Offer of judgment does not derail class action, Third Circuit holds.

Defendants cannot use an offer of judgment to "pick off" plaintiffs in an effort to stop a proposed class action, the Third Circuit has ruled. Although an offer of maximum relief under Federal Rule of Civil Procedure 68 may render the lead plaintiff's personal claim moot, the action can continue because the offer includes no relief for the rest of the putative class. (Weiss v. Regal Collections, No. 03-4033, 2004 WL 2175011 (3d Cir. Sept. 29, 2004).)

"This has significant ramifications for class action litigation," said William Pinilis of Morristown, New Jersey, who represents the plaintiff. "If the Third Circuit did not reverse the district court, the defendant would be able to--in lieu of filing an answer and before anything happens--offer the plaintiff this nominal amount and thereby brush away the claim."

In October 2000, Richard Weiss received a collection letter from Regal Collections over a debt he allegedly owed to Citibank. He filed a federal class action complaint against Regal in February 2001, claiming statements in the letter violated the Fair Debt Collections Practices Act (FDCPA). In March, he filed an amended complaint adding Lancer Investments as a codefendant. The next month, before Weiss moved to certify the class, the defendants offered him $1,000 plus attorney fees and expenses--the maximum relief available under the act. He declined the offer.

The district court dismissed the class action complaint, holding that because the defendants had offered complete relief, Weiss had no personal interest in the claim. On appeal, Weiss argued that the Rule 68 offer was not complete relief because his complaint sought recovery for a proposed nationwide class.

The Third Circuit looked to the U.S. Supreme Court and other circuits for guidance on balancing Rule 68 and Rule 23, which governs class actions. The Supreme Court has held that once a class action has been certified, the class has a separate legal status, and mooting the lead plaintiff's claim does not moot the entire class. (Sosna v. Iowa, 419 U.S. 393 (1975).) The Court has also allowed a plaintiff whose personal claims had been mooted to appeal a denial of class certification. (U.S. Parole Comm 'n v. Geraghty, 445 U.S. 388 (1980).) And in Deposit Guaranty National Bank v. Roper, the Court expressed its concern that defendants might use Rule 68 to derail class actions. (445 U.S. 326 (1980).)

The Weiss court found this concern compelling: "As in Roper, allowing the defendants here to 'pick off' a representative plaintiff with an offer of judgment less than two months after the complaint is filed may undercut the viability of the class action procedure," wrote Chief Judge Anthony Scirica. Moreover, the practice "contravenes one of the primary purposes of class actions--the aggregation of numerous similar (especially small) claims in a single action."

The Third Circuit noted that the Seventh and Fifth circuits had also declined to extend mootness of a personal claim to an entire class while a class certification motion was pending.

The unique point in Weiss was that when the defendants made the judgment offer, Weiss had not yet filed for class certification. Despite this, the Third Circuit applied the same principles: "Absent undue delay in filing a motion for class certification.... the appropriate course is to relate the certification motion back to the filing of the class complaint." The court concluded that Weiss should be allowed to file a certification motion to continue the class.

Pinilis said it is fairly common for defendants to try this strategy in FDCPA cases, and some consumer cases too. "It was really important that the defendants not be able to do this," he said, because if the tactic were allowed, "they would have been able to sidestep the whole class action process."