Remember, the expanded definition under 54(d)(2) allows recovery based on any “statute, rule, or other grounds entitling the movant to the award,” not just federal authority.)  Plaintiff balked at paying that much based on not accepting an early $20,000 offer, raised a number of arguments, and the matter was referred to the magistrate for a report and recommendation.  We report on the magistrate’s recommendation.

Given that this is a case in federal court and cost shifting is often a procedural mechanism, the first question is whether the Florida provisions are substantive or procedural.  The shortened version—the plaintiff did not challenge the applicability—is that prior Eleventh Circuit rulings had found both Florida statute § 768.79 and the pertinent parts of Rule 1.442 of the Florida Rules of Civil Procedure are substantive, labeling aside.  Collectively, they impose a number of requirements for the form, timing, and scope of the offer of settlement.  Plaintiff did not dispute that those requirements had been met or that summary judgment triggered the requirement of “no liability or the judgment obtained by the plaintiff is at least 25 percent less than such offer.”  The only argued basis for not shifting significant costs was the exception in § 768.79(a) where the court “determine[s] that an offer was not made in good faith.”  Plaintiff bears the burden of proof on this point.

Boiled down, plaintiff argued that $20,000 was too low to be a good faith offer for a case about product liability claims with a medical device, especially where plaintiff argued it had a good case (despite the summary judgment) and the cost of litigating the case ended up being much higher.  The standards for evaluating good faith, however, require more than an eyeball test applied in hindsight.  The analysis focuses on whether the “proposal bears a reasonable relationship to the amount of damages suffered and was a realistic assessment of liability,” with measurement at the time of the offer.  2021 U.S. Dist. LEXIS 246621, *9 (citations omitted).  In arguing its good faith, the defendant pointed out that it had a motion to dismiss pending at the time of the offer, had assessed the liability and punitive damages issues, and had discovery that plaintiff’s medical expenses were less than $8000 and he did not seek lost wages.  Id. at **10-11.  Plaintiff’s counter-arguments were (as we group and order them) that 1) he had a purported basis for his failure-to-warn claim and a risk of future damages, 2) other plaintiffs suing over the same device alleged damages exceeding $20,000, 3) the defendant spent a lot of resources in defending the case, 4) defendant did not make another settlement offer after this one was rejected, and 5) the $75,000 diversity jurisdiction requirement was higher than the offer.  Id. at **11-12 & nn. 7 & 9.

The court rejected plaintiff’s arguments and found that the offer had been made in good faith.  The amount bore a reasonable relationship to the damages credibly claimed by plaintiff.  It was made with a motion to dismiss pending and after defendant had assessed that its warnings were adequate and the punitive damages claim was baseless.  Id. at **12-13.  By contrast,

discussions of possible adverse effects and outcomes in general, or the facts and damages alleged in other cases is both speculative and irrelevant to a determination of whether, in this case, Defendant’s offer of judgment bore a reasonable relationship to the facts of this case, and whether the offer represented a realistic assessment of Defendant’s liability in this case.

Id. at *14 (emphasis in original).  The focus on the particular case at the time of the offer also meant the lack of subsequent settlement offers was irrelevant.  Id. at *12 n.7.  Arguments about the merits of plaintiff’s claims (later rejected by the court via summary judgment) did not go far, as “Defendant has argued since the beginning of this litigation that its warnings were adequate under Florida law.”  Id. at **14-15.  Plaintiff’s argument about the jurisdictional amount was brushed aside because “an offer made in good faith need not equate with the total amount of damages that might be at issue.”  Id. at *14 n.9 (internal citation and quotation omitted).

That left plaintiff’s argument about the comparison of the total bill and the amount offered, which has some facial appeal.  Again, the measurement of good faith at the time of the offer was key:  “Defendant made its Proposal based on its belief that it had minimal exposure to liability.”  Id. at *15.

When Plaintiff rejected Defendant’s proposal (as was his choice), Defendant was forced to continue to defend this action and thus to engage counsel and experts and incur attorneys’ fees.  And litigation was hotly contested, with extensive motions practice.

Id.  So, the magistrate recommended that the defendant be entitled to recover fees, with further briefing on whether the amount of its bill was reasonable.

While the consideration of fees is highly case-specific and not every case will have law like Florida’s to use for fee shifting, it seems to us that there are some broader implications.

An award of attorney’s fees under § 768.79 is a sanction against the rejecting party for unnecessarily continuing the litigation.  The right to the award of attorney’s fees attaches to the rejection of the proposal for settlement, not to the cause of action.

Id. at **15-16 (citation omitted).  Even in the context of fees under Fed. R. Civ. P. 68, which has a very similar purpose, courts can be disinclined to award enough fees to discourage plaintiffs from “unnecessarily continuing the litigation.”  It would be nice if they came around.  Defendants might need to do the same.  There can be a number of reasons why defendants or defense lawyers might be resistant to making documented offers, especially those that get filed and may draw the attention of other plaintiffs or press.  The mechanisms for fee and cost shifting, however, are not self-effectuating and they certainly have no deterrence value unless the defendants use them.  If there is a good faith basis for making an offer in the amount many would consider to be “nuisance value” and it opens the door to recovering much higher fees down then road, then the full range of mechanisms is worth considering.