Trial Court Rules Offer of Judgment Before Class Certification Motion Moots Case

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Cross-posted at WLF’s Forbes.com contributor page

Three dentists, a pest control service, and two others received unsolicited faxes for tickets to a Tampa Bay Buccaneers’ home game. . . .

Looking for the punch line? This is not the beginning of a bad joke about a last place football team. It’s a scenario that gave rise to a class-action lawsuit in the U.S. District Court for the Middle District of Florida. The undeservedly overlooked October 24 opinion, which dismissed the case and accepted an unorthodox defense gambit, offers one judge’s candid thoughts on how the class-action mechanism can be abused.

The Telephone Consumer Protection Act, passed in 1991 when fax machines were used for more than collecting dust, imposed a $500 fine per unsolicited fax sent, which rose to $1,500 if plaintiffs could prove “willful or knowing” spamming activity. Not surprisingly, the Act has been popular with class action lawyers. The lawyers plaintiffs in Stein v. Buccaneers Limited Partnership claimed to be suing on behalf of over 100,000 people who received the ticket solicitation via fax.

The plaintiffs filed suit in state court, and Buccaneers Limited Partnership (BLP) removed it to federal court on August 16. Three days later, BLP offered judgment to six of the plaintiffs under Federal Rule of Civil Procedure 68, which constituted complete relief for their alleged injuries. On August 21, BLP moved to dismiss the class action because its offer of judgment removed the plaintiffs’ interest in the case, and thus they no longer had Article III standing to proceed. The following day, the plaintiffs moved for class certification. The sequence of these events critically influenced the court’s reasoning.

On the question of mootness after an offer of judgment, presiding Judge Steven Merryday lacked binding precedent from the U.S. Court of Appeals for the Eleventh Circuit. Two opinions from the Southern District of Florida had previously found class actions moot in similar circumstances. One circuit, the Seventh, had also upheld mootness previously, while four others (the ThirdFifthNinth, and Tenth) had rejected it. Judge Merryday found the Seventh Circuit’s reasoning in Damasco v. Clearwater Corp. most compelling.

The rule the Seventh Circuit advanced in Damasco was that if an offer of judgment is made before the plaintiffs move to certify the class, the offer eliminates the plaintiffs’ interest in the case and it is thus no longer a “case or controversy” under Article III. Before a class certification motion is filed, the named plaintiffs cannot be formally acting on behalf of absent plaintiffs. Once a motion is filed, however, courts uniformly frown upon, as the Stein court put it, the “unseemly tactic of ‘picking off’ class representatives, which is prohibited as predatory.” Plaintiffs can avoid this situation, the Seventh Circuit noted in Damasco, by filing their certification motion with the class action complaint or, if they are not prepared to so move when the suit is filed, they can ask the court to delay its ruling.

In addition to the standing question Stein posed, Judge Merryday felt that:

[A] parallel, prudential question appears: ‘Why should an action continue to consume scarce resources of the United States merely to permit a plaintiff to pursue a remedy that is available immediately, unconditionally, and without further cost to anyone.’

If the purpose of litigation is to make an allegedly injured person whole, and that person is offered to be made whole but still wants to sue, the judge asked, what’s really going on here?

What’s going on, he wrote, “is plainly seen by anyone who looks”: 100,000 plaintiffs (“whose sole injury is receipt of a facsimile”) times $500 or $1,500 equals $50 million or $150 million. “And in either instance,” Judge Merryday continued, “the attorney’s fee (payable from the “common fund”) undoubtedly will soar astronomically.” Those lawyers’ hopes to parlay such a large potential damage award into a quick but still lucrative settlement would thud spectacularly if their class representatives accept BLP’s offer.

But that should not factor into a judge’s decision on the standing issue. As Judge Merryday put it:

The prospect of lawyers losing an opportunity to parlay a party’s right to an exiguous statutory fine into a chance to recover an enormous fee is not a consideration worth considering.

Will Stein prevail on appeal?  Some Eleventh Circuit judges may lean towards conforming with other circuits despite the flaws in those opinions, but Judge Merryday certainly appears to have the better of the argument here.

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