One tactic some defendants have tried to use in defending a class action is providing or offering to the named plaintiff the full relief requested on his or her individual claim. Typically a named plaintiff’s individual claim in a class action is worth a relatively small sum, much smaller than the costs of defending the case even if the defendant prevails on an early dispositive motion. The concept is that if the defendant provides or offers to provide full relief to the named plaintiff, the case is moot. This is sometimes referred to as “picking off” the named plaintiff. It’s a tactic that has been used probably since the advent of class actions; there is case law on this going back at least 40 years. Most, but not all, courts have disapproved of this tactic essentially because, if this were allowed, it potentially could eviscerate the class action device. But the Supreme Court has never squarely addressed the issue and courts have taken different approaches to it. Even where the law is unsettled in a particular jurisdiction, there are good reasons a defendant might not want to attempt this. Unless it is clear that the offer or tender of payment is protected as a settlement communication and could never come into evidence, if the case is ever tried the offer may not play well to a jury. (But of course class action trials are rare.) Recent decisions in both the Seventh and Federal Circuits addressed this issue and are worthy of discussion here.
Seventh Circuit Decision
The Seventh Circuit recently held that an offer of full relief to the named plaintiff does moot a putative class action, as long as it is made before a motion for class certification is filed. In Damasco v. Clearwire Corp., No. 10-3934, 2011 U.S. App. LEXIS 23093 (7th Cir. Nov. 18, 2011), the plaintiff brought a putative class action under the federal Telephone Consumer Protection Act, claiming that the defendant violated that statute by sending unsolicited text messages to cellphone users. After suit was filed, the defendant offered to settle the case by giving the named plaintiff (and up to ten other affected people) the maximum statutory penalty of $1,500 per text message, plus court costs. The defendant also offered to cease sending unsolicited text messages (the injunctive relief sought). Id. at *2. After making this offer, the defendant moved to dismiss the case as moot, and the plaintiff filed a motion for class certification. The district court granted the motion to dismiss the case as moot.
The Seventh Circuit affirmed, relying on prior case law from that circuit concluding that an offer made to the named plaintiff before a motion for class certification is filed renders the entire suit moot, but an offer made after a motion for class certification is filed does not moot the putative class claims, and the plaintiff can still pursue the class action. The court noted that several other circuits – the Third, Fifth, Ninth and Tenth – had disagreed with this approach and refused to allow a tender of payment to a named plaintiff to moot a putative class action even if no motion for certification has been filed. The Seventh Circuit disagreed with those other circuits, reasoning that “[t]o 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.” Id. at *10.
The Seventh Circuit further explained that the solution is for a plaintiff to file a motion for class certification with the complaint, and then ask the court to defer a ruling on the motion until after relevant discovery has been completed:
A simple solution to the buy-off problem that Damasco identifies 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 argues that this solution would provoke plaintiffs to move for certification prematurely, before they have fully developed or discovered the facts necessary to obtain certification. But this objection 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. In a variety of other contexts, we have allowed plaintiffs to request stays after filing suit in order to allow them to complete essential activities. . . . We remind district courts that they must engage in a “rigorous analysis”—sometimes probing behind the pleadings—before ruling on certification. Although discovery may in some cases be unnecessary to resolve class issues, in other cases a court may abuse its discretion by not allowing for appropriate discovery before deciding whether to certify a class . . . .
Id. at *11-13 (citations omitted).
Following this decision, defendants will have some interesting options in the Seventh Circuit (and perhaps also some other jurisdictions where courts have not squarely ruled on this issue). Sophisticated plaintiffs’ counsel will now, as a matter of practice, file their motion for certification with their complaint. But not all plaintiffs’ counsel are fully up to date on their research, so some will miss this decision and defendants will have the opportunity to moot the case if they move swiftly. When the “shotgun” motion for class certification is filed with the complaint, perhaps together with a motion to defer a ruling on it, the defendant has an interesting strategic decision to make. If the case is subject to an argument that class certification is improper as a matter of law absent any discovery, the defendant might want to file a prompt opposition on that ground and seek a ruling on that before discovery. (See, for example, the Sixth Circuit’s recent decision affirming a decision striking the class allegations on the pleadings, Pilgrim v. Universal Health Card, LLC, 2011 U.S. App. LEXIS 22715 (6th Cir. Nov. 10, 2011).) This decision and the manner in which it will change the way class actions are litigated (at least in the Seventh Circuit) may also encourage judges to move more quickly to resolution of the class certification issue and focus and limit the discovery. District judges generally don’t like to have motions pending for six months or a year, when that happens it usually winds up on lists that the circuits review (sometimes that problem is prevented by denying a motion without prejudice to renewal later).
Federal Circuit Decision
The Federal Circuit also spoke on this issue shortly after the Seventh Circuit’s opinion. In Russell v. United States, 2011 U.S. App. LEXIS 23830 (Fed. Cir. Dec. 1, 2011), a servicemember brought a putative class action against the United States asserting that the Army and Air Force Exchange Service had charged an interest rate on credit card accounts higher than the rate permitted by the credit agreements. The claim apparently had some merit because in response to the suit the government made adjustments to the accounts of many thousands of servicemembers, including the named plaintiff. In light of the government’s action, the Northern District of California dismissed the case as moot. The Federal Circuit concluded that the named plaintiff’s individual claim was moot but that, under Ninth Circuit law (which the Federal Circuit was required to follow in this kind of case coming from a California federal district court), the named plaintiff potentially could still pursue class certification (even though he had not yet filed a motion for certification). The Ninth Circuit is one of the circuits that disagrees with the Seventh on this issue, as noted above.
The Federal Circuit suggested, however, that the putative class claims still might be moot if they were all provided adequate relief by the government. The facts on that were unclear and thus the case was remanded to the district court for further factual development. For more thoughts on defendants’ ability to provide complete relief to the class and thereby moot a class action, see my prior posts on September 2, 2011 and September 16, 2011.