money bagBy Gerald L. Maatman, Jr. and Jules Levenson

Defendants fighting class actions in the Seventh Circuit may have one less tool in their arsenal following the recent ruling in Chapman v. First Index, Inc., No. 14-2773, 2015 WL 4652878 (7th Cir. Aug. 6, 2015) [here], a putative class action arising from allegedly illegal junk faxes. Though not a workplace class action decision, Chapman is important for any employer facing high-stakes litigation.

Until Chapman (authored by Judge Easterbrook joined by Circuit Judges Posner, and Manion), prevailing case law in the Seventh Circuit held that when a plaintiff received an offer of judgment for full relief requested, the claim became moot. This had particular salience in the class action context where mooting the claim of a would-be class representative often served to head off the specter of a larger case. Though plaintiffs typically avoided this by filing a “placeholder” motion for class certification, the tool was still a valuable one in the proper circumstances. After Chapman, however, an offer of judgment for full relief no longer moots a case for Article III purposes in the Seventh Circuit.

Background Of The Case

The path to this groundbreaking ruling started off as so many other class actions before it. While the parties were wrangling over certification, the defendant made an offer of full relief, which was set to expire 14 days after the district court ruled on class certification.

Following over four years of litigation, including discovery and multiple class certification motions, the district court denied Rule 23 certification.

After the plaintiff failed to accept the offer within two weeks, the defendant moved for, and won, dismissal on mootness grounds.

The Appellate Ruling

On appeal, the Seventh Circuit affirmed the denial of certification, but vacated the dismissal of the plaintiff’s individual claims. It held that cases are “moot only when it is impossible for a court to grant any effectual relief whatever to the prevailing party” and that because the trial court “could award damages and enter an injunction” relief was available and the case was not moot. Id. at 5.

Judge Easterbrook acknowledged the prior Seventh Circuit case law, but cited Justice Kagan’s dissent (joined by 3 other Supreme Court Justices) in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523, 1532-37 (2013), as showing that “an expired (and unaccepted) offer of a judgment does not satisfy the Court’s definition of mootness, because relief remains possible.”  Id. at 5. In addition, the opinion noted that if a case were really mooted by an offer of judgment, dismissal would be required and no court would even be able to enter judgment because “the case would have gone up in smoke.” Id. at 6.

Even though the question of mootness is currently pending before the Supreme Court in the coming term, the Seventh Circuit panel felt that there was no need to wait for further binding guidance and, aligning itself with the other courts of appeals that have considered the question of mootness after Symczyk, overruled prior Seventh Circuit cases “to the extent they hold that a defendant’s offer of full compensation moots the litigation or otherwise ends the Article III case or controversy.” Id. at 7.

Implications For Employers

Despite the apparently unequivocal holding, however, the exact impact of the Chapman ruling is unclear. Even though offers of full relief will no longer result in mootness, the Seventh Circuit still seemed dubious as to allowing litigation to continue once a defendant has offered everything a plaintiff seeks (at least as to individual plaintiffs). Reaffirming that plaintiffs cannot continue to sue after they’ve already won, the Seventh Circuit left open the question of how district courts should deal with offers of full compensation. While that issue which was not directly raised in this case, in a fairly considered dictum Judge Easterbrook suggested potential arguments (such as estoppel or waiver) as to why such cases should not be allowed to continue, but also noted that a fleeting offer (this one expired 14 days after the ruling on class certification) could not be equated to full compensation.

That said, the dictum may be read to cabin the arguments for ending litigation via offers of full relief to non-class cases. Indeed, the Seventh Circuit noted that “it may be that, in class actions, the conclusion ‘not moot’ implies that the case should be allowed to continue — for even a settlement offer after the district judge has declined to certify a class may be designed to prevent an effective appeal (or at least change everyone’s incentives about whether to appeal).” 8.

If district courts come to the same conclusion, the era of settling with putative class representatives to head off class actions may be at an end – and defendants will have to turn to other strategies to cut off class litigation at an early stage. Even if district courts do not adopt a bright line rule prohibiting full offers of judgment from ending class cases, defendants will have another hoop to jump through in trying to end cases at an early stage.

Regardless of how the arguments play out, one potential change is that placeholder class certification motions, currently used to avoid mootness, might go away, perhaps resulting in a silver lining for defendants who will no longer have a certification motion hanging over their head from the very beginning of the case.

The silver lining aside, Chapman is a blow to the defense of class actions, but the magnitude of that blow remains uncertain. Stay tuned.