General Publications July 28, 2014

"High Stakes in Play with Rule 68 Decisions," Law360, July 28, 2014.

Extracted from Law360

This week, the Eleventh Circuit is scheduled to hear appeals in two cases centered on whether a Rule 68 offer of judgment can completely moot a class action. In nationwide Telephone Consumer Protection Act class actions, defendants in Keim v. ADF MidAtlantic LLC, No. 12–80577 (S.D. Fla.) and Jeffrey M. Stein, D.D.S., M.S.D. PA v. Buccaneers Ltd. P’ship, No. 8:13–cv–2136 (M.D. Fla.) prevailed on motions to dismiss after offering the full and complete relief available under the statute to the individual named plaintiffs.

Presently, there is a circuit split on whether an offer of judgment to a named plaintiff moots the class action and deprives the federal court of subject matter jurisdiction. In some circuits, such as the Seventh Circuit, a Rule 68 offer of judgment only moots a class action if it is made before the named plaintiff has moved for class certification. Demasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011). Conversely, the Ninth Circuit, along with others, has held “that an unaccepted Rule 68 offer that would have fully satisfied a plaintiff’s claim does not render that claim moot.” Diaz v. First Am. Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013).

Adding to the intrigue is a third option presented by two opinions that the Eastern District of Michigan issued earlier this month. There, Judge Sean F. Cox disregarded the two options discussed above and instead granted two motions to dismiss despite the fact that judgment was offered after the plaintiffs filed motions for class certification. In Machesney v. Lar-Bev of Howell, Inc., No. 10–10085 (E.D. Mich.) and Compressor Eng’g Corp. v. Mfr.s Fin. Corp., No. 09–14444 (E.D. Mich.), Judge Cox cited Sixth Circuit precedent from a nonclass action and held that “where the defendant has offered a Rule 68 offer of judgment that satisfies a plaintiff's entire demand, the district court should enter judgment in favor of the plaintiff in accordance with the Rule 68 offer of judgment and dismiss the case as moot.”

The potential impact of the rule set forth by the Eastern District of Michigan is tremendous. Even under the Seventh Circuit’s Demasco rule, class action plaintiffs can easily avoid the negative impact of an offer of judgment by filing a placeholder class certification motion concurrently with their complaint. According to the Seventh Circuit, the pendency of such a motion “protects a putative class from attempts to buy off the named plaintiffs” and allows named plaintiffs (and their attorneys) to proceed with the class action with no concern about the impact of a later offer of judgment. If the Eleventh Circuit (or other courts) subscribes to Judge Cox’s reasoning, class action defendants will have a powerful weapon at their disposal.

Given the divergence on the issue in the lower courts, the issue is prime for treatment by the U.S. Supreme Court, which offered a potential defendant-friendly preview in its 2013 decision in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013). While Genesis considered the impact of an offer of judgment in collective actions under the Fair Labor Standards Act, much of Justice Clarence Thomas’ majority relied heavily on past Rule 23 opinions and hinted that the high court may be willing to extend the rule to offers of judgment in Rule 23 class actions.

For example, the court cited its prior opinion in Sosna v. Iowa, 419 U.S. 393 (1975), where it “held that a class action is not rendered moot when the named plaintiff’s individual claim becomes moot after the class has been duly certified.” Once certified, a class possesses “a legal status separate from the interest” of the named plaintiff, and its claim continues to exist even after the named plaintiff’s claim becomes moot.

The court also cited its opinion in United States Parole Commission v. Geraghty, 445 U.S. 388 (1980), where it “narrowly extended this principal to denials of class certification motions.” “[E]ssential to [these] decisions was the fact that a putative class acquires an independent legal status once it is certified under Rule 23.” Using this language, a class action defendant has a colorable argument that the class’ interest in the action does not exist prior to certification. Accordingly, mooting the named plaintiff’s interest in the matter through an offer of judgment should result in dismissal of the case.

In addition, the Genesis opinion includes citations to a number of Rule 23 cases where the Supreme Court allowed “inherently transitory” class actions to continue despite the moot claims of a named plaintiff. The Court has previously limited this exception to “Rule 23 cases where it is ‘certain that other persons similarly situated’ will continue to be subject to the challenged conduct.” “The ‘inherently transitory’ rationale was developed to address circumstances in which the challenged conduct was effectively unreviewable, because no plaintiffs possess a personal stake in the suit long enough for litigation to run its course.” With this language, the court arguably invites defendants to make a Rule 68 offer of judgment to defeat a putative class action, noting that “this doctrine has invariably focused on the fleeting nature of the challenged conduct giving rise to the claim, not on the defendant’s litigation strategy.”

The court acknowledged, unnecessarily, that “a claim for damages cannot evade review ... [as] such putative plaintiffs remain free to vindicate their rights in their own suits.” It is not a stretch to read this language to hint that an offer of judgment should moot claims in a damages class action, where the class actions are not “inherently transitory.”

The stakes are high for class action participants as the Eleventh Circuit considers the impact of a Rule 68 offer of judgment on class actions. While there is a chance that the court of appeals follows suit and adopts either the Seventh Circuit or Ninth Circuit rule, the door is open for a decision that changes the landscape of class action jurisprudence. To that end, the Supreme Court looms in the background, with the potential of extending its landmark Genesis decision to a broader classification of cases.

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