In the aftermath of the U.S. Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), a Fair Labor Standards Act (“FLSA”) case, some thought that the majority had impliedly given a nod to Rule 68 offers as a way to moot a named plaintiff’s claims and dispose of a class action before it was ever certified. But anyone who thought that had not taken Justice Kagan’s powerful dissent seriously. And the Ninth Circuit just proved that point in Diaz v. First American Home Buyers Protection Corp., No. 11-57239, slip op. (Oct. 4, 2013), relying almost entirely on the Genesis dissent in holding that a Rule 68 offer of judgment cannot moot a named plaintiff’s claims.
In Diaz, plaintiff sued First American in a putative nationwide class action, alleging that First American had failed to live up to its contractual commitments under home warranty plans that it sold to plaintiff and absent class members. After motion practice, Diaz’s remaining claims sounded in misrepresentation, breach of contract and breach of the implied covenant of good faith and fair dealing. After class certification was denied, First American made Diaz an offer of judgment under Rule 68, which she never accepted. The district court held that her claims were moot.
The Ninth Circuit vacated the district court’s dismissal of Diaz’s individual claims, holding that “an unaccepted offer of judgment that would fully satisfy a plaintiff’s claim is insufficient to render the claim moot.” The court described the circuit split on this issue, and then relied on Justice Kagan’s dissent in Genesis to rule that an unaccepted offer of judgment, like an unaccepted offer to contract, is a “legal nullity.” The contrary argument, which carries the day in the majority of circuits, essentially is that once an offer for full relief is made, there is no case or controversy, and the court lacks subject matter jurisdiction. See, e.g., Rand v. Monsanto Co., 926 F.2d 596 (7th Cir. 1991). Add to this reasoning the law recognized even by the Diaz Court that “a court may have ‘discretion to halt a lawsuit by entering judgment for the plaintiff when the defendant unconditionally surrenders and only the plaintiff’s obstinacy or madness prevents her from accepting total victory.'”
Significantly, the Supreme Court had assumed mootness in the Genesis case because it held that plaintiff had waived any argument to the contrary, and the circuit split on this issue was not resolved. In the class context, beyond the legal arguments, lies the ethical concern that a defendant should not be able to “pick off named plaintiffs” through offers of judgment. On the other side, the ethical argument is that class actions are often lawyer-driven, and it makes no sense for a named plaintiff to refuse full relief unless being urged to do so by his or her lawyers. Here, of course, oddly, these arguments, and the concerns underlying Genesis, do not pertain, as the court had already denied class certification. That said, the Ninth Circuit has staked out its view on the Rule 68 mootness issue.
Diaz points up that the circuit split on this issue cries out for guidance. The question of mootness in the class context, and the legal arguments and ethical concerns on both sides, will have to await further Supreme Court review.