Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—9th Cir.: Rule 68 offer of judgment did not render claims moot, (Oct 7, 2013)

By Jody Coultas, J.D.

A district court erred in finding that an unaccepted Federal Rule of Civil Procedure 68 offer of judgment rendered a home warranty plan buyer’s individual claims moot, the U.S. Court of Appeals in San Francisco has held (Diaz v. First American Home Buyers Protection Corp., October 4, 2013, Fisher, R.). In a concurrently filed memorandum disposition, the court vacated dismissal of the purchaser’s unfair competition claims.

The purchaser alleged that First American Home Buyers Protection Corporation refused to make timely repairs, used substandard contractors, and wrongfully denied claims in violation of state consumer protection laws. The purchaser sought to represent a putative nationwide class consisting of all persons who made a claim under a home warranty plan obtained from First American.

After the district court denied certification of the class, First American made an offer of judgment to the purchaser under Rule 68. The purchaser refused the offer. First American argued that when 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. The district court agreed and held that the unaccepted offer was sufficient to render the claims moot.

An unaccepted Rule 68 offer that would have fully satisfied a plaintiff’s claim did not render claims moot, according to the court. The issue of whether an unaccepted Rule 68 offer that would have fully satisfied a plaintiff’s claim was sufficient to render the claim moot had not been fully addressed by the Ninth Circuit previously. Other circuits have divided on the issue, but the majority of courts and commentators have found that an unaccepted offer will render a claim moot. However, four Supreme Court justices and the U.S. Solicitor General have expressed the belief that such an offer cannot moot a case. The principles of mootness provide that a case is moot only when it is impossible for a court to grant any effectual relief to the prevailing party. Although a court may 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, that was not the case here.

The purchaser adequately alleged a California Unfair Competition Law claim premised on fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing, according to the court’s memorandum. The purchaser alleged reliance with adequate particularity. First American’s argument that the purchaser could not seek restitution because her home warranty premiums were paid by the seller was dismissed. Even if the premiums were paid by the seller, this would not necessarily preclude relief. The purchaser was the beneficiary of the home warranty plan and the purchaser paid for the plan by delivering the purchase price of the building to the seller. California courts do not categorically bar the recovery of restitution by a plaintiff who paid a third party rather than paying the defendant directly.

The case is No. 11-57239.

Attorneys: Edward D. Chapin (Chapin Fitzgerald & Bottini LLP) for Emily Diaz. Joel D. Siegel (Dentons LLP) for First American Home Buyers Protection Corp.

Companies: First American Home Buyers Protection Corp.

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