Some good news in an otherwise adverse ruling on Rule 68 offers of judgment in the context of putative class actions: On June 11, 2013, the Sixth Circuit issued its opinion in Hrivnak v. NCO Portfolio Management, a decision that clears up some confusion on the rule and provides a roadmap for litigants seeking to employ or defend against them.
Some background: It is not unusual for defendants in putative class actions to make a Rule 68 offer of judgment to the named plaintiff, then file a 12(b)(1) motion arguing the case is now moot. This tactic is particularly useful in the Seventh Circuit, which has broadly approved its use, if made before the filing of the class certification motion. See, e.g., Rand v. Monsanto Co., 926 F.2d 596, 598 (7th Cir.1991). Now, in the Sixth Circuit, one may seek dismissal under 12(b)(1) for mootness following a Rule 68 offer, but only so long as the plaintiff is offered everything he asks for as an individual, even if obviously non-meritorious. The lesson? Where appropriate, move quickly to make the offer, and make a full one (or craft it loosely enough to say that you are), or file a 12(b)(6) contemporaneously with your 12(b)(1).
In this case, a plaintiff debtor sued several debt management companies and a law firm alleging they violated the FDCPA in their collection efforts. In addition to the usual statutory damages and attorneys’ fees, the debtor also demanded injunctive relief and punitive damages. The defendants made a Rule 68 offer of judgment for the statutory damages and attorneys’ fees, then filed a 12(b)(1) motion to dismiss, arguing the case was moot.
It is well settled that the FDCPA does not allow “punitive” damages in excess of the $1,000 statutory cap (more commonly referred to as statutory damages). The defendants, then, essentially took the position that they would make a Rule 68 offer for all claims not obviously frivolous, then argued in their 12(b)(1) motion all claims were moot. While that appears reasonable enough, the Sixth Circuit held otherwise because a frivolous claim is still one that the Court at least has jurisdiction to decide. “[T]he absence of a valid (as opposed to arguable) cause of action does not implicate subject-matter jurisdiction, i.e., the courts' statutory or constitutional power to adjudicate the case.” The Court went on: “The defendants did not say, ’We are willing to give [debtor] all of the relief he asked for.’ Instead, they in effect said, ’We are willing to give [debtor] all of the relief he asked for, save the relief he should not receive on the merits.’ Because these other claims were not “so insubstantial” that they “fail[ed] to present a federal controversy,” the defendants' Rule 68 offer did not deprive the court of subject matter jurisdiction.”
But it is the debtor who bears the risk. Should his or her frivolous punitive damages claims fail – and they certainly will – he or she must pay defendants’ costs in the action. As the Sixth Circuit noted, the defendants have many other avenues to pursue to resolve the frivolous portions of the debtor’s claims: a 12(b)(6) or 12(c) motion, a summary judgment motion without discovery, and if the theories are truly that frivolous, Rule 11 sanctions. What defendants “may not do is require the district court to address their other merits arguments in order to determine whether a Rule 68 offer of judgment as to some claims moots all claims.”
Conclusion? In the Sixth Circuit at least, if the named plaintiff is requesting damages on a theory that is patently frivolous, a Rule 68 offer for the non-frivolous parts coupled with a 12(b)(1) mootness motion may not be enough – defendants also need to file a 12(b)(6) on any portion of the claim not being compensated in your Rule 68 offer, which may well be good practice in other jurisdictions.