7th Circuit changes course and rules full settlement offer does not moot class action

August 12, 2015 by

Law and justice concept, gavelThe Seventh Circuit changed course last week when it ruled that a defendant’s offer of full relief does not render a plaintiff’s claims moot, overturning circuit precedent and reviving a plaintiff’s individual claims in a Telephone Consumer Protection Act suit.

The issue arose in an appeal by Arnold Chapman, whose proposed class action against First Index Inc. over allegedly unauthorized junk faxes was shut down by a district court. While the three-judge panel upheld the lower court’s denial of leave to amend the suit, it ruled that the court should not have tossed Chapman’s individual claims just because he never accepted an offer of full relief from the defendant. The ruling aligned the Seventh with the Second, Ninth, and Eleventh Circuits ahead of an upcoming Supreme Court ruling on the issue.

“We think it best to clean up the law of this circuit promptly, rather than require Chapman and others in his position to wait another year for the Supreme Court’s decision,” the appellate panel said.

Chapman filed his suit in 2009 seeking to represent a class of 40 people who had gotten faxes from First Index, a machine parts outsourcing business incorporated in New Jersey.  The plaintiff had sought to base the class on allegations that the fax recipients had not given their consent, but the court ruled in 2014 that it would be too difficult to determine who had verbally agreed to receive faxes at trade shows and who hadn’t, according to the appeals panel’s summary of the case. The district court then denied Chapman’s attempt to certify a class based on a lack of opt-out notices on the faxes.

First Index had offered to pay Chapman $3,002 dollars — the amount of treble statutory damages under the TCPA for the two faxes he received, plus paper and toner costs. That offer expired 14 days after the court denied the certification.

The defendant then moved for dismissal of Chapman’s claims, pointing to Seventh Circuit rulings in Damasco v. Clearwire Corp., Thorogood v. Sears Roebuck & Co. and other suits that held an offer by the defendant completely fulfilling the plaintiff’s demand for relief evaporates a suit’s underlying controversy, thereby destroying Article III jurisdiction.

The federal appeals court overturned those and other similar rulings, saying that a controversy can only be declared moot when there is no relief the court could grant to the prevailing party. But Chapman’s claim is not moot, because the court could still award damages and issue an injunction, the appeals panel said.  “Chapman began this suit seeking those remedies; he does not have them yet; the court could provide them,” the judges said.

In its ruling, the court pointed to Justice Elena Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk in 2013, saying appeals courts that considered the issue since then have come down on the side of not considering cases mooted by offers of relief.  “If an offer to satisfy all of the plaintiff’s demands really moots a case, then it self-destructs,” the appellate panel reasoned, saying that if a controversy was truly mooted by the mere offer of relief, courts would be prevented from issuing a judgment enforcing an offer, whether of monetary or even injunctive relief.  “As soon as the offer was made, the case would have gone up in smoke,” the court said.

There are consequences of rejecting such an offer — such as a plaintiff having to pay costs in a suit if the judgment finally secured is less than what was offered and potentially allowing the defense to use the unaccepted offer as an affirmative defense — but mootness is not be one of them, the appeals court held.  This has significance in class actions, the court noted, saying that “settlement proposals designed to decapitate the class upset the incentive structure of the litigation by separating the representative’s interests from those of other class members.”

However, the circuit judges were dubious as to why a full settlement offer should not moot claims in an individual case, asking, “Why should a judge do legal research and write an opinion on what may be a complex issue when the plaintiff can have relief for the asking?” The panel did not rule on that question, however, as it was not argued by the defendant.

The Supreme Court is currently considering an appeal from a Ninth Circuit ruling in Campbell-Ewald v. Gomez, a TCPA suit that turns on whether cases are mooted by offers of complete relief and whether this applies in class actions.

Circuit Judges Richard A. Posner, Frank H. Easterbrook and Daniel A. Manion heard the appeal.

The appeal is Arnold Chapman et al. v. First Index Inc., case numbers 14-2773 and 14-2775, in the U.S. Court of Appeals for the Seventh Circuit.

Steve Larson
An experienced trial lawyer who handles both hourly and contingent fee cases, Steve has expertise in class actions, consumer cases, antitrust litigation, securities litigation, corporate disputes, intellectual property disputes, unfair competition claims, employment matters, and disputes involving family wealth. Steve regularly represents individuals and businesses in federal and state court and has obtained class-wide recovery in multiple class actions. A veteran practitioner, Steve's clients value his creative approach to resolving complex litigation matters.

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