Business

Rule 68 – Dead or Alive?

By Cornerstone SupportOctober 11, 2016
 

Can an unaccepted Rule 68 offer of judgment be used to strip a Federal Court of subject matter Jurisdiction? A divided U.S. Supreme Court recently answered the question, no, in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (U.S. 2016). Article III of the US Constitution limits federal court jurisdiction to “cases” and “controversies.” If at any point during the litigation a plaintiff ceases to have “a personal stake in the outcome of the lawsuit,” the case must be dismissed as moot. The defendant in Gomez made an offer of judgment under Rule 68 which included the full amount to which Plaintiff would have been entitled. Plaintiff did not accept the offer. Defendant argued that the Court no longer had jurisdiction because no Article III case or controversy remained.

The Justices did not agree on the proper approach for analyzing the issue. In the majority decision, Justice Ginsburg reasoned that a Rule 68 offer of judgment is rooted in principles contract law. The majority held that an unaccepted offer of judgment is just like any unaccepted offer – it is a legal nullity, leaving the parties in the same position as before the offer was made. In the context of litigation, the Court explained, an offer of judgment is simply a formalized settlement offer, and if rejected, has no continuing effect. Neither party could compel performance of any terms offered. In fact, the rules provide that the offer of judgment is deemed withdrawn if not timely accepted. If the plaintiff rejects an offer of judgment, either affirmatively or by lapse of time, he is free to proceed with litigation as if the offer had never been made, subject only to the cost shifting sanctions provided by the Rule.

The Court found it significant that Plaintiff did not actually receive compensation along with the offer. When the offer expires and is withdrawn by operation of law, the plaintiff has no relief, and so remains entitled to petition the court for that relief. Concurring with the decision but writing separately, Justice Thomas opined that the law of contracts did not control the analysis. Rather, the common law of tender was the proper standard. According to Justice Thomas, an offer of judgment is merely a promise of relief and without actual tender of the promised relief, the controversy between the parties remains intact.
Justice Roberts dissented, explaining that “When a plaintiff files suit seeking redress for an alleged injury, and the defendant agrees to fully redress that injury, there is no longer a case or controversy for purposes of Article III. After all, if the defendant is willing to remedy the plaintiff’s injury without forcing him to litigate, the plaintiff cannot demonstrate an injury in need of redress by the court…” Justice Alito, also dissenting, agreed that a defendant may extinguish a plaintiff’s personal stake in a case by offering complete relief, but that payment of that relief that an offer of judgment could moot a case, but that an assurance of payment is a pre-requisite to dismissal. Paying the money directly to the plaintiff or into court are two examples

Ultimately, the Supreme Court held that an unaccepted offer of judgment alone is not sufficient to deprive the court of jurisdiction, but the Court expressly reserved the question of whether actually paying the proposed judgment amount to the plaintiff along with the offer of judgment would be sufficient to moot the case. Enter: The U.S. District Court for Southern District of New York, which picked up where the Supreme Court left off.

In Leyse v. Lifetime Entm’t Servs., LLC, 2016 U.S. Dist. LEXIS 47877 (S.D.N.Y. Mar. 17, 2016) the Defendant filed a motion for entry of judgment in favor of Plaintiff for the full amount of Plaintiff’s individual TCPA claims. Over the plaintiff’s objection, the District Court granted the motion holding that once the defendant has furnished full relief, there is no basis for the plaintiff to object to the entry of judgment in its favor. Although an unaccepted Rule 68 motion alone does not render a Plaintiff’s claims moot, payment of full compensation, along with consent to entry of judgment, eliminates the controversy before the court.
Finally, the 9th Circuit has not been quiet on this issue in wake of Gomez.

So, where does that leave us? Rule 68 is largely useless as a litigation strategy. An accepted Rule 68 offer is nothing more than a consent judgment, and more often just a settlement agreement with no actual judgment entered. An unaccepted offer of judgment serves only to preserve the right to collect costs if the case is litigated successfully to conclusion. But there do appear to be methods to cut off litigation, independent of Rule 68. The Supreme Court left open the possibility that a motion to dismiss might be appropriate on Article III jurisdiction grounds if a defendant actually pays the plaintiff all the damages to which he would be entitled. The court also has the authority to enter judgment under Rule 56. Where there is no dispute in the facts, and the movant is entitled to judgment as a matter of law, summary judgment is appropriate. The Rule does not say that the judgment entered must be in favor of the movant. So, if a defendant is willing to submit evidence of its own violation, and the uncontested amount of damages, the court may grant the motion even over Plaintiff’s objection.

John H. Bedard, Jr.
Bedard Law Group, P.C.
2810 Peachtree Industrial Blvd., Suite D
Duluth, GA 30097
678-253-1871ext. 244
[email protected]

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