Ninth Circuit Rules that Rule 68 Offer of Judgment for Full Relief Does Not Moot Claim

In a recent opinion in Diaz et al. v. First American Home Buyers Protection Corporation, No. 11-57239, D.C. No. 3:09-CV-00775-H-WMC (9th Cir. Oct. 4, 2013), the Ninth Circuit, in contrast with the Second, Sixth, and Seventh Circuit Courts, ruled that a Rule 68 offer of judgment for full relief does not moot a case.  Emily Diaz brought a class action against First American Home Buyers Protection Corporation (“First American”) asserting state law claims for unfair competition, misrepresentation, concealment, breach of contract and breach of the implied covenant of good faith and fair dealing. The district court dismissed Diaz’s unfair competition and concealment claims under Federal Rule of Civil Procedure 12(b)(6) and denied class certification. First American made an offer on Diaz’s remaining individual claims pursuant to Fed. R. Civ. P. 68, which Diaz did not accept.  First American then moved to dismiss the remaining claims for lack of subject matter jurisdiction arguing that no justiciable case or controversy remained since Diaz had been offered full relief.  The district court dismissed the claims under Fed. R. Civ. P. 12(b)(1), agreeing that First American’s unaccepted Rule 68 offer rendered Diaz’s remaining claims moot.  Diaz appealed, claiming that even if the offer would have fully satisfied her claim, an unaccepted Rule 68 offer does not render a claim moot.

The Ninth Circuit previously analyzed similar questions in Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1091-92 (9th Cir. 2011) and GCB Communications, Inc. v. U.S. South Communications, Inc., 750 F.3d 1257, 1267 (9th Cir. 2011). In Pitts, the Ninth Circuit held “that an unaccepted Rule 68 offer of judgment- for the full amount of the named plaintiff’s individual claim and made before the named plaintiff files a motion for class certification- does not moot a class action,” but the Court did not address whether plaintiff’s individual claim was mooted by the offer.  In GCB Communications, the Ninth Circuit noted that a case becomes moot when “an opposing party has agreed to everything the other party has demanded,” but again did not address the effects of an unaccepted Rule 68 offer on an individual claim.

The Circuits are divided on the question.  The Seventh Circuit has held that an unaccepted Rule 68 offer for complete relief will moot a plaintiff’s claim and that the plaintiff loses outright. See Rand v. Monsanto Co., 926 F.2d 596, 598 (7th Cir. 1991).  The Sixth Circuit has agreed with the Seventh Circuit that “an offer of judgment that satisfies a plaintiff’s entire demand moots the case,” but disagreed with the Seventh Circuit’s view that “a plaintiff loses outright when he refuses an offer of judgment that would satisfy his entire demand.” O’Brien v. Ed Donnelly Enters., Inc. 575 F.3d 567, 574-75 (6th Cir. 2009).

The Second Circuit disagrees with the Seventh and the Sixth Circuit that an unaccepted Rule 68 offer for complete relief moots a plaintiff’s claim. See McCauley v. Trans Union, L.L.C., 402 F.3d 340, 342 (2d Cir. 2005).  However, the Second Circuit agrees with the Sixth Circuit that when such an offer has been made, the better resolution is to enter judgment against the defendant.  Although the Second Circuit may require that the defendant expressly consents to its entry as a precondition to entering such a judgment.  See id.

Regardless of the fact that the majority of courts and commentators appear to agree with the Seventh Circuit that an unaccepted offer will moot a plaintiff’s claim, four justices of the United States Supreme Court, along with the Solicitor General of the U.S., supported a contrary position in Genesis Healthcare, 133 S. Ct. at 1528-29, and agreed with the Second Circuit that an unaccepted offer of judgment cannot moot a case.  Id. at 1533.  Justice Kagan, writing for all four justices, explained that the case is not moot as long as the parties have an interest in the outcome of the litigation, regardless how small.  Chafin v. Chafin, 133 S. Ct. 1017, 1023 (2012).  Moreover, Justice Kagan noted that when a plaintiff rejects an offer, regardless of how good the terms, her interest in the lawsuit remains the same, just as remains the court’s ability to grant her relief.

Justice Kagan also pointed out that nothing in Rule 68 authorizes a court to enter judgment if the offer is unaccepted.  Judge Kagan noted that the Rule prohibits a court from considering an unaccepted offer for any purpose other than allocating litigation costs, including for the purpose of entering judgment for either party.  See Rule 68(b).  The Rule also does not provide a mechanism for a court to terminate a lawsuit without the plaintiff’s consent.

The Ninth Circuit found Justice Kagan’s rational to be persuasive. However, it did recognize that a court may have discretion to halt a lawsuit by entering judgment for the plaintiff when the defendant unconditionally surrenders and only plaintiff’s madness prevents her from accepting victory.  See Genesis Healthcare at 1534.  However, this did not occur here, and therefore, the court vacated the Rule 12(b)(1) dismissal of Diaz’s claims for misrepresentation, breach of contract and breach of the implied covenant of good faith and fair dealing and remanded the case for further proceedings.