United States: Rule 23 Study Agenda – FRCP 68 And Mootness

Last Updated: February 10 2015
Article by Andrew J. Trask

Courts look down on offers of judgment in class actions as a procedural trick.  Used properly, however, they are an effective early screen for cases that can't be certified. 

One of the most heated debates in the last five years of class action practice has been the proper use of Rule 68's offer of judgment.  Defendants like the offer of judgment because it can either moot a case early in (thus shutting down lawsuits that could cost hundreds of thousands of dollars to defeat in conventional litigation), and because the cost-shifting procedures place some of the financial risk of the case back on the plaintiff.  Plaintiffs' counsel dislike the offer because it complicates the already-difficult task of finding an adequate named plaintiff, and because it shifts some of the financial risk back on them.

Many courts tend to view the offer of judgment as a cheap procedural trick.  Indeed, since the last time I surveyed the field, the Fifth and Eleventh Circuits have both held that offers of judgment do not moot class actions.

As a result, the Rule 23 Subcommittee for the Advisory Committee on Federal Rules has added the offer of judgment to its agenda.  ( Judge Dow told the LCJ it's because "the Damasco  problem has spread.")  As the Subcommittee describes the issue in its report of its October Meeting:

Rule 68 seems on its face to be about something quite different — it is not specifically designed to provide a vehicle to make cases moot, but instead to change the otherwise-applicable rule on cost shifting if an offer is not accepted and the plaintiff wins but does not do better at trial.  A Rule 68 offer may provide stronger support for a mootness argument, however, because a judgment is what plaintiffs seek, and a judgment (on specified terms) is what Rule 68 calls for the defendant to offer.  And the rule also contains specifics on entry of judgment if the offer is accepted that may provide further support for mootness arguments.

So one approach to this problem might be to amend Rule 68 to say that it may not be used in actions brought under Rule 23.

(Emphasis added.)  This proposal is misguided.  The Rule 23 subcommittee itself concedes several reasons it might not work.  First, the Subcommittee points out,  the defendant could still make a non-Rule 68 offer that resulted in the same argument over whether the case was moot.

Second, doctrinally, the majority view in appellate courts runs counter to the Supreme Court's recent holdings that stress that a class action is an individual lawsuit until it is certified.  The Rule 23 subcommittee has recognized this reality as well:

Restoring the pre-2003 requirement for court approval of dismissal might also restore the pre-2003 notion that a proposed class action was to be treated as such until the court rejected class certification.  Courts holding that a Rule 68 offer can moot a class action often say also that plaintiffs can prevent that from happening by moving promptly for class certification. Given the need for fuller presentations to support certification, however, that may be difficult.  And if Rule 23 now means that a case is not a class action until a court certifies a class, it is not clear why filing a motion to certify is critical for mootness purposes.

A third problem with this proposal that the Subcommittee does not address is that some defendants use the offer of judgment for its cost-shifting provision. There is no compelling policy reason to remove this tool in class actions, but not other cases where the plaintiff may wildly overestimate her chances of success.

But it is worth asking what the real problem is with the offer of judgment.  Because, viewed from the perspective of making sure good class actions get brought while bad ones do not, the offer of judgment looks like an essential tool.

The logic runs like this: a "good" class action is not necessarily one that will win on the merits of the claim, but one where victory or defeat for the named plaintiff will properly apply to the entire class.  In other words, good class actions result from issues that actually affect large numbers of people in identical ways.

Under these circumstances, a strong class action will be derailed by losing a single named plaintiff, because plaintiffs' counsel will either (1) have recruited more than named plaintiff to bring the case, or (2) it will be easy to identify others who have suffered the same wrong.

Moreover, the defendant will recognize this is the case.  In my experience, defendants don't entertain offers of judgment in cases that have a good chance at certification, because they are well aware what they will face instead is a Chinese water torture of similar filings.  In those cases, offers of judgment simply embolden further filings.  Better to either beat the case completely on a dispositive motion, or settle it on favorable terms.

In addition, the cost-shifting mechanism offered by Rule 68 is an excellent deterrent to "bad" class actions, and often serves to focus discovery on essential issues.  (Plaintiffs tend to be more careful about burdensome discovery requests when they believe there is a danger they might actually have to pay their costs.)

Ultimately, there are two larger philosophical debates that underlie the controversy over the offer of judgment in class actions, both of which counsel for its continued application to Rule 23.  One, as the Subcommittee has recognized, is whether the class action is an individual case before certification, or some special litigation entity.  (As discussed above, that debate has largely been resolved by the Supreme Court.)

But the other philosophical debate that informs this issue is over who the law recognizes as controlling the class action.  If it's the named plaintiff (as the current legal fiction holds), then it should be acceptable to moot a class action by making an offer to that plaintiff.  If the plaintiff had identified an actual classwide issue, then someone else will file the same case.  If—as many courts acknowledge in passing—counsel is really in charge, then allowing cost-limiting is essential.  Among other benefits, it offers an elegant solution to the agency problem academics worry about so much.  It forces counsel to think through the merits of their case at an early stage.  (If the case has a strong chance of certification, the risk of paying exorbitant costs is low.)  Fight this logic, and you are conceding that even bad class actions have blackmail potential because the threat of litigation cost will drive settlement of claims when the merits don't warrant it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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