Offers of judgment and tenders of relief before class certification; when is it permissible to pick off the class representative.

Author:Davis, John C.

Class actions present unique problems with regard to settlement and dismissal. The problems are particularly thorny before there has been a determination by the court on the issue of class certification. The difficulties lie in the representative nature of class actions. Class actions typically are brought by a small number of individual litigants suing as representatives of a class of persons who are generally unknown except that they have certain characteristics in common with the representatives. For this reason, the class representatives and the court have an obligation to ensure that class members, who may not know of the existence of the case and often play little, if any, role in its prosecution, are fairly represented. This obligation is reflected in Rule 1.220 in the adequacy of representation requirement, the notice and exclusion provisions, and the fairness requirements for settlement and dismissal. (1) The obligation arises before the class is certified. The fiduciary duty of class representatives and their counsel to protect the interests of class members springs to life upon the filing of the action. (2) Class members may as a matter of law rely upon the filing and forgo filing individual suits during the pendency of the case, or at least until certification of the class is denied. (3) The settlement of a certified class has binding effect on all class members who do not opt out.

Class actions afford unique opportunities for economies that otherwise would not be available, particularly in "negative value" suits in which an individual litigant "might not consider it worth the candle to embark on litigation in which the optimum result might be more than consumed by the cost." (4) The class action procedure facilitates such suits by allowing individual litigants to pool resources and attract counsel with the incentive of common fund attorney fee recoveries. (5) Such suits play an important regulatory role in today's mass market economy with the class representative taking on the mantle of a "private attorney general" in the absence of governmental regulatory action. (6)

The potential for large judgments and negative publicity created by class actions also presents class defendants with unique problems. In the early stages of the suit these are largely tactical. Counsel experienced in class litigation appreciate that the court's decision on certification is often the most significant decision in the case. (7) Precluding a decision on certification is, therefore, of paramount importance.

Among other tactics for precluding certification is an offer or tender of the full value of the class representative's claim made before certification. This preemptive strike on certification arguably moots the representative's individual claim and is usually followed by a motion to dismiss based on lack of standing to continue to prosecute the action. In the typical "negative value" class action where the value of the class representative's individual claim is, relatively speaking, nominal, the class defendant risks little by making a tender or offer of judgment of full relief. When the offer comes in the form of an offer of judgment, it casts the suit in its starkest terms for the class representative: either accept the relief offered, often more than the value of the representative's individual claim, or risk shouldering for an entire class of strangers the burden of not merely the defendant's costs but its attorneys' fees as well. The coercive effect of the offer is substantial. As one federal court of appeals has observed: "The very feature that makes class treatment appropriate--small individual stakes and large aggregate ones--ensures that the representative will be unwilling to vouch for the entire costs. Only a lunatic would do so. A madman is not a good representative of the class!" (8)

This article discusses the effect of offers and tenders of relief to class representatives before the class certification determination is made and how they conflict with the class action procedure. In October 2000, the Florida Supreme Court amended Rule 1.442 of the Florida Rules of Civil Procedure to address the operation of the Offer of Judgment Rule and Statute in the pre-certification stage of class actions. (9) However, pre-certification tenders of relief or offers of settlement to class representatives by means other than statute or rule continue to present a conflict with Florida's Rule 1.220 and threaten the viability of class-wide challenges to certain practices, particularly in consumer litigation.

Offers of Judgment under Florida Law and Oruga Corporation Inc.

Offers of judgment and proposals of settlement in Florida are governed by Rule 1.442 of the Florida Rules of Civil Procedure and F.S. [section] 768.79. Section 768.79 does not specifically address class actions and, until its amendment on October 5, 2000, neither did Rule 1.442. On October 5, the Florida Supreme Court amended Rule 1.442 by adding a new subsection (f)(2). (10) Subsection (f)(2) provides that "In any case in which the existence of a class is alleged, the time for acceptance of a proposal for settlement is extended to 30 days after the date of the order granting or denying certification is filed." The amendment takes effect on January 1, 2001. (11) The commentary to the amendment does not explain the reasons for the change. There has been no corresponding change to [section] 768.79.

The 2000 amendment to Rule 1.442 recalls the rule as it existed before 1996, when it specifically excluded class actions from coverage. (12) Then, in 1996, it was amended to delete the exclusion. The commentary to the 1996 amendment does not address the deletion of the exclusion. On the other hand, [section] 768.79, enacted in 1990, has never made any provision regarding class actions. (13)

While the commentary does not shed any light on the reasons for the 2000 amendment, the amendment appears to respond to Oruga Corporation, Inc. v. AT&T Wireless of Florida, 712 So. 2d 1141 (Fla. 3d DCA 1998), which held that [section] 768.79 applies to class actions before certification. Oruga is a classic negative value suit. The class representative, Ruiz, purchased a telephone from AT&T and insurance for it from Virginia Surety. After it was stolen, AT&T and Virginia Surety refused to replace it. Ruiz sued individually and on behalf of a class for breach of contract, declaratory judgment, and conspiracy to defraud. Before any decision on certification and while a motion to dismiss was pending, the defendants made an offer of judgment for $625, the full value of the stolen telephone. Ruiz did not respond to the offer and the court subsequently dismissed the suit. The court entered an award of fees and costs pursuant to [section] 768.79 which Ruiz appealed.

Ruiz argued that the application of [section] 768.79 was inconsistent with his fiduciary duties as a class representative because it created a conflict between Ruiz's individual interest and the interests of class members and would "effectively derail or moot out such suits by making offers of judgment to class representatives early on in the litigation when discovery may not have commenced and at a time when the representatives may have insufficient information as to the potential damages of the putative class." 712 So. 2d at 1143. While acknowledging the "valid and legitimate" concerns raised by Ruiz, the court rejected these arguments, holding that it was constrained by the plain language of the statute. It rejected federal court decisions finding the federal offer of judgment statute inapplicable to class actions on grounds that it was not presented with a rule but rather a statute and thus was constitutionally constrained. (14)

The amendment to Rule 1.442 appears to overrule Oruga. (15) As amended, the rule states that it supercedes all prior rules and statutes. The new provision is procedural in nature, not substantive, and thus appears to fall within the exclusive rule-making authority of the Supreme Court. (16) However, given the confusion engendered by the still conflicting provisions of amended Rule 1.442 and [section] 768.79, it is not unlikely that Oruga will be cited as authority for the application of [section] 768.79 to class actions despite the amendment to the rule.

The amendment further leaves unclear the effect of an offer of judgment in the case in which a class is certified. The federal courts have limited the application of Fed. R. Civ. P. 68 to cases in which class certification is denied. (17) The courts are in general agreement that a tender of relief after certification does not destroy a representative's standing, though it may affect adequacy. (18) Once there is a certified class any class settlement or dismissal of the case must have court approval. (19) The courts have further held that any settlement of the representative's personal claim as distinguished from the class claims requires such approval. (20) The court must, at very least, inquire whether the settlement prejudices the rights of class members given the representative's fiduciary duty to class members. It would follow, for instance, that a settlement by a class representative that would affect the representative's adequacy should not be approved.

Pre-Certification Tenders by Other Means

Amended Rule 1.442 does not address the situation in which the tender of relief is made by other means than an offer of judgment. The issues raised by such tenders are more complicated. The Third District Court of Appeal has created a significant body of law on this issue. In each case, the court has analyzed the issue as affecting the standing of the class representative to seek certification after the tender. Standing is a threshold requirement of any suit and class actions are no exception. The manner in which the issue arises, however, is significant in that it results directly from a unilateral act of the defendant taken after suit is...

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