First Circuit Rejects Use of Rule 68 Offer to Moot Class

Just an FYI for our loyal readers involved in class action work that the First Circuit is the latest federal appeals court to reject a defendant's attempt to moot a proposed a class action by an offer of judgment to the lead plaintiff.  See Bais Yaakov of Spring Valley v. ACT Inc., No. 14-1789 (1st Cir. 8/21/15).

The case arose from alleged unsolicited facsimiles reminding plaintiffs of testing deadlines and test sites, sent in violation of the federal Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, and an analogous New York state law.  Defendant tendered to Bais Yaakov an offer for judgment under Federal Rule of Civil Procedure 68. And later moved to dismiss this lawsuit for lack of subject matter jurisdiction, arguing that its unaccepted and withdrawn Rule 68 offer fully resolved any case or controversy between the parties, rendering Bais Yaakov's claims moot. The district court denied ACT's motion to dismiss, holding that an unaccepted offer of judgment did not moot Bais Yaakov's claim. The district court accepted ACT's contention that the offer, had it been accepted before it was
withdrawn, would have provided Bais Yaakov with everything to which it would have been entitled on its individual claim, had it prevailed.

The question of whether an unaccepted offer for individual relief in a putative class action moots the action is a question of law that the court of appeals reviewed de novo.  Plaintiffs seeking to pursue a lawsuit brought in a representative capacity must prove their authorization to bring the lawsuit. For example, a person who is not a guardian cannot sue as such, and so on. Unlike most other representative plaintiffs, however, plaintiffs seeking to proceed as representatives of a class under Rule 23 must show both that they are members of the class and that they adequately represent the class. Fed. R. Civ. P. 23(a).  Against this background, ACT advanced "a nifty stratagem" for defeating motions for class certification: offer only the named plaintiff full payment for its individual claims, and then move to dismiss the suit as moot before the court has a chance to consider whether the plaintiff should be allowed to represent the putative class. In recent years, this stratagem has become a popular way to try to thwart class actions, said the court.

The First Circuit observed this strategy seemed to run against the grain of the Supreme Court's holding in Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 340 (1980). Plaintiff argued that under this precedent, Bais Yaakov had a continuing economic interest in the controversy: the interest in sharing attorney's fees with other class members, and the interest in a possible incentive award for serving as a lead plaintiff.  But the court questioned whether this was a sufficient interest.  It also rejected plaintiff's argument that its interest in having a class certified is enough to defeat ACT's mootness argument.  

In order to decide whether an unaccepted Rule 68 offer triggers mootness, the court concluded it must first decide that a plaintiff who has refused such an offer has "received complete relief," such that there remains no individual case or controversy sufficient to satisfy Article III. Five circuit courts that have considered such an argument recently have rejected  it. See Hooks v. Landmark Indus., Inc., No. 14-20496, 2015 WL 4760253, at *3-4 (5th Cir. Aug. 12, 2015); Chapman v. First Index,
Inc., Nos. 14-2773 & 14-2775, 2015 WL 4652878, at *2-3 (7th Cir. Aug. 6, 2015); Tanasi v. New Alliance Bank, 786 F.3d 195, 199-200 (2d Cir. 2015), Stein v. Buccaneers Ltd. P'ship, 772 F.3d 698, 704-05 (11th Cir. 2014), Diaz v. First Am. Home Buyers Prot. Corp., 732 F.3d 948, 954-55 (9th Cir. 2013).

The issue may be before the Supreme Court. See Campbell-Ewald Co. v. Gomez, 135 S. Ct. 2311, 2311 (2015) (No. 14-857) (granting petition for certiorari seeking review of the questions of whether a case becomes moot when a plaintiff receives an offer of complete relief on his claim, and whether the answer to that question differs in a putative class action); see also Petition for Writ of Certiorari,
Campbell-Ewald, ___ U.S. ___, (No. 14-859), 2015 WL 241891, at *i (filed Jan. 16, 2015).

In the interim, the court of appeals agreed with the Second,  Fifth, Seventh, Ninth, and Eleventh Circuits that an unaccepted Rule 68 offer cannot, by itself, moot a plaintiff's claim. The court took this position because, when employed as ACT hoped to employ it here, an unaccepted Rule 68 offer is "a red herring: it does not, in itself, provide any relief." And nothing in Rule 68--or any other rule--contemplates use of a rejected offer to secure dismissal of a case. To the contrary, Rule 68 expressly specifies what happens to a rejected offer: it is deemed to be "withdrawn," and it is "not admissible except in a proceeding to determine costs." Fed. R. Civ. P. 68(b).