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2nd Circuit Holds Plaintiff’s Individual Claims Not Rendered Moot By Unaccepted Offer of Judgment

US-CourtOfAppeals-2ndCircuit-SealThe U.S. Court of Appeals for the Second Circuit recently affirmed the denial of a motion to dismiss a putative class action, holding that the named plaintiff’s individual claims were not rendered moot by an unaccepted offer of judgment under Federal Rule of Civil Procedure 68.

This case was decided before the U.S. Supreme Court granted certiorari in Campbell-Ewald Company v. Gomez on May 18, 2015.  Campbell-Ewald should address in part whether a case should be dismissed when the plaintiff receives an offer of complete relief on his claim, and whether this rule should be any different if the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified.

A copy of the opinion is available at:  Link to Opinion

In July 2012, the plaintiff sued a financial services company and a bank on behalf of himself and others similarly situated, seeking damages because he was allegedly charged improper overdraft fees.

Shortly thereafter, the defendants made an offer of judgment under Rule 68 to the plaintiff “on his individual claims” for $10,000 plus interest, reasonable attorney’s fees, costs and any “other damages he seeks on his individual claims.” The offer exceeded the amount the plaintiff could have recovered as damages on his individual claim, but the plaintiff allowed the offer to lapse by not responding within 14 days as required by the rule.

The defendants moved to dismiss on jurisdictional grounds, arguing that the Rule 68 offer mooted the plaintiff’s individual and putative Rule 23 class action claims. The district court disagreed, ruling that although the unaccepted offer mooted plaintiff’s individual claims, the putative class action claims remained viable. The district court dismissed one of the plaintiff’s claims, but allowed others to go forward.

The defendants moved for a certificate of interlocutory appeal under 28 U.S.C. § 1292(b), which permits discretionary appeals of ordinarily non-appealable orders such as the order denying defendants’ motion to dismiss under certain circumstances. The district court granted the motion because the Second Circuit and courts across the country have split on the issue of “whether a pre-certification offer of judgment under Rule 68 moots a putative class action.” In addition, the district court stayed the case pending appeal.

On appeal, the Second Circuit began its analysis by reiterating the black letter rule that in order for a federal district court to have subject matter jurisdiction under Article III, section 2 of the United States Constitution, “the parties must continue to have a personal stake in the outcome of the lawsuit,” and when there remain no “live” issues in dispute, the case is rendered moot.

The Court noted that the federal courts of appeals are divided on the question of what effect, if any, an unaccepted offer of judgment has on the justiciability of a plaintiff’s claims under Article III, section 2’s “case or controversy clause.” The Third, Fourth, Fifth, Seventh, Tenth and Federal Circuits have held that a Rule 68 offer of complete relief to an individual renders the case moot under Article III, while the Ninth and Eleventh Circuits have concluded that an unaccepted offer, by itself, does not moot a case based on the plain language and structure of the rule.

The Second Circuit disagreed with the district court’s blanket assertion that it is settled in the Second Circuit that if the plaintiff is not a class representative, an offer of complete relief would moot his case and remove the court’s subject matter jurisdiction.

Acknowledging that district courts within the Second Circuit have reached opposite conclusions on the same issue and thus no clear rule has emerged to guide trial courts, the Appellate Court found it necessary to clarify that, based on its earlier decision in McCauley v. Trans Union, L.L.C., 402 F. 3d 340 (2d Cir. 2005), the law is settled in the Second Circuit that a rejected offer under Rule 68 cannot, by itself, render a case moot.

In McCauley, the Second Circuit held that where the parties agree that judgment should be entered or where a defendant “unconditionally surrenders … [such that] only the plaintiff’s obstinacy or madness prevents her from accepting total victory,” the district court may in its discretion, enter judgment against the defendant. The Second Circuit further held that the district court should not enter judgment against the plaintiff unless there exists such an agreement of the parties, obstinacy by the plaintiff, or if the offer does not provide complete relief.  Continuing, the Court held that only after judgment is entered do the plaintiff’s individual claims become moot for purposes of Article III.

Applying this standard, the Second Circuit concluded that the plaintiff’s individual claims here were not rendered moot by the unaccepted Rule 68 offer.

Instead, regardless of the putative class action claims, the Second Circuit held that the district court still had Article III subject matter jurisdiction when it ruled on the motion to dismiss because it had not yet entered judgment against the defendants.

Accordingly, the Second Circuit affirmed the district court’s ruling that it still had subject matter jurisdiction over the case, although on the alternative basis that plaintiff’s individual claims were not moot when the district court denied the defendants’ motion to dismiss.

The Court expressly left undecided the question of whether putative class action claims under Federal Rule of Civil Procedure 23 provide an independent basis for subject matter jurisdiction once a plaintiff’s individual claims are mooted.

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Ralph Wutscher's practice focuses primarily on representing consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. He represents the lending and financial services industry as a litigator, and as regulatory compliance counsel. For more information, see