Commercial Litigation and Arbitration

Circuit Split: Can Defendant Moot Class Action by Offering Full Individual Relief before Certification Motion Filed? — Impact of Supreme Court’s 2013 Genesis Decision — “Inherently Transitory” Rationale Inapt

Keim v. ADF Midatlantic, LLC, 2013 U.S. Dist. LEXIS 98373 (S.D. Fla. July 12, 2013):

"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." Damasco [v. Clearwire Corp., 662 F.3d 891, 896 (7th Cir. 2011)]. Here, Plaintiff no longer maintained a personal stake in this litigation when Defendants made their Rule 68 offer of judgment, and at that point the case was neither certified as a class action nor was there a motion for class certification pending. This posture compels the Court to conclude that allowing this case to continue in federal court "defies the limits on federal jurisdiction expressed in Article III." The Court's analysis begins with a review of the Supreme Court's recent opinion in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 185 L. Ed. 2d 636 (2013).

Genesis addressed the issue of whether, in the context of a collective action under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq., a case is justiciable when the lone plaintiff's individual claim becomes moot. In Genesis, the plaintiff filed a collective action alleging that the defendants violated the FLSA by not paying employees for work performed during meal breaks. The defendants answered the complaint and simultaneously served the plaintiff with a Rule 68 offer of judgment. After the plaintiff failed to respond to the offer, the defendants moved to dismiss for lack of subject matter jurisdiction arguing that the plaintiff's claim was moot because she had been offered full relief on her individual claim. The plaintiff's response, echoing Plaintiff's position here, was that the defendant's offer was an inappropriate attempt to "pick off" the named plaintiff.

The district court concluded that the offer fully satisfied the plaintiff's claim and dismissed the claim for lack of subject matter jurisdiction. On appeal, the Third Circuit reversed based on its belief that allowing named plaintiffs to be "picked off" "with strategic Rule 68 offers before certification could short circuit the process, and, thereby, frustrate the goals of collective actions." Id. at 1527.

In reversing the Third Circuit, the Supreme Court's analysis bifurcated the mootness inquiry, first asking whether the Rule 68 offer mooted the plaintiff's individual claim, then asking whether the plaintiff's action nevertheless remained justiciable based on the collective-action allegations in her complaint. As to the former question (to which an answer would directly resolve the issue before this Court), the Supreme Court assumed without deciding that the defendants' Rule 68 offer mooted the plaintiff's individual claim. Id. at 1529. As to the latter question, the court concluded that "[i]n the absence of any claimant's opting in, [the plaintiff's] suit became moot when her individual claim became moot, because she lacked any personal interest in representing others in this action. . . . [T]he mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied." Id.

In support of this conclusion, the court reasoned that the putative class had not acquired the independent legal status that accompanies class certification because the plaintiff "had not yet moved for 'conditional certification' . . . nor had the District Court anticipatorily ruled on any such request. Her claim instead became moot prior to these events . . . ." Id. at 1530. The court also concluded that the plaintiff's claim was not "inherently transitory" justifying application of the relation-back doctrine, 11 and that the previous Supreme Court decision on which the plaintiff relied to argue against the practice of "picking off" was unpersuasive because it "turned on a specific factual finding that the plaintiffs[] possessed a continuing personal economic stake in the litigation, even after the defendants' offer of judgment." Id. at 1530-32.

Footnote 10. That Genesis dealt with an FLSA collective action and its corollary "conditional" class certification, see Hipp v. Liberty Nat'l Life Ins. Co., 252 F.3d 1208, 1217-19 (11th Cir. 2001), oes not support an attempt to distinguish it materially from the facts of this case, which deals with traditional Rule 23 class certification in a TCPA case: both cases present a situation where a lone plaintiff was offered full relief before a class acquired independent legal status. In fact, any distinction between an FLSA conditional certification and a Rule 23 traditional certification, see LaChapelle v. Owens-Illinois, Inc., 513 F.2d 286, 289 (5th Cir. 1975), arguably cuts in favor of Defendants because preventing a "Rule 23" claim from being mooted is comparatively easy. As the court stated in Genesis, "Under the FLSA . . . 'conditional certification' does not produce a class with an independent legal status, or join additional parties to the action." Genesis, 133 S. Ct. at 1530. Here, on the other hand, had Plaintiff simply moved for class certification before Defendants made their Rule 68 offer of judgment, there would appear to be no question that any subsequent offer would not moot Plaintiff's claim. See Damasco, 662 F.3d at 895 ("[A] defendant cannot moot a case by an offer after a plaintiff moves to certify a class [because] otherwise the defendant could delay the action indefinitely by paying off each class representative in succession.") (citations and quotations omitted) (emphasis in original).

Footnote 11. "The 'inherently transitory' rationale was developed to address circumstances in which the challenged conduct was effectively unreviewable because no plaintiff possessed a personal stake in the suit long enough for litigation to run its course," e.g., a case challenging the constitutionality of pretrial detentions. Id. at 1531. The doctrine suggests that in these situations, class certification that occurs after a lead plaintiff's individual claim is mooted might "relate back" to the filing of the complaint thus protecting the class-action claim from the same fate. As the Supreme Court noted, however, the doctrine "has invariably focused on the fleeting nature of the challenged conduct giving rise to the claim, not on the defendant's litigation strategy." Id.

While Genesis left open the central issue in this case--whether Defendants' Rule 68 offer mooted Plaintiff's individual claim--that issue has been addressed by other courts. In Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011), for example, the Seventh Circuit Court of Appeals was faced with a factual scenario nearly identical to this case: a plaintiff filed a putative class action lawsuit in state court alleging that the defendant violated the TCPA by sending unsolicited text messages, but the defendant made an informal settlement offer before the plaintiff moved for class certification. The plaintiff never responded to the offer, and the defendant moved to dismiss the case for lack of subject matter jurisdiction as moot.

The plaintiff opposed the motion because, according [to] him, (1) defendants should not be allowed to "pick off" named plaintiffs through involuntary settlements, (2) his claim was "inherently transitory," see supra note 11, and (3) the defendant should not be permitted to instantly moot the claim through an informal settlement offer when an offer under Rule 68 would give the plaintiff time to respond. In holding that the case was moot because the plaintiff had not moved for class certification by the time the defendant made its settlement offer, the Seventh Circuit rejected the first two arguments because any lead plaintiff in a putative class can move to certify the class when filing suit--thereby preserving the claim's justiciability even in the face of an offer for full relief to the individual lead plaintiff. See Damasco, 662 F.3d at 896-97. The third argument was rejected because the defendant made its offer while the suit was in state court, and the relevant state procedure had no analog to Rule 68. Id. at 897.

In Krzykwa v. Phusion Projects, LLC, No. 11-62230-CIV, F. Supp. 2d , 2012 U.S. Dist. LEXIS 186135, 2012 WL 6965716 (S.D. Fla. Mar. 22, 2012), another court in this district was faced with a motion to dismiss the plaintiffs' class action complaint on the ground that the defendants' settlement offer, which was made before the plaintiffs moved to certify the class, rendered the plaintiffs' claim moot. After analyzing the facts and rationale of Damasco, the court in Krzykwa adopted the Seventh Circuit's reasoning and held that the defendants' settlement offer, made before the plaintiffs moved for class certification, mooted the plaintiff's claim. See 2012 U.S. Dist. LEXIS 186135, [WL] at *5. The court rejected the plaintiff's assertion that such a holding would waste judicial resources as "neither relevant nor credible" for two reasons: first, "considerations of judicial resources should not permit courts to circumvent or ignore the limitations Article III places on the federal judiciary"; and second, the facts of the case demonstrated that the plaintiffs wasted significant judicial resources litigating their claims because over the course of at least five months the plaintiffs filed multiple amended complaints, and it was "inconceivable" to the court that the plaintiffs would not have been prepared to at least move for class certification at the time one of the complaints was filed. See id. As the court further noted, even if the plaintiffs needed more time to conduct limited discovery about the class, the court could have stayed its ruling on the motion.

This Court adopts the rationale of Damasco and Krzykwa. Allowing defendants to putative class actions to strategically "pick off" lead plaintiffs falls within the bounds of Article III because, as the Seventh Circuit noted in Damasco,

[a] simple solution to the buy-off problem . . . is available, and it does not require us to forge a new rule that runs afoul of Article III: Class-action plaintiffs can move to certify the class at the same time that they file their complaint. The pendency of that motion protects a putative class from attempts to buy off the named plaintiffs.

Damasco, 662 F.3d at 896. The argument that "this solution would provoke plaintiffs to move for certification prematurely, before they have fully developed or discovered the facts necessary to obtain certification," see id., is unpersuasive: "If the parties have yet to fully develop the facts needed for certification, then they can also ask the district court to delay its ruling to provide time for additional discovery or investigation." Id. Consistent with the Seventh Circuit's conclusion, moreover, the Court finds that "this procedure comports with Federal Rule of Civil Procedure 23(c)(1)(A), which permits district courts to wait until 'an early practicable time' before ruling on a motion to certify a class." Id. And Plaintiff was unquestionably aware of this procedure because in his motion for class certification he requested that "the Court's ruling on the issue of class certification be stayed until discovery reveals information and documents relevant to class certification," further stating that "those documents can be incorporated into a supplemental brief." (DE 33 ¶ 5).

Footnote 13. At least four circuits disagree with this approach "citing the flexible nature of the mootness doctrine and concerns about buy-offs." Damasco, 662 F.3d at 895-96 (listing the circuits); see also Krzykwa, 2012 U.S. Dist. LEXIS 186135, 2012 W L 6965716, at *3 ("In the case of a class action . . . the circuits are split on whether a defendant can moot a case by making an offer to satisfy the plaintiff's entire demand. As of today, the Eleventh Circuit has not addressed the issue of whether a defendant can render a plaintiff's class action complaint moot by making a settlement offer to the named plaintiff before the named plaintiff moves to certify the class.") (citations omitted).

Moreover, the Court rejects Plaintiff's arguments that he has any responsibilities to the putative class and that Defendants' Rule 68 offer did not provide full relief. As both the Supreme Court and the Seventh Circuit have held, filing a "class action" complaint does not prevent a claim from being rendered moot where the sole plaintiff is offered full relief before he moves for class certification. See Genesis, 133 S. Ct. at 1529 ("[T]he mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied."); Damasco, 662 F.3d at 896 ("That the complaint identifies the suit as a class action is not enough by itself to keep the case in federal court. Even when a complaint clearly and in great detail describes the suit as a class action suit, if the plaintiff does not seek class certification, then dismissal of the plaintiff's claim terminates the suit."). Notwithstanding Plaintiff's request in his complaint for an order certifying the class, Plaintiff did not move for class certification, so the putative class never acquired an independent legal status that would give rise to responsibilities on Plaintiff's part. And based on the remaining requests in Plaintiff's complaint, Defendants' Rule 68 offer provided full relief.

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