Bais Yaakov Valley of Spring Valley v. ACT, Inc.

• Decision Date: 21 August 2015
• Docket Number: No. 14–1789.,14–1789.
• Citation: 798 F.3d 46
• Parties: BAIS YAAKOV OF SPRING VALLEY, Plaintiff, Appellee, v. ACT, INC., Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

798 F.3d 46

BAIS YAAKOV OF SPRING VALLEY, Plaintiff, Appellee

v.ACT, INC., Defendant, Appellant.

No. 14–1789.

United States Court of Appeals, First Circuit.

Aug. 21, 2015.

Jonathan S. Franklin, with whom Robert A. Burgoyne, Mark Emery, Fulbright & Jaworski L.L.P., Robert L. Leonard, Michael K. Callan, and Doherty, Wallace, Pillsbury & Murphy, P.C., were on brief, for appellant.

Aytan Y. Bellin, with whom Bellin & Associates LLC, was on brief, for appellee.

Before HOWARD, Chief Judge, TORRUELLA and KAYATTA, Circuit Judges.

Opinion

KAYATTA, Circuit Judge.

On certified interlocutory review under 28 U.S.C. § 1292(b), we hold that a rejected and withdrawn offer of settlement of the named plaintiff's individual claims in a putative class action made before the named plaintiff moved to certify a class did not divest the court of subject matter jurisdiction by mooting the named plaintiff's claims.

I. Background

ACT, Inc., is a nonprofit Iowa corporation known for developing and administering an eponymous college-entrance examination. Bais Yaakov of Spring Valley is a private religious high school located outside New York City. ACT sent Bais Yaakov three unsolicited facsimiles reminding Bais Yaakov of the exam's registration deadline and encouraging Bais Yaakov to volunteer as a test site. The messages did not provide notice of certain rights of the recipient as required by the federal Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, and an analogous New York state law, New York General Business Law § 396–aa (“section 396–aa ”). In response, Bais Yaakov filed claims individually and on behalf of three putative classes seeking damages and injunctive relief under the TCPA and section 396–aa.

Several months into the litigation, the parties mutually agreed on a deadline for the class certification motion that Bais Yaakov's complaint announced it would pursue. Prior to that deadline, ACT tendered to Bais Yaakov an offer for judgment under Federal Rule of Civil Procedure 68. ACT offered to pay Bais Yaakov $1,600 for each fax ($1,500 for violating the TCPA and $100 for violating section 396–aa ), stating that the figure represented the maximum amount Bais Yaakov could be awarded as damages under each statute. ACT also offered to be enjoined from sending any additional unsolicited facsimiles to Bais Yaakov, and offered to pay Bais Yaakov's attorneys' fees and costs if the court determined such fees were in order.¹ ACT's offer concluded by stating that it looked forward to a response “within the time limits established by Rule 68.”

Four days after receiving the offer, Bais Yaakov moved for class certification. Bais Yaakov did not otherwise respond to the offer within fourteen days after it was served, which meant that the unaccepted offer was “withdrawn” by operation of Rules 68(a) and (b). See Fed.R.Civ.P. 68(a), (b). ACT never renewed the withdrawn Rule 68 offer. Instead, a few weeks later, ACT moved to dismiss this lawsuit for lack of subject matter jurisdiction, arguing that its unaccepted and withdrawn Rule 68 offer fully resolved any case or controversy between the parties, rendering Bais Yaakov's claims moot. U.S. Const. art. III, § 2.

The district court denied ACT's motion to dismiss, holding that an unaccepted offer of judgment did not moot Bais Yaakov's claim. Bais Yaakov of Spring Valley v. ACT, Inc., 987 F.Supp.2d 124, 128–29 (D.Mass.2014). Pursuant to 28 U.S.C. § 1292(b), the district court also certified, and we agreed to review, the question of “[w]hether an unaccepted offer of judgment under Rule 68 in a putative class action, when the offer is made before the Plaintiff files a motion to certify the class, moots the Plaintiff's entire action and thereby deprives a court of federal subject matter jurisdiction [.]” In determining that the question to be certified was sufficiently determinative of the outcome to warrant interlocutory review, the district court accepted ACT's contention that the offer, had it been accepted before it was withdrawn, would have provided Bais Yaakov with everything to which it would have been entitled on its individual claim, had it prevailed. The question of whether an unaccepted offer for individual relief in a putative class action moots the action is a question of law that we review de novo. See Mangual v. Rotger–Sabat, 317 F.3d 45, 56 (1st Cir.2003).

II. Analysis

State and federal substantive law determine whether a person acquires a cause of action for which damages may be sought in a civil suit. Here, for example, in enacting the TCPA, Congress created a cause of action against ACT for each person to whom ACT sent a fax in violation of the TCPA. See 47 U.S.C. § 227(b)(3). One customarily assumes that the person who acquires a cause of action must bring a lawsuit on his or her own behalf in order to obtain judicial relief. In fact, though, the Federal Rules of Civil Procedure provide a variety of procedural vehicles by which a third party may sometimes pursue, on behalf of another person, the judicial relief to which that other person is entitled under applicable substantive law. Rule 17, for example, provides a vehicle by which various persons or entities may have claims brought for their benefit by others. See Fed.R.Civ.P. 17(a)(1) (allowing executors, administrators, guardians, bailees, trustees, and others to sue in their own names without joining the person for whose benefit the action is brought).

Rule 23, under which Bais Yaakov seeks to proceed in this case, is another such rule that creates a procedural mechanism for one person's cause of action to be brought by another. The person who actually brings such a suit does not claim to be an executor, administrator, guardian, bailee, trustee, or the like. Rather, the named plaintiff files a complaint that announces a willingness to sue in a representative capacity, and alleges satisfaction of Rule 23's requirements aimed at determining whether the plaintiff is a proper class representative and whether allowing a representative action would be fair. See Fed.R.Civ.P. 23(b)(3). The principal intended beneficiaries of this procedural device are persons who have suffered small but similar losses as a result of wrongful conduct by the same defendant or defendants. See Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 41 (1st Cir.2003) ( “The core purpose of Rule 23(b)(3) is to vindicate the claims of consumers and other groups of people whose individual claims would be too small to warrant litigation.” (citing Amchem Prods., Inc., v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) )). For such persons, it will often make little practical sense for any one of them to bring a claim only for herself because, as has been noted in a related context, “only a lunatic or a fanatic sues for” small-dollar claims, AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 1761, 179 L.Ed.2d 742 (2011) (Breyer, J., concurring) (quoting Carnegie v. Household Int'l, Inc., 376 F.3d 656, 661 (7th Cir.2004) ), particularly when there is no fee-shifting statute that might cover litigation costs that would otherwise dwarf any recovery. But for the existence of Rule 23, or the possibility of action by the government itself, a person or company who wrongfully causes a small amount of damage to each of a large number of persons will likely retain the fruits of that wrongful action.

Plaintiffs seeking to pursue a lawsuit brought in a representative capacity must prove their authorization to bring the lawsuit. For example, a person who is not a guardian cannot sue as such, and so on. Unlike most other representative plaintiffs, however, plaintiffs seeking to proceed as representatives of a class under Rule 23 must show both that they are members of the class and that they adequately represent the class. Fed.R.Civ.P. 23(a).

Against this background, ACT advances a nifty stratagem for defeating motions for class certification: offer only the named plaintiff full payment for its individual claims, and then move to dismiss the suit as moot before the court has a chance to consider whether the plaintiff should be allowed to represent the putative class. In recent years, this stratagem has become a popular way to try to thwart class actions, as evidenced by the cases discussed in this opinion that have grappled with various aspects of the questions presented in this appeal. This stratagem is most readily employed in precisely those cases where Congress has chosen to empower citizens as private attorneys general to pursue claims for well-defined statutory damages, because it is in such cases that defendants can most easily offer an individual plaintiff relief on her personal claim in an amount that indisputably equals the highest amount that the individual plaintiff could recover on her own claim.

In this particular case, ACT's mootness gambit seems to run against the grain of the Supreme Court's holding in Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 340, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980). In Roper, the Court held that the entry of judgment, over the putative class plaintiffs' objections, of full payment on their individual claims after a motion for class certification had been denied “did not moot their private case or controversy,” and that they could still appeal the denial of the certification motion. Id. The Court gave several possible reasons for its holding. It spoke of the fact that allowing the claims of putative class representatives to be “picked off” would frustrate the objectives of class actions. Id. at 339, 100 S.Ct. 1166. The opinion also noted the plaintiffs' “desire to shift part of the costs of litigation to those who will share in its benefits if the class is certified and ultimately prevails.” Id. at 327, 100 S.Ct. 1166 ; see also id. at 338 n. 9, 100 S.Ct. 1166. More recently, the Supreme Court has instructed us that the actual holding in Roper turned not on policy concerns regarding the use of pick-off...