Changing the Rule Changes the Game: a Rule 68 Offer for Complete Relief Should Never Moot an Individual's Claim

• Publication year: 2015

Changing the Rule Changes the Game: A Rule 68 Offer for Complete Relief Should Never Moot an Individual's Claim

David Marc Rothenberg

CHANGING THE RULE CHANGES THE GAME: A RULE 68 OFFER FOR COMPLETE RELIEF SHOULD NEVER MOOT AN INDIVIDUAL'S CLAIM

ABSTRACT

Rule 68 of the Federal Rules of Civil Procedure was enacted to encourage settlement and avoid litigation. Rule 68 works in the following way: defendant makes a "Rule 68 offer" to plaintiff for a settlement, plaintiff rejects this offer, wins the case, but is awarded less monetary compensation than was offered in the settlement. In this scenario, plaintiff must pay both his and defendant's post-offer litigation costs. Although Rule 68 was designed to facilitate settlements, defendants have attempted to use Rule 68 offers to moot individuals' claims. These defendants argue that by offering their understanding of complete relief to a plaintiff, the claim should be mooted. In the past four decades, a circuit split has arisen over whether Rule 68 offers can moot claims and whether judgment should be entered for the plaintiff or the defendant.

This Comment advocates for the adoption of the Ninth Circuit's holding in Diaz v. First American Home Buyers Protection Corp.—referred to in this Comment as the Diaz approach—which states that a Rule 68 offer never moots an individual's claim. This Comment explores relevant historical jurisprudence that has led to the various legal theories involving mootness in Rule 68 offers. Recent decisions highlight the rise in use of the Diaz approach, and this Comment describes the benefits of the Ninth Circuit's holding. The four primary benefits of the Diaz approach are that it (1) satisfies both textualist and purposivist ideologies regarding Rule 68, (2) upholds fundamental aspects of contract theory, (3) resolves the mootness jurisdictional issue by creating a bright-line test, and (4) deters negative behavior. Although this approach has two potential drawbacks—namely, excessive litigation and non-mutual offensive issue preclusion—the alternative approaches suffer from flaws that Diaz solves. Ultimately, this Comment concludes that by applying the Diaz approach to Rule 68 offers, courts will return Rule 68 to its intended goal: incentivizing settlements without burdening the courts.

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INTRODUCTION

Rule 68 of the Federal Rules of Civil Procedure¹ encourages parties to reach a settlement with limited judicial involvement.² While one would think that a plaintiff should be free to accept or reject a settlement offer, defendants have attempted to prove otherwise. Rule 68 has become a tool used by defendants to convince judges to moot plaintiffs' claims.³ The circuit courts are currently divided over whether a Rule 68 offer can moot a claim and which party should receive the judgment.⁴ This year, the Supreme Court granted certiorari in Campbell-Ewald Co. v. Gomez,⁵ which should firmly decide this issue.⁶ This Comment urges the Court to resolve this circuit split because

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anyone with a phone, insurance plan, or credit score will be affected by the outcome of the Campbell-Ewald case.

Take this situation for example: Congratulations, you graduated from law school! Getting into law school required sacrificing time and money for the prospect of a more lucrative profession. You always paid your bills on time because you never wanted a blot on your record. Now that you have received your cushy salary at a top law firm, you put a deposit on your dream home. You go to the bank to get a loan, and the loan officer tells you that two out of your three credit scores are excellent. However, TransUnion, a credit reporting agency, gave you a poor credit rating. You are furious—someone else's error has ruined your credit score. While you are attempting to correct this error, your dream home has been purchased, and you are stuck in your parents' basement.

TransUnion considers these careless errors to be a regular part of the business. You sue TransUnion to recover the lost deposit on your dream home and loan fees, and you discover that credit reporting agencies commonly misreport individuals' credit scores. TransUnion offers you monetary damages in a confidential settlement. If you accept the confidential settlement, TransUnion will likely continue its methods without addressing the need to reduce these errors. Although you are unable to certify a class action, you want a judgment—on the record—that will incentivize TransUnion to reduce these mistakes that carelessly ruin peoples' credit scores.⁷

Instead of suffering the embarrassment of an adverse judgment that could be used as precedent in future cases, TransUnion offers you monetary damages for the costs you incurred. TransUnion makes this offer using Rule 68.⁸ You reject the offer. TransUnion argues that because it made an offer for "complete relief," this case should be mooted. Should your claim be mooted? Besides credit report agencies, this scenario involving Rule 68 offers has applied to

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cases with debt collectors,⁹ insurance agencies,¹⁰ corporations,¹¹ telemarketers,¹² and even an NFL team that sent over 100,000 unsolicited faxes.¹³

While these defendants argue that Rule 68 offers for complete relief should moot a plaintiff's claims, this Comment will show that these tactics encourage continuous litigation and frustrate settlements. Several circuit courts accept the premise that a Rule 68 offer can moot a claim, but other circuit courts have dismissed the idea.¹⁴ Moreover, circuit courts that have accepted the idea that a Rule 68 offer can moot a claim disagree over whether judgment should be rendered on behalf of the plaintiff or the defendant.¹⁵

This Comment addresses this circuit split and answers two questions:¹⁶ (1) whether an unaccepted Rule 68 offer for complete relief moots an

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individual's claim; and if so, (2) whether the judgment should be entered for the plaintiff or defendant.¹⁷

This Comment advocates for the adoption of the Ninth Circuit's holding in Diaz v. First American Home Buyers Protection Corp., which this Comment refers to as the Diaz approach.¹⁸ In Diaz, the court adopted the reasoning espoused in Justice Kagan's dissent in Genesis Healthcare Corp. v. Symczyk¹⁹ and held that an unaccepted Rule 68 offer never moots an individual's claim.²⁰

Part I of this Comment introduces Rule 68 and the basic concept of mootness. Part II then explores decisions in the Supreme Court and several circuit courts that influenced the debate over mootness in Rule 68 offers. This Part also explains the developments that ultimately led to the Diaz approach. With the different approaches provided, Part III surveys the benefits of applying the Diaz approach. By applying the Diaz approach, rather than the two alternatives, this Comment shows that courts will adhere to the following four principles: (1) textualist and purposivist ideals,²¹ (2) fundamental contract theory concepts,²² (3) bright-line jurisdictional rules,²³ and (4) deterrence against negative behavior.²⁴ Next, Part IV responds to two central criticisms of the Diaz approach: excessive litigation and non-mutual offensive issue preclusion. Part V then evaluates the two alternative approaches and describes their shortcomings. Finally, this Comment concludes that the Supreme Court should adopt the Diaz approach in its upcoming Campbell-Ewald case²⁵ because it provides the most beneficial solution.²⁶

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I. BACKGROUND

A. Rule 68

Rule 68 of the Federal Rules of Civil Procedure was enacted "to encourage settlement and avoid litigation."²⁷ At its inception, Rule 68 provided a mechanism to achieve this purportedly simple result.²⁸ Using Rule 68, a defendant can offer a specified amount directly to the plaintiff in order to settle a claim.²⁹ The plaintiff may accept or reject the offer.³⁰ If the plaintiff accepts the offer, judgment is entered for the plaintiff.³¹

Not all Rule 68 offers are accepted. How Rule 68 "encourage[s] settlement" is demonstrated when a plaintiff rejects a Rule 68 offer and then wins the case, but the final judgment is less than the amount offered by the defendant.³² If that happens, the plaintiff must (1) pay his post-offer costs and (2) pay the defendant's post-offer costs.³³ The following example illustrates this situation: Paul sues David for $500, and David makes a Rule 68 offer to Paul for $300. Paul declines the offer and wins the lawsuit, but he is only awarded $200. In this scenario, Paul must pay David's filing and court reporter

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fees in addition to his own, and Paul may have to pay David's attorneys' fees as well.

While accepted offers allow a clerk to enter the agreed-upon judgment for the claimant, Rule 68(b) provides that any unaccepted offers are considered withdrawn.³⁴ Rule 68(b) continues by stating that the offering party may make additional offers, but all Rule 68 offers are inadmissible as evidence except to determine costs.³⁵

The drafters created Rule 68 with the intention of reducing courthouse clutter.³⁶ Although nothing in Rule 68 discusses mootness, defendants make Rule 68 offers for small individual claims to halt them before they become bigger monetary cases, such as in class actions.³⁷ These defendants argue that Rule 68 offers for complete monetary relief moot individuals' claims because such offers encourage settlement and avoid litigation.³⁸ On the contrary, this Comment will demonstrate that by allowing defendants to moot claims using Rule 68 as a shield, courts frustrate the simple mechanical formula of Rule 68.³⁹

B. Basic Mootness Doctrine

As discussed in section A, Rule 68 offers for complete relief raise questions involving mootness.⁴⁰ Mootness occurs when there is no longer a live controversy between two parties.⁴¹ The mootness doctrine arises from the

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Constitution,⁴² and its flexibility lends itself to considerable debate about its reach.⁴³ The Constitution restricts the federal courts' jurisdiction to "cases...