Seventh Circuit

Defense counsel facing potential multimillion-dollar judgments from the threat of class action proceedings—particularly class actions brought under statutes providing for treble damages and attorney’s fees, such as the Racketeer Influenced Corrupt Organizations (RICO) Act, the Real Estate Settlement Procedures Act (RESPA), and the Telephone Consumer Protection Act (TCPA) —have gotten creative in their attempts to end class litigation before certification. For example, in Campbell-Ewald Company v. Gomez, 136 S. Ct. 663 (2016), the Supreme Court considered whether an unaccepted offer to satisfy the named plaintiff’s individual TCPA claim, made pursuant to Federal Rule of Civil Procedure 68, renders the plaintiff’s (and the purported class’) case moot.  The Court held that it did not, reasoning that under basic principles of contract law, an unaccepted offer is a legal nullity, did not bind either party, and therefore did not moot the parties’ dispute. Id. at 670.  The Supreme Court held open, however, the question whether “the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.” Id. at 672.

With the Rule 68 offer approach shut down by Campbell-Ewald, defendants sought new ways to shut down TCPA litigation prior to class certification.  On June 20, 2017, the Seventh Circuit was confronted with a variation on the Rule 68 approach, considering whether a defendant’s deposit of an amount necessary to satisfy the plaintiff’s claim in full in a bank account held by the court, pursuant to Rule 67, mooted the plaintiff’s claim. See Fulton Dental, LLC v. Bisco, Inc., No. 16-374, 2017 U.S. App. LEXIS 10839 (7th Cir., June 20, 2017).  The Seventh Circuit held that it did not.

Writing for a unanimous panel, Judge Wood explained that the defendant’s gambit did not fit within the fact hypothetical left unresolved by Campbell-Ewald.  While the Supreme Court had declined to decide whether a deposit in an “account payable to the plaintiff” would be sufficient to moot the plaintiff’s claim, the Seventh Circuit observed that money held pursuant to a Rule 67 deposit is not directly payable to the plaintiff.  Op. at 7.  Rather, the Seventh Circuit noted, a Rule 67 deposit is made to relieve a party who holds contested funds from responsibility to disburse the funds to the claimants.

Because a Rule 67 deposit does not confer access and ownership of the funds to the plaintiff, Judge Wood reasoned that there was “no principled distinction” between the unaccepted offer made pursuant to Rule 68, deemed a legal nullity and insufficient to moot the plaintiff’s claim in Campbell-Ewald, and a unilateral deposit made pursuant to Rule 67.  Op. at 8. “In either case,” the Court explained, “all that exists is an unaccepted contract offer, and as the Supreme Court recognized, an unaccepted offer is not binding on the offeree.” Id.

Because a Rule 68 deposit does not amount to a payment “in an account payable to the plaintiff,” the Seventh Circuit did not address the hypothetical fact pattern left unresolved by Campbell-Ewald. Other circuit courts have reached conflicting views as to whether this approach is sufficient to enter judgment on the named plaintiff’s claim.  In Chen v. Allstate Ins. Co., 819 F.3d 1136  (9th Cir. 2016), for example, the Ninth Circuit held that a defendant’s deposit of $20,000 in a bank escrow account “pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to [plaintiff]” did not moot the claim because the plaintiff had not “actually received” the funds and that deposit was a mere tender that had not been accepted.  By contrast, in Leyse v. Lifetime Entm’t Servs., LLC, 2017 U.S. App. LEXIS 2607 (2d Cir. Feb. 15, 2017), the Second Circuit held that judgment could be entered for the plaintiff where the defendant deposited the full amount of damages recoverable by the named plaintiff, even though the deposited funds were not accepted.

So long as class litigation imposes the threat of multi-million (and billion) dollar judgments and lucrative attorneys’ fees awards, defense counsel will continue to seek innovative methods to resolve the litigation prior to class certification. The Seventh Circuit’s decision in Fulton Dental, however, appears to have blocked—at least for now—one such approach to picking off a named plaintiff’s claim.