To Be Or Not To Be: Mooting Rule 23 Class Actions Through Rule 68 Offers of Judgment

The use of Rule 68 offers of judgment to moot the claims of plaintiffs in the Fair Labor Standards Act (FLSA) collective action context has received much attention recently as the courts consider defendants’ use of this strategy in the wake of the Supreme Court of the United States’ decision in Genesis Healthcare Corp. v. Symczyk, 113 S. Ct. 1523 (2013). In one such case out of the Eastern District of New York, recently covered by our New York City office, a bid to pick off the named plaintiff in an FLSA case was unsuccessful.

However, this defense strategy is not limited to FLSA cases only and since Genesis, defense counsel have been pushing its use more and more in the Rule 23 class action context.

The Supreme Court has long held that Rule 68 offers of judgment cannot be used in the Rule 23 class action context to moot the claims of individual class representatives when either a class has already been certified or certification has been denied erroneously. (The Court came to this conclusion in United States Parole Comm’n v. Geraghty, 445 U.S. 388 (1980); Deposit Guaranty Nat. Bank of Jackson v. Roper, 445 U.S. 326 (1980); and Sosna v. Iowa, 419 U.S. 393 (1975).) As the Supreme Court explained in Roper,

Requiring multiple plaintiffs to bring separate actions, which effectively could be “picked off” by a defendant’s tender of judgment before an affirmative ruling on class certification could be obtained, obviously would frustrate the objectives of class actions; moreover it would invite waste of judicial resources by stimulating successive suits brought by others claiming aggrievement.

However, the Supreme Court’s 2013 decision in Genesis Healthcare Corp. v. Symczyk, 113 S. Ct. 1523 (2013), has breathed new life into the defense strategy of picking off the named plaintiff in a Rule 23 class action with a Rule 68 offer of judgment. As explained below, the split between the federal circuit courts on this issue is widening and we may see the Supreme Court of the United States taking up this issue in the near future.

In Genesis, the Supreme Court held that a full offer of judgment made pursuant to Rule 68 in the context of an FLSA collective action mooted the claims of the named plaintiff (thereby divesting the court of jurisdiction to adjudicate the claims of the collective) where the offer was made prior to the plaintiff’s motion for conditional certification of a class. The Supreme Court reasoned that because the plaintiff had rejected an offer for full relief, she did not have a personal interest in representing putative, unnamed members of the collective. Although the Supreme Court was careful to limit its holding in Genesis to FLSA cases, practitioners and the courts are taking a new look at Rule 68 offers in traditional class action cases in light of the Genesis decision.

The federal district and appellate courts have reached differing conclusions on the impact of Rule 68 offers in the Rule 23 class action context. The Third, Fifth, Ninth, and Tenth Circuit Courts of Appeals have all found that a full offer of judgment to a named plaintiff does not moot a Rule 23 class action before a final decision has been made on class certification, although they do find that it moots the named plaintiff’s individual claims. (The relevant cases are Weiss v. Regal Collections, 385 F.3d 337 (3^rd Cir. 2004); Sandoz v. Cingular Wireless LLC, 553 F.3d 913 (5^th Cir. 2008); Diaz v. First American Home Buyers Protection Corp., 732 F.3d 948 (9^th Circ. 2013); Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239 (10^th Cir. 2011).) The Fourth and Seventh Circuits, on the other hand, have held that a full offer of judgment made to a named plaintiff before a motion to certify is filed can moot the class suit. (The relevant cases are Warren v. Sessoms & Rogers, P.A., 676 F.3d 365 (4^th Circ. 2012) and Damasco v. Clearwire Corp., 662 F.3d 891 (7^th Cir. 2011).) The Second and Sixth Circuits have held that the unaccepted offer moots the class case as well, but they have also held that judgment should be entered for the plaintiff in accordance with the Rule 68 offer. (The relevant cases are McCauley v. Trans Union, LLC, 402 F.3d 340 (2d Cir. 2005) and O’Brien v. Ed Donnelly Enterprises, Inc., 575 F.3d 567 (6^th Cir. 2009).)

Meanwhile, in the wake of Genesis, several of the circuit courts recently have agreed to decide the issue on an interlocutory basis after certification by the district court. The First Circuit Court of Appeals will decide the issue for the first time in the case of Bais Yaakov of Spring Valley v. Act, Inc. The Second Circuit will reconsider the issue in the case of Tanasi v. New Alliance Bank. The Ninth Circuit will also reconsider the issue in Chen v. Allstate Insurance Company. Most recently, the Third Circuit also agreed to reconsider the issue in Sanofi Pasteur, Inc. v. Weitzner. Depending on the outcome of these new cases, the Supreme Court may very well hear this case in the near future to resolve the widening split in the circuits on this issue.

Nonetheless, until the Supreme Court holds otherwise, Rule 68 offers made prior to class certification and offering full relief will remain an important defense tool in fending off class actions. It should be noted that such offers are not without risks, however. For example, if the offer is accepted, judgment will enter for the named plaintiff. That, plus the doctrine of non-mutual offensive collateral estoppel, could present complications for defendants focused only on the case at hand. Under that doctrine, a plaintiff can seek to prevent a defendant from relitigating an issue previously decided in a case brought by a different plaintiff.