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Weil, Gotshal & Manges LLP
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Offer of Maximum Relief Moots Class Action Against Debt Collector
Zalenski, Walter E.
(October 11, 2002, Consumer Financial Services Law Report)
By Walter E Zalenski and Joseph
D. Looney*
The 3rd U.S. Circuit Court of Appeals
held that a plaintiff's claim becomes moot and federal jurisdiction
is lost when a defendant offers the named plaintiff the maximum relief.
(Colbert v. Dymacol Inc., No. 01-4397 (3rd Cir. 08/28/02)). The decision
appears to permit a debt collector in certain circumstances to "pick
off" a named plaintiff in an effort to avoid a class action
before the plaintiff moves for class certification.
Brent Colbert filed a class action
complaint against Dymacol Inc. with the U.S. District Court, Eastern
District of Pennsylvania alleging violations of, inter alia, the
Fair Debt Collection Practices Act. Colbert sought to represent a
class of persons in Pennsylvania who, in the preceding two years, had received
dunning letters from the
defendants.
Prior to Colbert's filing
of the motion for class certification, Dymacol made an offer of judgment
under Fed. R. Civ. Pr. 68 in the amount of 1,100, plus reasonable
costs and attorneys' fees, which is the maximum amount of liability under
the FDCPA absent actual damages. Colbert then moved to certify the class
and to strike Dymacol's offer of judgment. Dymacol opposed both motions
arguing that the offer of judgment mooted the litigation. Colbert
argued that because this case was filed as a class action, the normal
mootness rules did not apply and he should be permitted to continue
as the named representative of the putative class.
The District Court accepted Colbert's
argument and held that "because Rule 68 would bypass court approval
of settlement, plaintiff has filed this suit as a class action, and
this Court has not determined that plaintiffs class action is improper,
Rule 68 is not applicable here, and the Court will strike defendants' offer
of judgment." Dymacol appealed the District Court's decision to the
3rd Circuit.
On appeal, the 3rd Circuit noted
that federal judicial power extends only to "cases" or
"controversies." A case becomes moot and there is no federal
jurisdiction when there is no longer a dispute or when a party loses
a personal interest in the outcome of the litigation. This requirement
applies not just when a case is first filed but throughout the entire
litigation.
Before addressing the substantive
issues, the 3rd Circuit noted that although Dymacol made its offer
of maximum relief by use of an offer of judgment under Rule 68, Rule
68 is irrelevant as it is merely a fee-shifting device. Rather, the
significant factor is that Dymacol offered Colbert the maximum relief under
the FDCPA. The main issue confronting the 3rd Circuit was whether
the offer of maximum relief deprived Colbert of a stake in the case
and deprived the District Court of jurisdiction.
Colbert argued that Rule 23(e)
requires court approval of class action dismissals and settlements.
Because there was no court approval of Dymacol's offer of maximum
relief, the case could not be dismissed or settled. The 3rd Circuit
disagreed and concluded that Rule 23(e) applies only to actions certified
as class actions. Because Dymacol's offer of maximum relief came before
Colbert's motion for class certification, Rule 23(e) did not apply. Colbert
also argued that even if an action "has not been certified as a class
action, an action filed as a class action should be treated as if
certification has been granted for the purposes of settlement until
certification is denied." The 3rd Circuit acknowledged this
general principle but concluded that it applies only when a motion
for class certification is pending.
The 3rd Circuit noted that, while
special mootness rules apply once a class has been certified, dismissal
of the action is required when claims of the named representative
become moot before class certification. There are, however, two exceptions
to this class action mootness precept. First, a named representative
who no longer has a personal stake can continue "to argue a
certification motion that was filed before his claims expired and
which the district court did not have a reasonable opportunity to
decide." Second, a named representative whose individual claim
has expired can appeal a denial of a class certification motion filed
when her claims were alive. Because Colbert's individual claim expired
before he filed a motion for class certification, neither exception
applied.
'Picking off' claims
Colbert also argued that as a matter
of public policy defendants should not be permitted to moot class
actions by "picking off" claims of putative class representatives.
The 3rd Circuit, however, rejected this argument as well, noting
that while the "argument has superficial appeal, it lacks real substance."
For example, in this case, the 3rd Circuit thought it highly unlikely
that Dymacol was attempting "pick off" putative class representatives
in order to frustrate the class action device. The FDCPA limited
Dymacol's liability to class members to the lesser of 500,000 or
1 percent of its net worth. Dymacol admitted that more than 42,000
dunning letters ofthe type at issue had been sent to Pennsylvania
consumers. Thus, it would cost the defendants more to continue to
"pick off" putative representatives than it would to go
to trial. Therefore, at least in this case, the 3rd Circuit concluded that
the "picking "off" argument was unconvincing.
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