A federal appeals court has struck down a procedural loophole increasingly used by defendants to dismiss a class action by paying the lead plaintiff’s damages.
In a Tuesday opinion, a unanimous panel for the U.S. Court of Appeals for the Second Circuit reversed a 2017 Southern District of New York dismissal of a case against Zocdoc Inc., the company behind the popular site for booking online doctor appointments, after it made a $6,000 settlement offer that the lead plaintiff didn’t accept.
The “deposit alone does not provide relief” to the plaintiff, wrote the Second Circuit, which concluded that therefore the lower court “must resolve the pending motion for class certification before entering judgment and declaring an action moot based solely on the relief provided to a plaintiff on an individual basis.” In the underlying case, lead plaintiff Dr. Radha Geismann alleged Zocdoc violated the Telephone Consumer Protection Act by sending her office two unsolicited faxes, seeking statutory damages of $500 to $1,500 per violation and an injunction to stop sending the faxes.
“If the motion is granted, the class action may proceed. A conclusion otherwise would risk placing the defendant in control of a putative class action, effectively allowing the use of tactical procedural maneuvers to thwart class litigation at will,” the Second Circuit added.
The defense bar’s use of the procedural tactic has led to a wave of attempts to “pick off” lead plaintiffs following the U.S. Supreme Court’s 2016 decision in Campbell-Ewald v. Gomez, which held that a defendant could not moot a class action by offering an unaccepted judgment to the lead plaintiff. However, Chief Justice John Roberts raised in his dissent the prospect that the outcome might be different if the defendant deposited the money into an account.
The Second Circuit decision, which drew amicus briefs from Public Citizen Inc. for the plaintiff and the credit and collections agencies group ACA International for the defendant, aligned with a 2017 decision by the Seventh Circuit in Fulton Dental v. Bisco. The holding found that a defendant’s deposit of $3,600 into a court account that compensated the lead plaintiff in full did not moot the entire class action because it was an “unaccepted contract offer.”
Scott Nelson, an attorney at Public Citizen Litigation Group, said in an email that the Second Circuit’s opinion “should definitively slam the door on the tactic. The decision is consistent with the consensus of circuits that have addressed the issue, including the decision last year in Fulton Dental. The lesson appears to be that the appellate courts are not willing to let defendants immunize themselves against class actions with these kinds of games.”
Glenn Hara of Anderson + Wanca in Rolling Meadows, Illinois, who represented plaintiff Geismann, declined to comment.
Blaine Kimrey, a shareholder at Vedder Price in Chicago, and an attorney for Zocdoc, did not respond to a request for comment.
In Campbell-Ewald, the defendant had made an offer of judgment under Federal Rule of Civil Procedure 68. The 6-3 decision found that an “unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case.” The dissent by Roberts, joined by Justices Antonin Scalia and Samuel Alito, wrote that the “majority’s analysis may have come out differently if Campbell had deposited the offered funds with the district court.” Alito, in a separate opinion, even suggested defendants could hand a plaintiff a certified check or deposit the funds “in a bank account in the plaintiff’s name.”
Taking a page from that dissent, Zocdoc on remand deposited $20,000 into the district court’s registry to resolve Geismann’s claims, and U.S. District Judge Louis Stanton of the Southern District of New York granted judgment again.
Zocdoc is the latest defendant to attempt such a move. Fulton Dental also was a class action brought under the TCPA. And, like Zocdoc, the defendant made its payment under Federal Rule of Civil Procedure 67, which allows parties to deposit funds with the court.
The Seventh Circuit struck down the procedure and reiterated its holding in a subsequent ruling in Laurens v. Volvo Cars of North America LLC. The Ninth and Sixth circuits also have sided with plaintiffs in related cases.
The Second Circuit joins those circuits in its holding this week.
“Like the Seventh Circuit, we see no material difference between a plaintiff rejecting a tender of payment (pursuant to Rule 27) and an offer of payment (pursuant to Rule 68),” the panel wrote. “Indeed, other than their labels, once rejected, the two do not differ in any meaningful way: In each case, ‘all that exists is an unaccepted contract offer and as the Supreme Court recognized, an unaccepted offer is not binding on the offeree.’”