Although the U.S. Supreme Court has agreed to decide whether a complete offer of judgment moots a Telephone Consumer Protection Act plaintiff’s individual and class claims, the Second Circuit Court of Appeal recently weighed in on the issue.

The federal appellate panel held that an unaccepted Rule 68 offer does not render claims moot unless the district court first enters judgment against the defendants.

Patrick Tanasi filed a putative class action against First Niagara Financial Group and New Alliance Bank, alleging that the defendants improperly assessed overdraft fees on his account.

Pursuant to Rule 68 of the Federal Rules of Civil Procedure, the defendants offered to settle Tanasi’s claims for $10,000 plus interest—an amount greater than the statutory damages to which he would have been entitled if successful. When Tanasi refused to accept the offer, the defendants moved to dismiss the case.

They argued that the unaccepted offer rendered Tanasi’s claims moot. A federal district court judge disagreed, ruling that although Tanasi’s individual claims were mooted, his putative Rule 23 class action claims remained viable.

On appeal to the Second Circuit, the federal appellate panel affirmed the ruling, albeit on an alternative ground.

“[W]e hold that the district court maintained Article III subject matter jurisdiction over the case because, under the law of our Circuit, an unaccepted Rule 68 offer alone does not render a plaintiff’s individual claims moot before the entry of judgment against the defendants,” the court wrote. “The district court therefore maintained Article III subject matter jurisdiction over the case regardless of Tanasi’s putative class action claims.”

The panel walked through the process under Rule 68, explaining that the purpose of the Rule is “to encourage settlement and avoid litigation,” and noted that if a plaintiff accepts the defendant’s offer of judgment, “the clerk must … enter judgment.”

“What Rule 68 does not make clear, however, is the effect, if any, of an unaccepted offer on the justiciability of a plaintiff’s claim under the Constitution’s Article III Case or Controversy Clause,” the court said.

Federal courts of appeals are split on the issue. The Third, Fourth, Fifth, Seventh, Tenth, and Federal Circuits have all determined that a Rule 68 offer of complete relief to an individual renders his or her case moot for purposes of Article III, while the Ninth and Eleventh Circuits have reached the opposite conclusion.

Noting that the prior case law in the Second Circuit “has not always been entirely clear on this subject,” the panel attempted to provide some clarity and “reiterate that it remains the established law of this Circuit that a ‘rejected settlement offer [under Rule 68], by itself, [cannot render] moot[] [a] case.’”

The Second Circuit explained that “[i]f the parties agree that a judgment should be entered against the defendant, then the district court should enter such a judgment. Then, after judgment is entered, the plaintiff’s individual claims will become moot for purposes of Article III.” The court also explained that “[a]bsent such agreement, however, the district court should not enter judgment against the defendant if it does not provide complete relief.”

According to the panel, neither Tanasi’s individual nor class claims were rendered moot “in the Constitution sense” by the unaccepted Rule 68 offer. “Instead, because the district court had not yet entered judgment against the defendants when it reached its decision on the motion to dismiss, the court maintained Article III subject matter jurisdiction over the case regardless of Tanasi’s putative class action claims,” the court said.

The panel declined to address the question of whether putative class action claims brought under Rule 23 of the Federal Rules provided an independent basis for Article III justiciability.

To read the opinion in Tanasi v. New Alliance Bank, click here.

Why it matters: The Second Circuit opinion adds yet another level of confusion and technicality to the issue of whether an unaccepted, complete offer of judgment renders a lawsuit moot. Thankfully for both courts and parties across the country struggling with the split in the jurisdictions, the U.S. Supreme Court has granted certiorari and will hopefully settle the issue once and for all in Campbell-Ewald v. Gomez next term.