Second Circuit Follows Seventh Circuit, Finds that Rule 67 Tender Does Not Moot Claims

Nearly three years ago, in Campbell-Ewald Co. v. Gomez, the Supreme Court held that claims are not mooted by unaccepted offers of complete relief under Rule 68 because they create neither an “obligation” to provide nor an “entitlement” to receive any relief. But the Court expressly left open the possibility that depositing the full amount of a plaintiff’s individual claim in an account payable to the plaintiff might be enough.

After Campbell-Ewald, we predicted that defendants would test various procedural mechanisms for arguing that actually making a payment will render a plaintiff’s claim moot. As we reported last summer, the Seventh Circuit held that not even tendering funds into a court-monitored interest-bearing account is enough to moot a class action, reasoning that that there is “no principled distinction” between a Rule 68 offer of judgment and a deposit under Rule 67, and that would-be class representatives must be afforded an opportunity to try to certify a class.

The Second Circuit recently reached a similar conclusion in Geismann v. ZocDoc, Inc., holding that a tender of payment into a court-monitored account under Rule 67 did not moot a plaintiff’s putative class action because the plaintiff had not (i) received the deposited money or (ii) had an opportunity to try to certify a class and possibly earn an incentive award as lead plaintiff.

The case has a tangled procedural history. After receiving a fax concerning a “patient matching service,” which contained a telephone number to call if the recipient wished to stop receiving faxes, Plaintiff filed a putative TCPA class action seeking aggregated damages of $500-$1,500 per fax. ZocDoc made an offer of judgment and then argued that, since the amount of the offer exceeded the plaintiff’s individual claim, that claim was moot and should be dismissed. The district court agreed and Plaintiff appealed.

While that appeal was pending, the Supreme Court issued its decision in Campbell-Ewald. ZocDoc then sought leave to deposit a check with the district court in satisfaction of the judgment, which the district court granted. In a 2017 decision, however, the Second Circuit held that Plaintiff still had standing to pursue her claims. The court reasoned that Campbell-Ewald foreclosed entering a judgment on mootness grounds in light of an unaccepted offer and thus the tender in satisfaction of an erroneous judgment did not moot Plaintiff’s claims.

ZocDoc then tried to address the Second Circuit’s concern by depositing with the district court the maximum amount of damages Plaintiff would be entitled to individually pursuant to Rule 67. After the district court allowed a $20,000 deposit, ZocDoc moved for summary judgment and argued that the tender perfected the hypothetical in Campbell-Ewald, provided Plaintiff with complete relief, and thus rendered Plaintiff’s individual claim moot. The district court agreed again and found that, because Plaintiff received complete relief, the action was moot.

Last week, the Second Circuit reversed. Largely relying on the Seventh Circuit’s decision in Fulton Dental, LLC v. Bisco, Inc., the Second Circuit found “no material difference between a plaintiff rejecting a tender of payment (pursuant to Rule 67) and an offer of payment (pursuant to Rule 68).” The Second Circuit reasoned that although the money was deposited with the court, Plaintiff still had not received any money. Similarly, while ZocDoc had offered to submit to an injunction, the Second Circuit reasoned that ZocDoc has not actually committed to stop sending offending faxes until the injunction was actually entered. Thus, “[a]t that point in the litigation, the district court could still provide these remedies” demonstrating that Plaintiff’s claims were not moot. Finally, the Second Circuit also reasoned that a judgment satisfying Plaintiff’s individual claims does not offer complete relief because Plaintiff was exercising her right to proceed on a classwide basis and sought to earn an additional reward by serving as a lead plaintiff.

The Second Circuit’s decision in ZocDoc is difficult to square with the Rules Enabling Act and Supreme Court precedent. On the one hand, ZocDoc reaffirms the Second Circuit’s prior rulings that a district court should enter judgment, even over a plaintiff’s objection, when a defendant surrenders to complete relief, and recognizes that such a judgment will render moot the plaintiff’s individual’s claims. See e.g., Tanasi v. New Alliance Bank, 786 F.3d 195, 200 (2d Cir. 2015). On the other hand, the Second Circuit simultaneously suggests that Rule 23 affords a plaintiff an absolute right to seek to bring claims in a representative capacity on behalf of an as-yet-uncertified class. In fact, ZocDoc goes so far as to suggest that the district court could have dismissed Plaintiff’s claims as moot as a result of Defendant’s $20,000 deposit if the court had denied Plaintiff’s motion for class certification. In so doing, the Second Circuit is erroneously elevating the procedural rights of Rule 23 into substantive rights. Indeed, the Rules Enabling Act states that the Federal Rules of Civil Procedure “shall not abridge, enlarge or modify any substantive right,” and Rule 82 makes clear that the rules “do not extend . . . the jurisdiction of the district courts.” 28 U.S.C. § 2072(b); Fed. R. Civ. P. 82. Yet the Second Circuit’s decision suggests that, regardless of whether a plaintiff’s individual claim remains extant, that plaintiff has not been afforded complete relief absent an opportunity to seek class certification under Rule 23. Moreover, the court’s suggestion that Plaintiff had not been made whole because the tender did not account for possible incentive awards for acting as a class representative flatly contradicts well-established Supreme Court precedent holding that “an interest that is merely a ‘byproduct’ of the suit itself” does not satisfy Article III’s case or controversy requirement. Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765, 772 (2000); see also Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 108 (1998) (“reimbursement of the costs of litigation cannot alone” satisfy Article III); Lewis v. Continental Bank Corp., 494 U.S. 472, 480 (1990) (an “interest in attorney’s fees is, of course, insufficient to create an Article III case or controversy where none exists on the merits of the underlying claim”).

The Second Circuit’s decision will likely result in a waste of judicial resources in cases where the defendant is interested in surrendering to the individual plaintiff rather than engage in senseless and costly litigation. It remains to be seen whether ZocDoc will seek Supreme Court review.

Matthew J. Fedor

About the Author: Matthew J. Fedor

Matthew Fedor litigates class actions and complex business disputes, conducts internal investigations, and counsels clients regarding sales and advertising practices, privacy and technology issues, and compliance with consumer protection laws. Matt is a trusted legal adviser for his clients and prides himself on finding practical solutions for complex legal problems that suit his clients’ business goals. He is a vice chair of the firm’s Class Actions practice, frequent contributor to the TCPA blog, and a member of the firm’s Consumer Contracts and Retail Industry teams.

Michael P. Daly

About the Author: Michael P. Daly

Mike Daly has spent two decades defending, counseling and championing clients that interact with consumers. His practice focuses on defending class actions, handling critical motions and appeals, and maximizing the defensibility of marketing and enforceability of contracts. Clients large and small have trusted him to protect their businesses, budgets and brands in complex cases across the country.

Andrew L. Van Houter

About the Author: Andrew L. Van Houter

Andrew Van Houter is a trial attorney who represents clients in the financial services industry, as well as businesses engaged in complex litigation and partnership disputes. Andy has first-chaired valuation and stock-option trials; been on the trial teams of large partnership disputes, mass arbitrations and FINRA arbitrations; and has argued in appellate courts. He has extensive experience in New York’s state and federal courts, and often litigates corporate disputes in the Delaware Court of Chancery.

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