Thursday, August 11, 2011

Ninth Circuit Finds Strategic Use of Rule 68 Offers of Judgment Incompatible with Rule 23: Pitts v. Terrible Herbst, Inc.

On August 9, 2011, the Ninth Circuit issued an opinion in Pitts v. Terrible Herbst, Inc. concluding that “an unaccepted Rule 68 offer of judgment – for the full amount of the named plaintiff's individual claim and made before the named plaintiff files a motion for class certification – does not moot a class action.” See Pitts, 2011 U.S. App. LEXIS 16368, at 23 (9th Cir. Nev. Aug. 9, 2011). Conversely, the Court further held that an offer made subsequent to denial of certification still does not necessarily moot a proposed class action. Rather, “[o]nly once the denial of class certification is final does the defendant's offer – if still available – moot the merits of the case because the plaintiff has been offered all that he can possibly recover through litigation.” See id., at 24.

This method of mooting a class-wide claim is generally asserted in the context of a FLSA collective action where it has received a small degree of success due to the “opt-in” nature of the class mechanism. In rejecting this litigation strategy in the Rule 23 context, the Ninth Circuit reasoned that the practice of "buying off" the named plaintiff affirmatively creates a “transitory claim” in the same respects as a claim that is inherently transitory, and as such, mootness is to be evaluated under “relation back” principles to the date of filing of the complaint:
[W]e conclude that Terrible's unaccepted offer of judgment did not moot Pitts's case because his claim is transitory in nature and may otherwise evade review. Accordingly, if the district court were to certify a class, certification would relate back to the filing of the complaint. We recognize that the canonical relation-back case—such as Gerstein or McLaughlin—involves an "inherently transitory" claim and, correspondingly, "a constantly changing putative class." Wade v. Kirkland, 118 F.3d 667, 670 (9th Cir. 1997). But we see no reason to restrict application of the relation-back doctrine only to cases involving inherently transitory claims. Where, as here, a defendant seeks to "buy off" the small individual claims of the named plaintiffs, the analogous claims of the class—though not inherently transitory—become no less transitory than inherently transitory claims. Thus, although Pitts's claims "are not 'inherently transitory' as a result of being time sensitive, they are 'acutely susceptible to mootness' in light of [the defendant's] tactic of 'picking off' lead plaintiffs with a Rule 68 offer to avoid a class action." Weiss v. Regal Collections, 385 F.3d 337, 347 (3d Cir. 2004) (internal citation omitted). The end result is the same: a claim transitory by its very nature and one transitory by virtue of the defendant's litigation strategy share the reality that both claims would evade review.
See Pitts, 2011 U.S. App. LEXIS 16368, at 20-21.

Importantly, the Court found that permitting a defendant to dispose of a class action through such strategic conduct would not only undermine the objectives of Rule 23 as a mechanism to adjudicate small value claims, but burden the courts by encouraging the filing of multiple, successive lawsuits:
Invoking the relation back doctrine in this context furthers the purposes of Rule 23. Where the class claims are so economically insignificant that no single plaintiff can afford to maintain the lawsuit on his own, Rule 23 affords the plaintiffs a "realistic day in court" by allowing them to pool their claims. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809, 105 S. Ct. 2965, 86 L. Ed. 2d 628 (1985); see also Roper, 445 U.S. at 339 ("Where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages, aggrieved persons may be without any effective redress unless they may employ the class-action device."). A rule allowing a class action to become moot "simply because the defendant has sought to 'buy off' the individual private claims of the named plaintiffs" before the named plaintiffs have a chance to file a motion for class certification would thus contravene Rule 23's core concern: the aggregation of similar, small, but otherwise doomed claims. Roper, 445 U.S. at 339; see also Weiss, 385 F.3d at 344 ("[A]llowing the defendants here to 'pick off' a representative plaintiff with an offer of judgment less than two months after the complaint is filed may undercut the viability of the class action procedure, and frustrate the objectives of this procedural mechanism for aggregating small claims . . . ."). It would effectively ensure that claims that are too economically insignificant to be brought on their own would never have their day in court. See Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1050 (5th Cir. 1981) ("[I]n those cases in which it is financially feasible to pay off successive named plaintiffs, the defendants would have the option to preclude a viable class action from ever reaching the certification stage."); Stewart v. Cheek & Zeehandelar, LLP, 252 F.R.D. 384, 386 (S.D. Ohio 2008) ("[T]reating pre-certification settlement offers as mooting the named plaintiffs' claims would have the disastrous effect of enabling defendants 'to essentially opt-out of Rule 23.'" (citation omitted)). And even if it does not discourage potential claimants, it "may waste judicial resources by 'stimulating successive suits brought by others claiming aggrievement.'" Weiss, 385 F.3d at 345 (quoting Roper, 445 U.S. at 339).
See Pitts, 2011 U.S. App. LEXIS 16368, at 21-23.

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