Strategy of Offering Refunds to Moot Class Actions Gains Traction
As addressed in a separate post on this blog, the Supreme Court’s decision in Symczyk v. Genesis Healthcare Corp., 133 S.Ct. 1523 (2013) and cases since raised the issue of whether a defendant’s unaccepted offer of judgment for complete relief can moot class actions before a class is certified, which in turn raises the issue of whether such cases can be mooted by a full refund. A recent decision from the Eastern District of California says “yes.”
On February 04, 2014, in the case of Luman v. Theismann, 2014 WL 443960 (E.D. Cal. Feb. 4, 2014), the Court granted a motion to dismiss a putative class action alleging false advertising and related claims against NAC Marketing Co. and its endorser, former Washington Redskins quarterback Joe Theismann, because the plaintiffs who had purchased NAC’s product — an allegedly ineffective prostate medication — had received full refunds. U.S. District Judge Kimberly J. Mueller dismissed the entire action, ruling that the Court lacked subject matter jurisdiction since the plaintiffs’ alleged injuries had been redressed.
In Luman, both Plaintiffs sent letters pursuant to the California Consumer Legal Remedies Act (Cal. Civ. Code §§ 1750, et seq.) demanding that NAC correct, repair or replace the product at issue. Later, one Plaintiff (Luman) received a full refund before filing his Complaint. Subsequently, the other Plaintiff (Amkraut) received a full refund after joining the action as a named Plaintiff in a First Amended Complaint.
The Court held not only that the Plaintiffs’ individual claims were moot, but that the entire putative class action was moot.
As to the individual claims, “[t]he Ninth Circuit has found that one of the principal means by which a claim becomes moot is when ‘an opposing party has agreed to everything the other party has demanded.’” Luman, 2014 WL 443960 at *4, quoting GCB Commc’ns., Inc. v. U.S. S. Commc’ns., Inc., 650 F.3d 1257, 1267 (9th Cir. 2011). Plaintiff Luman received a full refund and did not seek any consequential damages, such as redress for injuries as a result of using the product. And Plaintiff Amkraut received a full refund of the shipping and handling charges he paid, which was “complete restitution for his alleged compensatory damages.” Luman, 2014 WL 443960 at *5. Accordingly, the individual claims were moot. Interestingly, the Court noted that the Ninth Circuit recently held in Diaz v. First Amer. Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013) that an unaccepted Rule 68 offer for complete relief does not moot individual claims, let alone class actions. However, the Court in Luman did not address how it would reconcile its ruling with Diaz, perhaps because, unlike inDiaz where a settlement offer was rejected, the plaintiffs in Luman actually received refunds via remittance to Plaintiffs’ credit cards after sending letters seeking monetary relief.
The Court then addressed whether the Plaintiffs’ claims, “despite their mootness, are transitory, permitting this class action to continue because class certification could relate back to the date of original filing of the complaint.” Luman, 2014 WL 443960 at *5. A claim is transitory where the circumstances under which the claimant seeks relief change before judicial review. See, e.g.,Gerstein v. Pugh, 420 U.S. 103 (1975) (plaintiff sought injunctive relief based on pretrial detention, which ended before claim could be litigated). In transitory cases, a class action may continue even if the plaintiff’s individual claim is mooted before class certification, because class certification could “relate back” to the filing of the original complaint, thereby giving the class action a legal status independent from any individual claim. “Application of the relation back doctrine in this context thus avoids the spectre of plaintiffs filing lawsuit after lawsuit, only to see their claims mooted before they can be resolved.” Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1090 (9th Cir. 2011).
The Court in Luman found that the Plaintiffs’ claims were not subject to relation back. As to Plaintiff Luman, “[t]here is no basis for relating back to the time, more than two months before he filed his original complaint, when Luman received his refund.” Luman, 2014 WL 443960 at *5. As to Plaintiff Amkraut, the Court found that his restitution claims were not ”inherently transitory,” i.e., “they do not involve claims that will expire before the court can rule on class certification.” Id. at *6. Nor were the claims rendered transitory by defendants’ litigation strategy of “picking off” lead plaintiffs with refunds. “Nothing in the record suggests defendant NAC issued Amkraut’s refund for reasons distinct from those motivating the refund sent to plaintiff Luman before this action began.” Id. The Court also ruled that Plaintiffs lacked Article III standing to seek injunctive relief, because “Plaintiffs do not plead that they continue to be misled by defendants’ advertisements ….” Id. Accordingly, the entire action was dismissed.
Whether this case survives appeal could have significant impact on consumer product companies’ class action litigation strategies. If this ruling can be reconciled with Diaz and Pitts (or if the ruling ultimately is affirmed by the Supreme Court), offering full refunds may become the easiest way out of otherwise expensive class action litigation.