Defendants Cannot Evade Class Actions by Forcing Satisfaction of Individual Claims

By Sean Zaroogian

In Geismann v. ZocDoc, Inc., the Second Circuit extended the Supreme Court’s decision in Campbell-Ewald Co. v. Gomez, No. 14-857 (2016) to protect plaintiffs from defendants who seek to dodge class litigation.  Defendants cannot force plaintiffs to accept money that they deposit into an account with the Court and then claim that this satisfies all of the demands of the proposed class.

The Supreme Court in Campbell-Ewald

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In Campbell-Ewald, the plaintiff filed a nationwide class action alleging violations of the Telephone Consumer Protection Act (“TCPA”).  The plaintiff sought treble statutory damages, costs, attorney’s fees, and an injunction.  Prior to any class certification motion, the defendant filed an offer of judgment pursuant to the Federal Rules of Civil Procedure (“FRCP”) 68, providing for individual treble statutory damages, the plaintiff’s costs, and injunctive relief (without admitting liability).  The offer was not accepted.  Following subsequent litigation, the issue of whether the plaintiff’s claims had been mooted by the offer of judgment ultimately reached the Supreme Court.

In a majority opinion, the Supreme Court found an offer of judgment as to the named plaintiff did not, on its own, moot the plaintiff’s claims.  According to the Court, “[A]n unaccepted settlement offer has no force.”  Once rejected, an offer “creates no lasting right or obligation” and, where the defendant continues to deny liability, “adversity between the parties persists.”  As a result, both parties retain “the same stake in the litigation they had at the outset.” 

The Supreme Court then raised and refrained from deciding the hypothetical situation where “a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”

The Second Circuit in Geismann v. ZocDoc

In Geismann v. ZocDoc, Inc., No. 17-2692 (2d Cir. 2018), the Second Circuit held that a deposit of funds with the district court under FRCP 67 does not, without more, moot a plaintiff’s claims, even if the amount is sufficient to satisfy all of the plaintiff’s individual claims.

In Geismann, the plaintiff brought a class action alleging violations of the TCPA, seeking relief similar to that in Campbell-Ewald.  After the plaintiff filed his complaint and moved for class certification, the defendant offered to fully satisfy the plaintiff’s individual claims, including injunctive relief.  The offer was not accepted. 

Following a set of appeals and the Supreme Court’s Campbell-Ewald decision, the defendant acquiesced to the plaintiff’s demand for injunctive relief and obtained leave of court to deposit funds under FRCP 67 that would satisfy the full amount of the plaintiff’s individual claims.  The defendant then attempted to “perfect the Campbell-Ewald hypothetical” by moving for summary judgment on mootness grounds and asking the court to enter a judgment in favor of the plaintiff.  The motion was granted and the court clerk was directed to send the FRCP 67 funds to the plaintiff.  The plaintiff declined the funds and timely appealed.

On appeal, the Second Circuit vacated the district court’s order, holding that the district court’s determination that the plaintiff’s individual claims were mooted by the defendant’s FRCP 67 deposit was in error.

First, the Second Circuit found no material difference between rejecting an offer of payment under FRCP 68, and the rejection of a tender of payment under FRCP 67.  In either situation, an unaccepted offer does not bind the offeree; the plaintiff remains without relief and his claims remain unsatisfied.

Second, an FRCP 67 deposit of funds does not, on its own, satisfy the plaintiff’s claims.  FRCP 67 is a procedural mechanism allowing a party “to use the court as an escrow agent,” and does not determine who is entitled to the funds.  In other words, an FRCP 67 deposit cannot be considered a deposit into “an account payable to the plaintiff” until after the merits have been decided in favor of the plaintiff.  As such, by first determining the plaintiff’s individual claims were mooted by the FRCP 67 deposit and then granting summary judgment as a result, the district court made the age-old mistake of putting the cart before the horse.  As the Second Circuit explained, the plaintiff was entitled to neither the FRCP 67 funds nor injunctive relief until after the summary judgment motion was decided.  Therefore, the plaintiff’s individual claims could not have been mooted prior to the summary judgment decision.

Third, if the defendant had surrendered to “‘complete relief’ in satisfaction of the plaintiff’s claims,” then the district court could have entered a default judgment against the defendant.  However, the plaintiff brought a class action and, thus, satisfaction of the plaintiff’s individual claims is incapable of providing “complete relief” until after the plaintiff’s motion for class certification has been decided.  As the Second Circuit concluded:

[t]he district court must resolve the pending motion for class certification before entering judgment and declaring an action moot based solely on relief provided to a plaintiff on an individual basis.  If the motion is granted,[] the class may proceed.  A conclusion otherwise would risk placing the defendant in control of a putative class action, effectively allowing the use of tactical procedural maneuvers to thwart class litigation at will.

In sum, defendant’s attempt to take advantage of the hypothetical question left open by the Supreme Court has been thwarted.The matter may eventually go back to the Supreme Court, but, at least for now, the score is:defense tactics – 0; injured consumers – 1. (see our previous blog post).