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Eleventh Circuit Rejects “Picking Off” Tactic

What’s a corporate defendant to do when a class-action consumer plaintiff has it dead to rights? When a complaint clearly shows that the consumer has a valid claim and that thousands of others are in the same situation?

One strategy is to make an offer of settlement to the class representative. If the class representative accepts, his or her claim will be moot, and someone else will have to represent the class. Since most people have more urgent priorities than filing lawsuits over claims that may be worth relatively little to each class member individually (although the benefits to the class as a whole will be substantial), defendants hope that no other representative will step forward. If no one does, the defendant has escaped any liability to the broader class for practically nothing.

Making this tactic even more powerful in Illinois, Indiana, and Wisconsin, the Seventh Circuit Court of Appeals (which establishes federal law governing the U.S. District Courts in those states), has held that even if the class representative rejects the offer of settlement, the mere fact that the offer was made can moot the class representative’s claim. See Damasco v. Clearwire Corp., 662 F.3d 891, 894–96 (7th Cir. 2011). The Second and Sixth Circuits (whose rulings apply to federal courts in New York, Vermont, Connecticut, Michigan, Ohio, Kentucky, and Tennessee) have similarly found that an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure, even if not accepted by the plaintiff, can allow the district court to enter judgment for the plaintiff against the plaintiff’s will, mooting the claim. See O’Brien v. Ed. Donnelly Enters., Inc., 575 F.3d 567 (6th Cir. 2009); McCauley v. TransUnion, L.L.C., 402 F.3d 340 (2d Cir. 2005).

Plaintiffs can counter this tactic by filing a bare-bones motion for class certification before the offer of judgment expires. See, e.g., Asch v. Teller, Levit & Silvertrust, P.C., 200 F.R.D. 399, 400 (N.D. Ill. 2000). But such a “placeholder” motion is hardly efficient: at the beginning of the case, discovery will not be far enough advanced to allow the court to decide whether a class should be certified. Filing the class certification motion prematurely thus forces the court to either let the motion languish undecided on its docket for several months, often over a year, or deny the motion without prejudice to later re-filing. Neither option is elegant; and both expose the artificiality of treating a case in which the plaintiff has demanded class-wide relief as if it were an individual action. Far simpler–and more honest–to recognize, as the Supreme Court has when class representatives’ claims become moot on appeal, that when a claim is pleaded on behalf of a class, mooting just the individual claim of the named plaintiff does not moot the entire case. See Gerstein v. Pugh, 420 U.S. 103 (1975).

Following similar reasoning, most circuits, including the Ninth, Fifth, Third, and Tenth (whose rulings apply to federal courts across the Western United States and in Texas, Louisiana, Mississippi, Pennsylvania, New Jersey, and Delaware) have refused to follow the Seventh Circuit and do not allow defendants to “pick off” a class representative by making an offer of settlement. See Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011); Luvero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239 (10th Cir. 2011); Weiss v. Regal Collections, 285 F.3d 337 (3d Cir. 2004). In 2013, however, when the U.S. Supreme Court ruled in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), that a plaintiff who admitted her individual claim against her former employer was moot could not continue to pursue collective action claims under the Fair Labor Standards Act (“FLSA”) on behalf of her fellow employees, many commentators (and hopeful corporate defendants) wondered whether the ruling signaled a trend toward allowing this “picking off” tactic nationwide. While the five-justice majority in Genesis Healthcare explicitly stated that it was not reaching the question of “whether an unaccepted offer that fully satisfies a plaintiff’s claim is sufficient to render the claim moot,” Genesis Healthcare, 133 S.Ct. at 1528, many defendants argued that the case implicitly overruled Pitts, Luvero, Weiss, and similar cases, making offers of judgment a get-out-of-jail-free card for class-action defendants even in circuits that had not previously allowed the tactic.

But the cases since Genesis Healthcare have not borne out defendants’ hopes. Instead, courts have generally held that Genesis Healthcare was limited to FLSA cases and did not change the law regarding mootness in class actions. Explaining that class actions under Rule 23 of the Federal Rules are procedurally and conceptually different from FLSA opt-in collective actions, courts have continued to apply the pre-Genesis Healthcare majority rule that an unaccepted settlement offer does not moot claims brought on behalf of a class. See Diaz v. First Am. Home Buyers Prot. Corp., 732 F.3d 948, 954–55 (9th Cir. 2013); Schlaud v. Snyder, 717 F.3d 451, 456 n.3 (6th Cir. 2013) (“The Court’s decision in Genesis Healthcare Corp. v. Symczyk is not at odds with this determination because it does not involve class certification under Rule 23, which is ‘fundamentally different from collective actions under the FLSA’”).

Last month, the Eleventh Circuit, which establishes federal law governing district courts in Alabama, Georgia, and Florida, joined this emerging consensus, holding in Stein v. Buccaneers Ltd. Partnership that an offer of judgment to the class representatives did not moot claims brought on behalf of a class of persons who had allegedly been sent unsolicited faxes in violation of the Telephone Consumer Protection Act (“TCPA”). The TCPA allows recipients of unsolicited faxes to recover statutory damages of $500-$1,500 per violation.

The Stein plaintiffs sued on behalf of more than 100,000 Floridians whose paper and toner the defendant had consumed with unwanted faxes advertising NFL football games. They sought statutory damages and an injunction against future TCPA violations. The defendant attempted to “pick off” the class representatives by making a Rule 68 offer of judgment for the plaintiffs’ maximum statutory damages (while leaving the absent class members empty handed and subject to future unwanted fax campaigns). The class representatives held firm, allowing the offer to expire and continuing to seek relief on behalf of the entire class. The district court nevertheless found that the case no longer presented a justiciable controversy and dismissed the action.

Judge Hinkle of the Northern District of Florida, sitting by designation, wrote for a unanimous panel reversing the district court. Judge Hinkle’s opinion adopts Justice Kagan’s reasoning from her dissent, written on behalf of a four-justice minority in Genesis Healthcare, that an unaccepted Rule 68 offer does not moot a plaintiffs claim. As Justice Kagan observed, if the offer is not accepted, there is no deal. Thus, the plaintiff still has a claim, and the case can continue. Genesis Healthcare, 133 S. Ct. at 1533–34. Indeed, Rule 68 itself provides that “an unaccepted offer is considered withdrawn.” Fed. R. Civ. P. 68. Disagreeing strongly with circuits that have held that an unaccepted offer moots a plaintiff’s claim, Justice Kagan argued that a court may enter judgment for a plaintiff against the plaintiff’s will only when “the defendant unconditionally surrenders and only the plaintiff’s obstinacy or madness prevents her from accepting total victory.” Genesis Healthcare, 133 S. Ct. at 1533. Where a plaintiff continues to demand, and the defendant to deny, class-wide relief, Justice Kagan’s condition is not met. Applying the elementary logic of a first-year contract law class, Justice Kagan observed that “[a]n unaccepted settlement offer–like and unaccepted contract offer–is a legal nullity, with no operative effect.” Id. She warned other circuits: “Don’t try this at home.” Id. at 1534.

In Stein, the Eleventh Circuit heeded Justice Kagan’s warning, holding that because the class representatives allowed the Rule 68 offers of judgment to expire, the district court had no power to dismiss the case as if the offers had been accepted. The Stein Court went on to hold that even of the offers of judgment had mooted the named plaintiffs’ claims, the class claims would have remained a live controversy. Reasoning that the Supreme Court had held in other contexts that a grant of class certification relates back to the filing of a class complaint, the Eleventh Circuit rejected the idea that a class plaintiff must file a motion for class certification in order to preserve his or her claim to represent a class. Instead, the Stein Court held that filing a complaint demanding class-wide relief is itself sufficient to put the class claims in controversy. Stein, slip op. at 10.

Plaintiffs in the Eleventh Circuit can breathe a sigh of relief that they will not be put though the charade of filing “placeholder” class certification motions to establish what is already obvious from their complaints: that they seek relief on behalf of a class of similarly situated persons. Now, let’s wait and see what tactic defendants will think of next …

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