Interfaith Community Organization v. Honeywell International Inc., Nos. 11-3813 and 11-3814; Third Circuit; opinion by Vanaskie, U.S.C.J.; filed June 4, 2013. Before Judges McKee, Sloviter and Vanaskie. On appeal from the District of New Jersey. [Sat below: Judge Cavanaugh.] DDS 17-8-xxxx [30 pp.]

Mutual Chemical Company of America operated a chrome manufacturing plant in Jersey City from 1895 to 1954. During that time, it deposited approximately 1.5 million tons of industrial waste residue containing hexavalent chromium into wetlands along the Hackensack River. In 1954, Allied Corporation purchased the plant and ended the dumping. It was succeeded by AlliedSignal Inc.

In 1995, the Interfaith Community Organization and five residents of the community, represented by Terris, Pravlik & Millian, filed suit against AlliedSignal pursuant to the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. §§ 6901 et seq., seeking the cleanup of a contaminated area designated "Study Area 7." The district court entered judgment for ICO, ordering Honeywell International Inc., AlliedSignal’s successor, to clean up Study Area 7. The Third Circuit affirmed.

The district court awarded ICO more than $4.5 million in fees and expenses and required Honeywell to pay the future fees and costs incurred by ICO in monitoring the cleanup. The Third Circuit sustained the decision with respect to the hourly rates sought by ICO’s counsel but rejected as inadequate the court’s review of the hours claimed.

In 2005, Hackensack Riverkeeper, also represented by Terris, filed companion cases against Honeywell seeking remediation of areas adjacent to Study Area 7. They resulted in consent decrees in which Honeywell agreed to pay $5 million in fees and costs for the expenses incurred prior to the decrees and "reasonable" future fees and expenses incurred in monitoring Honeywell’s remediation efforts.

When ICO and Riverkeeper (appellees) and Honeywell failed to agree regarding the fees incurred for monitoring, Terris filed fee applications. Honeywell filed objections and served offers of judgment pursuant to Rule 68 for the disputed fees. The district court substantially upheld appellees’ fee request. It again ruled that Terris could be paid Washington, D.C., rates and it approved the method requested by appellees for calculating those rates. It rejected most of the challenges to the reasonableness of the hours expended by Terris and held that Rule 68 offers of judgment cannot be made in citizen suits filed under RCRA. This appeal followed.

Held: Offers of judgment pursuant to Fed. R. Civ. P. 68 may be made in the context of attorney fee disputes under the fee-shifting provisions of the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. §§ 6901 et seq. The district court’s declaration that the offers of judgment in this case are null and void and its decision to bar any further offers of judgment are reversed and the previously made offers of judgment are reinstated. The court’s departure from the forum-rate rule is affirmed because review of the issue is barred by collateral estoppel. The court’s decision to use the Legal Services Index to update the Laffey Matrix to determine the rate is affirmed. Its conclusions with respect to the number of hours claimed by counsel are vacated because its findings lack sufficient explanation.

Regarding the offers of judgment, the court looks first to the text of Rule 68. It says the rule does not exempt from its purview any type of civil action. Moreover, Rule 1 states that the rules apply to "all suits of a civil nature" unless exempted by Rule 81, which does not restrict Rule 68′s applicability to citizen suits under RCRA, or to suits seeking equitable relief generally. Thus, by its plain terms, Rule 68 is applicable to RCRA citizen suits.

However, the district court held that applying Rule 68 to cases brought under the RCRA would violate the Rules Enabling Act, 28 U.S.C. § 2072, by discouraging the very suits that Congress intended to promote. The Third Circuit says that if applying Rule 68 to § 6972 citizen suits abridges or modifies a substantive right, i.e., if it alters the rules for adjudicating a litigant’s rights, Rule 68 offers are void despite the plain meaning of the rule.

Applying this criterion, the court concludes that application of Rule 68 here does not violate the Rules Enabling Act. The amount of the fee to be awarded remains governed by the same rules of decision regardless of the interposition of an offer of judgment. At best, the only impact that Rule 68 has on the ultimate outcome of the fee dispute is to require appellees to bear their postoffer costs, including counsel fees, if the fee award is less favorable than the offer of judgment, and requiring a plaintiff to bear the fees incurred after it rejects an offer of judgment cannot be said to abridge some substantive right. Speculation as to the potential "chilling" effect of allowing Rule 68 offers of judgment in citizen suits under RCRA is irrelevant to whether the rules of decision are altered by the offer of judgment.

The fact that only equitable relief is available under § 6972 does not alter this conclusion. Courts have applied Rule 68 to suits seeking equitable relief despite arguments that doing so would discourage such claims.

The fee-shifting provision of § 6972 encourages plaintiffs to bring meritorious suits to enforce environmental laws. Rule 68 encourages settlement of civil suits. There is nothing incompatible with these two objectives. Thus, application of Rule 68 in this context does not violate the Rules Enabling Act.

The court also rejects appellees’ contention that Rule 68 does not apply to proceedings after judgment has been rendered on liability. The court says that given the ordinary meaning of "liability," the phrase "extent of liability" in the rule encompasses all legal responsibilities. This appeal is evidence that the extent of Honeywell’s liability has yet to be determined.

Thus, because a Rule 68 offer in this context comports with the ordinary meaning of "extent of liability" and is consistent with the fee-shifting provision of RCRA, the court concludes that Rule 68 offers of judgment apply to disputes over attorney fees after liability has been determined.

As to the district court’s departure from the forum-rate rule, the court notes that it already has sustained the district court’s decision that the forum-rate rule should not be applied in this case. It concludes that further litigation concerning the applicability of the forum-rate rule is barred by collateral estoppel.

The court then considers whether the district court erred in determining the appropriate Washington, D.C., rates. The parties agree that an updated version of the Laffey Matrix would be a valid vehicle for determining the rates. However, they disagree about the proper method of updating the matrix. The court concludes that in light of its prior decision affirming the Legal Services Index (LSI) method favored by appellees, and the district court’s finding that the reasoning of cases using that method is persuasive, it was not clear error to again rely on the LSI method.

However, the court finds that it does not have a sufficient record to sustain the district court’s determinations as to the reasonableness of the hours expended by Terris. Finding that the district court’s statement that it will not second-guess the staffing decisions of the Terris firm or its experts is insufficient to allow for meaningful appellate review, it remands the latest fee awards for further proceedings.

For appellants — Lisa S. Blatt, Michael D. Daneker, Dirk C. Phillips and R. Stanton Jones, of the D.C. bar (Arnold & Porter). For appellees — Bruce J. Terris, Carolyn Smith Pravlick and Michelle Weaver, of the D.C. bar (Terris, Pravlik & Millian).