The defendant in a putative class action brought pursuant to the Electronic Funds Transfer Act (EFTA), 15 U.S.C. § 1693, et seq., tendered a Rule 68 offer of judgment to the named plaintiff before class certification briefing occurred. The defendant proposed to settle with the named plaintiff for the maximum allowable statutory damages for his individual claim, and to pay costs accrued and reasonable and necessary attorney fees, through the date of acceptance of the offer, as agreed by the parties, or to be determined by the court if agreement could not be reached.

Plaintiff moved to strike the offer, which the court denied, and moved to extend the deadline to move for class certification, which the court granted. Plaintiff then moved for class certification, and defendant moved to dismiss for lack of subject matter jurisdiction. The court certified the class and denied the motion to dismiss as moot. Defendant then filed a second motion to dismiss for lack of subject matter jurisdiction, arguing the plaintiff’s individual claim and the class action suit were mooted by the unaccepted Rule 68 offer, which the court granted, vacating its prior order.

The Fifth Circuit noted that the Supreme Court in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1528-29 (2013), declined to resolve a circuit split over “whether an unaccepted offer that fully satisfies a plaintiff’s claim is sufficient to render the claim moot” when a Fair Labor Standards Act class has not yet been certified, because that court had concluded the parties had waived the issue. But the Fifth Circuit cited Justice Kagan’s dissent in that case, and held that “an unaccepted offer of judgment to a named plaintiff in a class action ‘is a legal nullity, with no operative effect.’”

The court stated “it is hornbook law that the rejection of an offer nullifies the offer,” and “nothing in Rule 68 alters that basic principle” such that “giving controlling effect to an unaccepted Rule 68 offer … is flatly inconsistent with the rule.” It explained that “the court is not deprived of the ability to enter relief—and thus the claim is not mooted—when a named plaintiff in a putative class action rejects a settlement offer from the defendant.” Additionally, the court stated that “a plaintiff seeking to represent a class should be permitted to accept an offer of judgment on her individual claims under Rule 68, receive her requested relief, and have the case dismissed, or reject the offer and proceed with the class action,” and that “a contrary ruling would serve to allow defendants to unilaterally moot named-plaintiffs’ claims in the class action context—even though the plaintiff, having turned the offer down, would receive no actual relief.”

By its holding, the Fifth Circuit joined the Second, Ninth, and Eleventh Circuits, and as we reported last week, the Seventh Circuit recently ruled the same way. As the Fifth Circuit further noted in its decision, this issue is presently before the Supreme Court in Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), cert. granted, 135 S. Ct. 2311 (2015).

Hooks v. Landmark Indus., Inc., No. 14-20496 (5th Cir. August 12, 2015).