The Seventh Circuit overruled its longstanding prior precedent in an opinion issued on August 6, 2015, in Chapman v. First Index, Inc., No. 09 C 5555 (7th Cir. 2015). With this ruling, the Seventh Circuit joined the Second and Ninth Circuits in holding that a defendant’s offer of full compensation does not render the case moot.
In Chapman, individual plaintiff, Arnold Chapman, sued defendant First Index, Inc. under the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. 227, on behalf of himself and a proposed class of persons who had improperly received faxes from First Index. Following the district court’s denial of Chapman’s motion to certify a class, First Index made an offer of judgment under Rule 68 that exceeded Chapman’s demand. After Chapman allowed the offer to lapse, First Index moved to dismiss Chapman’s individual claim as moot. The court granted that motion in accordance with the law of the Seventh Circuit.
The Seventh Circuit had previously established that a defendant’s offer of full compensation rendered the case moot. Under Rule 68, a defendant “may serve an opposing party an offer to allow judgment on specified terms, with the costs then accrued.” Fed. R. Civ. P. 68. If the opposing party rejects the offer and “the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.” In Rand v. Monsanto Co., 926 F.2d 596 (7th Cir. 1991), the Seventh Circuit found that “[o]nce the defendant offers to satisfy the plaintiff’s entire demand, there is no dispute over which to litigate.” Id. at 597-98. There is likewise “no controversy to resolve,” Smith v. Greystone Alliance, LLC, 772 F.3d 448, 449 (7th Cir. 2014), and “a plaintiff who refuses to acknowledge this loses outright... because he has no remaining stake.” Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011); see also Thorogood v. Sears, Roebuck & Co., 595 F.3d 750 (7th Cir. 2010) (defendant was not required to accept an offer of several times the value of his claim, “but he couldn’t turn it down and continue litigating”).
But in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1532-37 (2013), Justice Kagan (joined by Justices Ginsburg, Breyer and Sotomayor) explained that an expired or unaccepted offer of judgment “does not satisfy the Court’s definition of mootness, because relief remains possible.” According to Justice Kagan’s dissent, “an unaccepted offer of judgment cannot moot a case” because the plaintiff’s “interest in the lawsuit remains just what it was before,” id. at 1533, “[a]nd so too does the court’s ability to grant her relief.” Id. The Seventh Circuit noted that this issue is before the Supreme Court in Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), cert. granted, 135 S. Ct. 2311 (2015), but stated that it preferred to “clean up the law of this circuit promptly, rather than require Chapman and others in his position to wait another year for the Supreme Court’s decision.”
Before Chapman, defendants routinely issued Rule 68 offers of judgment early in the course of a case, particularly where the likely statutory and actual damages were readily calculable and/or possible attorneys’ fees were likely to dwarf statutory and actual damages. The offer of judgment remains a powerful tool for limiting the recovery of attorney’s fees. In light of Chapman, however, the Rule 68 offer of judgment is not a mechanism for disposing of these cases under the doctrine of mootness.