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In a decision that gives defendants in some proposed class action suits a silver bullet, the 3rd U.S. Circuit Court of Appeals has ruled that a defense offer of judgment under Rule 68 that provides the maximum available relief to the named plaintiff effectively moots his claim and ends the case — so long as the plaintiff has not yet moved for class certification. “It is axiomatic that a litigation becomes moot and federal jurisdiction is lost when a dispute between the parties no longer exists or when a party loses a personal interest in the outcome of the litigation,” Senior 3rd Circuit Judge Max Rosenn wrote in Colbert v. Dymacol Inc. The decision reverses a pair of rulings by Senior U.S. District Judge Clarence C. Newcomer, of the Eastern District of Pennsylvania, that struck the defense offer of judgment and granted the plaintiff’s motion for class certification that was filed after the offer was made. Newcomer held that Rule 68 is fundamentally incompatible with class action litigation. Rosenn disagreed, saying he rejected the plaintiff’s argument that permitting a defendant to moot a class action through an offer of maximum relief to the single named plaintiff is inconsistent with Rule 23 of the Federal Rules of Civil Procedure, which calls for court approval whenever a class action is settled or dismissed. “This argument elevates form over substance, and we therefore reject it,” Rosenn wrote in an opinion joined by 3rd Circuit Judges Jane R. Roth and Marjorie O. Rendell. The purpose of Rule 23, Rosenn said, is “to protect the non-party members of the class from unjust or unfair settlements affecting their rights.” But when the defendant makes an offer of judgment before the plaintiff has moved for class certification, Rosenn found that there are no non-party members of the class before the court. “A court cannot use Rule 23(e) to circumvent the ‘case or controversy’ requirement of Article III, as it is self-evident that the Federal Rules of Civil Procedure cannot create federal jurisdiction outside the perimeters of Article III,” Rosenn wrote. In the suit, plaintiff Brent Colbert claimed that two debt collection companies — Dymacol and Intellirisk Management Corp. — had violated the Fair Debt Collection Practices Act by sending him a false and misleading “dunning letter” in July 2000 in an attempt to coerce payment of an alleged debt relating to a consumer purchase. The suit alleged that the letter was “false, deceptive, misleading and unfair” because the least sophisticated consumer would interpret it to mean that the consumer’s alleged delinquency had been reported to a major credit reporting bureau when in fact the “National Consumer Reporting Service” named in the letter is not a credit bureau but instead is merely a marketing company. The suit also alleged that the letter could deceive consumers who might interpret it to mean that the delinquency would be “removed” by a bona fide credit reporting agency and no longer reported when, in fact, bona fide credit reporting agencies may continue to report debt as delinquent for seven years, whether paid or not. Soon after the suit was filed, Dymacol’s lawyers — Robert W. Hayes and Robert V. Dell’Osa of Philadelphia-based Cozen O’Connor — made an offer of judgment to Colbert under Rule 68 for $1,100, the maximum relief he could obtain by winning on the merits. Colbert’s lawyers — David A. Searles of Philadelphia’s Donovan Searles and James A. Francis of Francis Mailman – responded by filing a motion for class certification and a motion to strike the Rule 68 offer. Newcomer sided with the plaintiff’s lawyers, saying, “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 plaintiff’s class action is improper. Rule 68 is not applicable here, and the court will strike defendants’ offer of judgment.” The defense team responded by asking the 3rd Circuit to hear an immediate appeal. Now the 3rd Circuit has ruled that the offer of judgment effectively mooted the case. “Because Dymacol’s offer of full relief mooted Colbert’s claim before Colbert had filed his motion for class certification, we hold that there is no longer federal jurisdiction over this litigation, and the district court’s order will be vacated,” Rosenn wrote. Under Article III of the Constitution, Rosenn said, a plaintiff’s claim must “be ‘live’ not just when he first brings the suit but throughout the entire litigation, and once the controversy ceases to exist, the court must dismiss the case for lack of jurisdiction.” Searles argued on appeal that because this litigation was filed as a class action, typical mootness rules do not apply and Colbert should be permitted to continue as the named representative of the putative class. “Even though 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,” Searles wrote in his brief. As a matter of policy, Searles argued, the courts should not countenance a system that allows defendants to moot class actions by “picking off” claim after claim of putative representatives before they file a motion for class certification. Rosenn disagreed, saying, “Although this argument has superficial appeal, it lacks real substance.” Rosenn found that it was “highly unlikely” that the defendants were attempting to “pick off” putative representatives in order to frustrate the class action device. Under the FDCPA, Rosenn noted, defendants’ potential liability to unnamed class members is limited to “the lesser of $500,000 or 1 per centum of the [defendant's] net worth.” In their answer to Colbert’s suit, Rosenn noted, the defendants admitted that more than 42,000 dunning letters 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, Colbert’s argument is unconvincing,” Rosenn wrote. “Even in other higher-stakes contexts, such as asbestos litigation, ‘picking off’ putative representatives would obviously be cost-prohibitive and otherwise impractical. We see no compelling policy argument that can overcome the jurisdictional structure delineated in Article III,” Rosenn wrote.

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