THE SECOND CIRCUIT’S COMING STORM
OVER RULE 68 OFFERS OF JUDGMENT
By
Prof. Anthony Michael Sabino
Sabino & Sabino, P.C.; Professor of Law, St. John’s University Tobin College of Business
(both New York City)
And
Michael A. Sabino, Esq.
Litigation Associate, Ford Marrin Esposito Witmeyer & Gleser, L.L.P., New York City
The views expressed herein are solely the authors’ alone, and do not reflect the view of any of their affiliations
Rule 68 is one of the more innocuous provisions of the Federal Rules of Civil Procedure. It permits a defendant, prior to trial, to make an offer to have a judgment entered against it, generally in a sum the plaintiff finds acceptable. Its intended benefit is to permit both sides to a controversy to avoid the risks of trial, yet conclude the litigation on terms acceptable to both.
Yet notwithstanding its goal of amity, today Rule 68 is the eye of a storm brewing between at least two directly conflicting decisions, one from the Southern District and one from the Eastern District (not to mention internal strife within the former vicinage). Indeed, the Eastern District decision is already on appeal to the parent tribunal, and, as such, it is a foregone conclusion that the Second Circuit will have to make a decisive ruling, and soon, to bring the internecine conflict to an end.
The purpose of this writing is to concisely analyze the pending controversy, as so well exemplified by these two conflicting holdings. But to do that properly, we first need to review the relevant Rule itself.
Rule 68 is quite straightforward. A defending party, at any time more than fourteen days before the commencement of trial, may serve the opposition party with an offer permitting the entry of judgment against that defendant. The offer must be made upon specific terms, and allow for the payment of court costs accrued to date. Fed. R. Civ. P. 68(a). The plaintiff may then accept the proposal within the next fourteen days. The clerk must then enter judgment. Id. (emphasis supplied). If the offer is unaccepted, then it is deemed withdrawn, but the offer of judgment can be renewed or a new one proffered. Id. at 68(b).
But it is not Rule 68 by itself that is in controversy today. Rather, it is its interaction with Rule 23, the class action proviso of the Federal Rules. In this limited space, we mention only the general notion that Rule 23 is dispositive for the bringing of class actions in the federal courts. See Wal-Mart, Inc. v. Dukes, ___ U.S. ____ , 131 S. Ct. 2541 (2011). The collision amongst the Second Circuit’s trial courts has arisen where defendants have sought to employ Rule 68 within the context of a Rule 23 class action.
First is Jones-Bartley v. McCabe, Weisberg & Conway, P.C., ____ F.Supp.3d ______, 2014 WL 5795564 (S.D.N.Y. 2014), a Southern District opinion rendered in a Fair Debt Collections Practice action (the “FDCPA”). The plaintiff brought this action on behalf of a putative class of persons allegedly harmed by the defendant’s FDCPA violations. Prior to class certification, the defendant filed a formal offer of judgment pursuant to Rule 68, and then asserted that the Rule 68 offer made the case nonjusticiable because it afforded the putative class representative more relief than she was entitled to. Jones-Bartley, supra, WL at43-6.
Jones-Bartley highlighted the horns of the dilemma by expositing two of the Second Circuit’s more prominent decisions on the interaction of Rules 68 and 23. In Doyle v. Midland Credit Management, 722 F.3d 78 (2d Cir. 2013), another FDCPA case, the tribunal readily agreed with the defendant that the latter’s offer of judgment was sufficiently conclusive to provide the plaintiff with all the relief he was entitled to, thereby ending both the controversy and the plaintiff’s standing to represent a putative class. Doyle, supra, 722 F.3d at 81, cited by Jones-Bartley, supra, WL at 9. Doyle had to be considered in contradistinction with Cabala v. Crowley, 736 F.3d 226 (2d Cir. 2013), which found the Rule 68 offer did not render the matter nonjusticiable, for reason that a sincere dispute remained over the exact nature and form of the relief to be granted. Cabala, supra, 736 F.3d at 228–29, cited by Jones-Bartley, supra, WL at 9-10.
Jones-Bartley thus concluded that an offer must be one for judgment, not merely to settle. Next, the Rule 68 offer must extinguish all possible individual claims of the plaintiff. If not, the case is still “live.” Jones-Bartley, supra, WL at 10. Jones-Bartley, finding it “unclear whether [the d]efendant still consents to entry of a default judgment in its favor,” that the defendant had never renewed its Rule 68 offer, “and no part of the record…indicates that [the d]efendant’s offer remains viable,” ruled there was still a need for adjudication. Id. at 13-14. Compare Nicholson v. Allied Interstate, LLC, ___ F.Supp.3d ___, ___, 2015 WL 1029250 at 7 (E.D.N.Y. March 10, 2015) (Bianco, J.) (where “defendant has not submitted to a judgment in any form, and the Rule 68 offer has expired,” a live and justiciable controversy still exists). A troubling aspect of Jones-Bartley is the seeming willingness of that Southern District court to make Rule 68 submissive to Rule 23. Id. at 13, et seq.
The opposing side of the internecine struggle comes from an Eastern District decision, now on appeal, entitled Lary v. Rexall Sundown, Inc., ____ F.Supp.3d ____, 2015 WL 590301 (E.D.N.Y. February 10, 2015) (notice of appeal filed). Lary was a class action brought pursuant to the Telephone Consumer Protection Act of 1991, the “TCPA,” and commonly known as the “junk fax” law. Id. at 3-4. Lary was brought as a putative class action, pursuant to Rule 23, and sought statutory damages under the TCPA. Id. at 4. After one of the defendants served its offer of judgment pursuant to Rule 68, the plaintiff sought to have the putative class certified. Id. at 4.
District Judge Feuerstein commenced with the constitutional underpinnings for her ultimate decision, carefully noting the judicial power of the federal courts is delimited to adjudicating live cases and controversies. Id. at 4, citing Genesis Healthcare Corp. v. Symczky, ___ U.S. ___, ____, 133 S. Ct. 1523, 1528 (2013). Lacking a live controversy, jurisdiction ends. Lary, id. at 5 (quotations and citations omitted). Against this backdrop, the court turned to address the proper functioning of Rule 68, and how it might end a pending case as nonjusticiable.
First, Judge Feuerstein acknowledged the Supreme Court had partially addressed the notion of “picking off” a plaintiff, i.e., a defendant making an offer of judgment prior to class certification, and thus effectively terminating the putative class representative’s standing before the case can even begin. Id., citing Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 329 (1980). Of greater importance, Lary then took due cognizance of the high Court’s subsequent opinion in Genesis HealthCare, supra, where, in a mixed holding, the Justices nevertheless terminated a class action because the Rule 68 offer terminated the putative class representative’s justiciable interest in the controversy. Lary, supra at 6, citing Genesis HealthCare, supra, 133 S. Ct. at 1532. After a lengthy comprehensive analysis of the law of the Second Circuit in this regard, Lary, supra, at 6-12, District Judge Feuerstein presented her own legal rationale.
“I]t is well settled that Rule 68 applies to class actions.” Id. at 12. Nothing in the text of Rule 68 forbids that. Indeed, in 1984 the Advisory Committee on the Federal Rules had proposed a specific change to Rule 68 that would have rendered it inapplicable to class actions or derivative lawsuits, but Congress flatly rejected the idea. Id. at 12. See also 28 U.S.C. § 2074 (describing the process of making the Federal Rules).
Lary declared that the offer of judgment device is intended to insulate willing defendants, and bring litigation to an end. “[T]here appears no indication that protection should be denied defendants in class actions.” Lary, supra, at 12-13 (quotations and citations omitted). Thus, a Rule 68 offer may be made up until the time a court grants or denies a Rule 23 motion. Id. at 13.
The Lary court reminds that, even if the class action is dismissed as nonjusticiable, other injured parties are still at liberty to bring individual claims. Id. at 13 (quotation and citation omitted). This led inexorably to Judge Feuerstein’s powerful declaration that concerns about “picking off” putative class representatives had no application in a “junk fax” case and similar claims for statutory damages, “because members of the proposed class may file individual lawsuits to recover their damages.” Id. at 13. This retained ability to sue individually is “particularly persuasive where, as here, there is no interest in shifting a portion of attorney’s fees and costs among a successful class of litigants.” Id.
The Lary court declared that Rule 68 must be made available to all defendants, including those in Rule 23 cases, unless and until “Congress provides legislation” that unequivocally denies Rule 68 relief to class action defendants. Thus, Lary held the offer of judgment accorded the putative class representative all the individual relief he could ever be entitled to, and ended all controversy. Without a live case, the putative class action was dismissed.
It is also imperative to note that Lary is not alone in its rejection of the Jones-Bartley point of view, nor is this merely an internecine conflict amongst the federal Districts bordering the East River. A Southern District decision, Franco v. Allied Interstate LLC, ____ F.Supp.3d ___ , 2014 WL 1329168 (S.D.N.Y. 2014), which actually predates by months both of the abovementioned cases, explicitly set forth the same rationale later adopted by Judge Feuerstein in Lary. In a remarkable precursor to her brethren in the Eastern District, Southern District Judge Forrest held, inter alia, that a Rule 68 offer of judgment effectively terminated yet another FDCPA class action, for reason that it afforded the putative class representative full and final relief. Key to Franco’s ultimate ruling was that statutory damage cases offer particular opportunities for the remaining members of the supposed class to vindicate their rights individually. Therefore, rendering the named plaintiff’s claims nonjusticiable via a Rule 68 offer harms no one. Franco, supra, WL at 3-4.
Lary is now on appeal before the Second Circuit. We think it clear how the Second Circuit shall rule. Lary is clearly the better reasoned view because it focuses upon the explicit text of Rule 68, which it found is undeniably available in all federal litigation. Equally true is that the plain text of Rule 23 does not prohibit the application of Rule 68 to class actions. The Lary holding is elegant in its simplicity because it recognizes that irrefutable truth. Judge Feuerstein makes the salient point that Congress explicitly rejected amending Rule 68 to oust it from class actions. To find otherwise would be to rewrite the Federal Rules, something only the Supreme Court and Congress can do to either or both Rule 68 and Rule 23.
Next, Lary exhibits great pragmatism in reminding us that the employment of Rule 68 in Rule 23 actions does not foreclose the legal rights of other members of a putative class. This is a particularly cogent point with regard to the manifold federal laws (the FDCPA, the TCPA, to name just a few) that not only prescribe statutory damages, but simultaneously ease the relative burden of small litigants, especially consumers, to successfully prosecute their individual claims under those very laws.
In closing, we contend as follows. Rule 68 is a rather prosaic rule, but its significance is greatly magnified when it is interposed in complex class litigation. The first important job for the Second Circuit is to recognize the clear text and intentions of both Rules 68 and 23, and resolve this unproductive controversy over their proper interaction. It is imperative for the tribunal to command the lower courts to apply both Rules according to their plain text, and leave amending same to Congress. Such a decisive ruling by the Second Circuit will eradicate internecine conflict between (and even within) competing district courts, and likewise assure consistency and reliability amongst the trial courts of the Second Circuit.
END
FINAL Rule 68 Article for NYLJ v.1