By Jeffrey E. Crane
Jeffrey E. Crane is a partner in the Litigation Department of Edwards Wildman Palmer in Chicago, where his principal areas of practice include class actions, commercial litigation, and insurance and financial services litigation. The author can be reached at jecrane@EdwardsWildman.com.
Can defendants in putative class actions offer complete relief to plaintiffs to moot their individual claims prior to plaintiffs moving for class certification, and then obtain dismissal for lack of subject-matter jurisdiction? On April 16, 2013, the United States Supreme Court decided Genesis Healthcare Corp. v. Symczyk, No. 11-1059, a Fair Labor Standards Act collective action in which the defendant made a Rule 68 offer of judgment to the individual plaintiff, which she rejected. The District Court found that the individual plaintiff's claims were moot and dismissed the case for lack of subject-matter jurisdiction.
The Third Circuit agreed that plaintiff's claims were moot, but reversed because plaintiff did not have an opportunity to seek certification. The Supreme Court assumed that plaintiff's claims were moot and held that the dismissal was proper. This case thus renews a question whether defendants in collective or class actions can “pick off” individual plaintiffs with Rule 68 or other complete settlement offers and short circuit representative actions.
Plaintiffs regularly argue that defendants should not be allowed to frustrate collective actions or class actions by “picking off” named plaintiffs through Rule 68 offers or contractual settlement offers of complete relief. Defendants, on the other hand, have not reflexively employed this “pick off” strategy that enables them to possibly end class action cases without having to address collective/class claims. Defendants somewhat sparing use of this defense strategy might be explained by concerns, inter alia, that:
1) plaintiffs' counsel will file another class action with a new named plaintiff;
2) Rule 68 offers of judgment will establish a negative precedent that can be used against the company in future litigation; and/or,
3) applicable law is hostile.
Every defendant needs to evaluate the particular facts and circumstances surrounding class actions filed against them to determine whether making a Rule 68 or other complete settlement offer would be advantageous. With respect to applicable law, the Supreme Court in Genesis Healthcare did not resolve all existing issues and conflicts; litigants should be cautioned by the 5-4 split within the Supreme Court, and the United States Court of Appeals Circuit split regarding the efficacy of this defense strategy.
An individual plaintiff brought a claim for damages under the FLSA on behalf of herself and other similarly situated employees. Plaintiff alleged that the defendant “violated the FLSA by automatically deducting 30 minutes of time worked per shift for meal breaks for certain employees, even when the employees performed compensable work during those breaks.”
Defendant made an offer of judgment under Fed. R. Civ. P. 68 for the total amount of alleged, unpaid wages and reasonable attorneys' fees, costs and expenses as the court may determine. Plaintiff did not accept the offer. Defendant moved to dismiss for lack of subject-matter jurisdiction on the basis that the offer of complete relief on plaintiff's damages claims deprived her of a personal stake in the outcome of the case and rendered the action moot. The District Court granted the motion to dismiss.
The Third Circuit reversed, holding that the collective action was not moot and that defendant could not “pick off” the named plaintiff with a Rule 68 offer before a certification decision ripened, although the Court of Appeals agreed that plaintiff's individual claim was moot. The Third Circuit remanded the case to the District Court to allow plaintiff an opportunity to seek conditional certification, but instead the defendant petitioned the Supreme Court, which granted certiorari “to resolve whether such case is justiciable when the lone plaintiff's individual claim becomes moot.”
The Supreme Court held that the case was not justiciable and that the District Court had properly dismissed the action for lack of subject-matter jurisdiction. The 5-4 majority found that the plaintiff had “no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness.” In reaching that decision, the Supreme Court assumed without deciding that defendant's Rule 68 offer mooted plaintiff's individual claim, because plaintiff had conceded the point in the District Court and before the Third Circuit.
After making the critical assumption that the plaintiff's claim was moot, the Supreme Court quickly decided that plaintiff lacked any personal interest in representing others in the action. The Supreme Court reasoned that simply alleging a collective action “cannot save the suit from mootness once the individual claim is satisfied.” The dissent described the majority's critical assumption as unfounded and bogus. The dissent opined that “an unaccepted offer of judgment cannot moot a case.”
By declining to resolve “the question whether a Rule 68 offer that fully satisfies the plaintiff's claims is sufficient by itself to moot the action,” the Supreme Court has ensured that the issue will be litigated further in lower courts across the country.
Plaintiff in Genesis Healthcare invoked a string of Supreme Court decisions under Rule 23 that address whether offering complete relief to named plaintiffs who filed class actions moots the lawsuit. Deposit Guaranty Nat. Bank v. Roper, 445 U.S. 326 (1980); United States Parole Comm'n v. Geraghty, 445 U.S. 388 (1980); Sosna v. Iowa, 419 U.S. 393 (1975). In Sosna, the Supreme Court “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.” This holding is non-controversial and well-settled law.
The Court in Geraghty held that a named plaintiff, whose individual claims remained alive at the time of the district court decision denying class certification, must be allowed to pursue class claims if the class decision is reversed on appeal. The Court found that the plaintiff's interest in pursuing claims of class members relates back to the date of the erroneous class denial.
In Roper, the named plaintiffs' individual claims became moot after the district court denied class certification and entered judgment in plaintiffs' favor over plaintiffs' objection based on the defendant's offer of judgment. The Supreme Court held that the named plaintiffs had a right to appeal the denial of class certification, because plaintiffs had an ongoing personal economic stake to shift a portion of attorneys' fees and expenses to other members of the class.
Although Roper was limited to this narrow factual and procedural context, plaintiffs frequently cite dicta that noted potential problems with allowing defendants to pick off party plaintiffs before courts decide the class issue, and how that would frustrate the objectives of class actions. This language has been misinterpreted and misused as establishing a Roper anti-pick off rule that prohibits defendants from offering named plaintiffs complete relief in order to moot potential class actions. The actual holding of Roper is much narrower as the Supreme Court reaffirmed in Genesis Healthcare.
While the Supreme Court in Genesis Healthcare did not decide whether a rejected Rule 68 offer mooted plaintiff's individual claim, the Court recognized an existing split among the Circuit Courts on this issue.
The Third Circuit in Genesis Healthcare found that the rejected Rule 68 offer mooted plaintiff's individual claim. In a prior Third Circuit decision, Weiss v. Regal Collections, 385 F.3d 337 (3rd Cir. 2004), the court found that “an offer for the entirety of a plaintiff's claim will generally moot the claim.” The Sixth Circuit found in a FLSA case that “an offer of judgment that satisfies a plaintiff's entire demand moots the case … .”O'Brien v. Ed Donnelly Enters., Inc., 575 F.3d 567 (6th Cir. 2009). The Seventh Circuit held the same 10 years prior. Greisz v. Household Bank (Ill.), N.A., 176 F.3d 1012 (7th 1999).
On the other side, the Second Circuit in McCauley v. Trans Union, LLC, 402 F.3d 340 (2d Cir. 2005), concluded that a rejected Rule 68 settlement offer, by itself, did not moot the case. This decision is directly at odds with the aforementioned rulings from the Third, Sixth, and Seventh Circuits.
When Rule 68 offers of judgment or other complete settlement offers moot the claims of individual plaintiffs who file putative class actions, courts also consider whether such plaintiffs can continue prosecuting the pending class action complaints.
The Third Circuit in Weiss held that a Rule 68 offer of judgment cannot be used to moot a putative class action without affording plaintiffs an opportunity to file a motion for class certification. The court adopted the relation back doctrine, which relates the filing date of the class certification motion back to the filing of the class complaint, so that the class representative can retain standing to litigate class certification even if his individual claim was mooted.
The Ninth, Tenth, and Fifth Circuits similarly held that a rejected Rule 68 offer of judgment for the full amount of a putative class representative's individual claim does not moot a class action complaint where the offer precedes the filing of or ruling on a motion for class certification. Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011); Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239, 1250 (10th Cir. 2011); Sandoz v. Cingular Wireless LLC, 553 F.3d 913, 920-21 (5th Cir. 2008).
The Seventh Circuit in Damasco v. Clearwire Corp., 662 F.3d 891, 896 (7th Cir. 2011), however, cited and directly disagreed with the above-mentioned decisions from the Third, Fifth, Ninth, and Tenth Circuits: “To allow a case, not certified as a class action and with no motion for class certification even pending, to continue in federal court when the sole plaintiff no longer maintains a personal stake defies the limits on federal jurisdiction expressed in Article III.” Id.
Defendant had offered complete relief to plaintiff via a settlement offer (not a Rule 68 offer of judgment). Plaintiff did not respond to the offer, and instead filed a motion for class certification. After plaintiff moved for class certification, defendant moved to dismiss for lack of subject-matter jurisdiction arguing that the complete settlement offer rendered plaintiff's claim moot. The Seventh Circuit agreed and dismissed the case. The court added in dicta that future plaintiffs have a “simple solution to the buy-off problem … plaintiffs can move to certify the class at the same time that they file their complaint.” Id.
The question that will be answered in the months and possibly years ahead is what impact will the Genesis Healthcare decision have on class actions in the lower courts throughout the United States? The holding of Genesis Healthcare strengthens defense arguments for dismissal of an uncertified class action based on lack of subject-matter jurisdiction where an individual plaintiff's claim is mooted.
Plaintiffs undoubtedly will counter with reference to Justice Kagan's dissent that this case could turn out to be “the most one off of one-offs,” and thus offers little or no support for defendants in future cases. While the Supreme Court did not decide whether a rejected Rule 68 offer of judgment can moot an individual claim, the Court clearly held that once an individual's claim is found moot, then the putative class action cannot proceed.
In that regard, the Supreme Court apparently has sided with the Seventh Circuit analysis in Damasco over the decisions of the Third, Fifth, Ninth and Tenth Circuits in Weiss, Sandoz, Pitts, and Lucero, respectively. Finally, the current weight of authority in the federal Courts of Appeal favors finding individual plaintiff's claims moot as a result of offers of complete relief, even if plaintiffs reject them.
Accordingly, with increased frequency going forward, defendants in putative class actions might offer complete relief to individual plaintiffs to moot their claims, and then move to dismiss for lack of subject-matter jurisdiction. This defense strategy could be effective and efficient in certain class actions. Defendants, however, still must carefully evaluate whether this approach will truly end class litigation, while paying particular attention to any new legal developments in the forum jurisdiction in the aftermath of Genesis Healthcare.
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