Diaz v. First American Home Buyers Protection Corp. , 732 F.3d 948 ( 2013 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
EMILY DIAZ, on behalf of herself and No. 11-57239
all others similarly situated,
Plaintiff-Appellant, D.C. No.
3:09-cv-00775-
v. H-WMC
FIRST AMERICAN HOME BUYERS
PROTECTION CORPORATION, a OPINION
California corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of California
Marilyn L. Huff, District Judge, Presiding
Argued and Submitted
May 6, 2013—Pasadena, California
Filed October 4, 2013
Before: Harry Pregerson and Raymond C. Fisher, Circuit
Judges, and James S. Gwin, District Judge.*
Opinion by Judge Fisher
*
The Honorable James S. Gwin, United States District Judge for the
Northern District of Ohio, sitting by designation.
2 DIAZ V. FIRST AMERICAN
SUMMARY**
Fed. R. Civ. P. 68 Offer of Judgment
The panel vacated the district court’s dismissal of
plaintiff’s individual claims, and held that an unaccepted
Fed. R. Civ. P. 68 offer of judgment made by the defendant
did not render moot plaintiff’s claims for misrepresentation,
breach of contract, and breach of the implied covenant of
good faith and fair dealing.
The panel, acknowledging a circuit split on the issue, held
that an unaccepted Rule 68 offer that would fully satisfy a
plaintiff’s claim is insufficient to render the claim moot.
COUNSEL
Edward D. Chapin and Francis A. Bottini (argued), Chapin
Fitzgerald & Bottini LLP, San Diego, California, for
Plaintiff-Appellant.
Joel D. Siegel (argued) and Paul M. Kakuske, SNR Denton
US LLP, Los Angeles, California; Charles A. Newman, SNR
Denton US LLP, St. Louis, Missouri; Edward Patrick Swan,
Jones Day, San Diego, California, for Defendant-Appellee.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
DIAZ V. FIRST AMERICAN 3
OPINION
FISHER, Circuit Judge:
Emily Diaz, the owner of a home warranty plan from First
American Home Buyers Protection Corporation, filed a class
action complaint alleging that First American refused to make
timely repairs, used substandard contractors and wrongfully
denied claims. She asserted state law claims for unfair
competition, misrepresentation, concealment, breach of
contract and breach of the implied covenant of good faith and
fair dealing. The district court dismissed Diaz’s unfair
competition and concealment claims under Federal Rule of
Civil Procedure 12(b)(6). Following denial of class
certification, First American made an offer of judgment on
Diaz’s remaining individual claims pursuant to Federal Rule
of Civil Procedure 68. When Diaz did not accept the offer,
First American moved to dismiss these claims for lack of
subject matter jurisdiction. Agreeing that First American’s
unaccepted Rule 68 offer rendered Diaz’s remaining claims
moot, the district court dismissed the claims under Federal
Rule of Civil Procedure 12(b)(1), entering judgment in favor
of neither party. Diaz appealed.
We vacate the district court’s dismissal of Diaz’s
remaining individual claims. We hold that an unaccepted
Rule 68 offer that would fully satisfy a plaintiff’s claim is
insufficient to render the claim moot. See McCauley v. Trans
Union, L.L.C., 402 F.3d 340, 342 (2d Cir. 2005). Diaz’s
remaining claims, therefore, were not made moot by her
refusal to accept First American’s Rule 68 offer, even
assuming that the offer would have fully satisfied her claims.
Accordingly, we vacate the Rule 12(b)(1) dismissal of Diaz’s
4 DIAZ V. FIRST AMERICAN
claims for misrepresentation, breach of contract and breach
of the implied covenant of good faith and fair dealing.1
BACKGROUND
Emily Diaz brought this class action against First
American Home Buyers Protection Corporation on behalf of
a putative nationwide class consisting of all persons who
made a claim under a home warranty plan obtained from First
American after March 2003. After First American removed
the action to federal court, the district court issued a series of
orders dismissing Diaz’s claims for concealment, false
promise, unfair competition and violation of the California
Consumer Legal Remedies Act under Rule 12(b)(6). In
September 2011, the district court entered an order denying
Diaz’s motion for class certification.
A short time thereafter, First American made an offer of
judgment to Diaz on her remaining individual claims – for
misrepresentation, breach of contract and breach of the
implied covenant of good faith and fair dealing – pursuant to
Rule 68. First American offered to allow judgment to be
entered against it and in favor of Diaz in the total amount of
$7,019.32, plus costs allowed under Rule 54.2 The offer
1
We address the parties’ remaining contentions in a concurrently filed
memorandum disposition.
2
The offer of judgment provided:
First American has offered to allow judgment to be
entered against it and in favor of Plaintiff in full
resolution of her remaining individual claims asserted
against First American in this action. First American
has offered Plaintiff judgment in the total amount of
DIAZ V. FIRST AMERICAN 5
further provided that, “[i]f this Offer is not accepted . . . , this
Offer shall have no effect, be null and void, and be deemed
withdrawn, and shall not be presented, admitted, or used for
any purpose in any case or proceeding against First
American.” Diaz had until October 17, 2011 to accept the
offer. She did not do so.
First American then filed a motion to dismiss the action
for lack of subject matter jurisdiction. First American argued
that the district court “should dismiss this action pursuant to
Rule[] 12(b)(1) of the Federal Rules of Civil Procedure
because the action is moot in light of Plaintiff’s refusal to
accept a Rule 68 Offer of Judgment for full satisfaction of the
amount she could possibly recover at trial.” Citing decisions
by the Seventh and Fourth Circuits, see Thorogood v. Sears,
Roebuck & Co., 595 F.3d 750, 753 (7th Cir. 2010); Greisz v.
Household Bank (Illinois), N.A., 176 F.3d 1012, 1015 (7th
$7,019.32, plus costs allowed under Rule 54 and now
accrued that may be taxed by the Court, which,
pursuant to Rule 54, do not include attorneys’ fees.
The total amount of $7,019.32 includes all damages and
relief that could be awarded pursuant to final judgment
on Plaintiff’s claims, including: (a) Plaintiff’s claimed
damages, in the amount of $1,649.00 (calculated to
include the claimed purchase price of the home
warranty contracts ($660.00 and $750.00, respectively,
for $1,410.00 total), Plaintiff’s claimed out-of-pocket
expenses for a repair in December 2008 ($129.00), and
Plaintiff’s claimed payments for service fees (two
payments of $55.00, for $110.00 total); (b)
pre-judgment interest in the total amount of $423.32,
calculated pursuant to Cal. Civ. Code § 3287 et seq.;
and (c) an additional amount of consideration of
$4,947.00 (three times Plaintiff’s claimed damages) for
any other damages or relief sought by Plaintiff.
6 DIAZ V. FIRST AMERICAN
Cir. 1999); Rand v. Monsanto Co., 926 F.2d 596, 598 (7th
Cir. 1991); Zimmerman v. Bell, 800 F.2d 386, 390 (4th Cir.
1986), First American argued that “[w]here, as here, a
plaintiff rejects a Rule 68 Offer of Judgment for the full
amount of relief, the district court loses subject matter
jurisdiction and must dismiss the action with prejudice.”
Under these decisions, “[o]nce 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.” Rand, 926 F.2d at 598 (citation
omitted).
In ruling on First American’s motion, the district court
agreed with First American that the Rule 68 offer would have
fully satisfied Diaz’s remaining individual claims. With
respect to monetary relief, First American’s offer provided
“the full amount of relief she is entitled to individually.” The
court recognized that the Rule 68 offer did not provide for
injunctive or declaratory relief, each of which Diaz had
sought in her complaint. But the court found that Diaz was
not entitled to either of these forms of relief. The court
deemed Diaz’s request for an injunction “not appropriate”
because “she has been offered, and declined, an adequate
remedy at law” and “she no longer holds a home warranty
plan with First American.” Similarly, the court found that
Diaz’s claim for declaratory relief was “duplicative of her
breach of contract and breach of the implied covenant claims”
and “superfluous” given that she no longer had a home
warranty plan with First American.
Having determined that First American’s offer would
have provided Diaz complete relief on her remaining
individual claims, the court went on to hold that the
DIAZ V. FIRST AMERICAN 7
unaccepted offer was sufficient to render those claims moot.
Like First American, in the absence of Ninth Circuit authority
the court reached this conclusion by relying on decisions of
the Seventh and Fourth Circuits, citing Thorogood, 595 F.3d
at 753, Greisz, 176 F.3d at 1015, Zimmerman, 800 F.2d at
390, and Rand, 926 F.2d at 598. Having determined that the
claims were moot, the court granted First American’s motion
and dismissed the claims for lack of subject matter
jurisdiction. The court initially entered judgment against
Diaz, but subsequently vacated that judgment and declined to
enter judgment or award costs for either party. Diaz
appealed.
STANDARD OF REVIEW
“We apply a de novo standard for reviewing a district
court’s decision on subject matter jurisdiction, and,
concomitantly apply that standard in reviewing questions of
mootness.” Sample v. Johnson, 771 F.2d 1335, 1338 (9th Cir.
1985) (citation omitted).
DISCUSSION
Diaz argues that the district court erred by dismissing her
remaining individual claims for lack of subject matter
jurisdiction following her refusal to accept First American’s
Rule 68 offer of judgment. She maintains that these claims
were not moot, because: (1) an unaccepted Rule 68 offer does
not render a claim moot, even if the offer would have fully
satisfied the plaintiff’s claim; (2) even if such an offer does
moot a claim, First American’s offer did not provide
complete relief; and (3) her remaining claims were not moot
because she retained a personal stake in appealing the denial
8 DIAZ V. FIRST AMERICAN
of class certification. We agree with Diaz’s first argument
and therefore do not reach her second and third contentions.
Diaz’s first argument requires us to decide whether an
unaccepted Rule 68 offer that would have fully satisfied a
plaintiff’s claim is sufficient to render the claim moot. The
Supreme Court has yet to address this issue. See Genesis
Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1528–29
(2013) (“While the Courts of Appeals disagree whether an
unaccepted offer that fully satisfies a plaintiff’s claim is
sufficient to render the claim moot, we do not reach this
question, or resolve the split, because the issue is not properly
before us.” (footnote omitted)). Nor have we squarely
addressed the issue. In Pitts v. Terrible Herbst, Inc., 653 F.3d
1081, 1091–92 (9th Cir. 2011), we held “that an unaccepted
Rule 68 offer of judgment – for the full amount of the named
plaintiff’s individual claim and made before the named
plaintiff files a motion for class certification – does not moot
a class action” (emphasis added), but we did not squarely
address whether the offer mooted the plaintiff’s individual
claim. We assumed that an unaccepted offer for complete
relief will moot a claim, but we neither held that to be the
case nor analyzed the issue. See id. at 1090–92. In GCB
Communications, Inc. v. U.S. South Communications, Inc.,
650 F.3d 1257, 1267 (9th Cir. 2011), we noted that a case will
“become moot” when “an opposing party has agreed to
everything the other party has demanded,” but we did not
address the effects of an unaccepted Rule 68 offer, an issue
not presented in that case. We therefore treat this as an open
question in this circuit.
Other circuits are divided on the question. The Seventh
Circuit holds that an unaccepted Rule 68 offer for complete
relief will moot a plaintiff’s claim and that the plaintiff loses
DIAZ V. FIRST AMERICAN 9
outright. See 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)).3
The Sixth Circuit agrees with the Seventh Circuit that “an
offer of judgment that satisfies a plaintiff’s entire demand
moots the case,” but disagrees “with the Seventh Circuit’s
view that a plaintiff loses outright when he refuses an offer of
judgment that would satisfy his entire demand.” O’Brien v.
Ed Donnelly Enters., Inc., 575 F.3d 567, 574–75 (6th Cir.
2009). The Sixth Circuit holds that “the better approach is to
enter judgment in favor of the plaintiffs in accordance with
the defendants’ Rule 68 offer of judgment.” Id. at 575.
Finally, the Second Circuit disagrees with the Sixth and
Seventh Circuit that an unaccepted Rule 68 offer for complete
relief moots a plaintiff’s claim, see McCauley v. Trans Union,
L.L.C., 402 F.3d 340, 342 (2d Cir. 2005) (“In the absence of
an obligation to pay [the plaintiff] the $240 in claimed
damages, the controversy between [the plaintiff] and [the
defendant] is still alive.”), but agrees with the Sixth Circuit
that when such an offer has been made, the “better
resolution” is to enter judgment against the defendant,
although the Second Circuit may require as a precondition to
entering such a judgment that the defendant expressly
consents to its entry. See id. (“At oral argument, both parties
agreed that entry of a default judgment would satisfactorily
3
In the absence of controlling Ninth Circuit precedent on point, the
district court here followed the Seventh Circuit’s approach.
10 DIAZ V. FIRST AMERICAN
resolve this case.”). “Such a judgment would remove any
live controversy from this case and render it moot.” Id.4
Although the majority of courts and commentators appear
to agree with the Seventh Circuit that an unaccepted offer will
moot a plaintiff’s claim,5 four justices of the United States
4
Still other circuits, including this one, have yet to address whether an
unaccepted offer of judgment renders a claim moot. See, e.g., Zinni v. ER
Solutions, Inc., 692 F.3d 1162, 1167 n.8 (11th Cir. 2012) (declining to
decide “whether an offer for full relief, even if rejected, would be enough
to moot a plaintiff’s claims”).
5
See, e.g., Warren v. Sessoms & Rogers, P.A., 676 F.3d 365, 371 (4th
Cir. 2012) (“When a Rule 68 offer unequivocally offers a plaintiff all of
the relief ‘she sought to obtain,’ the offer renders the plaintiff’s action
moot.” (citation omitted)); Lucero v. Bureau of Collection Recovery, Inc.,
639 F.3d 1239, 1243 (10th Cir. 2011) (“As Rule 68 operates, if an offer
is made for a plaintiff’s maximum recovery, his action may be rendered
moot.”); Thorogood v. Sears, Roebuck & Co., 595 F.3d 750, 752 (7th Cir.
2010) (“The offer exceeded the amount in controversy and so the case was
moot.”); Samsung Elecs. Co. v. Rambus, Inc., 523 F.3d 1374, 1379 (Fed.
Cir. 2008) (“An offer for full relief moots a claim for attorney fees.”);
Krim v. pcOrder.com, Inc., 402 F.3d 489, 502 (5th Cir. 2005) (“[A] full
settlement offer, even if refused, would dispose of [the plaintiff’s]
individual claims.”); Weiss v. Regal Collections, 385 F.3d 337, 342 (3d
Cir. 2004) (“[U]nder traditional mootness principles, an offer for the
entirety of a plaintiff’s claim will generally moot the claim.”); Greisz v.
Household Bank (Illinois), N.A., 176 F.3d 1012, 1015 (7th Cir. 1999)
(holding that an offer of judgment that encompasses the relief claimed
“eliminates a legal dispute upon which federal jurisdiction can be based,”
because “[y]ou cannot persist in suing after you’ve won”); 13B Charles
Alan Wright & Arthur R. Miller, Federal Practice and Procedure
§ 3533.2 (3d ed. 2013) (“Even when one party wishes to persist to
judgment, an offer to accord all of the relief demanded may moot the
case.”); Schwarzer, Tashima & Wagstaffe, Federal Civil Procedure
Before Trial ¶ 15:156.5 (9th ed. 2013) (“If a defendant offers judgment in
complete satisfaction of plaintiff’s claims, plaintiff’s claims generally are
rendered moot because plaintiff lacks any remaining interest in the
DIAZ V. FIRST AMERICAN 11
Supreme Court, as well as the Solicitor General of the United
States, embraced a contrary position in Genesis Healthcare.
As noted, the majority in Genesis Healthcare did not reach
whether an unaccepted offer that fully satisfies a plaintiff’s
claim is sufficient to render the claim moot. See Genesis
Healthcare, 133 S. Ct. at 1528–29. In a dissenting opinion,
however, Justice Kagan, writing for all four justices who
reached the question, agreed with the Second Circuit that “an
unaccepted offer of judgment cannot moot a case.” Id. at
1533 (Kagan, J., dissenting); accord Brief for the United
States as Amicus Curiae Supporting Affirmance, Genesis
Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013) (No.
11-1059), 2012 WL 4960359, at *10–15.
Justice Kagan explained:
We made clear earlier this Term that “[a]s
long as the parties have a concrete interest,
however small, in the outcome of the
litigation, the case is not moot.” Chafin v.
Chafin, 133 S. Ct. 1017, 1023 (2012) (internal
quotation marks omitted). “[A] case becomes
moot only when it is impossible for a court to
outcome of case.”); 1 Joseph M. McLaughlin, McLaughlin on Class
Actions § 4:28 (9th ed. 2012) (“Traditional mootness principles provide
that an offer of judgment under Federal Rule of Civil Procedure 68 that
satisfies a plaintiff’s entire demand moots the claim. The mere offer of
full relief eliminates any concrete adversity between the plaintiff and
defendant, and renders the underlying dispute moot by negating the
plaintiff’s personal stake in the dispute.” (footnote omitted)); 1 Rubenstein
& Conte, Newberg on Class Actions § 2:15 (5th ed. 2013) (“If the
defendant makes a full offer of judgment pursuant to Rule 68, completely
satisfying all of the named plaintiff’s individual claims, then the named
plaintiff’s individual case necessarily becomes moot.”).
12 DIAZ V. FIRST AMERICAN
grant any effectual relief whatever to the
prevailing party.” Ibid. (internal quotation
marks omitted). By those measures, an
unaccepted offer of judgment cannot moot a
case. When a plaintiff rejects such an offer –
however good the terms – her interest in the
lawsuit remains just what it was before. And
so too does the court’s ability to grant her
relief. An unaccepted settlement offer – like
any unaccepted contract offer – is a legal
nullity, with no operative effect. As every
first-year law student learns, the recipient’s
rejection of an offer “leaves the matter as if no
offer had ever been made.” Minneapolis & St.
Louis R. Co. v. Columbus Rolling Mill,
119 U.S. 149, 151 (1886). Nothing in Rule 68
alters that basic principle; to the contrary, that
rule specifies that “[a]n unaccepted offer is
considered withdrawn.” Fed. Rule Civ. Proc.
68(b). So assuming the case was live before
– because the plaintiff had a stake and the
court could grant relief – the litigation carries
on, unmooted.
For this reason, [the plaintiff’s] individual
claim was alive and well when the District
Court dismissed her suit. Recall: [the
defendant] made a settlement offer under Rule
68; [the plaintiff] decided not to accept it;
after 10 days, it expired and the suit went
forward. [The plaintiff’s] individual stake in
the lawsuit thus remained what it had always
been, and ditto the court’s capacity to grant
her relief. After the offer lapsed, just as
DIAZ V. FIRST AMERICAN 13
before, [the plaintiff] possessed an unsatisfied
claim, which the court could redress by
awarding her damages. As long as that
remained true, [the plaintiff’s] claim was not
moot, and the District Court could not send
her away empty-handed. So a friendly
suggestion to the Third Circuit: Rethink your
mootness-by-unaccepted-offer theory. And a
note to all other courts of appeals: Don’t try
this at home.
Genesis Healthcare, 133 S. Ct. at 1533–34 (Kagan, J.,
dissenting) (some alterations in original) (emphasis added).
Justice Kagan also emphasized that nothing in Rule 68
authorizes a court to enter judgment in accordance with an
unaccepted offer:
Rule 68 precludes a court from imposing
judgment for a plaintiff . . . based on an
unaccepted settlement offer made pursuant to
its terms. The text of the Rule contemplates
that a court will enter judgment only when a
plaintiff accepts an offer. See Rule 68(a) (“If
. . . the [plaintiff] serves written notice
accepting the offer, either party may then file
the offer and notice of acceptance, plus proof
of service. The clerk must then enter
judgment”). And the Rule prohibits a court
from considering an unaccepted offer for any
purpose other than allocating litigation costs
– including for the purpose of entering
judgment for either party. See Rule 68(b)
(“Evidence of an unaccepted offer is not
14 DIAZ V. FIRST AMERICAN
admissible except in a proceeding to
determine costs”). That injunction accords
with Rule 68’s exclusive purpose: to promote
voluntary cessation of litigation by imposing
costs on plaintiffs who spurn certain
settlement offers. See Marek v. Chesny,
473 U.S. 1, 5 (1985). The Rule provides no
appropriate mechanism for a court to
terminate a lawsuit without the plaintiff’s
consent.
Id. at 1536 (alterations in original).
We are persuaded that Justice Kagan has articulated the
correct approach. We therefore hold that an unaccepted Rule
68 offer that would have fully satisfied a plaintiff’s claim
does not render that claim moot. This holding is consistent
with the language, structure and purposes of Rule 68 and with
fundamental principles governing mootness. These principles
provide that “[a] case becomes moot only when it is
impossible for a court to grant ‘any effectual relief whatever
to the prevailing party.’” Knox v. Serv. Employees Int’l
Union, 132 S. Ct. 2277, 2287 (2012) (quoting City of Erie v.
Pap’s A.M., 529 U.S. 277, 287 (2000)). Here, once First
American’s offer lapsed, it was, by its own terms and under
Rule 68, a legal nullity. Diaz’s
individual stake in the lawsuit thus remained
what it had always been, and ditto the court’s
capacity to grant her relief. After the offer
lapsed, just as before, [she] possessed an
unsatisfied claim, which the court could
redress by awarding her damages. As long as
that remained true, [her] claim was not moot,
DIAZ V. FIRST AMERICAN 15
and the District Court could not send her away
empty-handed.
Genesis Healthcare, 133 S. Ct. at 1534 (Kagan, J.,
dissenting). We recognize that a court may have “discretion
to halt a lawsuit by entering judgment for the plaintiff when
the defendant unconditionally surrenders and only the
plaintiff’s obstinacy or madness prevents her from accepting
total victory.” Id. at 1536; cf. McCauley, 402 F.3d at 342;
Chathas v. Local 134 Int’l Bhd. of Elec. Workers, 233 F.3d
508, 512–13 (7th Cir. 2000). That did not occur here,
however. Accordingly, we vacate the Rule 12(b)(1) dismissal
of Diaz’s claims for misrepresentation, breach of contract and
breach of the implied covenant of good faith and fair dealing
and remand for further proceedings.
CONCLUSION
We hold that the district court erred by dismissing Diaz’s
remaining individual claims for lack of subject matter
jurisdiction. We vacate the dismissal of those claims and
remand to the district court. For the reasons stated in the
concurrently filed memorandum disposition, we also vacate
dismissal of Diaz’s concealment and unfair competition
claims and lack jurisdiction to review the district court’s
order denying Diaz’s motion to correct or modify the record.
Each party shall bear its own costs of appeal.
VACATED AND REMANDED.