Colbert v. Dymacol Inc ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
8-28-2002
Colbert v. Dymacol Inc
Precedential or Non-Precedential: Precedential
Docket No. 01-4397
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Recommended Citation
"Colbert v. Dymacol Inc" (2002). 2002 Decisions. Paper 539.
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PRECEDENTIAL
Filed August 28, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-4397
BRENT COLBERT, ON BEHALF OF
HIMSELF AND ALL OTHERS SIMILARLY
SITUATED
v.
DYMACOL, INC.;
INTELLIRISK MANAGEMENT CORP.,
Appellants
Appeal from the United States District Court
For the Eastern District of Pennsylvania
D.C. No.: 01-cv-03577
District Judge: Honorable Clarence C. Newcomer
Argued: June 14, 2002
Before: ROTH, RENDELL, and ROSENN, Circuit Jud ges.
(Filed: August 28, 2002)
David A. Searles (Argued)
Donovan Searles
1845 Walnut Street, Suite 1100
Philadelphia, PA 19103
James A. Francis
Francis & Mailman
100 South Broad Street, Suite 208
Land Title Building, 19th Floor
Philadelphia, PA 19110
Counsel for Appellee
Robert W. Hayes (Argued)
Robert V. Dell’Osa
Cozen & O’Connor
1900 Market Street
The Atrium
Philadelphia, PA 19103
Counsel for Appellants
Richard J. Rubin
1300 Canyon Road
Santa Fe, NM 87501
Counsel for Amicus-Appellee
National Consumer Law Center
OPINION OF THE COURT
ROSENN, Circuit Judge.
This appeal presents an important question of first
impression in this circuit concerning the continued
presence of federal jurisdiction in class action litigation
when a putative class’s named representative’s claim
becomes moot before he or she files a Motion for Class
Certification. Defendant Dymacol, Inc. (Dymacol) made an
Offer of Judgment to the named plaintiff, Brent Colbert,
pursuant to Federal Rule of Civil Procedure (FRCP) 68,1
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1. The pertinent portion of Rule 68 provides:
At any time more than 10 days before the trial begins, a party
defending against a claim may serve upon the adverse party an offer
to allow judgment to be taken against the defending party for the
money or property or to the effect specified in the offer, with costs
then accrued. . . . An offer not accepted shall be deemed withdrawn
and evidence thereof is not admissible except in a proceeding to
determine costs. If the judgment finally obtained by the offeree is
not more favorable than the offer, the offeree must pay the costs
incurred after the making of the offer.
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that provided Colbert with the maximum relief he could
obtain by winning on the merits. The District Court held
that Rule 68 is fundamentally incompatible with class
action litigation and granted Colbert’s Motion to Strike the
Offer of Judgment and his Motion for Class Certification,
the latter having been filed after Dymacol’s offer had been
made. Because Dymacol’s offer of full relief mooted
Colbert’s claim before Colbert had filed his Motion for Class
Certification, we hold that there is no longer federal
jurisdiction over this litigation and the District Court’s
Order will be vacated.
I.
On July 19, 2000, Colbert received a dunning letter from
Dymacol, a collection agency and wholly-owned subsidiary
of defendant Intellirisk Management Corp., requesting that
payment be made on merchandise purchased from an
entity known as Sound and Spirit.
Colbert filed a Class Action Complaint with the United
States District Court for the Eastern District of
Pennsylvania on July 17, 2001, alleging violations of the
Fair Debt Collection Practices Act (FDCPA), 15 U.S.C.
SS 1692-1693r, and the Pennsylvania Fair Credit Extension
Uniformity Act, PA. STAT. ANN. tit. 73, SS 2270.1-2270.6, as
applied pursuant to the Pennsylvania Unfair Trade
Practices and Consumer Protection Law, PA. STAT. ANN. tit.
73, S 201-1 to S 209-6. In the Complaint, Colbert sought to
represent a class of persons in the Commonwealth of
Pennsylvania who, in the preceding two years, had received
dunning letters from the defendants.
On September 7, 2001, before filing an Answer to the
Complaint, Dymacol served Colbert with an Offer of
Judgment, pursuant to FRCP 68, for the maximum amount
of statutory damages recoverable under the FDCPA,
including reasonable costs and attorneys’ fees.
On September 10, 2001, Colbert moved to certify the
Class. Two days later, Colbert moved to strike Dymacol’s
Offer of Judgment. The defendants opposed both motions.
On October 2, 2001, the District Court held that"because
Rule 68 would bypass court approval of settlement, plaintiff
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has filed this suit as a class action, and this Court has not
determined that plaintiff ’s class action is improper, Rule 68
is not applicable here, and the Court will strike defendants’
Offer of Judgment." The Court likewise granted Colbert’s
Motion for Class Certification.
On October 12, 2001, the defendants, pursuant to FRCP
23(f),2 filed an Application for Permission to Appeal from the
District Court’s Order. On December 10, 2001, we granted
defendants’ Application and now turn to the merits of this
interlocutory appeal.3
II.
Under the United States Constitution, federal judicial
power extends only to "cases" or "controversies." U.S.
CONST. art. III, S 2; Flast v. Cohen, 392 U.S. 83, 94 (1968);
Lusardi v. Xerox Corp., 975 F.2d 964, 974 (3d Cir. 1992).
Thus, it is axiomatic that a litigation becomes moot and
federal jurisdiction is lost when a dispute between the
parties no longer exists or when a party loses a personal
interest in the outcome of the litigation. Holstein v. City of
Chicago, 29 F.3d 1145, 1147 (7th Cir. 1994)."Article III
requires that a plaintiff ’s claim be live not just when he
first brings the suit but throughout the entire litigation,
and once the controversy ceases to exist the court must
dismiss the case for lack of jurisdiction." Lusardi, 975 F.2d
at 974.
On September 7, 2001, before Colbert filed a Motion for
Class Certification, Dymacol made him an Offer of
Judgment, pursuant to FRCP 68, in the amount of $1100
and reasonable costs and attorneys’ fees, which is the
maximum statutory amount Colbert could recover under
the FDCPA.4 As Colbert conceded at oral argument, an offer
_________________________________________________________________
2. The Rule provides, in pertinent part: "A court of appeals may in its
discretion permit an appeal from an order of a district court granting or
denying class action certification . . ."
3. We have appellate jurisdiction pursuant to 28 U.S.C. S 1292(e).
4. On appeal, Colbert argues that he suffered actual damages and that
Dymacol’s Offer of Judgment was therefore not the maximum amount he
could recover in this litigation. The District Court noted, however, that
Colbert did "not dispute that th[e Offer of Judgment] represents the
maximum he could hope to recover." (JA 10, n.1) Thus, Colbert has
waived any argument that Dymacol’s Offer of Judgment did not
represent his maximum potential recovery.
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of complete relief in an individual action moots the
litigation. Rand v. Monsanto Co., 926 F.2d 596, 598 (7th
Cir. 1991) ("Once the defendant offers to satisfy the
plaintiff ’s entire demand, there is no dispute over which to
litigate and a plaintiff who refuses to acknowledge this loses
outright, under Fed.R.Civ.P. 12(b)(1), because he has no
remaining stake.") (citation omitted); Zimmerman v. Bell,
800 F.2d 386, 390 (4th Cir. 1986) (holding no case or
controversy when defendant offers plaintiff full damages);
Abrams v. Interco Inc., 719 F.2d 23, 32 (2d Cir. 1983) (no
justification for expending court resources after defendant
offered plaintiff more than plaintiff could recover on merits);
Wright, Miller & Cooper, Federal Practice and Procedure:
Jurisdiction 2d S 3533.2 ("Even when one party wishes to
persist to judgment, an offer to accord all of the relief
demanded may moot the case."). Colbert, however, argues
that because this litigation was filed as a class action,
typical mootness rules do not apply and he should be
permitted to continue as named representative of the
putative class.
The District Court accepted Colbert’s argument, and
granted his motions to strike Dymacol’s Offer of Judgment
and to certify the class. Although decisions to grant or deny
class certification are usually reviewed for abuse of
discretion, Newton v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 259 F.3d 154, 165 (3d Cir. 2001), the District Court
applied legal precepts in deciding the mootness issue, and
thus our review is plenary. Davis v. Thornburgh, 903 F.2d
212, 213 n.2 (3d Cir. 1990).
The District Court held that Rule 68 is inapplicable in the
class action context. In the case at bar, however, the Rule
68 issue is a red herring. Rule 68 operates merely as a fee-
shifting device, requiring plaintiffs who reject Offers of
Judgment to accept the risk of being taxed costs if the
ultimate judgment obtained by the plaintiff is less than the
defendant had offered. Assuming arguendo that the District
Court is correct and Rule 68 is inapplicable in class action
litigation, this assumption does not affect this case.
Dymacol’s Offer of Judgment was for the maximum relief
Colbert could have obtained on the merits. Dymacol’s use
of Rule 68 as the means of transmitting its Offer of
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Judgment is therefore irrelevant; the significant factor is
that Dymacol offered Colbert maximum relief under the
governing statute. The focus on Rule 68 was therefore
misplaced.
Colbert asserts that permitting a defendant to moot a
class action through an offer of maximum relief to the
single named plaintiff is inconsistent with FRCP 23(e),
which provides that "[a] class action shall not be dismissed
or compromised without the approval of the court . .." This
argument elevates form over substance and we therefore
reject it. The purpose of Rule 23(e) is "to protect the
nonparty members of the class from unjust or unfair
settlements affecting their rights." Wilson v. Southwest
Airlines, Inc., 880 F.2d 807, 818 (5th Cir. 1989)(internal
quotations omitted). Thus, a court with jurisdiction over a
class action will give careful scrutiny to any settlement
agreements between named representatives and
defendants. However, in this case, there were no non-party
members of the putative class when Dymacol tendered
judgment. A court cannot use Rule 23(e) to circumvent the
"case or controversy" requirement of Article III, as it is self-
evident that the Federal Rules of Civil Procedure cannot
create federal jurisdiction outside the perimeters of Article
III. Accordingly, the essence of the question facing this
Court is: Did Dymacol’s Offer of Judgment to Colbert
deprive Colbert of a stake in this case and, concomitantly,
deprive the District Court of jurisdiction over the matter?
Although Dymacol’s Offer of Judgment came before
Colbert filed a Motion for Class Certification, Colbert and
his amicus, National Consumer Law Center, cite Phillips v.
Allegheny County, Pa., 869 F.2d 234 (3d Cir. 1989), for the
proposition that "even though an action has not been
certified as a class action, an action filed as a class action
should be treated as if certification has been granted for the
purposes of settlement until certification is denied." Id. at
237. Colbert and his amicus look to Kahan v. Rosenstiel,
424 F.2d 161 (3d Cir. 1970), for further support. There, the
District Court had dismissed a putative class action on the
ground that the underlying claim was meritless. We
reversed, and stated that "[i]n the present case it is also
appropriate to follow the view . . . that a suit brought as a
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class action should be treated as such for purposes of
dismissal or compromise, until there is a full determination
that the class action is not proper." Id. at 169 (emphasis
added).
The general principle, appropriately followed in Phillips
and Kahan, is not applicable here. Cf. Bd. of School
Comm’rs v. Jacobs, 420 U.S. 128, 129 (1975) (high school
graduation of representative students mooted case"unless
it was duly certified as a class action"). In Phillips, in
contrast to the case at bar, a Motion for Class Certification
was pending when the parties settled the case, and it was
therefore not inappropriate to treat the case as if class
certification had been granted. Kahan’s facts centered
around the question whether the District Court erred in its
determination that the named plaintiff ’s claim was without
merit; it did not involve a question of federal jurisdiction.
The facts here, on the other hand, are different and are
controlled by Lusardi v. Xerox Corp., 975 F.2d 964 (3d Cir.
1992).
Although acknowledging that once a class has been
certified, "special mootness rules apply in the class action
context," we held in Lusardi that "[a] different general rule
operates when a class has yet to be certified." Id. at 974.
"Normally, when claims of the named plaintiffs become
moot before class certification, dismissal of the action is
required." Id. "In such a situation, there is no plaintiff . . .
who can assert a justiciable claim against any defendant
and consequently there is no longer a ‘case or controversy’
within the meaning of Article III of the Constitution." Id. at
974-75 (internal quotations omitted).
There are, however, two exceptions to this class action
mootness precept. First, a named representative who no
longer has a personal stake can continue "to argue a
certification motion that was filed before his claims expired
and which the district court did not have a reasonable
opportunity to decide." Id. at 975. Second, a named
representative whose individual claim has expired can
appeal a denial of a class certification motion filed when her
claims were alive. Id. Because Colbert’s individual claim
expired before he filed a motion for class certification,
neither exception is applicable here.
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The second exception finds its origins in United States
Parole Commission v. Geraghty, 445 U.S. 388 (1980). In
Geraghty, the Supreme Court recognized that a plaintiff
litigating a class action presents two separate issues to the
court: (1) the merits of the litigation, and (2) the claim that
he is entitled to represent a class. Id. at 402. The denial of
class certification is an adjudication of the second issue. Id.The Court took pains to note that its holding "is limited to
the appeal of the denial of the class certification motion."
Id. at 404; Lusardi, 975 F.2d at 975 ("Recognizing the
potential breadth of this theory of third-party standing, the
Court took pains to limit its application."). The significance
of this limitation cannot be overstated.
As Geraghty noted, "when a District Court erroneously
denies a procedural motion . . . an appeal lies from the
denial and the corrected ruling ‘relates back’ to the date of
the original denial." Id. at 406-07 n.11. 5 The "relation back"
theory is what prevents the evisceration of Article III’s "case
or controversy" requirement. Lusardi, 975 F.2d at 976 ("The
‘relation back’ rationale rescues Article III’s‘case or
controversy’ requirement from virtual extinction."); id. at
983 ("Without a rule that plaintiff have a live claim at least
when the motion to certify is filed, the ‘case or controversy’
requirement would be almost completely eviscerated in the
class action context, since almost anybody might be
deemed to have standing to move to certify a class."). And,
of course, there must be something to "relate back" to,
which is the filing of the Motion for Class Certification.
When a named representative’s claim expires before a
Motion for Class Certification has been filed, there is
nothing to "relate back" to, id. at 978, the litigation is moot,
and there is no longer federal jurisdiction over the matter.
See Holmes v. Pension Plan, 213 F.3d 124, 135-36 (3d Cir.
_________________________________________________________________
5. Dicta from an earlier United States Supreme Court decision noted that
there could be times when a named representative’s personal claim is
mooted before a District Court can reasonably rule on class certification.
In such circumstances, the Court indicated that perhaps "the
certification can be said to ‘relate back’ to the filing of the complaint."
Sosna v. Iowa, 419 U.S. 393, 402 n.11 (1975). As noted, however,
Geraghty made clear that in such a contingency, the certification relates
back to when the motion was filed and not the filing of the Complaint.
8
2000) ("If . . . the putative class representative’s individual
claim becomes moot before he moves for class certification,
then any subsequent motion must be denied and the entire
action dismissed.").
Colbert argues that as a matter of policy, we should not
countenance a system that allows defendants to moot class
actions by "picking off " claim after claim of putative
representatives before they file a Motion for Class
Certification. Although this argument has superficial
appeal, it lacks real substance. First, it should be noted
that Lusardi rejected this argument. "[E]ven so far as these
opinions [accept the "picking off " argument], they still
require the named plaintiff to have a personal stake when
the class certification motion at issue was filed." Lusardi,
975 F.2d at 982 (emphasis in original). Second, it is highly
unlikely that the defendants here are attempting to"pick
off " putative representatives in order to frustrate the class
action device. This is because the FDCPA limits defendants’
potential liability to unnamed class members to"the lesser
of $500,000 or 1 per centum of the [defendant’s] net
worth." 15 U.S.C. S 1692k(a)(2)(B). In their Answer to
Colbert’s Complaint, the defendants admitted that more
than 42,000 dunning letters had been sent to Pennsylvania
consumers. Thus, it would cost the defendants more to
continue to "pick off " putative representatives than it would
to go to trial. Therefore, at least in this case, Colbert’s
argument is unconvincing. Even in other higher-stakes
contexts, such as asbestos litigation, "picking off " putative
representatives would obviously be cost-prohibitive and
otherwise impractical. We see no compelling policy
argument that can overcome the jurisdictional structure
delineated in Article III.
III.
Accordingly, Colbert’s individual claim had become moot
and the District Court lost federal jurisdiction when
Dymacol offered Colbert maximum relief. The District
Court’s Order granting Colbert’s Motion to Strike Dymacol’s
Offer of Judgment and granting Colbert’s Motion for Class
Certification will be vacated.
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A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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