The U.S. Court of Appeals for the Fifth Circuit recently held that an unaccepted offer of judgment does not moot a lead plaintiff’s claim in a putative class action.

In so ruling, the Fifth Circuit reversed the district court’s ruling that, because a motion for class certification was not filed before the offer, the putative class action was also mooted.

A copy of the opinion is available at: Link to Opinion.

The plaintiff withdrew money from his checking account at an automated teller machine (ATM) and subsequently sued the ATM owner, seeking statutory damages under the Electronic Funds Transfer Act (EFTA), 15 U.S.C. § 1693 et seq., because he was charged $2.95 for the withdrawal, but there was no notice posted on or at the ATM informing customers about the fee.

The defendant made an offer of judgment under Fed. R. Civ. Pro. 68 for $1,000, the maximum recoverable statutory damages for the plaintiff’s individual claim, plus “costs accrued and reasonable and necessary attorney fees, through the date of acceptance of the offer … to be determined by the court if agreement cannot be reached.”

As you may recall, Rule 68 allows a party to accept an offer of judgment within 14 days of service. The plaintiff did not accept the offer.  Instead, the plaintiff filed a motion to strike the offer of judgment, which the district court denied.

The plaintiff filed his motion for class certification and, the same day, the defendant filed a motion to dismiss for lack of subject matter jurisdiction. The magistrate judge recommended that the motion for class certification be granted, and that the motion to dismiss be denied as moot, which the district court adopted.

Thereafter, the defendant filed a second motion to dismiss, arguing that plaintiff’s individual claim and the class action were mooted by the unaccepted offer.  The district court granted the defendant’s motion to dismiss and vacated its prior order.  The plaintiff appealed.

On appeal, the plaintiff argued that the Rule 68 offer was not complete because it only included attorney’s fees through the date of the offer. Under Fifth Circuit precedent, “[a]n incomplete offer of judgment—that is, one that does not offer to meet the plaintiff’s full demand for relief—does not render the plaintiff’s claims moot.”

The Fifth Circuit noted that it had not addressed whether an offer of judgment is complete when it includes attorney’s fees incurred up to the offer date, but not thereafter.  As you may recall, other courts have split on what must be included for the offer to be complete.

The Fifth Circuit then held that, if the offer were incomplete, plaintiff’s individual claim was not mooted under its precedent. In addition, the Fifth Circuit held that, even if the offer were complete, the plaintiff’s individual claim, as well as the class claims, were not mooted by the unaccepted offer.

The Court reasoned that Rule 68 provides that “[a]n unaccepted offer is considered withdrawn,” and consistent with the rulings of the Ninth and Eleventh Circuits, holding that “an unaccepted offer of judgment to a named plaintiff in a class action is a legal nullity, with no operative effect.”  The Fifth Circuit also relied on the law of contracts, which provides the rejection of an offer nullifies the offer.

The Fifth Circuit noted that it had “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 Court reasoned that “[a] contrary ruling would serve to allow defendants to unilaterally moot name-plaintiffs’ claims in the class action context — even though the plaintiff, having turned down the offer, would receive no actual relief.”

The Fifth Circuit also held that, because the plaintiff’s individual claim was not mooted by the unaccepted offer, neither were the putative class claims.  The district court’s ruling was reversed and the case remanded for further proceedings.