A Proper Pick-off Play? Conditions on Payment May Make The Difference.

** District Court Judge Construes Campbell-Ewald Giving Daylight to Defendants Wanting to Moot Class Claims  **                                                                                                                                                                                                                    

We’ve recently blogged about the door left open by the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016) for mooting a putative class representative’s claim by the defendant depositing the full amount into an account payable to the plaintiff and the court entering judgment in that amount.  In Chen v. Allstate Ins. Co., No. 13-16816, 2016 WL 1425869, at *1 (9th Cir. Apr. 12, 2016), the Ninth Circuit slammed that door shut, saying, in essence, that a trial court should not enter judgment if the class representative rejects a Rule 68 offer of judgment  in order to pursue relief on behalf of members of a class even if the offer of judgment affords the individual plaintiff complete relief.  2016 WL 1425869, at *9As we noted in a recent post about Chen, while the Ninth Circuit distinguished Allstate’s “reversionary interest” in its money from the situation where a defendant deposited the money into a court registry and could not reclaim it, that distinction is without a difference because Federal Rule of Civil Procedure 67 requires notice to the plaintiff and a court order permitting the deposit giving the plaintiff the right to oppose it on the ground that she does not want the money because she (ahem . . . her lawyers) would rather pursue class relief.

This rather tortured analysis about who owns the money after it has left the defendant’s hands but has not been accepted by the plaintiff stems from three 19th century tax cases where the defendants actually paid the amounts allegedly owed to the State of California into bank accounts in accordance with a California statute that required the State to accept payments in full.  Under those circumstances, “[T]he railroad’s payments had fully satisfied the asserted tax claims, and so extinguished them.” Campbell-Ewald, 136 S. Ct. at 671. Thus, if the money changes hands, the case is over.  This motiff was picked up by the Ninth Circuit in Chen, in which the Court discussed the common law doctrine of tender upon which Rule 68 is based.  The Ninth Circuit noted that, under the tender doctrine, “[T]here may have been occasions when the deposit of money in court could be ‘treated as the equivalent of an actual payment to and acceptance by the plaintiff.’” (Citing, Robert G. Bone, “To Encourage Settlement”:  Rule 68, Offers of Judgment, and the History of the Federal Rules of Civil Procedure, 102 Nw. U.L. Rev. 1561, 1585 (2008)).  Chen, 2016 WL 1425869, at *8.  However, the Ninth Circuit concluded that for the deposit of funds to be treated as payment and acceptance, “the defendant [must] unconditionally relinquish[ ] its entire interest in the deposited funds” — in other words, only when “‘the defendant bids his money an eternal farewell.’” (Quoting H. Gerald Chapin, Code Practice in New York 164 (1918)).  Id.  But it seems a Sisyphean  task for a defendant to unconditionally relinquish its funds when the plaintiff won’t take them.

Just last week, however, the United States District Court for the District of Massachusetts found a way for a defendant to “bid [its] money an eternal farewell” in order to satisfy the demands of a putative class representative even when the class representative declines the payment.  In Demmler v. ACH Food Companies, Inc., No. 15-13556-LTS (D. Mass. June 9, 2016) (Dkt. No. 48), the defendant manufactured Weber barbecue sauces labeled “All Natural” in large lettering on the bottles.  Tragically, these delicious condiments contained caramel coloring.  And as sure as the sun does rise, ACH received a Demand for Relief pursuant to Massachusetts General Law, Chapter 93A §9(3) from the plaintiff’s attorney purporting to represent a consumer class.  ACH responded with a $75 check (statutory damages, trebled) and a letter that included the statement, in the Court’s words, “[T]hat ‘ACH is willing to offer’ a refund, and characterized the check as ‘the extent of [ACH’s] willingness to compromise under the circumstances.’”  Id. at 4.  Importantly, the Court noted that “the letter imposed no conditions or restrictions on the check it enclosed, either in the letter or on the face of the check.”  Id.

The correspondence battle continued between the attorneys, with the plaintiff’s attorney objecting to the tender because it didn’t provide class-wide relief and ACH asserting that the unaccepted $75 payment mooted the case.  Id.  The plaintiff then filed suit.  In a final flourish, defense counsel sent another $75 check — again without condition or restriction — that was, of course, rejected.  It is of some significance that the putative class action did not seek injunctive relief because ACH had stopped labeling its products as “All Natural” eight months prior to receiving the plaintiff’s Demand.  Id. at 5.  The case was thus limited to compensating the putative class and attorney fees.

The barbecue brouhaha came to an abrupt conclusion when the Court granted ACH’s Motion to Dismiss the case as moot.  The Court addressed Campbell-Ewald head on, distinguishing it on the basis that a Rule 68 offer of judgment is a settlement offer while ACH’s twice tender of $75 was a no-strings attached payment.  As the Court found, “This distinction makes all the difference.”  Id. at 6 – 7.  The trio of 19th century tax cases that temporarily vexed the majority in Campbell-Ewald made a brief but important appearance in the Court’s opinion – they were the basis (along with the Supreme Court’s intentionally narrow ruling in Campbell-Ewald) for the Court to hold that “Demmler’s refusal to accept the $75 is immaterial.”    “While ACH did not actually deposit the $75 check in an account payable to Demmler [as did the railroads in the 19th century tax cases] . . . ACH delivered the check to Demmler (or, more precisely, his attorney), entitling him to full possession of the $75.”  Footnote 5 of the Court’s opinion distills Judge Sorokin’s thinking on the issue:  “A defendant might condition, for example, satisfaction on the Plaintiff’s agreement to avoid litigation over whether the claim has become moot.  In such a circumstance, the offer, like a Rule 68 offer, does not render the case moot, because that Plaintiff’s is remedied only if it agrees to the mootness determination.” Id. at 8.

After concluding that ACH’s rejected payment to the plaintiff mooted his individual claim, the Court addressed the question of whether ACH’s payment was a pickoff play that might invoke the legally-questionable “inherently transitory” exception to the general rule divined from Justice Kagan’s dissent in Genesis Healthcarei.e., a claim that is “capable of repetition, yet evading review” may not be mooted by the termination (or, in this case, satisfaction) of the putative class representative’s claim.  Without conceding that the First Circuit ascribed to the inherently transitory exception, the Court interpreted First Circuit precedent to require that — if such an exception exists — it does so only when there is some pattern or practice of defense lawyers (either individually or as a group with respect to a specific class of claims) picking off plaintiffs.  Therefore, while it may be the practice of defense lawyers to pickoff plaintiffs in TCPA cases, “Demmler has offered no evidence that any ch. 93A defendants, let alone ACH specifically, has a pattern of engaging in such conduct.” Id. at 13 – 14.

What are the lessons of Demmler?  First and foremost, that Campbell-Ewald has not resolved the issue of whether paying or offering to pay a plaintiff the full value of her claim deprives her of standing as a class representative.  And second, if you’re going to try it, make the payment unconditional and don’t do it a lot.

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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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