White Flag Rule 68 offer does not moot the case

Rule 68 of the Federal Rules of Civil Procedure is one of the trickiest rules in the canon. Even lawyers who bring federal cases do not always fully understand its implications. In this case, the Court of Appeals takes another look at Rule 68 and reaches a holding that only civil rights and federal class action lawyers probably care about.

The case is Franco v. Allied Interstate LLC, a summary order issued on April 9. Rule 68 works like this. Plaintiff brings a lawsuit. Defendant does not want to be bothered with the case or it knows it will lose the case. So defendant sends a Rule 68 offer to the plaintiff's attorney. The offer is formally called an Offer of Judgment. The offer is what it sounds like: defendant is offering a judgment to the plaintiff, not merely a settlement where the parties deny that defendant did anything wrong. In addition to the judgment, the defendant offers a sum of money. But there is a catch: the plaintiff has a limited time to accept or reject the offer. If the plaintiff rejects the offer and then proceeds to trial and wins the case but gets less money than the defendant offered, then the plaintiff pays a penalty in the form of defendant's costs expended after the offer of judgment was served. In civil rights cases, where the plaintiff recovers attorneys' fees from the losing defendant, if the jury verdict is less than the Rule 68 offer of judgment, then the plaintiff forfeits all attorneys' fees post-Rule 68 offer.

So the cases interpreting Rule 68 often use language like this: "A Rule 68 offer forces the plaintiff to think long and hard about whether to proceed with the case." That's true. When the Rule 68 offer arrives in the plaintiff's attorneys' in-box, counsel and client must immediately talk about the offer and what it means. Plaintiff's counsel must also educate the client on the implications of a shrewd Rule 68 offer.

What if the defendant makes a Rule 68 offer that would provide the plaintiff with everything she was seeking in the lawsuit? Where the defendant is essentially waiving the white surrender flag? Some courts had held that such a Rule 68 offer moots the case and the trial court enters judgment for the plaintiff. After all, the defendant is giving the plaintiff everything he asked for. But the Supreme Court held in Campbell-Ewald Co. v. Gonzalez, 136 S.Ct. 663 (2016), that an unaccepted Rule 68 offer is a nullity if the plaintiff for whatever reason does not accept it in time.

In this case, defendant made such a Rule 68 offer to the plaintiff, who is trying to pursue a class action. The advantage for the defendant is that the class action goes away if the plaintiff takes the Rule 68 offer. The district court declared the case moot in light of the Rule 68 white flag, stating:

Defendant has now offered judgment referencing "unconditional surrender" and affording complete relief to plaintiff. Accordingly, judgment shall be entered against defendants under Rule 68. This entry of judgment moots plaintiff's individual claim. There is therefore no longer any named plaintiff with an interest in the litigation to proceed with a claim on behalf of a class. Plaintiff Franco cannot nominally continue in some capacity as class representative as he would definitionally be atypical and not an adequate representative.

Not so fast, says the Second Circuit (Pooler, Raggi and Droney), which reinstates the case on authority of Campbell-Ewald. Plaintiff is back in the case, and ready to litigate this case brought under the Fair Debt Collection Practices Act.