7th Circuit Reverses Course on Article III Standing Where Plaintiff Declines a Rule 68 Offer of Complete Relief

In an August 6, 2015 opinion, the Seventh Circuit ruled that a defendant’s offer of complete relief in a TCPA lawsuit did not render an individual plaintiff’s claims moot. Chapman v. First Index, Inc., Nos. 14-2773, 14-2775, 2015 WL 4652878 (7th Cir. Aug. 6, 2015). In Chapman, the Seventh Circuit expressly “overrule[d]” its prior decisions in Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011), Thorogood v. Sears, Roebuck & Co., 595 F.3d 750 (7th Cir. 2010), and Rand v. Monsanto Co., 926 F.2d 596 (7th Cir. 1990), “to the extent they [held] that a defendant’s offer of full compensation moots the litigation or otherwise ends the Article III case or controversy.”

The issue arose in a lawsuit filed by Arnold Chapman, who claimed to have received two unwanted faxes from defendant First Index. Chapman filed the litigation as a putative TCPA class action but, in March 2014, the Northern District of Illinois rejected Chapman’s first attempt at class certification. Chapman then proposed an altogether different class, and his second attempt, which the district court deemed to be an impermissible attempt to change “the focus of the litigation almost five years into the case,” was also rejected. While Chapman’s first motion for class certification was pending, First Index made an offer of judgment under Rule 68 of $3,002 (slightly higher than treble damages for the two alleged TCPA violations) and an injunction from sending future communications. The offer lapsed and the district court dismissed the individual claim as moot.

On appeal, the Seventh Circuit affirmed the denial of class certification but reversed the mootness finding and reinstated Chapman’s individual TCPA claim. The Court held that the case is not technically moot by virtue of the offer because the district court still has the power to grant relief. To that end, Judge Easterbrook stated that if a mere offer to satisfy “all of the plaintiff’s demands really moots a case, then it self-destructs.” Thus, in the Seventh Circuit’s view, if the “$3,002 offer made this case moot, then even if Chapman had accepted it the district court could not have ordered First Index to pay.” The Court added that, if the district court’s mootness ruling were correct, as “soon as the offer was made, the case would have gone up in smoke[.]”

The Court did not meaningfully address – and thus certainly did not rule out – the possibility that the district court could have entered a judgment according to the offer’s terms. Thus, Chapman does not speak to mootness in the scenario where the district court enters judgment in a plaintiff’s favor consistent with the terms of the unaccepted offer. Indeed, while Chapman observes that certain appellate courts that have ruled on this issue since Justice Kagan’s dissent in Genesis Healthcare v. Symczk, 133 S. Ct. 1523, 1528 (2013) have ruled against offers of judgment mooting clams, that only tells part of the story. Chapman cites the recent Second Circuit opinion in Tanasi v. New Alliance Bank, 786 F.3d 195 (2d Cir. 2015) as an example of such an appellate case, but Tanasi included key language that is conspicuously absent from Chapman. In Tanasi, it is true that the Second Circuit held that a “rejected settlement offer under Rule 68, by itself, cannot render moot a case.” Tanasi, 786 F.3d at 200. But, Tanasi built on the Second Circuit’s prior decision Cabala v. Crowley, 736 F.3d 226, 228 (2d Cir. 2013), which held that the “typically proper disposition” of a case, following an unaccepted offer of complete relief, is for the district court to enter judgment in plaintiff’s favor. The Tanasi opinion thus relied on Cabala when it stated that the district court should refrain from entering judgment only in the event “it does not provide complete relief.” The Second Circuit in Tanasi also reaffirmed that “after judgment is entered, the plaintiff’s individual claims will become moot for purposes of Article III.”

More recently, on August 12, 2015, the Fifth Circuit also ruled on this issue in a different context. In Hooks v. Landmark Industries, Inc., No. 14-20496 (5th Cir. Aug. 12, 2015), the Fifth Circuit held that an unaccepted offer of judgment to a named plaintiff does not automatically moot the individual plaintiff’s claim. Although the Fifth Circuit, in dicta, expressed concern about allowing a defendant to “pick off” a named plaintiff who does not receive actual relief, like in Chapman, the court did not address what effect entry of judgment providing complete relief to a named plaintiff has on a court’s jurisdiction over the putative class claims.

In May 2015, the United States Supreme Court granted certiorari in a TCPA class action that involves the issue of whether the entire case is rendered moot for purposes of Article III when the named plaintiff receives an offer of complete relief. Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), cert. granted sub nom. Campbell-Ewald Co. v. Gomez, 2015 WL 246885 (U.S. May 18, 2015) (No. 14-857). Recognizing that the mootness question when the named plaintiff receives an offer of complete relief is “before the Supreme Court,” the Seventh Circuit in Chapman felt compelled to “clean up the law of this circuit promptly[.]” But, because Chapman dealt with individual claims only (where two attempts at class certification failed), it leaves open the question of what happens to the putative class claims after a named plaintiff’s individual claims are rendered moot (for example, following the entry of judgment in an individual plaintiff’s favor).

We will continue to monitor the developments in this area.

William A. Wright

About the Author: William A. Wright

William Wright represents clients in connection with complex business disputes, consumer class actions and emerging e-discovery and information governance issues. His experience includes a broad range of representative matters, including contract disputes, statutory class actions and corporate governance investigations. Bill defends large institutional clients in commercial litigation and routinely manages subject matter experts and consultants. He has appeared in numerous state and federal courts, and before private arbitration panels.

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