Seventh Circuit: Rule 67 is Not Viable Path to Pick Off Class Action Plaintiff

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by: Colin E. Flora

     In 2013, Justice Kagan wrote a scathing dissent in Genesis HealthCare Corp. v. Symczyk, in which she argued that an unaccepted settlement offer could not moot a plaintiff’s case. In Chapman v. First Index, Inc., the Seventh Circuit took heed of that dissent and joined the growing number of circuits to agree with Justice Kagan’s view, even though it meant reversing Seventh Circuit precedent. In January 2016, the Supreme Court had opportunity to address the issue again in Campbell-Ewald Co. v. Gomez, in which the Court adopted Justice Kagan’s view in Genesis HealthCare.

     Campbell-Ewald, did not, however close the book on whether a defendant can ever unilaterally buy a plaintiff off. Both in Campbell-Ewald and Genesis HealthCare, the defendants attempted to pick the plaintiffs off with a Rule 68 offer of judgment. The dissent in Campbell-Ewald by Chief Justice Roberts speculated that “the majority’s analysis may have come out differently if Campbell had deposited the offered funds with the District Court. This Court leaves that question for another day[.]” The majority specifically declined to determine that question, reserving it "for a case in which it is not hypothetical." Although that other day has not yet come for the Supreme Court, it has come for the Seventh Circuit, resulting in the decision this past week in Fulton Dental, LLC v. Bisco, Inc.

     The case was a putative class action for violations of the Telephone Consumer Protection Act (TCPA). Looking to dodge class certification, the defendant looked to the Chief Justice’s dissent and opted to deposit full payment with the court pursuant to Rule 67. The defendant argued, and the district judge agreed, that by doing so, the plaintiff’s claim was rendered moot. And, because the claim had been rendered moot prior to the plaintiff filing a motion to certify a class, the entire case was dismissed as moot.

     The court began its decision by first acknowledging a flaw in the defendant’s attempt. The plaintiff, along with monetary relief, had sought an injunction.

[Defendant] moved for leave to deposit $3,600 with the district court under Rule 67. This sum represented what [Defendant] regarded as the maximum possible damages [Plaintiff] could receive, plus $595 for fees and costs. In light of that fact, along with its renewed acquiescence to the injunction, [Defendant] argued that the deposit had made [Plaintiff]’s claim moot, and that the district court should thus enter judgment in [Plaintiff]’s favor on the moot claims for $3,600 plus the injunction. [Plaintiff] opposed the latter motion, on the ground that this was not a proper use of Rule 67 and that the simple deposit of funds could not moot the case.

     Even accepting the Chief Justice’s dissent, the problem is that the act of depositing the money under Rule 67 and then rolling over to allow the court to enter an order imposing an injunction necessarily could not moot the case, because the action still required the court to make a merits decision, which it cannot do if the action has rendered the case moot:

In essence, [Defendant] is arguing that it has forced a settlement that moots the case, along the same lines as the Supreme Court faced in U.S. Bancorp Mortg. Co. v. Bonner Mall P'ship. There the Court held that the power to order vacatur of the lower court's decision remains, even if the case has become moot. In the normal case, Bonner Mall continued, “mootness by reason of settlement does not justify vacatur of a judgment under review.” But the Court did not hold that the district court could take steps on the merits, as opposed to steps designed to wrap up a case such as an award of costs or a decision on vacatur. To the contrary, it said “[o]f course, no statute could authorize a federal court to decide the merits of a legal question not posed in an Article III case or controversy.”

A decision that a certain amount of damages should be paid and that an injunction should be entered is quintessentially a ruling on the merits of a case. The logic of [Defendant]’s position is that all it had to do was deposit the estimated damages with the court in order to moot the case. It overlooks the fact that once the case is moot, the court lacks power to enter any judgment on the merits. Logically, money paid into the court’s registry would either stay there for five years, after which it would escheat to the United States, see 28 U.S.C. § 2042, or perhaps [Defendant] could ask the court to return it. Neither of those outcomes would be very satisfactory to [Plaintiff], nor to [Defendant] if escheat were the result.

     But the court went on to address Rule 67’s structure in greater depth. In so doing, it appears the court also addressed the circumstances even if no further finding on the merits were necessary. Before doing so, the court recognized that by merely leaving the issue open, the Supreme Court had not provided support through silence:

[Defendant] argues that by following the Supreme Court’s roadmap (as it sees it), it mooted [Plaintiff]’s claim and at the same time destroyed [Plaintiff]’s ability to serve as a class representative. In so arguing, it has assumed that by reserving comment on this situation, the Supreme Court meant to say that a proposed settlement structured this way could be forced on a plaintiff.

That is a risky assumption; it is normally best to take the Court at its word and recognize that it reserves issues when they are not necessary to the decision in the case before it and will benefit from further attention.

     Turning to Rule 67, the court began by looking at the text of the Rule.

(a) Depositing Property. If any part of the relief sought is a money judgment or the disposition of a sum of money or some other deliverable thing, a party—on notice to every other party and by leave of court—may deposit with the court all or part of the money or thing, whether or not that party claims any of it. The depositing party must deliver to the clerk a copy of the order permitting deposit.

(b) Investment and Withdrawing Funds. Money paid into court under this rule must be deposited and withdrawn in accordance with 28 U.S.C. §§ 2041 and 2042 and any like statute. The money must be deposited in an interest-bearing account or invested in a court-approved, interest-bearing instrument.

The court observed, “On its face, [Rule 67] is just a procedural mechanism that allows a party to use the court as an escrow agent.”

     The statutes–Sections 2041 and 2042–do not permit a party such as the Plaintiff to unilaterally withdraw that money:

Sections 2041 and 2042 do not give any party an unrestricted right to remove money from the court’s registry. Section 2041permits “the delivery of [deposited] money to the rightful owners upon security, according to agreement of parties, under the direction of the court.” Section 2042 begins with the unequivocal statement that “[n]o money deposited under section 2041 of this title shall be withdrawn except by order of court.”

     Looking to guidance from the First Circuit, the court found “[t]he core purpose of Rule 67 is to relieve a party who holds a contested fund from responsibility for disbursement of that fund among those claiming some entitlement thereto.” But, the court continued, “[w]hat Rule 67 is not is a vehicle for determining ownership; that is what the underlying litigation is for.” In that light, the court found “no principled distinction between attempting to force a settlement on an unwilling party through Rule 68” and Rule 67.

     The court also went on to discuss the interesting concurrence of Justice Thomas from Campbell-Ewald. Justice Thomas, as he is apt to do, looked to the common law for guidance. Therein, he found the common law tradition of tenders to be an adequate source for deciding Campbell-Ewald–that is why it was a concurrence and not a dissent. The Seventh Circuit found that even the common law of tenders would not have changed the result:

[Justice Thomas] would have relied on the common law of tenders, under which “a mere offer of the sum owed is insufficient to eliminate a court's jurisdiction to decide the case to which the offer related.” At common law, he said “a plaintiff was entitled to deny that the tender was sufficient to satisfy his demand and accordingly go on to trial.” That is just what [Plaintiff] is trying to do: it is saying that its suit is about more than the statutory damages to which it believes it is entitled; it is also about the additional reward that it hopes to earn by serving as the lead plaintiff for a class action. Nothing forces it to accept [Defendant]’s valuation of the latter part of the case.

     Most importantly, the Seventh Circuit concluded that the coffers of the district court–i.e. the court’s registry–is not “an account payable to the plaintiff.” That language is derived from the majority decision in Campbell-Ewald, which stated, “We need not, and do not, now decide whether the result would be different if 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.” But the district court’s registry, the Seventh Circuit found, “is nothing like a bank account in the plaintiff’s name––that is, an account in which the plaintiff has a right at any time to withdraw funds.”

     What is clear from Fulton Dental is that the Seventh Circuit has foreclosed Rule 67 as an avenue for picking off a plaintiff. Whether any other avenues remain, is still an open question. The recognition that the Plaintiff was entitled to deny the would-be tender as incomplete is also a very important, though generally overlooked point. It is a point that I have briefed with success and commend to you Diane Myers’s comment Mooting the Fair Labor Standards Act: How Offers of Judgment are Eliminating the FLSA Collective Action as a valuable source for understanding the complexities of that issue.

     Join us again next time for further discussion of developments in the law.

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*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.