Monday, October 7, 2013

FRCP 68 - An Offer You "Can" Refuse, at Least in the Ninth Circuit

By Michael Fuller, Portland Trial Attorney

Diaz v. First American Home Buyers Protection Corp. (9th Cir. Oct. 4, 2013)

An offer of judgment under Federal Rule of Civil Procedure 68 allows a corporate defendant to recover litigation costs if a consumer does not recoup more than the offered amount at trial. 
Last Friday, the Ninth Circuit Court of Appeals vacated the previous dismissal of consumer Emily Diaz's unfair business practices lawsuit against First American Corporation.

In her lawsuit, Diaz asked the district court judge for an injunction, compensation for her damages, and an order declaring the defendant-corporation had breached its duties.

Diaz claimed the corporation failed to honor its home warranty plans by refusing to make timely repairs, using shoddy subcontractors, and wrongfully denying claims.

The corporation later made Diaz a settlement offer of $7,019 under Rule 68.

Diaz didn't accept the offer and it expired. The corporation then asked the judge to dismiss the lawsuit. It argued the case was moot because Diaz rejected its offer and could not possibly recover more than $7,019 at trial.

If accepted, an offer of judgment allows a corporate defendant to simply pay off a consumer without admitting liability or wrongdoing. See attached offer from Wells Fargo Bank, N.A.
Consumers are often scared to turn down an offer of judgment for fear of owing a defendant-corporation's subsequent costs. Offers of judgment are favored by frequent corporate offenders because they leave no paper trail of wrongdoing.

The district court judge dismissed Diaz's claims under Rule 12(b)(1), which allows for dismissal of moot claims based on a lack of subject-matter jurisdiction.

Federal appellate courts across the country are split on the issue of whether dismissal is appropriate in this circumstance.

For instance, the Seventh Circuit holds that a consumer loses outright if she doesn't accept an offer that would satisfy her entire demand. Rand v. Monsanto Co., 926 F.2d 596, 598 (7th Cir. 1991). The Sixth Circuit agrees that an unaccepted offer moots a consumer's claim but will not dismiss a claim without first awarding the consumer the offered amount. O’Brien v. Ed Donnelly Enters., Inc., 575 F.3d 567, 574–75 (6th Cir. 2009). The Second Circuit generally holds that an unaccepted offer does not moot an otherwise satisfied claim unless liability is undisputed. McCauley v. Trans Union, LLC, 402 F.3d 340, 342 (2d Cir. 2005).
The US Supreme Court recently recognized this circuit split in its Genesis Healthcare Corp. v. Symczyk opinion. 133 S. Ct. 1523, 1528–29 (2013).

While the Genesis opinion didn't directly decide the issue, Justice Kagen's dissent, which Justices Ginsburg, Breyer, and Sotomayor joined, plainly stated, "an unaccepted offer of judgment cannot moot a case."

The Ninth Circuit Court of Appeals adopted Justice Kagan's approach and held that an unaccepted offer to fully satisfy a consumer's claim does not render the claim moot.

Justice Kagan reasoned that neither Rule 68 nor common law principles allow a court to dismiss claims based on an unaccepted offer.

"As every first-year law student learns, the recipient’s rejection of an offer 'leaves the matter as if no offer had ever been made.'" - Justice Kagen, in her Genesis v. Symczyk dissent, citing the very old case of Minneapolis & St. Louis R. Co. v. Columbus Rolling Mill, 119 U.S. 149, 151 (1886).
As such, the Ninth Circuit Court of Appeals vacated the district court's dismissal of Diaz's claim.

For complete analysis, click here to read the full opinion.

Commentary: Great case selection by attorneys Ed Chapin and Frank Bottini led to this pro-consumer result. Great job guys!

The "null and void" wording of the offer, plus the fact that the district court dismissed the case instead of entering the offered judgment, seemed to tip the scale of equities in Diaz's favor.

Given the opportunity, I predict the US Supreme Court (essentially Justice Kennedy) will adopt the Sixth Circuit's O'Brien approach to the issue.

It seems fair to me that a pending offer to provide all relief sought in a complaint would moot its claims. However, it also seems fair that if a complaint contains a facially valid demand for specific declaratory relief, the offer must also satisfy that element of the claims as well.

In this case, the Ninth Circuit didn't have the opportunity to reach that issue.