Siding with Justice Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), the Fifth Circuit recently held that an unaccepted offer of judgment is a “legal nullity,” and thus cannot moot a class action. Hooks v. Landmark Industries, Inc., No. 14-20496, slip op. (Aug. 12, 2015). (Read the decision here.) Only a day before, the Seventh Circuit had reached the same conclusion. (See my Aug. 11, 2015 post.) With the issue of the legal effect of an unaccepted offer of judgment now squarely before the Supreme Court in Campbell-Ewald Company v. Gomez, No. 14-857, these recent circuit court decisions from influential courts are no doubt important.
Like many if not most class actions involving offers of judgment, the Landmark Industries case arises in the statutory context — here, in the context of the Electronic Funds Transfer Act (“EFTA”). The facts are straightforward: Hooks allegedly withdrew money from an ATM that did not post notice that there would be a fee for its use, in violation of the EFTA. Under the EFTA, the maximum amount of damages for that violation is $1,000. Landmark Industries thus proceeded to offer Hooks $1,000, plus costs and attorneys’ fees. Hooks not only did not accept the offer, but moved to strike it. The district court denied that motion. Hooks then moved to certify the class, while Landmark moved to dismiss the case for lack of subject matter jurisdiction. The district court certified the class and denied Landmark’s motion. However, Landmark then moved again to dismiss for lack of subject matter jurisdiction, arguing that both Hooks’ individual claim and the class action were mooted by the unaccepted offer of judgment. The district court granted the motion this time, and vacated its prior order.
Citing Justice Kagan’s dissent in Genesis Healthcare and the reasoning of the Ninth and Eleventh Circuits, the Fifth Circuit reversed the district court, holding that “an unaccepted offer of judgment to a named plaintiff in a class action ‘is a legal nullity, with no operative effect.'” This is so, the Court reasoned, because “[t]he court is not deprived of the ability to enter relief — and thus the claim is not mooted — when a named plaintiff in a putative class action rejects a settlement offer from the defendant.”
Underlying the Fifth Circuit’s decision is the view that a named plaintiff should have the right to reject an offer of judgment as to her individual claim and proceed with her class claims: “We have previously expressed concern for defendant-induced mootness in the class action context where defendants may attempt to ‘pick off’ individual plaintiffs before class certification ‘[b]y tendering to the named plaintiffs the full amount of their personal claims each time suit is brought as a class action.'”
The current debate among the courts on mootness is anything but moot, and hopefully will be decided by the Supreme Court in Campbell-Ewald. (For arguments on why an unaccepted offer of judgment for full relief does moot a named plaintiff’s claim, see the amicus brief my firm submitted in Campbell-Ewald at my July 23, 2015 post.)