By Pamela Devata and Reema Kapur

The refrain from the Rolling Stones’ iconic song “Satisfaction” reportedly was inspired by a phrase from a Chuck Berry ditty “I can’t get no satisfaction from the judge….”  This phrase aptly describes the outcome for a defendant seeking to dismiss putative class claims under the Fair Credit Reporting Act (“FCRA”) in Smith v. Res-Care, Inc., Case No. 13-5211 (S.D. W. Va. Aug. 28, 2013).  Judge Robert Chambers of the U.S. Court for the Southern District of West Virginia denied Res-Care’s motion to dismiss, which was brought before any discovery into plaintiff’s damages, holding that the defendant’s offer of judgment may not fully satisfy Plaintiff’s request for relief.

Employers seeking to neutralize putative class claims through an offer of judgment strategy should carefully read the Res-Care opinion. In the class context, the efficacy of Rule 68 offers of judgment may depend entirely on the law of the particular federal Circuit where the action is pending — four federal Circuits hold that even if an offer of judgment moots the claims of a Rule 23 class representative, it does not necessarily moot the claims of the class. Further, assuming employers can get over this initial hurdle, different Circuits analyze the concept of “full satisfaction” differently, thereby making it critical that defendants properly calibrate an offer of judgment. Thus, employers may find themselves in a predicament where they “can’t get [full] satisfaction,” at least at a motion to dismiss stage, because of controlling Circuit precedent with respect to Rule 68 offers of judgment.

Background Facts In The Case

Plaintiff, a job applicant, brought a putative class action pursuant to the FCRA claiming that Res-Care violated FCRA requirements and improperly used a consumer report about him when it denied his job application and contending that an acknowledgment he provided to Res-Care was ineffective. Plaintiff sought statutory and punitive damages (in an unspecified amount), as well as attorneys’ fees and costs.

On May 10, 2013, Res-Care made an offer of judgment to the individual Plaintiff in the amount of $25,000. Plaintiff had not yet moved for class certification. The offer of judgment was inclusive of all costs of the action (including all other costs, fees, amounts, and other relief) and all actual attorneys’ fees. Plaintiff did not accept or respond to the offer within the required 14-day timeframe before the offer expired. On July 1, 2013, Res-Care moved to dismiss for lack of subject matter jurisdiction, arguing that the unaccepted offer rendered the putative class action moot.

The Court’s Analysis

Because the Fourth Circuit generally recognizes that mooting an individual representative’s claims may moot the claims of a putative class, the Court’s analysis of Res-Care’s offer of judgment turned on the concept of “full satisfaction” of plaintiff’s claims. In particular, the Court found that analysis of Rule 68 offers of judgment is a two-part inquiry. First, the judge decides whether a defendant’s offer of judgment fully satisfies plaintiff’s request for relief. Second, if the answer to the first question is in the affirmative, the judge decides whether full satisfaction of the individual plaintiff’s request for relief — before the plaintiff files a motion for class certification — eliminates a case or controversy rendering the entire case moot. The Court never reached the second question because it found that the offer of judgment in that case did not provide complete relief to the plaintiff.

The relief requested by the plaintiff in Res-Care involved four components, including statutory damages, unspecified punitive damages, costs, and attorneys’ fees. Computing statutory damages was straightforward because the FCRA allows a maximum statutory damages recovery of $1,000.  15 U.S.C. § 1681n. Next, although Res-Care acknowledged that punitive damages under the FCRA are uncapped, it argued that because of constitutional due process concerns, an award of punitive damages rarely exceeds nine times the amount of actual damages. Thus, it argued that under the FCRA, the maximum combined amount of actual ($1,000) and punitive damages ($9,000) that the plaintiff could recover was $10,000. Its offer of $25,000, it argued, more than fully satisfied the plaintiff’s request for relief, including costs and attorneys’ fees.

Relying on Fourth Circuit precedent in Warren v. Sessoms & Rogers, P.A., 676 F.3d 365 (4th Cir. 2012), the Court rejected Res-Care’s argument. According to the Court, the reasoning in Warren is that if a plaintiff seeks uncapped and unspecified damages, an unaccepted offer of judgment cannot be said to provide full relief. Because the FCRA does not cap the amount of punitive damages, the plaintiff’s request for unspecified punitive relief in Res-Care blocked the defendant from effectively using an offer of judgment to render the case moot at the motion to dismiss stage. Turning to the defendant’s argument that any “realistic” punitive damages that the plaintiff could recover would be limited to a single-digit ratio to the amount of statutory damages, the Court found that “[a]lthough it may be unlikely that plaintiff will recover an amount of punitive damages in excess of $9,000, such an award is possible, and plaintiff need not demonstrate the likeliness of the amount of any punitive award at this point.” In so holding, the Court expressly acknowledged the tension between Warren and cases from other circuits where federal judges have accepted arguments similar to those advanced by Res-Care. Specifically, judges outside of the Fourth Circuit have held that a properly calibrated offer of judgment can moot a plaintiff’s FCRA claims based on the theory that punitive damages must be closely tethered to the amount of statutory damages available under the FCRA. However, relying on Warren and citing the early stages of the case (“there has been no evidentiary hearing or judicial fact-finding regarding any potential amount of punitive damages”), the Court held that the defendant’s offer of judgment did not fully satisfy the plaintiff’s request for relief. Therefore, it denied Res-Care’s motion to dismiss as premature.

Implications for Employers

Rule 68 offers of judgment are an important defense tactic to force a settlement and potentially shut down a class action lawsuit. However, in the class context, the efficacy of Rule 68 offers depends on whether the defense tactic is favored in the federal Circuit where the lawsuit is pending. The decision in Res-Care is a narrowly tailored holding that the motion to dismiss was premature, and does not eliminate the use of Rule 68 offer of judgments for class cases in the Fourth Circuit. Further, should employers find themselves defending a putative class action in a federal Circuit that favors this tactic, Res-Care is an important reminder to employers to consider the procedural posture of the case and to carefully calibrate the amount of the offer so that it “beats” the maximum verdict that a plaintiff would be entitled to receive.