In Payne v. Progressive Financial Services, Inc., No. 13-10381 (5th Cir. 2014), the United States Court of Appeals for the Fifth Circuit reversed and remanded a Texas district court’s dismissal of the plaintiff’s suit for lack of subject-matter jurisdiction on the ground that the defendant’s unaccepted offer of judgment rendered the plaintiff’s claims moot.

Plaintiff Nicole Payne alleged violations of the Fair Debt Collection Practices Act (“FDCPA”), the Texas Debt Collection Practices Act, and the Texas Deceptive Trade Practices Act in her suit against Defendant Progressive Financial Services, Inc. As a result, Payne requested statutory damages of $1,000, actual damages, attorneys’ fees, and costs on her FDCPA claims.

After filing an answer, Progressive made an offer of judgment pursuant to Federal Rule of Civil Procedure 68. The terms of Progressive’s offer were as follows: 1) entry of judgment against itself in the amount of $1,001 for damages of any kind; 2) plus attorneys’ fees and costs incurred as of the date of the offer and to be determined by agreement or court order; and 3) expiration of the offer fourteen days after service. As a result of Payne’s failure to respond to Progressive’s offer, Progressive moved for dismissal under Rules 12(b)(6) and 12(b)(1). The district court denied Progressive’s 12(b)(6) challenge, but granted its 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction.

After Payne’s timely appeal, the Fifth Circuit articulated the following issue: “whether Progressive’s unaccepted Rule 68 offer of judgment rendered Payne’s FDCPA claims moot, requiring dismissal for lack of subject-matter jurisdiction under Rule 12(b)(1).”  The Court began by announcing that “a live controversy must exist at every stage of the litigation,” and further stated that a case must be dismissed as moot “if an intervening circumstance deprives a plaintiff of a personal stake in the outcome of the action or makes it ‘impossible for the court to grant any effectual relief whatever to the prevailing party.’”

From there, the Court opined that an incomplete offer does not render the plaintiff’s claims moot. According to the Court, when a defendant does not offer the full relief requested, the plaintiff maintains a personal stake in the outcome of the action.  In such cases, a court is capable of granting effectual relief outside the terms of the offer, and a live controversy remains.  Based on its understanding of FDCPA and Rule 68, the Court determined the following: 1) Progressive’s offer left a live controversy for the court to resolve; 2) Payne maintained a personal stake in the outcome of the action; and 3) the offer did not render the Payne’s FDCPA claims moot. In contrast to Progressive’s contention that its offer of judgment mooted Payne’s FDCPA claims, the Court concluded that Progressive’s argument and analysis confused two separate inquiries involving the merits and jurisdiction.

The Court concluded that whether Payne’s allegations state a plausible claim for actual damages is an inquiry different from whether a federal court has jurisdiction to hear the case.  Instead, the Court held that to render a decision on whether Payne is entitled to actual damages is to decide the merits of the case. Accordingly, the Court reversed the district court’s order of dismissal and remanded the case.