Never Surrender – The Ninth Circuit’s Follow-Up to the Campbell-Ewald Anti-Pickoff Rule

** Insurer Fails to Convince Circuit Court that Escrow Payment Moots TCPA Case **                                                                                                                                                                                                                                                                                

Definition of the word escrow from a law text book

As we’ve posted about recently, in February 2016 the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016) resolved a circuit split over whether a defendant can “pick off” the lead plaintiff in a putative class action lawsuit via a Rule 68 offer of judgment that affords the plaintiff with complete relief prior to class certification.  The majority, relying on “first-year law student” contract law, held that if the plaintiff doesn’t accept the offer of judgment – “however good the terms” (i.e., total surrender) — the defendant’s offer is a “legal nullity” and, therefore, the case or controversy remains.  In reaching its decision, the Court felt compelled to distinguish “a trio of 19th-century railroad tax cases” (as if the fact that they were 19th-century railroad tax cases wasn’t enough) where the defendants actually paid the amounts alleged by the plaintiffs to be owed.  The Court did so thusly: “In all three cases, the railroad’s payments had fully satisfied the asserted tax claims, and so extinguished them.” 136 S. Ct. at 671.  This distinction, however, opened a small can of worms.  What if the defendant deposited the full amount of the plaintiff’s claim into an account payable to the plaintiff, and the court then entered judgment in that amount?  While the majority raised this hypothetical, they declined to answer it.

Acting with lightning speed, Allstate Insurance Company — embroiled in a putative TCPA class action in the Northern District of California — deposited $20,000 in a bank escrow account “pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to [the lead plaintiff], requiring Allstate to stop sending non-emergency telephone calls and short message service messages to [the plaintiff] in the future and dismissing this action as moot.”  Chen v. Allstate Ins. Co., No. 13-16816, 2016 WL 1425869, at *1 (9th Cir. Apr. 12, 2016).  Unfortunately for Allstate, the matter was already on appeal to the Ninth Circuit on the Rule 68 offer of judgment issue subsequently decided by the Supreme Court, so the district court wasn’t given first crack at deciding whether to enter Allstate’s proposed judgment.

On April 12, 2016 – before the ink was dry on the Campbell-Ewald opinion – the Ninth Circuit slammed shut the mootness door the Supreme Court left open.  The court first observed that Allstate had not met the Supreme Court’s requirement that the plaintiff actually receive the complete relief offered – Allstate’s money was in escrow and it could get it back.  2016 WL 1425869, at *7.  Allstate rejoined that all the court of appeals needed to do was order the district court to enter its proposed order and the money would be out of its hands for all eternity.  The Ninth Circuit said no.  If the plaintiff doesn’t want complete relief, he shouldn’t be forced to accept it – as long as he’s not bullheaded or crazy.  And “[a] named plaintiff exhibits neither obstinacy nor madness by declining an offer of judgment on individual claims in order to pursue relief on behalf of members of a class.”  2016 WL 1425869, at *9.  While the Ninth Circuit distinguished Allstate’s relationship to its money from the situation where a defendant deposited the money in the court registry and could not reclaim it, the distinction is without a difference because Federal Rule of Civil Procedure 67 requires notice to the plaintiff and a court order permitting the deposit.

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