October 31, 2018 Articles

The Revival of Rule 68 as a Factor in Class Actions

A defendant’s unaccepted offer of judgment may make the plaintiff atypical and inadequate.

By Fred Burnside and Zana Bugaighis

When the Supreme Court issued its opinion in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016)—holding that a Rule 68 offer of judgment does not moot a class representative’s claim—most lawyers assumed that was the end of the Rule 68 gambit. Presumptions regarding the death of Rule 68 as a factor in class actions, however, appear premature.

While a defendant’s unaccepted Rule 68 offer of judgment will not moot a named plaintiff’s claims, it may make the plaintiff atypical and inadequate and thus ineligible to represent the putative class. In Franco v. Allied Interstate, 2018 WL 3410009 (S.D.N.Y. July 13, 2018), Judge Katherine B. Forrest of the Southern District of New York denied class certification in a Fair Debt Collection Practices Act case, holding that plaintiff Gilberto Franco was an inadequate class representative based on Franco’s decision to reject defendant Allied Interstate LLC’s Rule 68 offer to provide full satisfaction of Franco’s individual claims.

Notably, the decision capped Allied’s third attempt to use its Rule 68 offer to dismiss or limit the action. Twice previously, the district court found that Allied’s offer of judgment mooted Franco’s claims and dismissed the case. See Franco v. Allied Interstate LLC, 2014 WL 1329168 (S.D.N.Y. Apr. 2, 2014) (holding Allied’s Rule 68 offer mooted Franco’s claims); Franco v. Allied Interstate LLC, 2015 WL 7758534 (S.D.N.Y. Nov. 30, 2015) (entering judgment against Allied according to its Rule 68 offer and dismissing Franco’s claims as moot). And twice Franco appealed the district court’s dismissal to the Second Circuit, which twice held, based on intervening case law, that the offer of judgment did not moot Franco’s claims. Franco v. Allied Interstate LLC, 602 F. App’x 40 (2d Cir. 2015) (holding defendant’s Rule 68 offer did not moot plaintiff’s claim because there was no entry of judgment (citing Tanasi v. New All. Bank, 786 F.3d 195, 198 (2d Cir. 2015), as amended (May 21, 2015)); Franco v. Allied Interstate LLC, 718 F. App’x 1 (2d Cir. 2018) (holding the court’s entry of judgment pursuant to a Rule 68 offer did not moot plaintiff’s claim (citing Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016), as revised (Feb. 9, 2016), and Radha Geismann, M.D., P.C. v. ZocDoc, Inc., 850 F.3d 507 (2d Cir. 2017)).

In deciding Franco’s motion for class certification, the court analyzed Franco’s typicality and found that because “an unaccepted Rule 68 offer is a legal nullity,” and the unaccepted offer could not “alter the nature of plaintiff’s claims and/or injury,” Franco’s rejection did not affect the court’s Rule 23(a)(3) typicality analysis. Franco, 2018 WL 3410009, at *4 (citing Franco, 718 F. App’x at 1) (emphasis in original)). But the court clarified that “although plaintiff may have ‘typical’ claims, he appears likely to litigate those claims in a decidedly atypical way,” which affects his adequacy to represent the putative class. Id.

The court reasoned:

A class representative will be a decision maker with regard to the acceptance or rejection of a settlement; that is, he will need to make judgments as to reasonableness. On this motion for class certification, it is plaintiff’s burden under Wal-Mart to demonstrate to the Court by a preponderance of the evidence that decisions of this type will be made reasonably, in good faith, and in the interests of the majority of the class members. The record currently before the Court consists of an unexplained rejection of an offer that would amount to full satisfaction of plaintiff’s individual claim.

Id. at *5 (citing Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 348 (2011)).

The court further explained that the fact that the plaintiff’s counsel has a basis for why they think it makes sense to reject the offer of judgment—i.e., a lack of class relief and the paltry amount recovered compared with the class-wide relief they could get—is not sufficient under Rule 23:

But this attorney argument is not equivalent to a factual record from plaintiff that demonstrates his decisionmaking and how his decisionmaking on this issue would correspond to his conduct on behalf of the class. It is of course possible that plaintiff is the type of person willing to subordinate his own personal recovery for the good of the class, or, alternatively, the type of person who values trial or non-monetary vindication over individual recovery. The former might allow him to nonetheless be an adequate class representative, but the latter two would not. Absent a factual record from plaintiff setting forth his rationale and expected conduct in light of past behavior, the Court is left with the distinct possibilities that: (1) this litigation is entirely lawyer-driven; and/or (2) that while the claims plaintiff has asserted would be satisfied by monetary relief, this particular plaintiff does not plan on agreeing to a monetary settlement. Those possibilities create multiple problems vis-à-vis plaintiff’s proposed representation for purposes of Rule 23(a)(4).

[I]f plaintiff is willing to forgo recovery on his own behalf, there is no telling how many potential class members he is willing to prejudice for the “greater good.” Assuming for the moment that there are 1,000 potential class members, would plaintiff (and his counsel) accept an offer that makes 750 of those class members whole? How about 500? And what if the proposed offer made all class members whole, but did not provide for attorneys’ fees and costs, which the Thomasson Declaration makes clear are already extensive? Alternatively, if plaintiff is primarily interested in non-monetary judicial recognition of the alleged violations at issue, it is unclear whether plaintiff would accept any monetary settlement that would result in dismissal of this action pre-trial. That may be true even if a significant majority of the class members would prefer such a settlement.

Id. (emphasis added).

The court likewise rejected as speculative the argument that Allied’s Rule 68 offer was just a cheap trick by defense lawyers:

One final note. Plaintiff has suggested that defendant’s offer of judgment and subsequent argument against class certification allow it to “unilaterally avoid class liability through gimmicks or creative litigation strategies.” (Pl.’s Supp. Mem. at 5.) Presumably, plaintiff is concerned that defendant will be incentivized to offer judgment to any named plaintiff brought into this action (or other action), and that plaintiff will therefore be deemed “inadequate” under Rule 23. That concern is purely hypothetical, and on the record here, speculative. It is not based in any facts tethered to this case. There is not a single fact suggesting that: (1) if plaintiff is deemed an inadequate representative due to his rejection of a fulsome offer, another potential plaintiff would or could be proffered; (2) that defendant would then proceed to “pick off” by making a similar offer. Thus, this argument is without factual basis and is purely speculative. Moreover, any future plaintiff would be subject to their own individualized analysis under Rule 23, and that plaintiff might submit an adequate factual record under Rule 23.

Id. at *6 (emphasis added).

Franco’s counsel, predictably, filed a request for interlocutory appeal on August 8, 2018. If the Second Circuit upholds the court’s denial of class certification, it seems likely Allied will move for a third time to dismiss Franco’s individual claim as moot based on its offer of judgment.

While Franco offers a novel way to oppose class certification where the named plaintiff refused an offer of judgment in full satisfaction of his or her claims, the strategy is unavailable in many courts. Multiple district courts have refused to allow Rule 68 offers of judgment to named plaintiffs because of the potential for an improper conflict between the named plaintiff and the putative class. Johnson v. U.S. Bank Nat’l Ass’n, 276 F.R.D. 330, 335 (D. Minn. 2011) (noting that “[e]ach time Plaintiff pushes the litigation forward on behalf of the class, the cost-shifting risk to Plaintiff individually ratchets up, thus disincentivizing Plaintiff from acting in the best interest of the class”); McDowall v. Cogan, 216 F.R.D. 46, 52 (E.D.N.Y. 2003) (“[I]f a defendant wishes to make an offer of judgment prior to class certification in the interests of effecting a reasonable settlement and avoiding the costs and inefficiencies of litigation, it must do so to the putative class and not to the named plaintiff alone.”). District courts may take one of three approaches: (1) strike the offer; (2) find it ineffective when made precertification; or (3) as in Franco, refuse to interfere before class certification because acting otherwise would constitute an advisory opinion. See Gilmore v. USCB Corp., 323 F.R.D. 433, 434–35 (M.D. Ga. 2017) (citing Mavris v. RSI Enters. Inc., 303 F.R.D. 561, 564 (D. Ariz. 2014) (categorizing the three approaches)).

Courts in the third category have noted that Rule 68 offers to class members “ripen[] into an actual conflict only if the named plaintiff is able to establish the prerequisites under Rule 23 for certification as a class action. If this showing cannot be made, then the plaintiff need only consider his own interests in determining whether to accept an offer of judgment.” Combe v. Goodman Frost, PLLC, 217 F. Supp. 3d 986, 988–89 (E.D. Mich. 2016) (emphasis added) (refusing to “effectively rewrite Rule 68 in a manner that assumes the existence of a conflict that arises only if a class is certified, while at the same time preventing the defendant from invoking a cost-limiting measure that unquestionably should be available, and likely would benefit both parties, in the event that a class is not certified”); Leahy-Fernandez v. Bayview Loan Servicing, LLC, 2016 WL 1047159, at *1 (M.D. Fla. Mar. 16, 2016) (noting that the advisory committee considered making Rule 68 inapplicable to class actions, but it elected not to limit its use to individual actions (citing Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, Preliminary Draft of Proposed Amendments to the Federal Rules of Civil Procedure (Sept. 1984), reprinted in 102 F.R.D. 407, 433 (1985)).

Likewise, a number of courts have found a named plaintiff’s refusal to accept an offer of judgment that did not provide for class relief actually demonstrated adequacy. Macy v. GC Servs. Ltd. P’ship, 318 F.R.D. 335, 340 (W.D. Ky. 2017), aff’d, 897 F.3d 747 (6th Cir. 2018) (finding the named plaintiffs’ act of rejecting offers of judgment that included no class relief “protected class members’ interests”); Wicke v. L&C Insulation, Inc., 2014 WL 2957434, at *2 (W.D. Wis. July 1, 2014) (noting that if the named plaintiff had accepted an offer of settlement, his adequacy would be called into question); see also Liles v. Am. Corrective Counseling Servs., Inc., 231 F.R.D. 565, 574 (S.D. Iowa 2005) (plaintiff’s implicit rejection of defendants’ offer of judgment demonstrated her “commitment to the litigation”).

Finally, even in Franco, it would appear that the denial of class certification lies at the feet of plaintiff’s counsel, not the plaintiff. In response to Allied’s arguments, it appears that Franco’s counsel offered no declaration from Franco himself. It seems likely that had Franco offered a declaration to articulate the bases for his rejection of the offer—or to describe the type of offer he might consider palatable as a class representative—there is a good chance the court would not have denied certification on the grounds cited in the decision.

Whether Franco will lead to the revival of Rule 68 offers of judgment is an open question. After two reversals by the Second Circuit, the chances of further review appear higher than in most other cases. And clever plaintiffs’ lawyers may well be able to avoid results like these by offering testimony from the plaintiff that meets their burden to show typicality and adequacy. One thing is certain, however: You should expect to see similar attempts to use Rule 68 offers of judgment in class certification briefing in the immediate future.

Fred Burnside is a partner with Davis Wright Tremaine in its Washington, Oregon, and California offices. Zana Bugaighis is counsel in the firm’s Washington and California offices.


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