Feb 22

New York Court Rejects Defendants’ Attempt to Moot Class Plaintiffs’ Claims By Depositing Funds With the Court

A federal district court judge in New York has denied a request by the defendants in a putative class action to deposit funds with the Clerk of Court in the amount of the defendants’ Rule 68 offer of judgment ($400) – an amount the defendants assert would moot the two named plaintiffs’ individual claims and require dismissal of the proposed class action.  Brady v. Basic Research, L.L.C. et al., No. 2:13-cv-7169, 2016 WL 462916 (E.D.N.Y. Feb. 3, 2016).  The decision represents an early response by a federal trial judge to a question the United States Supreme Court left open in last month’s decision in Campbell-Ewald Co. v. Gomez, 2016 WL 228345 (U.S. Jan. 20, 2016).

The Brady case involves claims, by two purchasers of Zantrex weight control supplements, that the defendants falsely advertised the effectiveness of the supplements.  The defendants made a Rule 68 offer of judgment to each plaintiff – offering $200 to each – and then, the day after the Supreme Court issued the Campbell-Ewald decision, filed a motion under Rule 67 of the Federal Rules of Civil Procedure for permission to deposit the $400 with the court.

In Campbell-Ewald, the Supreme Court ruled that a named plaintiff’s proposed class action is not rendered moot when the defendant makes a settlement offer or a Rule 68 offer of judgment that would satisfy the plaintiff’s individual claim but the plaintiff refuses to accept the offer.  2016 WL 228345, at *5-8.  Justice Ginsburg’s majority opinion specifically noted, however, that the Court was not deciding whether a case would be mooted if a defendant goes one step further and actually “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” – because that had not happened in the Campbell-Ewald case.  Id. at *8.

The defendants in Brady wanted to take that extra step.  From the various opinions in Campbell-Ewald, it appeared that at least three (and perhaps four) justices had already expressed their views on the question the majority reserved for a future case: Chief Justice Roberts’s dissent (joined by Justices Scalia and Alito) would have held an unaccepted offer sufficient and indeed said, “For aught that appears, the majority’s analysis may have come out differently if Campbell had deposited the offered funds with the District Court.”  2016 WL 228345, at *18.  And while Justice Thomas concurred in the judgment that an unaccepted offer was not enough, he wrote that he would construe Article III’s case-or-controversy requirement by looking to the common-law rules of tender – which he concluded required that a defendant actually produce the sum of money being offered.  Id. at *10.  Justice Scalia’s death may thus affect how this issue ultimately gets resolved by a closely divided Court.

In Brady, District Judge Sandra Feuerstein gave two reasons for her denial of the defendants’ request to deposit the funds with the Clerk of Court.  First, she explained that Rule 67 (which provides for depositing money with the court) expressly requires “leave of court” and has been interpreted to relieve a depositor of the burden of administering an asset.  2016 WL 462916, at *1.  She concluded, however, that the defendants were seeking permission “to deposit funds into court to moot this case and not to relieve themselves of the burden of administering an asset.”  Id. at *2.  Second, she pointed out that in Campbell-Ewald, the majority opinion states that “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.”  Id. at *1-2 (quoting Campbell-Ewald, 2016 WL 228345, at *7).  In light of that “directive,” Judge Feuerstein concluded that granting the defendants’ request was “not warranted.” Brady, 2016 WL 462916, at *2.

The defendants in Brady appear ready to test the issue further.  The docket in the case shows that the day after Judge Feuerstein denied their Rule 67 motion, they wrote to the judge, informing her that they had wired the $400 to an IOLTA account at Wells Fargo Bank and that it would be held there for the benefit of the two plaintiffs.  They said, “With the funds now deposited and available to afford Plaintiffs complete relief, Defendants respectfully submit that the Court should enter judgment in Plaintiffs’ favor and grant Defendants’ pending motion to dismiss, as Plaintiffs no longer have any live or justiciable claim.”

In light of the Supreme Court’s reservation of the issue in Campbell-Ewald, it seems likely that other defendants will argue that depositing funds with the court or in a bank account earmarked for the named plaintiffs should moot the plaintiffs’ individual claims and require dismissal of the class action allegations.  Plaintiffs will respond that the deposited funds do not provide complete relief because there is no finding or admission of liability and there is no determination of their request to pursue claims on behalf of absent class members.  They will point to the statement in Campbell-Ewald that “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted” – and defendants will respond that, once the funds are deposited with the court or in a bank, that “would-be class representative” will no longer have a “live claim of her own.”  Ultimately, it looks like this question will need to go back to the Supreme Court.

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