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In a huge victory for plaintiffs’ lawyers, the 3rd U.S. Circuit Court of Appeals has ruled that defendants cannot derail a proposed class action lawsuit by making an offer of maximum relief to the lead plaintiff under Rule 68 prior to the filing of a motion for class certification and then demand dismissal of the case as moot. In its 16-page decision in Weiss v. Regal Collections, the 3rd Circuit found that the appeal centered on “the tension between two rules of civil procedure” — Rule 23, which governs class actions, and Rule 68 — which allows for offers of judgment. The lower court held that when a Rule 68 offer effectively moots the lead plaintiff’s claim, it deprives the court of subject matter jurisdiction and therefore trumps any claim that dismissal would frustrate the purposes of Rule 23. The 3rd Circuit disagreed, finding that the tension should be resolved in favor of Rule 23. “Where a defendant makes a Rule 68 offer to an individual claim that has the effect of mooting possible class relief asserted in the complaint, the appropriate course is to relate the certification motion back to the filing of the class complaint,” 3rd Circuit Chief Judge Anthony J. Scirica wrote. “Allowing defendants to ‘pick off’ putative lead plaintiffs contravenes one of the primary purposes of class actions – the aggregation of numerous similar (especially small) claims in a single action,” Scirica wrote in an opinion joined by 3rd Circuit Judge D. Michael Fisher and visiting 9th Circuit Senior Judge Arthur L. Alarcon. “Moreover, a rule allowing plaintiffs to be ‘picked off’ at an early stage in a putative class action may waste judicial resources by stimulating successive suits brought by others claiming aggrievement,” Scirica wrote. The Weiss decision might appear at first blush to be in conflict with a prior 3rd Circuit opinion — the August 2002 decision in Colbert v. Dymacol Inc. — in which a unanimous three-judge panel reached the opposite result. Colbert was widely read as providing a silver bullet to defendants in some proposed class action suits by holding that a Rule 68 offer 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. But the Colbert decision was vacated in October 2002 when a majority of the 3rd Circuit’s active judges voted to rehear the case en banc. Five months after that, the 3rd Circuit announced that it was dismissing the Colbert appeal as “improvidently granted.” In a one-paragraph order, the court explained that Dymacol’s original appeal had inaccurately stated the “question presented.” Dymacol stated in its brief that its Rule 68 offer had mooted the case by providing the lone plaintiff with the maximum relief available under the law. The 3rd Circuit disagreed, saying Dymacol’s presentation of the question was “inaccurate” because the plaintiff “had not received all relief requested in his complaint.” In doing so, the court seemed to adopt one of the key themes in the plaintiffs’ argument: that a lead plaintiff in a proposed class action is seeking to vindicate not only his own rights, but also the rights of the entire class. Legally, the effect of the unusual outcome in Colbert was to leave the central question unanswered, since the decision by the original three-judge panel was vacated. As a result, Scirica was writing on a clean slate when he took up the appeal in Weiss. In the suit, lead plaintiff Richard Weiss brought a claim under the Fair Debt Collections Practices Act, claiming that Regal Collections violated the law by making certain statements in an October 2000 letter demanding payment of a debt Weiss allegedly owed to Citibank. Before Weiss’ lawyers had filed a motion for class certification, defense lawyers made a Rule 68 offer of judgment to Weiss for $1,000 plus attorney fees and expenses — the maximum amount an individual may recover under the FDCPA. Weiss declined the offer, but U.S. District Judge Alfred M. Wolin of the District of New Jersey ruled that since the offer provided the maximum relief allowed, it had mooted the case. On appeal, Weiss’ lawyers — William J. Pinilis and Gabriel H. Halpern of Pinilis Halpern in Morristown, N.J. — argued that the offer did not moot the claim since it failed to provide the declaratory and injunctive relief the suit was also seeking. The 3rd Circuit rejected that argument, finding that the FDCPA “explicitly provides declaratory and equitable relief only through action by the Federal Trade Commission.” As a result, the court said, “injunctive and declaratory relief are not available to litigants acting in an individual capacity under the FDCPA.” But the panel nonetheless sided with the plaintiff’s lawyers on the ultimate question of whether a Rule 68 offer to the lead plaintiff in a proposed class action has the power to moot the entire case. “Because defendants’ Rule 68 offer included no relief for the putative class, either under the provisions of the FDCPA or through the aggregation of class claims, we address the mootness question in that context,” Scirica wrote. Scirica found that the Federal Rules of Civil Procedure “are designed to be interdependent,” and that “whenever possible we should harmonize the rules.” But where there is an “unreconcilable conflict,” Scirica found that “one rule of procedure may have to take precedence over another.” In the class action context, Scirica said, “the question of mootness … is not a simple one.” Courts have routinely held that, once a class has been certified, mooting a class representative’s claim does not moot the entire action, Scirica found, because the class “acquires a legal status separate from the interest asserted by the named plaintiff.” Weiss’ case presented a more difficult question, Scirica found, because, at the time of the Rule 68 offer, he had not yet moved for class certification. Resolving the question, Scirica found that a Rule 68 offer should not be allowed to moot a proposed class action. “As sound as is Rule 68 when applied to individual plaintiffs, its application is strained when an offer of judgment is made to a class representative,” Scirica wrote. Scirica found it would be especially inappropriate to allow such a defense tactic in a proposed class action brought under the FDCPA. “Congress explicitly provided for class damages in the FDCPA,” Scirica wrote. “Representative actions, therefore, appear to be fundamental to the statutory structure of the FDCPA.” If FDCPA plaintiffs were deprived of the class action mechanism, Scirica said, “meritorious FDCPA claims might go un-redressed because the award in an individual case might be too small to prosecute an individual action.” As a result, Scirica said, the defense arguments about the interplay between Rule 23 and Rule 68 “would frustrate Congress’ explicit directive that the FDCPA be enforced by private attorneys general acting in a representative capacity.” If courts approved of the defense tactic in Weiss’ case, Scirica said, “Alleged violators of federal law would be allowed to tender the statutory amount of damages to a named plaintiff, derailing a putative class action and frustrating the goals and enforcement mechanism of the FDCPA.” Attorney Bruce D. Greenberg of Lite DePalma Greenberg & Rivas in Newark, N.J., represented Regal Collections in the appeal.

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