A sharply divided United States Supreme Court voted 5 to 4 to affirm a Federal District Court’s ruling that there was no “case or controversy” to provide federal jurisdiction when a class action Plaintiff employee rejected an offer of judgment that would have fully compensated her individual claim. In Genesis Healthcare Corp. v. Symczyh, ___ U.S. ___, 2013 WL 1567370 (Apr. 16, 2013), the Supreme Court held that a rejected Rule 68 offer of judgment mooted the employee’s individual claim and, therefore, precluded her from continuing as a class representative. However, because of the unique procedural posture of the case, and the fact that the case was a class action under FLSA, it is unclear if this “pick-off” strategy will be successful in future cases under Rule 23, or even FLSA cases.

The Plaintiff, Symczyh, filed a class action under the Fair Labor Standards Act (“FLSA”) alleging that her employer enforced a uniform policy of deducting 30 minutes of “break time” for each shift, even if employees performed work during these break periods. The employer served an offer of judgment for $7,500, in addition to “reasonable attorneys fees and costs and expenses as the court may determine” on the class representative. The Rule 68 offer was apparently structured in such a manner so that it included the maximum recovery that the Plaintiff could be awarded.

Significantly, the District Court had not conditionally certified a class under the FLSA collective action provision, not Rule 23, the Federal class action rule. The majority held that Section 216(b) of the FLSA “simply authorized court approval of written notice to employees who most affirmatively file a written opt-in consent.” The majority emphasized that a provisional certification did not “create a class action or independent status.” 

The District Court conducted a hearing and determined that it was undisputed that no other employee opted in, and that $7,500 and an offer to pay fees and costs fully satisfied her claim. Despite the fact that she had allowed the offer to lapse without acceptance, the District Court held it had no jurisdiction since there was no “case or controversy.” The employee had unsuccessfully argued that the employer’s tactic was an unreasonable “pick-off” offer, attempting to preclude the collective action under the FLSA by picking off the only plaintiff with a settlement offer which was intended to preclude class relief.

On appeal, the Third Circuit agreed that the employer’s offer of judgment fully satisfied the Plaintiff’s individual claim and no other employee had opted in to the proposed class. Nevertheless, the Third Circuit reversed the District Court’s reasoning that the Rule 68 pick-off strategy would violate the policy of Section 216 of the FLSA for “collective action.” The Third Circuit remanded the case to the District Court to allow the respondent to seek conditional certification, which if successful, would allow a new employee to press the collection claim and the new action would relate back to the initial date that Symczyk filed her complaint, preserving a putative class member’s claim from a statute of limitations defense, and ensures that a claim would reach the class certification.

The employer petitioned for a writ of certiorari to the Supreme Court based on a significant split among the courts of appeal on the effects of a Rule 68 offer and federal court jurisdiction if the offer of judgment provided complete relief to the named plaintiff. The employee did not seek review of the decision that her individual claim, as opposed to her claim as a representative party, was moot. The Supreme Court, on a 5 to 4 vote, reversed the Third Circuit and held that under the circumstances of this case, the Rule 68 offer deprived the District Court of jurisdiction because the employee failed to preserve her argument that the Rule 68 offer that she did not accept, mooted her individual claim. The decision was based on extraordinarily narrow grounds.

Jutice Thomas wrote for the five justice majority decision and focused on the “case or controversy” constitutional predicate for federal jurisdiction. The majority reasoned that the employee, even though she rejected the offer, was no longer involved in a dispute which would have direct consequences on her status. The majority concluded that the employee had failed to preserve that issue by filing a cross-petition for certiorari, and in any event, the employee conceded the point before the District Court and in her briefing to the Court of Appeal, and did not raise the issue in her brief in opposition to the petition for writ of certiorari. 

After concluding that her individual claim was not properly preserved, the majority addressed the issue of whether the employee’s representative claim was moot. The majority distinguished the Rule 23 cases that the employee relied upon as “fundamentally” different from collective actions under FLSA, since a “provisional certification” did not create the type of protectable interest for putative class member’s interest that a Rule 23 certification created. Although not discussed by the Court, Federal Rule of Civil Procedure 23(e) requires court approval for any settlement of a putative class action after certification and implicitly requires no court approval of settlement before certification. Rule 23(g) and (h) impose a duty of fairness on class counsel only at the time when he or she is appointed. Because this principle does not generally apply to pre-certification settlements, it is possible that defendants, prior to certification, will routinely be able to moot-out federal cases seeking monetary claims by using Rule 68 offers of judgment in several of the federal circuits. The majority distinguished other Rule 23 cases because a class had been improperly denied class certification, which justified the application of the relation-back principle. But the primary basis was “conditional certification under the FLSA,” even if granted, it would simply authorize contact with potential plaintiffs and give employees the opportunity to opt-in. Such a limited determination did not create rights among putative “collective action” class members. This language also suggests that pre-certification Rule 23 cases would also be subject to Rule 68 offers that would deprive a court of federal jurisdiction, at least when claims are exclusively monetary.

The Court also distinguished class action mootness cases where the class was “inherently transitory.” Those cases were distinguishable because any putative representative would not be able to prosecute a claim because circumstances would inherently remove her from the class. In such cases, the challenged conduct would never be reviewable because no employee would retain its standing. The majority also found it significant that the employee did not seek any forward looking relief such as an injunction.

The final policy driven argument by the employee, was that a “pick-off” strategy would frustrate the entire policy for “collection action” under the FLSA. The majority limited its reasoning to distinguishing the cases that the employee relied upon and the distinctions between Rule 23 class certification and conditional certification under the FLSA. The primary policy justification was the constitutional requirement of a “case or controversy.”

It is perhaps more important what the Supreme Court did not decide. First, it never addressed the most fundamental issue – whether a Rule 68 offer that was not accepted still could moot a private plaintiff’s individual claim. Because the employee waived that argument, the Court only had to determine that the employee had no personal interest in putative unnamed claimants or other interest that would preserve her suit from mootness.

Justice Kagan’s dissent, joined by three other justices, focused on the limited effect of the majority holding which did not resolve the issue of whether an unaccepted offer of judgment can be a basis to moot a claim. Justice Kagan wrote that “this view is wrong, wrong, and wrong again.” Her rationale was “when a Plaintiff rejects an offer, however good the terms –her interest in the lawsuit remains just what it is before.” The dissent focused on whether an unaccepted offer can moot a case. The dissent rejected this argument on policy grounds, basic contract law, and the text of Rule 68 that allows a judgment to be entered only if the plaintiff accepts.

It is hard to discern a clear message from this highly contentious and qualified opinion, especially as it applies to Rule 23 class actions. Certainly, it is hard to justify an individual claim, when a defendant has offered all or more than a plaintiff could recover in its best case. Allowing an individual claim to proceed under those circumstances makes transparent that class counsel, not the client, is the real party of interest. The majority opinion certainly encourages defense counsel to make early pre-certification offers of judgment, especially in cases that have fixed or limited damages and do not seek injunctive or possibly declaratory relief.