United States District Court, S.D. New York
April 20, 2004.
DARRYL L. DAGEN, Plaintiff; -against- CFC GROUP HOLDINGS LTD., ET AL., Defendants
The opinion of the court was delivered by: CONSTANCE MOTLEY, Senior District Judge
MEMORANDUM OPINION AND ORDER
Following a jury verdict in favor of plaintiff on defendants'
counterclaims and in favor of defendants on plaintiff's claims,
defendants move the court to award them taxable costs, including
attorney's fees. For the reasons stated below, the motion is GRANTED IN
PART and DENIED IN PART.
The factual and procedural background of this case has been laid out in
full in previous opinions and orders, familiarity with which is assumed.
The court therefore recounts only the facts that bear upon the court's
disposition of the issue presented.
In relevant part, this case arises out of plaintiff Darryl Dagen's
employment with defendants CFC companies. Dagen charged defendants with
constructive discharge, three violations for breach of contract (one of
which was withdrawn prior to trial), failure to pay wages pursuant to New
York Labor Law, intentional interference with contractual relations, and
unjust enrichment. Plaintiff's sought relief in the amount of no less than
$1,053,301.00 in compensatory damages and no less than $10,000,000 in
punitive damages, as well as costs, attorneys' fees, and statutory
Defendants counterclaimed for breach of contract, fraudulent inducement
of contract, conversion, fraud, negligent misrepresentation, unjust
enrichment, and breach of fiduciary duties. They requested damages,
together with costs, reasonable attorneys' fees, interest, all sums
wrongfully obtained by Dagen, punitive damages, out of
pocket losses and expenses.
The court held a jury trial in this case from November 7, 2003 through
November 19, 2003. At the close of plaintiff's case, the defense rested.
The jury returned a verdict in favor of defendants on plaintiff's claims
and in favor of plaintiff on defendants' counterclaims. Accordingly, on
November 28, 2003, the court entered a judgment dismissing plaintiff's
complaint and defendant's counterclaims.
On January 5, 2004, defendants moved the court to award them taxable
costs, including attorneys' fees. They argue that because plaintiff
refused defendants' Offer of Judgment on September 25, 2003 for $50,000
and thereafter recovered a judgment of a lesser amount, they are entitled
to all litigation related costs incurred after that date under
Fed.R.Civ.P. 68. Alternatively, they claim that as the prevailing party,
the court should award them costs under Fed.R.Civ.P. 54(d). Plaintiff
opposes defendants' motion, arguing that Rule 68 does not apply because
plaintiff did not prevail and Rule 54(d) does not entitle defendants to
costs because defendants did not prevail on their counterclaims. Further,
plaintiff argues that even if the court were to award defendants costs
under one or both of the Rules, neither statute entitles defendants to
I. Are Defendants Entitled To Costs?
A. Rule 54(d)(1)
Fed.R.Civ.P. 54(d)(1) states in relevant part: "Except when express
provision therefor is made either in a statute of the United States or in
these rules, costs other than attorneys' fees shall be allowed as of
course to the prevailing party unless the court otherwise directs." The
decision whether or not to award costs rests with the sound discretion of
the trial court, Cosgrove v. Sears, Roebuck & Co.,
191 F.3d 98, 101-02 (2d Cir. 1999), but as the language of the Rule indicates,
prevailing parties are presumptively entitled to costs. See Delta
Air Lines. Inc. v. August, 450 U.S. 346, 352, 101 S.Ct. 1146 (1981).
The question, then, is who is a "prevailing party?" The Rule provides
no guidance as to the definition of the term. Generally, "the litigant in
whose favor judgment is rendered is the prevailing party for purposes of
Rule 54(d)." Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2667, at 178. The Supreme Court
has stated that "[r]espect for ordinary language requires that a
plaintiff receive at least some relief on the merits of his claim before
he can be said to prevail." Buckhannon Bd. and Care Home, Inc. v.
West Virginia Dept. of Health and Human Resources, 532 U.S. 598,
604, 121 S.Ct. 1835 (2001) citing Hewitt v. Helms, 482 U.S. 755, 760,
107 S.Ct. 2672 (1987). The inquiry focuses on the "material alteration of the
legal relationship of the parties." Farrar v. Hobby,
506 U.S. 103, 111, 113 S.Ct. 566 (1992). According to the Second Circuit, a
plaintiff prevails whenever he or she succeeds on "any significant issue"
in the litigation which achieves some of the benefit the party sought in
bringing suit. Bridges v. Eastman Kodak. 102 F.3d 56, 58 (2d
Cir. 1996). The success must be more than "technical" or "de minimis."
Lyte v. Sara Lee Corp., 950 F.2d 101, 103 (2d Cir. 1991). Here,
although Dagen successfully warded off defendants' counterclaims, he did
not receive relief on the merits or any of the benefits he sought in
bringing suit, nor did his suit materially alter the parties' legal
relationship. As such, Dagen is not the prevailing party in this case.
At the same time, the court entered judgment for plaintiff on
defendants' counterclaims. Plaintiff therefore argues that for the
purposes of Rule 54(d), neither Dagen nor defendants can be considered
the "prevailing party" entitled to costs. To substantiate this claim,
plaintiff cites Srybnik v. Epstein, 230 F.2d 683 (2d Cir.
1956), holding that "where the defendant counterclaims for affirmative
relief and neither party prevails on its claim, it is quite appropriate
to deny costs to both parties." Id. at 686.
Following Scientific Holding Co., Ltd, v. Plessey. Inc.,
510 F.2d 15 (2d Cir. 1974), the court rejects plaintiff's argument as "too
wooden a view." Id. at 28. In Scientific, the Second
Circuit upheld the award of costs to a defendant pursuant to Rule 54(d)
despite the fact that defendant did not prevail on its counterclaims. The
Second Circuit noted that the defendant's counterclaim was limited to two
issues, and "[l]ittle trial time was spent on the counterclaim, whereas
consideration of plaintiffs claim for $1, 260,000 compensatory damages
plus punitive damages required three weeks of trial, 16 witnesses, over
1,800 pages of testimony and more than 100 exhibits." Id. at
28. See also Ann Howard Designs, L.P. v. Southern Frills, Inc.,
7 F. Supp.2d 388, 389-90 (2d Cir. 1998) (denying defendant costs under
Rule 54(d) not because defendant lost its counterclaims, but because
defendant "went beyond defensive counterclaims, asserting every minutely
colorable counterclaim conceivable as found in any body of law it could
locate," many of which "bordered on frivolous."); City of Rome,
Italy v. Glanton, 184 F.R.D. 547, 550 (E.D. Pa., 1999) (in deciding
whether an unsuccessful defendant counterclaimant is entitled to costs
where the plaintiff is also unsuccessful on the merits, "[t]he court
should look to whether the defendants have advanced counterclaims that
are not related in some way to the main complaint or that require "proof
outside the scope of plaintiff's claim . . . as well as the relative
`size' of the counterclaim in comparison to the counts in the
complaint."); Lacovara v. Merrill Lynch. Pierce, Fenner
& Smith, 102 F.R.D. 959, 961 (E.D. Pa. 1984)
(awarding defendant costs even though it lost its counterclaim because
it sought only $4,494 as relief while the complaint sought over $80,000
for plaintiff's claim).
Defendants' counterclaims for breach of contract, negligent
representation, fraud, conversion, and breach of fiduciary duties were directly related to
plaintiff Dagen's claims for breach of contract, unjust enrichment,
intentional interference with contractual relations, and failure to pay
wages. The proof required to defend against plaintiff's claims was
substantially the same as the proof required to support defendants'
counterclaims. For example, defendants' ability to show that plaintiff
stole a company check and then walked off the job prior to the expiration
of the contract's term was directly related to both defending against
plaintiff's breach of contract claim and establishing defendants' claim
for conversion, unjust enrichment, and breach of fiduciary duties.
Similarly, defendants' ability to show that the owner of all CFC
companies, defendant Boris Merkenich, explicitly encouraged plaintiff to
improve his performance immediately before plaintiff claims to have been
"constructively discharged" directly related to defending against Dagen's
breach of contract and constructive termination claims and defendants'
counterclaim for breach of contract and fiduciary duties. Moreover, with
the obvious exceptions for opening and closing arguments, the entire
trial was dedicated to plaintiff's case. For nearly four solid days, the
jury was focused on items such as Merkenich's supposed scheme to force
plaintiff out of work by refusing to allow plaintiff to secure his
residential lease in the company name, the tapes he made of conversations
with Merkenich by secreting a recorder in his clothing, Dagen's claimed
inability to work due to CFC's cancellation of his cell phone even though
he was contractually entitled to a cell phone, questionable expenses he
submitted to defendants, explanations as to why he never closed any
sales, and so forth. At the close of plaintiff's case, the defense
rested. The fact that the defense rested at the close of plaintiff's case
shows that the focus of litigation was on plaintiff's allegations as
opposed to defendants', and, equally as important, that defendants'
refutation of plaintiff's claims was sufficient to simultaneously
establish their right to relief on their counterclaims. Finally,
plaintiff demanded millions of dollars in relief. The size of his claim
relative to defendants' counterclaims justifies, in part, the court's
conclusion that defendants' failure to prevail on its counterclaims does
not dispose of its rights under Rule 54(d)(1).
Defendants' counterclaims were defensive in nature and not sufficiently
weighty, complex, or time consuming to warrant denying their
Rule 54(d)(1) applications for costs. This result is not so extraordinary
given that judgment was entered in favor of defendants on all of
plaintiff's claims and the litigation was centrally focused on
plaintiff's allegations, not defendants'. Thus, for the purposes of
Rule 54(d)(1), defendants are the "prevailing party" and they are therefore
entitled to costs allowable under the Rule.
B. Rule 68
On September 25, 2003, defendants offered Dagen to take judgment
against them for $50,000 in settlement of all claims in this litigation.
Dagen refused the offer.
Rule 68 provides that if a timely pretrial offer of settlement is not
accepted and "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." Fed.R.Civ.P. 68. As a means of encouraging
settlement and avoiding litigation, "[t]he Rule prompts both parties to a
suit to evaluate the risks and costs of litigation, and to balance them
against the likelihood of success upon trial on the merits." Marek v. Chesny, 473 U.S. 1,
5, 105 S.Ct 3012 (1985). The Rule requires plaintiff to "think very
hard" about whether continued litigation is worthwhile, id. at
111, especially in those cases where "there is a strong probability that
the plaintiff will obtain a judgment but the amount of recovery is
uncertain," Delta Air Lines, 450 U.S. at 352.
A court is precluded from applying the Rule in situations where the
defendant, rather than the plaintiff, obtains a judgment dismissing the
complaint. Delta Air Lines. 450 U.S. at 352. In other words, if
the plaintiff does not recover judgment, Rule 68 does not apply. But what
Delta Air Lines does not address, however, are situations such
as the one presented here, where the plaintiff does not obtain a judgment
on any of the claims set forth in its complaint, but obtains a judgment
dismissing a defendant's counterclaims. In that sense, Dagen was at least
Given the court's conclusion that defendants were the prevailing party
under Rule 54(d)(1), it would be especially anomalous to conclude that
Dagen was the prevailing party under Rule 68 because he successfully
warded off defendants' counterclaims. Again, under any definition of a
"prevailing party," Dagen is a far cry from having prevailed in this
lawsuit. Courts facing similar situations have likewise concluded that a
plaintiff whose only success consists of a judgment dismissing a
defendant's counterclaim are shielded from application of Rule 68.
See e.g., U.S. v. Safeco. Ins. Co. of America.
116 F.3d 487 (9th Cir. 1997) (finding Rule 68 inapplicable where plaintiff
obtained a judgment dismissing defendant's counterclaims and defendant
obtained a judgment dismissing plaintiff's complaint). Applying the Rule
in this context is also illogical judged against its purpose. This was
not a case in which defendants' liability was clear and the only
uncertainty was the amount of Dagen's damages. As the verdict itself
illustrates, it was far from clear that defendants breached the contract
by constructively discharging Dagen and, had defendants been liable,
Dagen would have been entitled to at least the wages he would have earned
through the contractual term. Further, application of the Rule in
situations such as the one before the court would encourage defendants to
interpose relatively frivolous counterclaims so that they can then claim
that plaintiff "prevailed" under Rule 68 for having obtained a judgment
dismissing the frivolous counterclaims. Congress could not have intended
such a result.
Because plaintiff did not obtain a judgment on the claims set forth in
his complaint, defendants are not entitled to costs under Rule 68.
II. Allowable Costs Under Rule 54(d)
The "costs" allowed under Rule 54(d)(1) include only the specific items
enumerated in 28 U.S.C. § 1920. Crawford Fitting Co. v. J.T.
Gibbons, Inc., 482 U.S. 437, 107 S.Ct. 2494 (1987); accord
United States ex rel. Evergreen Pipeline Constr. Co. v. Merritt Meridian
Constr. Corp., 95 F.3d 153, 171 (2d Cir. 1996). Local Civil
Rule 54.1(c) further delineates the categories of expenses a prevailing party
may recover, narrowing the scope of taxable items. See V
Formation, Inc. v. Benetton Group, 2003 WL 21403326 (S.D.N.Y. 2003).
Defendants' bill of costs claims $68.40 for transcripts necessarily
obtained for use in the case and $2,911.50 for deposition transcripts
used at trial, totaling $2,979.90. Both costs are allowable under Federal
Rule 54(d)(1). See 28 U.S.C. § 1920 (2); Local Civil
Rule 54.1(c)(1)(2). Defendant also moves the court for $799.64 in costs incurred in
creating oversized blow ups of exhibits and charts admitted into
evidence. Local Civil Rule 54.1(6) provides that the costs of
enlargements greater than 8" by 10" and charts are not taxable except by
order of the court. Because the enlarged exhibits were introduced into
trial in a manner that was "incidental and necessary" to the
representation of defendants, Amato v. City of Saratoga
Springs, 991 F. Supp. 62, 68 (N.D.N.Y. 1998), and the cost of the
items in question does not seem unreasonable, the court awards defendants
$799.64 relating to the creation of these items.
Finally, defendants seek attorneys' fees. Rule 54.1(7) does not
contemplate the imposition of attorneys' fees and other related expenses
except by order of the court. Under the American Rule, absent statutory
authorization or an established contrary exception, each party bears its
own attorneys' fees. Colombrito v. Kelly, 764 F.2d 122, 133 (2d
Cir. 1985). However, a court may exercise its inherent power to award
attorneys' fees where a party acts in bad faith by wantonly asserting a
colorless claim for the purposes of harassment or delay or for other
improper purposes. Id. at 133. See also Sierra Club v. U.S. Army
Corps of Engineers, 776 F.2d 383, 390 (2d Cir. 1985), cert
denied, 475 U.S. 1464 (1986) (the parties pay their own costs of
litigation unless a party acted in bad faith, vexatiously, wantonly, or
for oppressive reasons). "Neither meritlessness alone, nor improper
motives alone, will suffice." Colombrito. 764 F.2d at 133.
Although plaintiff's claims were dubious at best, especially given the
evidence brought forth at trial regarding his own instances of
misconduct, the court is not prepared to impose the extraordinary award
of attorneys fees in this case absent further statutory authorization to
do so or evidence of bad faith on the part of the plaintiff.
Defendants' motion for taxable costs, including attorneys' fees under
Federal Rules 54(d)(1) and 68 is GRANTED IN PART and
DENIED IN PART. Given that defendants' counterclaims were
defensive in nature, did not go beyond the scope of plaintiff's
allegations, and consumed little to no time during the trial, the fact
that judgment was entered against defendants on their counterclaims does
not negate defendants' status as the "prevailing party" in this case.
Accordingly, defendants are entitled to costs under Rule 54(d)(1) in the
amount of $3779.54, but they are not entitled to costs under Rule 68.
The Cleric of the Court is hereby directed to enter judgment in favor
of the defendants for taxable costs totaling $3,779.54.
© 1992-2004 VersusLaw Inc.