On The Case

A new way for defendants to kill class actions by picking off plaintiffs?

(Reuters) - You have to give creativity points to Reed Smith, defense counsel for a debt collection outfit called Allied Interstate. After the U.S. Supreme Court and 2nd U.S. Circuit Court of Appeals stymied Allied’s strategy to end a 2013 Fair Debt Collection Practices Act class action by paying the lead plaintiff his full potential damages, Reed Smith came up with an alternative argument: The plaintiff’s refusal to accept Allied’s offer made him an unsuitable candidate to lead the class action because he’s not a typical class member. His “unique circumstances as the only member of the putative class to have been compensated for his claim have irreparably compromised his role as lead plaintiff in this litigation,” Reed Smith argued in a brief opposing class certification.

Somehow, U.S. District Judge Katherine Forrest of Manhattan bought it. Earlier this month, Judge Forrest denied lead plaintiff Gilberto Franco’s motion for class certification. The judge said Franco hadn’t explained why he rejected Allied’s offer, leaving her with doubts about his ability to represent the interests of the class.

“Absent a factual record from plaintiff setting forth his rationale and expected conduct in light of past behavior, the court is left with the distinct possibilities that: (1) this litigation is entirely lawyer-driven; and/or (2) that while the claims plaintiff has asserted would be satisfied by monetary relief, this particular plaintiff does not plan on agreeing to a monetary settlement,” Judge Forrest wrote. “If plaintiff is willing to forgo recovery on his own behalf, there is no telling how many potential class members he is willing to prejudice for the ‘greater good.’ Assuming for the moment that there are 1,000 potential class members, would plaintiff (and his counsel) accept an offer that makes 750 of those class members whole? How about 500? And what if the proposed offer made all class members whole, but did not provide for attorneys’ fees and costs?”

The judge rejected arguments by Franco’s lawyers at Stern Thomasson that Allied’s strategy was a gimmick that “would permit all defendants to unilaterally make class actions impossible by simply mailing a check for a paltry sum and avoid class liability and significantly higher amounts of class damages.” Judge Forrest discounted that concern, calling it “speculative” and “not based in any facts tethered to this case.”

I don’t think it’s so speculative – and lawyers at Stern Thomasson don’t either. On Tuesday, Andrew Thomasson told me his client will be filing a request for interlocutory appeal at the 2nd Circuit by the end of this week.

I hope the appeals court allows it. The facts of this particular case are idiosyncratic, and clearly Judge Forrest thought there was reason to question the motives of the named plaintiff and his lawyers. But her reasoning give class action defendants a way to kill class actions using a variation of the technique shot down in the Supreme Court’s 2016 decision in Campbell-Ewald v. Gomez. Already, a TCPA class action defendant, ZocDoc, has cited Judge Forrest’s decision in a 2nd Circuit appeal of class certification. If the judge’s Allied decision stands, ZocDoc will be the first in a long line.

The Allied class action actually predates the Supreme Court’s Campbell-Ewald case. It was filed back in June 2013. A few months later, using a then-common defense tactic to end class actions by offering full judgments to lead plaintiffs, Allied said it would pay Gilberto Franco $1,501, plus reasonable fees. After he rejected the offer, Allied argued its offer had mooted the case. Judge Forrest dismissed the class action in 2014.

The 2nd Circuit revived it in 2015, holding that Franco’s claim was not mooted by Allied’s offer because there was no entry of judgment against the debt collector. Allied went back to the drawing board and proposed that Judge Forrest enter a $1,501 judgment for Franco and then dismiss the case. (Allied’s filing came on the same day the 2nd Circuit issued its mandate.) She obliged in November 2015.

Franco’s lawyers went back to the 2nd Circuit. While the appeals court had the case, the Supreme Court ruled in Campbell-Ewald that an unaccepted offer of judgment to a lead class action plaintiff does not moot the case, which remains alive as long as the plaintiff has “a concrete interest, however small, in the litigation’s outcome.” The Supreme Court left open the possibility that a case might be mooted if a class action defendant actually tendered payment to a recalcitrant lead plaintiff but the 2nd Circuit slammed that door shut in 2017’s Geismann v. ZocDoc.

Under Campbell-Ewald and Geismann precedent, the 2nd Circuit said in a summary order last April, Franco’s claims are not moot. “Allied Interstate’s attempts to circumvent this clear precedent are unavailing,” the court said. “We see no meritorious grounds for distinguishing Geismann.”

With the class action revived for a second time, Allied’s lawyers at Reed Smith came up with the new argument that the class couldn’t be certified because Franco doesn’t represent classwide interests. As if to drive that point home, the defendant actually sent a check for more than $2,750 to Franco’s lawyers. “This amount is almost triple what plaintiff could have hoped to recover on his individual claim,” Allied argued. “Regardless of whether this event moots plaintiff’s claim as a matter of law, the fact remains that plaintiff claim has been fully compensated. This economic reality demonstrates that plaintiff – who has been compensated in excess of the amount of his claim – is neither a typical nor an adequate representative of the putative class, which may contain members who have not been so compensated. Mr. Franco’s unique circumstances as the only member of the putative class to have been compensated for his claim have irreparably compromised his role as lead plaintiff in this litigation.”

Franco’s lawyers, who pointed out that they refused to accept Allied’s check, said nothing about the case required an individual inquiry. In an accompanying declaration, Franco lawyer Andrew Thomasson said, among other things, that Allied’s offer didn’t satisfy Franco’s claim because it did not include any classwide relief or fees and costs for plaintiffs' counsel. (Class lawyers in the Campbell-Ewald case at the Supreme Court made the same argument.) In addition, Stern Thomasson asked Judge Forrest for permission to supplement the record if she had additional questions about Franco’s suitability.

Instead, Judge Forrest denied class certification because, she ruled, Franco hadn’t explained his motive for refusing Allied’s offer. I haven’t previously seen a judge call on a prospective lead plaintiff to explain the decision not to accept a settlement offer, and, frankly, I’m not sure that a plaintiff could offer an explanation, assuming he or she consulted with lawyers on the offer, without compromising attorney-client privilege.

The judge ordered Allied and Franco to propose a schedule for the resolution of Franco’s individual claims, which raises additional complication about Franco’s standing to appeal Judge Forrest’s class certification ruling if the 2nd Circuit declines to grant an interlocutory appeal. That’s all the more reason for the appeals court to take this case now.

I emailed Allied counsel Casey Laffey of Reed Smith but didn’t hear back.