Takeaway: The U.S. Supreme Court ruled in January 2016 in Campbell-Ewald Co. v. Gomez that an unaccepted Rule 68 offer of judgment has no legal effect and therefore does not serve to moot a class action. 136 S. Ct. 663 (2016). Since that time, defendants in class actions – especially defendants in Telephone Consumer Protection Act (TCPA) cases and other lawsuits in which statutory damages are sought – have been exploring the question reserved in Campbell-Ewald: what if a defendant actually pays what is offered, rather than merely offering the payment? The Seventh Circuit recently rejected one such method of “picking off” the named plaintiff in its recent decision in Fulton Dental, LLC v. Bisco, Inc., No. 16-3574, 2017 WL 2641124 (7th Cir. June 20, 2017), but left open issues for further exploration by the plaintiffs’ and defense bar.
In Fulton Dental, the putative class action plaintiff sought statutory damages under the TCPA as well as injunctive relief banning future violations. Before Fulton Dental moved for class certification, however, the defendant (Bisco) executed the classic “pick off”: it tried to moot the case by tendering a Rule 68 offer of judgment in the amount of the statutory damages sought by Fulton Dental, plus accrued costs, along with a consent to injunctive relief. Two days after the offer of judgment was filed, however, the Supreme Court decided Campbell-Ewald, holding that “an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case.” 136 S. Ct. at 672. After the offer was rejected, and considering the Supreme Court’s qualifying language, Bisco implemented another strategy. This time, it moved for leave to deposit $3,600—what Bisco regarded as the maximum recovery sought by Fulton Dental, plus fees and costs—with the district court pursuant to Rule 67 of the Federal Rules of Civil Procedure, which allows all or part of a disputed amount to be deposited into the district court’s registry. Combined with its renewed acquiescence to injunctive relief, Bisco argued the deposit into the court mooted the case under Campbell-Ewald. The district court agreed and granted Bisco’s motion, treating the Rule 67 deposit of funds as the equivalent of giving the money directly to the plaintiff and thereby dismissing the case.
The Seventh Circuit reversed. It read no invitation for such creativity in the Supreme Court’s reservation in Campbell-Ewald that, “We need not, and do not now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.” 136 S. Ct. at 672. The Seventh Circuit further held that Rule 67 is but a procedural mechanism for deposits into the court and not a “vehicle for determining ownership; that is what the underlying litigation is for.” 2017 WL 2641124 at *3. And, the court explained, statutes corresponding to Rule 67 (28 U.S.C. §§ 2041 & 2042) make clear that no party is entitled to the funds absent court order, making the Rule 67 procedure no more of a definitive payment to the plaintiff than a contractual offer or an equitable tender, both rejected in Campbell-Ewald. Ultimately, the Seventh Circuit saw “no principled distinction between attempting to force a settlement on an unwilling party through Rule 68, as in Campbell-Ewald, and attempting to force a settlement on an unwilling party through Rule 67.”
Although the court in Fulton Dental rejected defendant’s Rule 67 attempt to “pick off” the plaintiff, it left open other possibilities for short-circuiting class actions. The court discussed its prior decision in Chapman v. First Index, Inc., 796 F.3d 783, 786 (7th Cir. 2015), and noted that although Bisco’s Rule 67 tender had not mooted the case, “other hurdles still exist, including a possible affirmative defense of payment, estoppel, or waiver.” 2017 WL 2641124 at *4. Additionally, the court provided another tidbit of hope to the defense bar when it wrote: “And this is not an unimportant point: if it turns out that the named plaintiff really has no personal stake in the litigation, the district judge might well question whether it is the appropriate champion for the class.” Id.
Not overlooking the plaintiffs’ bar, the court also provided it with potential ammunition. By acknowledging that named plaintiffs’ interests include not only statutory damages, but also the hope of receiving “service awards” for their role as class representatives, the court suggested that any settlement offer or payment intended to moot a case may need to be large enough to compensate the plaintiff for any potential service award. As the court concluded its opinion, “we cannot say as a matter of law that the unaccepted offer was sufficient to compensate plaintiff Fulton for its loss of the opportunity to represent the putative class.” Id. at *5.
The Fulton Dental decision rejects the latest “pick-off” strategy used by a defendant in the wake of the Supreme Court’s 2016 ruling in Campbell-Ewald. It stands for the proposition that a class action defendant may not pay into the court under Rule 67 the amount of damages, fees, and costs to moot the putative class action. However, it leaves open whether such a payment raises other affirmative defenses that could lead to dismissal or leads to findings during class certification that the named plaintiff is not adequate or typical or otherwise not an appropriate representative for the class. It also raises but leaves open an interesting mootness issue in cases where a payment has been made to a plaintiff: whether the amount paid must compensate the plaintiff for his interest in a service award for being the named plaintiff. Ultimately, these issues will be resolved, because class action defendants – especially in TCPA and similar class actions – really have nothing to lose by attempting to execute a “pick-off” strategy.