Relying on recent U.S. Supreme Court precedent, the Ninth Circuit Court of Appeals affirmed a denial of the defendant's motion to dismiss a Telephone Consumer Protection Act case as moot after the plaintiff failed to accept an offer of settlement and judgment pursuant to Rule 68.

In 2013 a pair of plaintiffs filed suit against Allstate Insurance Company, alleging that the insurer made illegal unsolicited automatic telephone calls to their cell phones in violation of the TCPA. Richard Chen claimed he received a total of eight calls, while Florencio Pacleb said he got five. The plaintiffs sought to certify a nationwide class of call recipients who were entitled to statutory damages for willful and knowing violations and to injunctive relief.

Before any motion for class certification was filed, Allstate made an offer of judgment to Chen and Pacleb under Rule 68 of the Federal Rules of Civil Procedure in the amounts of $15,000 and $10,000, respectively, together with attorneys' fees and costs. The insurer also agreed to stop sending telephone calls and texts to them in the future.

Neither plaintiff accepted the offer within the 14-day window provided by Rule 68. Allstate then sent a letter to plaintiffs' counsel extending the offer and filed a motion to dismiss the lawsuit as moot. While the motion to dismiss was pending, Chen accepted the offer. Pacleb did not.

A federal district court denied the motion to dismiss, relying on a 2011 Ninth Circuit decision, Pitts v. Terrible Herbst, Inc., to hold that even if Pacleb's individual claims could be considered fully satisfied by the offer, the action as a whole continued to present a justiciable controversy affording Pacleb an opportunity to move for class certification. Allstate appealed. While the case was pending before the Ninth Circuit, a panel decided Gomez v. Campbell-Ewald, upholding the Pitts opinion. That case then went on to the U.S. Supreme Court, which ruled in January that an unaccepted offer to satisfy the named plaintiff's individual claim is insufficient "to render a case moot when the complaint seeks relief on behalf of the plaintiff and a class of persons similarly situated."

The Justices also reserved the question of how the Court would rule if a defendant deposited the full amount of the plaintiff's individual claim in an account payable to the plaintiff and the court then entered judgment for the plaintiff in that amount.

Seizing an opportunity, Allstate deposited $20,000 in a bank escrow account after the Supreme Court issued its opinion "pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to Pacleb, requiring Allstate to stop sending non-emergency telephone calls and short message service messages to Pacleb in the future and dismissing this action as moot."

Considering the question left unanswered by the Justices, a panel of the Ninth Circuit said Allstate's theory of mootness turned on three contentions: that the judgment it has consented to would afford Pacleb complete relief on his individual claims for damages and injunctive relief; that the district court should be required to enter judgment on these terms, and that, once the court does so, Pacleb's individual claims will become moot; and assuming Pacleb's individual claims become moot, the existence of his class allegations will be insufficient to preserve a live controversy.

The court agreed with Allstate's first contention but rejected the second and third.

Pacleb told the court that Allstate's offer did not provide him complete relief because his complaint seeks injunctive relief on a nationwide basis for all affected individuals, not simply himself. The court was not persuaded, however, as "Pacleb has given us no reason to believe the injunctive relief Allstate has consented to would be inadequate, or that he could obtain broader relief after a trial on the merits. Allstate, therefore, has consented to all the injunctive relief to which Pacleb individually is entitled."

Allstate's victory was short-lived, as the court turned to its argument that if it could fully satisfy Pacleb's individual claims, the action as a whole would be moot. But the panel held that Pitts remained good law, meaning that the plaintiff's class claims remained viable.

In Pitts, the Ninth Circuit observed that a named plaintiff's claim is "transitory in nature and may otherwise evade review" in light of the defense tactic of "picking off" lead plaintiffs to avoid a class action. "To the extent that defendants may avoid a class action by 'picking off' the named plaintiffs, the class claims are 'inherently transitory' and evade review, making an exception to the mootness rule appropriate," the court wrote inPitts.

Although Allstate argued that Pitts was invalidated by another U.S. Supreme Court case, Genesis Healthcare Corp. v. Symczyk, the court distinguished that decision, as it involved a collective action under the Fair Labor Standards Act and not a class action under the Federal Rules of Civil Procedure. Therefore, the panel ruled, Pitts remains good law and even assuming Allstate could fully satisfy Pacleb's individual claims, Pacleb still would be able to seek class certification.

The Ninth Circuit then went one step further to rule that even if Pitts were not controlling, "we would reject Allstate's attempt to moot this action before Pacleb has had fair opportunity to seek certification."

As the court read Campbell-Ewald, a lawsuit or individual claim "becomes moot when a plaintiff actually receives all of the relief he or she could receive on the claim through further litigation," the three-judge panel explained. "Here, Pacleb has not yet received any relief on his individual claims for damages or injunctive relief. His claims are wholly unsatisfied, and it remains entirely possible for a court to grant him effectual relief."

There may have been occasions when the deposit of money in court could be treated as the equivalent of an actual payment and acceptance by a plaintiff, but that principle applied where the defendant "unconditionally relinquished" its entire interest in the deposited funds, the court said. "That has not occurred here," the panel wrote. "Allstate has neither deposited the $20,000 in the court nor unconditionally relinquished its interest in the $20,000 to Pacleb. On the contrary, Allstate retains its interest in the funds unless and until the district court dismisses this entire action as moot."

Finally, the court declined to direct the district court to enter judgment on Pacleb's individual claims, finding that Campbell-Ewald "clearly suggests" it would be inappropriate to enter judgment under the circumstances. "[W]hen a defendant consents to judgment affording complete relief on a named plaintiff's individual claims before certification, but fails to offer complete relief on the plaintiff's class claims, a court should not enter judgment on the individual claims, over the plaintiff's objection, before the plaintiff has had a fair opportunity to move for class certification," the panel held.

A named plaintiff "exhibits neither obstinacy nor madness by declining an offer of judgment on individual claims in order to pursue relief on behalf of members of a class," the court added, noting this approach was consistent with other Supreme Court decisions recognizing a named plaintiff's "personal stake" in obtaining class certification, leading treatises on federal procedures, and district court opinions issued since Campbell-Ewald (both from New York federal courts).

"In sum, a district court should decline to enter a judgment affording complete relief on a named plaintiff's individual claims, over the plaintiff's objection, before the plaintiff has had a fair opportunity to move for class certification," the Ninth Circuit concluded. "In this way, even if Pitts were not controlling, a live controversy would persist until the question of class certification could be addressed."

To read the opinion in Chen v. Allstate Insurance Company, click here.

Why it matters: The Ninth Circuit panel closed at least one of the doors left open after the U.S. Supreme Court's decision in Campbell-Ewald, holding that a named plaintiff must be provided with "a fair opportunity" to show that class certification is warranted in a TCPA class action, even where the defendant has made an offer of complete relief as to individual claims. Not only did circuit precedent require such an opportunity, the panel found, but so did Supreme Court decisions, treatises on federal civil procedure, and case law since Campbell-Ewald. At least in the Ninth Circuit, TCPA defendants face a significant obstacle to mooting a class action plaintiff's claims by making a full offer of judgment.