We’re very fortunate  to work with some supremely talented lawyers here at Shook, Hardy & Bacon.  One such lawyer is Rebecca Schwartz, who has recently obtained some superb results for her clients in the data security and privacy context.  We leapt at the opportunity for her to provide this guest post about the current state of the law in using Rule 68 Offers of Judgment in the Eighth Circuit:

Mechanics of Rule 68.  The mechanics of Rule 68 are straightforward.  Under Rule 68, “a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.”  Fed. R. Civ. P. 68.  If the offer is accepted by written notice within 14 days, proof is to be filed with the court and the clerk must enter judgment.  Id.  If an offer is not accepted within 14 days, it is considered withdrawn.  Id.  In the latter event, if the judgment obtained is not more favorable than the offer, then the offeree must pay the offeror’s costs incurred after making the offer.  Id.

Mootness and the Potential Class Representative  “Pick Off.”  Defense counsel in class action litigation have occasionally employed Rule 68 in an attempt to moot the named plaintiff’s claim before a class is certified, thereby “beheading” the putative class.  This is ostensibly done by offering the plaintiff the entirety of his alleged individual damages.  When plaintiff fails to accept such an offer, the defendant then moves to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction on the grounds that there is no continuing case or controversy.  This move has the best chance of success where the damages are readily calculable (i.e., cases with statutory or defined damages).  It is trickier (and probably impossible) in cases with many variables because complete relief is not knowable.

Circuits Split.  The Circuit Courts of Appeal are split regarding the effectiveness and scope of this “pick-off” maneuver  Case law from outside the Eighth Circuit supports both sides of the “mootness” argument.  For example, the Seventh Circuit has permitted the practice: “[o]nce the defendant offers to satisfy the plaintiffs entire demand, there is no dispute over which to litigate . . . and a plaintiff who refuses to acknowledge this loses outright, under [Rule] 12(b)(1) because he has no remaining stake.”  Rand v. Monsanto Co., 926 F.2d 596, 598 (7th Cir. 1991).  The Ninth Circuit in Diaz v. First American Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013), however, reached the opposite conclusion, relying on a dissenting opinion by Justice Kagen in Genesis Healthcare Corp. v. Symczek, 133 S. Ct. 1523 (2013), wherein the Justice explained that an unaccepted offer of judgment cannot moot a case.  Justice Kagen reasoned that unaccepted settlement offer is a legal nullity and nothing in FRCP 68 authorizes a court to terminate a lawsuit without the plaintiff’s consent.  Other federal courts that have rejected the use of Rule 68 in class actions have found that it to be in direct contravention of Rule 23.

Eighth Circuit and Missouri District Courts.  Until very recently, neither the Eighth Circuit nor the Western District of Missouri decisions offered much information to defendants contemplating such a move – although the Eighth Circuit had not expressly rejected the possibility altogether.  Since 2010, the issue has come into a little clearer focus, but more recently has resulted in a split of authority in Missouri’s federal district courts.

In 2012, the Eighth Circuit issued a decision in Hartis v. Chicago Title Insurance Co., 694 F.3d 935 (8th Cir. 2012).  In Hartis, the plaintiffs brought claims on behalf of themselves and a putative class alleging that they were overcharged by the defendant title company.  The district court granted the defendant’s motion to dismiss following an unaccepted offer of judgment – but only after it had denied plaintiff’s motion for class certification.  In affirming the dismissal, the court of appeals emphasized that “[j]udgment should be entered against a putative class representative on a defendant’s offer of payment . . . where class certification has been properly denied and the offer satisfies the representative’s entire demand for injuries and costs of the suit.  Id. at 949 (quoting Alpern v. UtiliCorp, Inc., 84 F.3d 1525, 1539 (8th Cir. 1996)).  Of course, in Hartis there was no possibility that any putative class members would be disenfranchised by the “pick off;” it’s not clear how the issue would play out in a case where the offer was made prior to the motion for class certification.

Even more recently, Western District of Missouri Magistrate Judge John Maughmer issued an order in Goans Acquisition, Inc. v. Merchant Solutions, LLC, No. 12–00539–CV–S–JTM, 2013 WL 5408460 (Sept. 26, 2013) in which he endorsed the Seventh Circuit’s acceptance of mootness derived from rejected Rule 68 offers to class representatives where there is a possibility of class certification (i.e., before plaintiff has moved for class certification) (Ed: we covered it here last year).  One case from the Eastern District of Missouri, however, reached an opposition conclusion “to prevent an improper conflict of interest between a putative class representative and the putative class,” but counseled that “in future cases, putative class action plaintiffs would be wise to immediately file such [class certification] motions to protect the class from similar motions to dismiss based on offers of judgment.”  See March v. Medicredit, 2013 WL 6265070 at *3-4 (E.D. Mo. Dec. 4, 2013); see also Mertz v. Lindell Bank & Trust Co., 2012 WL 1080824 (E.D. Mo Mar. 30, 2012).