Allstate tests new method for mooting class claims; falls short in Chen v. Allstate Ins. Co.

Normal people see laws as barriers. Lawyers see laws as an agility course.  After Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011) and Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), aff’d, 136 S. Ct. 663 (2016), you'd have to forgive ordinary citizens for thinking that the question of whether you can moot a class action by offering up full individual relief to the putative class representative was pretty well settled. But where some see finality, Allstate insurance saw...opportunity.  Specifically, Allstate looked to Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) for the secret to mooting class representative claims.  In Chen v. Allstate Inc. Co. (9th Cir. Apr. 12, 2016), the Ninth Circuit sent the wily insurance coyote back to the drawing board.

The plaintiffs filed a class action complaint against Allstate, alleging he received unsolicited automated telephone calls to his cellphone, in violation of the Telephone Consumer Protection Act (TCPA). Before a motion for class certification had been made, Allstate made an offer of judgment to the plaintiffs under Rule 68 of the F.R.C.P., depositing $20,000 in full settlement of individual monetary claims in an escrow account “pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to Pacleb, requiring Allstate to stop sending non-emergency telephone calls and short message service messages to Pacleb in the future and dismissing this action as moot.”  Slip op. at 4, 7.  Allstate extended the Rule 68 offer beyond 14 days and then moved for entry of judgment and dismissal.  One plaintiff accepted the offer while the motion was pending.

The district court denied the motion, holding that, under Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011), the plaintiff's class allegations presented a justiciable controversy and rejected the notion that Pitts was no longer good law.  The district court later certified the issue for interlocutory appeal.

On appeal, Allstate asked the Court to take up the hypothetical issue raised in Campbell-Ewald, which was whether the deposit of the full amount of a plaintiff's individual claim in an account payable to the plaintiff, followed by entry of judgment for the plaintiff in that amount, is sufficient to moot the case.  Allstate argued that the judgment it consented to would offer complete relief, the district should be compelled to enter judgment on those terms, mooting the plaintiff's individual claims, and the remaining class allegations would then be insufficient to preserve a live controversy.  While the Court agreed with the first contention, it rejected the second and third contentions.

The Court began by reviewing the relief that Allstate had consented to in the district court.  Considering both the monetary and injunctive aspects of that relief, the Court found that complete individual relief was offered.  Slip op., at 12-14.

Next, the Court considered whether the decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013) vitiated Pitts.  The Court concluded that it did not:

In Gomez, 768 F.3d at 875–76, however, we squarely rejected that very argument. Because Genesis Healthcare concerned collective actions brought under the Fair Labor Standards Act (FLSA) rather than class actions under Federal Rule of Civil Procedure 23, Gomez held Pitts was not clearly irreconcilable with Genesis Healthcare. See id. Although Genesis Healthcare “undermined some of the reasoning employed in Pitts . . . , courts have universally concluded that the Genesis discussion does not apply to class actions.” Id. at 875. “In fact, Genesis itself emphasizes that ‘Rule 23 [class] actions are fundamentally different from collective actions under the FLSA.’” Id. at 875–76 (alteration in original) (quoting Genesis Healthcare, 133 S. Ct. at 1529).

Slip op., at 16.  The Court then held that it was bound by Gomez, which was decided en banc.

Next, the Court went further, holding that even if Pitts were not controlling, the Court would reject an attempt to moot the action prior to a fair opportunity to move for class certification.  The Court noted that placing funds in an escrow account was not the same as the actual receipt of all relief by a plaintiff.  This will likely just bait the next enterprising defendant into actually tendering the funds into an account in the name of the plaintiff to see if the outcome is any different (remember, there are no obstacles, only new paths).

Finally, the Court considered whether to order the district court to enter judgment.  The Court concluded that doing so would be inconsistent with Campbell-Ewald, which affords a putative class representative with a live claim a fair opportunity to show certification is warranted:

Even if that is true, however, Campbell-Ewald clearly suggests it would be inappropriate to enter judgment under these circumstances. As Campbell-Ewald explained, “[w]hile a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Campbell-Ewald, 136 S. Ct. at 672 (emphasis added) (citation omitted) (citing Sosna, 419 U.S. at 399). Accordingly, when a defendant consents to judgment affording complete relief on a named plaintiff’s individual claims before certification, but fails to offer complete relief on the plaintiff’s class claims, a court should not enter judgment on the individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification.

Slip op., at 22-23.  The Court noted the long-recognized principle that class relief is the only feasible relief in many circumstances and concluded that "a district court should decline to enter a judgment affording complete relief on a named plaintiff’s individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification." Slip op., at 26.

The Court affirmed the district court.

If you anticipate that the Supreme Court will take up the first case to test its Genesis Healthcare hypothetical, don't hold your breath. If anything, the Supreme Court would want to see more than one Circuit tackle the issue and see if a significant split develops before wading back into these waters. That doesn't mean that enterprising defendants won't look for another way to moot class claims before certification.

9th Circuit concludes that unaccepted Rule 68 offers don't moot claims

A recent guest on the Class Re-Action podcast concluded that Rule 68 claims were underutilized.  As it turns out, at least in the Ninth Circuit, that may not be the case, since defendants might not achieve what they would like from unaccepted Rule 68 offers.  In Diaz v. First American (9th Cir. Oct. 4, 2013), the Court examined whether an unaccepted Rule 68 offer renders a claim moot.  Aware of a split of authority, the Ninth Circuit held that it does not.

The case originated as a putative consumer class action related to a home warranty plan.  After several claims for relief were dismissed, the plaintiff moved for class certification.  That motion was denied.  First American then made an offer of judgment on the plaintiff's remaining individual claims – for misrepresentation, breach of contract and breach of the implied covenant of good faith and fair dealing – pursuant to Rule 68.  The offer included an expiration date, and the plaintiff did not accept prior to that date.  First American then moved to dismiss the action as moot.  The trial court found that the offer would have fully satisfied the remaining individual claims and dismissed.

After noting that the Supreme Court has not answered the issue, the Ninth Circuit examined the Circuit position, concluding that it had yet to be answered by the Circuit: 

In Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1091–92 (9th Cir. 2011), we held “that an unaccepted Rule 68 offer of judgment – for the full amount of the named plaintiff’s individual claim and made before the named plaintiff files a motion for class certification – does not moot a class action” (emphasis added), but we did not squarely address whether the offer mooted the plaintiff’s individual claim. We assumed that an unaccepted offer for complete relief will moot a claim, but we neither held that to be the case nor analyzed the issue. See id. at 1090–92. In GCB Communications, Inc. v. U.S. South Communications, Inc., 650 F.3d 1257, 1267 (9th Cir. 2011), we noted that a case will “become moot” when “an opposing party has agreed to everything the other party has demanded,” but we did not address the effects of an unaccepted Rule 68 offer, an issue not presented in that case. We therefore treat this as an open question in this circuit.

Slip op., at 8.   The Court then examined the different approaches in the Seventh, Sixth and Second Circuits.  After noting a split between them, the Court observed that four justices of the Supreme Court had offered guidance:

As noted, the majority in Genesis Healthcare did not reach whether an unaccepted offer that fully satisfies a plaintiff’s claim is sufficient to render the claim moot. See Genesis Healthcare, 133 S. Ct. at 1528–29. In a dissenting opinion, however, Justice Kagan, writing for all four justices who reached the question, agreed with the Second Circuit that “an unaccepted offer of judgment cannot moot a case.” Id. at 1533 (Kagan, J., dissenting); accord Brief for the United States as Amicus Curiae Supporting Affirmance, Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013) (No. 11-1059), 2012 WL 4960359, at *10–15.

Slip op., at 11.   The Court quoted extensively from Justice Kagan's dissent:

"We made clear earlier this Term that '[a]s long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot.' Chafin v. Chafin, 133 S. Ct. 1017, 1023 (2012) (internal quotation marks omitted)."

Slip op., at 11.   Continuing, the Court quoted further from the dissent in Genesis:

"When a plaintiff rejects such an offer – however good the terms – her interest in the lawsuit remains just what it was before. And so too does the court’s ability to grant her relief. An unaccepted settlement offer – like any unaccepted contract offer – is a legal nullity, with no operative effect. As every first-year law student learns, the recipient’s rejection of an offer 'leaves the matter as if no offer had ever been made.' Minneapolis & St. Louis R. Co. v. Columbus Rolling Mill, 119 U.S. 149, 151 (1886). Nothing in Rule 68 alters that basic principle; to the contrary, that rule specifies that '[a]n unaccepted offer is considered withdrawn.' Fed. Rule Civ. Proc. 68(b). So assuming the case was live before – because the plaintiff had a stake and the court could grant relief – the litigation carries on, unmooted."

Slip op., at 12. 

So a friendly suggestion to the Third Circuit: Rethink your mootness-by-unaccepted-offer theory. And a note to all other courts of appeals: Don’t try this at home.

Slip op., at 13.  Concluding that Justice Kagan was correct in her explanation of how unaccepted Rule 68 offers work, the Court then held that the refusal to accept a Rule 68 offer did not moot the case.

It appears that it will take something more than a simple Rule 68 offer to impose mootness on plaintiffs' claims in the Ninth Circuit. 

In the "Pitts" of despair, a "Terrible" attempt to pick off a class representative fails

I remember when what was probably the first Terrible Herbst gas station opened a mere block from my home in Las Vegas.  Refilled a lot of bike tires there.  But enough about my childhood.  Terrible Herbst isn't the friendly local gas station of my youth.  Now it's just another corporate slave to the whisperings of defense counsel skilled in the dark arts.  In Pitts v. Terrible Herbst, Inc. (August 9, 2011), the Ninth Circuit considered whether a rejected offer of judgment for the full amount of a putative class representative's individual claim moots a class action complaint where the offer precedes the filing of a motion for class certification.  The Ninth Circuit concluded that it did not.

Pitts filed a hybrid FLSA and Nevada labor law class action.  The defendant removed it to federal court.  With a discovery motion pending, Terrible made a Rule 68 offer of judgment in the amount of $900.  Pitts claimed $88.00 in damages but rejected the offer.  Terrible then sought to have the matter dismissed.  The Ninth Circuit rejected this attempt to impede consideration of the class certification question:

An inherently transitory claim will certainly repeat as to the class, either because “[t]he individual could nonetheless suffer repeated [harm]” or because “it is certain that other persons similarly situated” will have the same complaint. Gerstein, 420 U.S. at 110 n.11. In such cases, the named plaintiff’s claim is “capable of repetition, yet evading review,” id., and “the ‘relation back’ doctrine is properly invoked to preserve the merits of the case for judicial resolution,” McLaughlin, 500 U.S. at 52; see also Geraghty, 445 U.S. at 398; Sosna, 419 U.S. at 402 n.11.

Slip op., at 10453.  The Court then discussed the argument that the claims in this matter were not "inherrently" transitory:

We recognize that the canonical relation-back case—such as Gerstein or McLaughlin—involves an “inherently transitory” claim and, correspondingly, “a constantly changing putative class.” Wade v. Kirkland, 118 F.3d 667, 670 (9th Cir. 1997). But we see no reason to restrict application of the relation-back doctrine only to cases involving inherently transitory claims. Where, as here, a defendant seeks to “buy off” the small individual claims of the named plaintiffs, the analogous claims of the class—though not inherently transitory—become no less transitory than inherently transitory claims. Thus, although Pitts’s claims “are not ‘inherently transitory’ as a result of being time sensitive, they are ‘acutely susceptible to mootness’ in light of [the defendant’s] tactic of ‘picking off’ lead plaintiffs with a Rule 68 offer to avoid a class action.”

Slip op., at 10454.  Interestingly, the Court essentially found that the right to certify a class was an additional right not satisfied by the Rule 68 offer, and that right could not be extinguished unless certification were denied and all appellate efforts were exhausted.

Next, the Court ruled that it was error to find that Pitts failed to timely file a motion for class certification when the trial court refused to rule on a pending discovery motion to obtain evidence necessary for certification.

Other issues raised in the appeal were not addressed by the Court once it concluded that the trial court erred in its ruling regarding the timing of certification.